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The Small Practicing Entity Bears the Brunt of USPTO IPR Challenge Procedures


Written by Steve Moore
Kelley Drye
Posted: December 19, 2013 @ 8:00 am

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NOTE: This article is written by Steven J. Moore and with the assistance of Alan Gardner and Marvin Wachs, also of the Kelley Drye & Warren Patent Department. 

One of our prior studies, set forth in America Invents Act: A Boon for David or Goliath?, found an over whelming majority of patents that were being challenged in inter partes reviews around enactment of the procedure were patents that originated from small entities.  We suggested in this paper that the number of challenges against large entity patents might rise in the future as small entities overcame their sticker shock to USPTO fees for filing an IPR and prosecuting the same.

Our newest data suggests that in fact a larger percentage of patents now being challenged through the IPR procedure are  large entity patents, with nearly 44% of all patents on which petitions were filed against are patents being held by large entities.  While this is a significant increase from the earliest days of IPR where nearly 90% of all patent challenges were waged against patent owned by small entities,  small entities are still carrying a massively disproportionate load of the challenges particularly when one takes into account that at any time they comprise only 20% of all the patents in force,  meaning that a small entity can still expect to have one of its patent challenged far more often than a large entity via the IPR procedure.  Interestingly, we were wrong in expecting more IPR challenges to be coming from the small entity patent filers as they overcame the sticker shock of the USPTO fees.  Indeed, the increase in IPR’s against patents held by large entities appears to be almost entirely due to large entities challenging other large entities, with little increased participation by small entities in the IPR process being noted.

The analysis of IPRs which we set forth herein, comports with our prior study, in adding to growing data that the patent system now appears significantly stacked against small entity participation:

(1) Large entities continue to file far more petitions (69 % of total petitions filed) for IPR than small entities (31 % of total petitions filed).

(2)  Small entity patents bear the greatest brunt of IPR petitions waged against patents, holding nearly 56% of all the patents challenged in via IPR petition, while petition challenges directed against large entity patents accounts for only 44 % of all IPR petitions filed, even though large entities hold 4 out of every 5  patents in force at any time.

(3) Petitions filed by small entities against large entity patents account for only 13.9% of all IPR petitions filed, while small entities file 17.3% of all IPR petitions against patents of other small entities.  The increase in filing against large entity patent holders observed since inception of the IPR proceedings is almost entirely due to large entity petitioners who are filing more petitions against other large entities petitioners.  Such large entity v. large entity petitions now account for 30.2% of all IPR petitions filed.

(4) Global 2000+ companies (The Fortune 2000 largest public companies plus the Forbes 250 largest private companies) account for nearly 73% of all large entity IPR petitions being filed.

(5) Small entity petitioners do not fare as well in the IPR process as their large entity petitioner cohorts, in that while they comprise 31% of all IPR petitions, they comprise only 18.0% of all petitions reaching the institution phase.

(6) Small entity petitioners who challenge Global 2000+ entity patents may not fare as well in the IPR process as their large entity cohorts. Small entity challenges of Global 2000+ patents reaching the institution phase is only 2.88%, while small entity IPR challenges against Global 2000+ held patents account for 5.94% of all IPR petitions filed.

(7) The Global 2000+ companies are responsible for nearly 55% of all IPR petitions reaching the institution phase.

(8) Patent Owners challenged by IPR are predominately practicing entities (PEs), with  74% of all the patents challenged by IPR being assigned to practicing entities.

(9) Large non-practicing entities are the assignees of only 13% of the patents challenged via IPR, while small non-practicing entities comprise 12% of all patents challenged via IPR.  The patents of small non-practicing entities challenged are predominantly patents held by independent inventors and their alter ego companies.  Small practicing entities are the assignees of 43% of all patents challenged via IPR, while large practicing entities are the assignees of 31% of all the patents challenged via IPR.

(10) Patents of non-practicing entities challenged by IPR are nearly equally divided between patents held by large entities and small entities, as set forth below.  However, as adjudicated by the percent of all petitions filed against practicing entities, the total number of petitions filed against large practicing entities is smaller (42%) than the total number of petitions being filed against small practicing entities (58%).

(11) When the original patent owner is taken into consideration, the numbers of practicing entities rises, since nearly 50% of the challenged patents held by non-practicing entities where originally owned by practicing entities, such as Sony Corporation and Rockwell International, to name just two.

(12)  Of the small entity non-practicing patent owners challenged by IPR’s, 36% of the patents challenged where obtained from practicing entities.

(13) Overwhelmingly though, most of the patents challenged by IPR against large non-practicing entity patent owners, where obtained from practicing entities.

(14) The true representation of challenges to patents in IPRs is biased in not looking at whether the patent was developed by a practicing entity when one looks the practicing entity patents being challenged vs. the non-practicing entity patents being challenged.  The figures are much different when looking at the patent itself.  IPR challenges involving a patent originally assigned to an NPE (including independent inventors and their alter ego companies)  are relatively few (12%) of all IPR challenges, while patents that are presently or originally assigned to a practicing entity comprise the subject matter of the vast majority of IPR challenges (87%).

CONCLUSIONS

There is no doubt some in Congress will push through further changes to the patent law, this year or by early next year, while wrapping themselves in an anti-troll banner.  Our papers in toto show that the last round of changes to the patent law (the AIA) greatly benefited large practicing entities, particularly the Global 2000+ companies,  at the expense of small practicing entities, such as, emerging companies, universities, small and medium sized companies, and research based entities even though such changes were said to be made for their benefit.  Given the difficulty that we, and other groups, have found in corroborating the story of the large “tribe of trolls” who are said to assert garbage patents against the innocent, using publicly available unbiased databases that have recently become available, we believe any immediate changes to the patent law without further detailed investigation simply is not wise.  We fear that further changes will turn the patent law further against small entities participating in the patent system.  The question may soon be whether small and medium size companies, research based entities, emerging companies and the small independent inventor shall soon find the patent system so costly, and so unfriendly to them, that they will find the grant of a patent to be commensurate with placing an albatross about their necks.


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.


9 comments
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  1. As a small individual patent holder of one tech patent, I have had this patent “albatross” about my neck since infamous Ebay SCOTUS decision back in 2006.
    It was all downhill after that.
    Had I known this before I would never ever file any patent application with USPTO.
    It is simply a rip off – a quid withoud a quo

  2. Erosion of the Quid Pro Quo reaches further back.

    One aspect was publishing applications pre-grant. I have often thought that one driver of poor examination was the loss of urgency that ensued when the change to permit publication of pre-grant applications occurred. After all, PTA was no big deal, the public had their Quo early regardless of what transpired in prosecution, and the ability to simply reject out of hand was without any significant consequence.

  3. I have yet to hear any evidence that the patentee/applicant benefits from pre-grant publication.

    Yes, there is the provision in the statute that says you can collect reasonable royalties for pre-grant infringement after publication, but I have never heard of anyone ever being awarded that payment or collecting it. If anybody reading this has evidence of a patentee collecting for pre-grant infringement or in any other way benefiting from pre-grant publication, please post some evidence.

  4. The A publication is a big “Trespassers Will Be Prosecuted” sign. My manufacturing clients do clearance studies and do assess the results. They are not going to invest R+D funds in channels that down the road will infringe the B publication.

    But of course neither I nor my client tell the patent applicant that his A publication has scared competitors off his territory. So he doesn’t know (and nor do you).

    Of course, if you are in the submarine patent business an early publication regime is bad news, isn’t it?

    As to quantum of compensation for infringing (infringer’s profits or my damages), it is my experience (over 40 years in A publication EPC land) that it gets settled almost always privately. So, again, naturally, we never know what proportion of it was for infringing prior to issue.

    How is it different in the USA?

  5. Thanks, Max. My experience is that American companies rarely do clearance searches unless megabucks are involved.

  6. To put these assertions into perspective, approximately 80% of all IPRs are filed by defendants being sued by patent infringement – by an organization with, obviously, the financial resources to do such suing. Furthermore, all of the above numbers are irrelevant to the question of why someone being sued for patent infringement on an invalid patent must be put through a very expensive trial [generating hundreds of millions of wasted dollars in legal fees for trial lawyers] on every other possible issue, rather than have the PTO quickly consider prior art patents or publications in an IPR that should have been considered by an examiner in allowing the patent claims in suit to begin with? Also, in a number of such patent suits the patent suing company is “small” only because it is a shell company assigned the patent and set up to bring that lawsuit on behalf of a patent assertion entity. The “small size” of a patent assertion entity is irrelevant if it is well-funded, as most are. [Some even secretly by Wall Street investors.]

  7. Paul F. Morgan,

    Respectfully, you attempt to make three counter points here and I call Bullsh1t on each one.

    One – you attempt to confuse the issue with actually bringing suit – as if the very bringing of a suit is a wrong. You impugn all who bring suit as having “enough,” as if that too is somehow a wrong.

    Two – You label as irrelevant, and then turn around and ignore the very legal state of these patents: a presumption of validity. Good sir, kindly respect the law in the first instance. The law is NOT a presumption of invalidity.

    Three – Put your FUD shovel down and remove the tinfoil hat. as most are? even secretly? While there is no doubt that shell companies exist, if you have a problem with that, then take it up across the board and lobby for corporate law reform. Your post here shows a perspective alright – one that should be shunned for the confusion you wish to inject The whole point of this article is exactly opposite of the view that your post leads to.

  8. Being at the rock face with SMEs I have been saying for years (even before the Troll hysteria) that the Patent Gorillas have skewed the US patent system in their favour and to the serious detriment of innovation in the US and elsewhere.

    SMEs that are told to suck up to the Patent Gorillas terms in accessing their technology or be squashed in pointless but expensive litigation. Looks a bit like a Troll don’t you think?

    Until the anti-competitive behaviour of the Patent Gorillas is addressed (no sign of that anytime soon) SMEs and SPEs and legitimate NPEs will continue to receive a second class outcome from the system.

  9. Not only from the (legal) system, Nick, but from the vast powers of ‘marketing’ that the established powers can bring to bear (i.e. in the ‘popular’ press).

    There indeed is a war on the patent system – fought on multiple fronts.