Part 2 – The AIA: A Boon for David or Goliath?
|Written by Steve Moore
Posted: August 16, 2013 @ 10:39 am
Editor’s Note: This is part 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. To read Part 1 see The AIA: A Boon for David or Goliath? Please also see Moore’s recent 5 part series on Patent Trolls titled: A Fractured Fairy Tale: Separating Fact & Fiction on Patent Trolls.
Legend #2: All companies have equal access in obtaining inter partes review of the patents of others.
- Truth: Of the initial denials of inter partes petitions that we identified, 88% of them were directed at petitions filed by small entities.
Our inter partes challenge data from pre- and post-passage of the AIA clearly show that of the relatively few initial denials made by the USPTO of an inter partes challenge request, most fell on entities that typically file as small entities. We found 88% of denied petitions for inter partes review were filed by small entities, while only 12% of those denials related to petitions filed by large entities (Fig. 6). That is, small entities are 7 times more likely to have their petitions for inter partes review denied than large entities. Of the large entity petitions for inter partes review that were denied, only one of them was by a company in the Global 2000+. It is unclear why this is occurring. It could be argued that small entities simply are not seeking the same high quality legal work that the large entities are employing. An alternative answer may simply relate to an ingrained bias in the USPTO for the reexamination requests of the largest companies (as inter partes review requests are not blinded), which is unwittingly leading to more small entity requests being denied.
Of all the petitions adjudicated, 92 percent were in favor of the petitioner. This is much in line with the percent associated with inter partes reexamination, indicating that for all those patent attorneys who foresaw no substantial change in approvals of petitions coming out of the purported much higher standard of “preponderance of evidence” with the AIA were correct.
Of the patents challenged via inter partes review, we found approximately 80% were in litigation with the petitioners. Thus the procedure is being used relatively rarely outside the litigation context.
Legend #3: Ex parte reexaminations filings against small entities has not been affected by the AIA.
- Truth: Surprisingly, as a percent of patents challenged, small entity patents appear to be challenged significantly more post-AIA by the ex parte reexamination procedure than other patents, and the increase cannot be attributed to more filings against patents issued to NPEs.
Ex parte reexamination has been said to remain unchanged after the AIA, and therefore little was expected in change in the filings. See Ex Parte Reexamination and Post Grant Review of U.S. Patents, RatnerPrestia, May 2013.
While ex parte reexamination has not changed much under the AIA, the price appended to bringing such a challenge has dramatically gone up from $2500 to $6000 for a small entity (large entity $12,000). We were therefore curious whether the increase had an impact on filings, as was dramatically seen with inter partes review filings.
Our data set from pre-AIA demonstrated that 22% of the patents being challenged through ex parte reexamination at the time were patents owned by entities asserting small entity status at the USPTO. On the other hand, our data set from the post-AIA era indicates that over 31% of such patents challenged by way of ex parte reexamination were patents held by small entities (Fig. 7).
It is unclear why there appears to be an significant increase in the challenge against small entity patents via the ex parte route as compared to the patents of large entities (which saw a corresponding decrease). At first we thought the results might relate to a larger percentage of the challenges being made against patents owned by NPEs. However, our data set shows that both before and after the AIA the percent of NPE patents being challenged through ex parte reexamination proceedings remained the same, that is 7%.
Further we did not see any appreciable change between the percentage of patents owned by the Global 2000+ that were challenged via ex parte reexamination either pre- or post- AIA (both being about 21%). This indicates that the increase in ex parte challenge of small entity held patents is related to an increase of challenges against small producing companies. Thus the relative drop in filings against large entity status patents appears to relate to a decrease in filings against patents owned by non-Global 2000+ large entities. As an aside, we did not note an appreciable change in the percent of entities that actually identified themselves as the challenger, rather than using an intermediary (about 19% of petitioners) pre-AIA vs. post-AIA.
Legend #4: USPTO inter partes challenges and ex parte reexamination by small entities continue to be used post-AIA extensively outside of litigation matters.
- Truth: Our data indicate that inter partes review, likely because of its high cost, is being used far more selectively in respect of patents in litigation by both small and large entities than was the case with pre-AIA inter partes reexamination. In regard to ex-parte reexamination, both pre- and post- AIA nearly two-thirds of filings arise from matters outside of litigation for both large and small entities.
When instituted, many believed that inter partes review would be used in a substantial manner to challenge patents outside of litigation, See, e.g., William P. O’Sullivan, The Times Are A Changing: The Changing Landscape of Patent Challenges Under the America Invents Act, Sheehan Phinney Bass & Green PA, February 21, 2013, and that ex parte reexamination would likewise continue to be used extensively out of the litigation context.
In terms of the number of patents challenged pre-AIA via inter partes reexamination proceedings, the USPTO calculated in the past that approximately 68% of the petitions it received for inter partes reexamination resulted from a litigation matter (See, USPTO Inter Partes Reexamination Filing Data – September 30, 2010). Our review of post-AIA inter partes data (225 cases) indicates that 80% of the inter partes reviews resulted from a litigation matter suggesting inter partes review is finding far more limited use outside of patents challenged in litigation post-AIA. We found this to be true for both large and small entities. The vast majority of these challenges as discussed in Legend 1 are by large entities.
On the other hand, the USPTO calculates that pre-AIA only about 32% of ex parte reexamination filings involved patents in litigation (See, USPTO Ex Parte Reexamination Filing Data – September 30, 2010). Our analysis of the data with respect to post-AIA ex parte reexaminations saw no change in this regard, that is, we found that nearly a third of the patents challenged by ex parte reexamination post-AIA having been involved in litigation. Small and large entities were found to use ex parte reexamination in regard to patents in litigation similarly.
In our study of 267 randomly selected pre-AIA litigations filed between 2004 and 2006 we found that nearly one-third of the patents asserted in litigation were sent into reexamination, either inter partes or ex parte.
Legend #5: The transitional program for covered business method patents (TPCBMP) has been used by small entities extensively against business method patents held by NPEs.
- Truth: We could not identify a single instance wherein an NPE business method patent was challenged by a small entity via the transitional program for covered business method patents. Of the thirty-three distinct patent challenges made under the TPCBMP made between September 16, 2012 and August 2, 2013, only six were directed to patents held by NPEs (18%). 82% of all challenges were brought against business method patents held by Producers. Of the petitions, large entities filed the predominant number of TPCBMPs (89%), while small entities filed relatively few ( 11% ). Among the Producer patents challenged 18 (64%) were held by large entity producer companies, and 10 (36%) were held by small entity producer companies.
The transitional program for covered business method patents was promoted heavily by proponents to be a tool that would find extensive use against so-called “patent trolls.” See, Mione, Cheryl, A Powerful New Weapon Against Patent Trolls, Forbes December 15 2012.
While the challenge procedures which have been available since September 16, 2012 only 33 unique challenge petitions have been filed as of August 2, 2013. So far the procedure has been used far more extensively against producing companies (82%), than NPEs who held only 18% of the patents challenged. Large entities are also responsible for the predominant number of petitions being filed under this program (89% vs. 11% for small entities). Interestingly we found nearly 50% (16/33) of such petitions were brought by Global 2000+ companies. None of the petitioners who filed under the transitional program were NPEs.
On the other hand, the program has been used more extensively against patents owned by large entity producer companies (18 patents – 53%) than small entity producer companies (10 patents – 29%). It should be noted, however, that the percentage of patent challenges against small producer entities (based on this admittedly small population) was still significantly higher than the calculated 20% of unexpired patents which are said to be held at any time by small entities overall versus large entities.
Our data evinces the fact that many of the new AIA provisions in regard to USPTO reexamination proceedings and the transitional program for covered business method patents are not helping the companies that they were purportedly designed to help, that is small corporate entities. Rather our data suggests that the AIA at least in regard to these provisions has greatly benefitted large corporate entities at the expense of small corporate entities. Small corporate entities undoubtedly are bearing the greatest brunt of the new USPTO administrative reexamination patent challenge procedures while our data suggests that the NPEs as a group, many of whom as we have shown in a prior paper are simply asserting the patents of large corporations, are barely being affected. In terms of the transitional program for covered business method patents, such program is so far being used far more extensively by large entities than small entities. Furthermore, small entity business method patents are being challenged more than would be expected given the percent of unexpired patents that are believed to be held by small entities at any given time.
Our results can be argued to make common sense. Certainly it makes sense that the large fees enacted by the USPTO for reexamination proceedings would work to the benefit of those companies that could easily afford them, and to the detriment of those companies that could not. Likewise, it makes sense given the large fees associated with the transitional program for covered business method patents that large entities would be making use of such challenges much more than small entities. Given our results, one might ask why the politicians and intellectual property organizations were so sure that the AIA was going to help small entities, and in particular small companies?
The USPTO reports that pre-AIA it was granting outright nearly 92% of all ex parte reexamination requests. See USPTO Ex Parte Reexamination Filing Data March 31, 2011. Our pre-AIA data is in line with such assertion. Also pre-AIA, the USPTO maintains it was granting roughly 95% of inter partes reexamination requests (USPTO Inter Partes Reexamination Filing Data – June 30,2012). The high rate of grant appears to be sticking with inter partes review, with approximately 90% of requests ultimately being granted. See Jon E. Wright and Joseph E. Mutschelknaus, Guest Post on New Inter Partes Reexamination, Patently-O, February 1, 2012. Our data supports such assertion (with our figures showing 92%). The high grant rate of inter partes review does not surprise us, rather we were surprised by all the entities that had suggested pre-AIA that the change to a preponderance of evidence standard with respect to one claim would not lead to such a high rate.
We take pause to contemplate the significance of the fact that the USPTO is granting nearly every reexamination petition on any patent involved in litigation, at least in regard to inter partes review. This is particularly troublesome in that as we have shown most of such petitions are directed against patents which were obtained by small entities. It leaves us to wonder whether everyone in litigation is asserting bad patents, or whether the USPTO has turned the patent system into a game wherein a patent right is ephemeral and patentees are led for the life of any patent they receive from the USPTO (plus the six year look back period for damages) like a racing dog trying chasing the virtual rabbit of a right to exclude — with only the USPTO and government getting anything from the race (i.e., the money that must be expended trying to catch the rabbit). We leave you with that thought as a study into the likely basis for such a high reexamination grant rate is the subject of our next paper.
 The rate is more like 96% when re-filings are taken into account.
About the Author
Steve J. Moore is a prominent litigator having been involved in numerous high-profile cases involving Hatch-Waxman challenges, and patent infringement actions in the software, electrical, chemical, biotechnology, and medical device arenas. He is probably best known as lead counsel in the representation of Dr. Tafas in the suit of Tafas v. Dudas, for which he won the 2009 award for Patent Case of the Year (Managing Intellectual Property), and his client won the prestigious Jefferson Medal for exceptional contribution to the intellectual property field (NJIPLA 2010). He also has participated in numerous amicus briefs including one filed in the Supreme Court in the Microsoft v. I4I case, arguing for the prevailing side.