Editor’s Note: This post is part 1 of 2 of an article written by Steven J. Moore and with the assistance of Marvin Wachs and Timothy Moore, also of the Kelley Drye & Warren Patent Department. Part 2 will be published on Friday, August 16, 2013. Please also see Moore’s recent 5 part series on Patent Trolls titled: A Fractured Fairy Tale: Separating Fact & Fiction on Patent Trolls.
In this paper, we look at whether the AIA, via its ex parte reexamination and inter partes review provisions, and its transitional program for covered business method patents, has actually benefited small entity companies, as many in the press and in Congress had urged upon its passage.
This study began before passage of the AIA, and was originally designed to center on the reexamination world to determine whether the patents of small entities were actually fairing worse than those of large entities under this procedure. However, the study morphed into a larger project, as the America Invents Act changed inter partes reexamination to inter partes review, and added a new challenge procedure, the so-called transitional program for covered business method patents. The project also expanded as the USPTO raised fees exorbitantly high post-AIA, pursuant to its newly obtained fee setting authority to “recoup costs,” for all ex parte and inter partes procedures, including the transitional program for covered business method patents. In regard to reexamination/review we feared that the whole mix of filers was going to be different pre- and post-AIA. Of particular concern to us was the extremely large increase in fees associated with inter partes review which we thought might affect the ability of small entities to file inter partes challenges, the nearly three-fold increase in fees by the USPTO in regard to ex parte reexamination, and the extraordinarily high fees associated with the transitional program for covered business method patents. Thus, a study originally designed to look only at pre-AIA reexaminations, was altered into a study of the effect of the AIA on all ex parte and inter partes procedures at the USPTO. Completion of our study was held up, as we waited for more data to come out in respect of post-AIA ex parte reexamination and inter partes review, as well as the transitional program for covered business method patents.
Our study on inter partes proceedings was based on 201 random inter partes reexamination requests filed before the enactment of the inter partes review procedures of the AIA, as well as 230 inter partes review requests made after the passage of the America Invents Act. We compared these samples to determine how small entities, and small corporate America as a subset, has been affected by the new inter partes proceedings against third party patents.
In our study of ex parte reexamination proceedings, we looked at 113 pre-AIA ex parte reexamination cases, and 67 post-AIA ex parte reexamination proceedings. In particular, we looked at how small entities fared under the new ex parte reexamination regimen.
In our study of the transitional program for covered business methods, we looked at all of the 33 petitions filed between September 16, 2012 and August 2, 2013. Again we were concerned that the very high fees associated with this procedure might be dissuading small entity companies from using the same. 
In terms of categorizing filers, the patent office has long segregated filers into so-called “small” and “large” entities depending on whether they have more or less than 500 employees, based on definitions from the Small Business Administration. To make our data somewhat comparable, we investigated how the different entities involved in reexamination patent challenges characterized themselves when they filed their own patent applications, that is whether they filed under “large” or “small” entity status (of course, this allowed us to determine which of these entities did not even participate in the patent realm). Furthermore, we used the Forbes Global 2000 list of the largest public companies in the world (2012 – basically companies having a valuation of 1 billion or more, or sales over 1 billion dollars), along with the 250 largest private companies as reported by Fortune (companies with net sales over 2 billion dollars), which we reference herein as the “Global 2000+” to distinguish the truly large companies from other large entities. We note that our Global 2000+ list underestimates the benefit of any changes in the law to the world’s largest corporations as information on private companies is difficult to obtain, and the list of private companies we could find did not account for any private companies that had annual sales between 1 billion dollars and 2 billion dollars nor valuations above 1 billion dollars.
The results of our studies challenged many of the promised benefits which were advanced before passage of the AIA for small entity companies. Indeed we came away with the understanding that there are some serious cracks in the urban legends that have grown around the beneficial nature of the AIA for small producing entities in the United States.
THE PROMISE OF THE AIA
There was constant drum beat both by the administration and Congress, that the America Invents Act (the so-called “AIA”)was going help most small business and inventors. See, e.g. John Koenig, The America Invents Act is Better for Small Business, Reuters, September 21, 2011 (citing the Director of the USPTO, David Kappos). Indeed, it was stated repeatedly that the changes were extremely favorable for small business and would lead to the creation of jobs. (See Posting of Quentin Palfrey to The White House Blog, The America Invents Act: Turning Ideas into Jobs, (September 16, 2011). In particular, it was urged that by allowing the USPTO to determine its fees, that small business would be better able to protect and promote their inventions, “leading to a boost in our economy.” See Mir, America Invents Act Right for Small Business?, UPrinting-The Art of Small Business, March 16, 2011. These statements led to number of urban legends. We look below at some of these legends, and the support, or lack of support, for their foundations.
TESTING SOME LEGENDS OF THE AIA
Legend #1: Small Companies have greatly benefited from the new inter partes review procedure in their challenge of the patents of others.
- Truth: The ratio of large to small entities requesting inter partes action against the patent of another has completely flipped from pre-AIA times, such that now the vast majority of requests are by large entities as opposed to small entities. In fact, almost half of all inter partes review requests are now being filed by only the largest companies in the world, with comparatively fewer filings being made by small entity companies.
We looked at 201 random inter partes reexamination requests made before passage of the America Invents Act, and 230 inter partes review requests made after the passage of the America Invents Act to determine how this procedure was working for all involved. Our pre-AIA data indicated that 67% of all inter partes reexamination requests made prior to the AIA were filed by entities that characterize themselves as small entities under the definition used by the Small Business Administration, while 33% characterized themselves as large entities. Our post-AIA data, on the other hand, indicate that of all the petitions being filed, 69% were filed by entities characterizing themselves as large entities, while only 33% characterized themselves as small entities (Fig. 1).
As is evident, this is a complete flip of the situation pre-AIA, greatly to the benefit of large companies. The question is why such a dramatic flip? While it is not entirely clear, we hypothesize that the extremely high fee structure set by the patent office pursuant to powers it obtained under the AIA to “recoup” its costs, along with the many other USPTO fees due throughout the proceeding, is a significant stumbling block for small entities and that only the biggest entities can now afford to take advantage of this procedure. Furthermore the costs entailed with litigation-like and discovery aspects of inter partes review is also likely dissuading small entities that are less financially capable to file.
We also analyzed the requestor as to whether the requestor was an entity found within the Global 2000+, that is, the largest public companies in the world as reported by Forbes , and the 250 largest private companies as reported by Fortune. In this regard, we found that while Pre-AIA only 35% of all inter partes reexamination requests were filed by the Global 2000+ companies, post-AIA nearly 50% of all inter partes review requests were being filed by the Global 2000+ companies (Fig. 2). This further supports our hypothesis that cost is a driving factor for the comparatively significantly fewer inter partes USPTO challenges being made by small entities post AIA
In regard to practicing entities versus non-practicing entities for the 225 post-AIA inter partes review petitions we reviewed, we found the vast majority of such petitions to be filed by practicing companies (97 percent) with relatively few being filed by non-practicing entities. Interestingly we found the number of inter partes challenges by NPEs had dropped substantially post AIA. We also noted, however, that only about a quarter of challenges were directed to patents held by non-practicing entities (including independent inventors & independent inventor companies) post AIA (Fig. 3) about the same as pre-AIA (26%). Thus increase in USPTO inter partes proceedings during this period against small entities is directly due to more filings against small companies rather than NPEs.
In terms of the brunt of inter partes USPTO proceedings our analysis shows that the AIA has placed a much greater burden on small entities than large entities. Of the patents being challenged in a pre-AIA inter partes reexamination sample we found 85% of the patents were owned by entities that filed under small entity status when filing their own patents. Post-AIA we found that 94% of all patents being challenged were owned by entities that filed under small entity status (Fig. 4). That is, a small entity is roughly 16 times more likely to be the subject of an inter partes review post-AIA than a large entity.
It is estimated that as of May 1, 2012 that were 2.1 million U.S. patents that were in force (See Dennis Crouch and Jason Rantanen, How Many Patents are In-Force, Patently-O.com, May 4, 2012) and that of these 20% are held by entities that list themselves as small entities (See Dennis Crouch and Jason Rantanen, Small Entity Patenting: Percent of Patents Held by “Small Entities”, Patently-O.com, June 3, 2013), somewhat in line with the number of patents now issuing to “small entities” (of which 12% are assigned to universities or non-profits). Thus, small entities, are much more likely to have any one of their patents challenged in an inter partes proceeding before the USPTO than a large entity post-AIA.
Our study further found in regard to USPTO post-AIA inter partes proceedings, that the percentage of challenges against patents owned by the Global 2000+ decreased substantially from that seen in pre-AIA inter partes reexamination. While 17% of our pre-AIA inter partes reexamination requests entailed challenges against Global 2000+ companies, only 10% of all challenges made post-AIA were made against patents owned by Global 2000+ patents (Fig. 5). Again we believe the latter is likely due to the very high fees now associated with inter partes proceedings before the USPTO as well as the associated quasi-litigation costs and fees associated with this new procedure.
In toto, such data suggest that a by-product of the large fees associated with inter partes review appears not only to be that the procedure is now out of the reach of many smaller companies, but also that it also seems to be helping protect the patents of the largest companies in the world against challenges by smaller companies, reducing the same by nearly half.
 Of course, we were not able to look at post grant reviews as none were filed as of the time of the study.