Throughout the majority of prosecution, Applicants face one decision-maker: the Examiner. The Applicant and Examiner can communicate on paper via written office actions and Amendments or verbally via interviews. Rejections can be explained, arguments presented, and claims amended. But at times, this exchange reaches a standstill, where the parties cannot agree on whether the pending claims are patentable. Applicants can then choose whether to initiate an ex parte appeal process, which would allow the Applicant to present their case to other decision-makers, namely the Patent and Trial Appeal Board (“PTAB” or “the Board”).
The appeal cycle includes several stages. A Notice of Appeal must first be filed, and the Applicant (then also referred to as the “Appellant”) has two months to file a full Appeal Brief that includes arguments. An Examiner is then to reply with an Examiner’s Answer, which is supposed to be issued within two months from the Brief. The Appellant has an option to (but need not) respond to the Examiner’s Answer with a Reply Brief. As of March 19, 2013, Appellants must also pay a forwarding fee at this stage. The PTAB then considers the presented arguments and issues a decision.[i]
Despite the attraction of engaging different decision-makers, traditionally, appeals are viewed as being associated with two prominent (often undesirable) consequences: long delays and cost. In 2013, the average delay between an appeal being received at the PTAB and issuance of a decision was 26 months.[ii] At present, for large entities, the USPTO fee for filing the Notice of Appeal is $800 and the forwarding fee is $2,000. Further, the median attorney fees for preparing the Appeal Brief is $5,000.[iii] However, it is important to recognize that these delay and expense consequences primarily occur when an appeal completes a full cycle.
As illustrated in Figure 1, each party (the Appellant and the Examiner) has the maintained opportunity throughout the appeal cycle to pull the application out of the appeal cycle. The Appellant can file a request for continued examination (RCE) to return to normal prosecution or can abandon the application. The Examiner can issue a notice of allowance or a new office action. These Examiner actions present an opportunity in which an appeal cycle may end prematurely, which may (and often would) decrease the delay and cost of the cycle.
Thus, we set out to study the life cycle of appeals by conducting a stage-by-stage analysis to identify what fraction of applications were exiting the appeal cycle and how. Specifically, we obtained data (using LexisNexis® PatentAdvisorSM) corresponding to each appeal brief filed between January 1, 2010, and December 31, 2011. The data identified the stage at which the appeal exited the appeal process and the next significant event after exiting the process. This assessment thus provides information pertinent to assessing what delays, costs and decision outcomes are truly associated with appeals. (See also our corresponding article published in ABA’s Landslide.)[iv]
Exits After Appeal Brief are Rather Common
The first bar in Figure 2 illustrates what is likely to occur after an Appellant has filed an Appeal Brief. The data indicates that a substantial 19% of Appeal Briefs lead to the Examiner quickly allowing the application (blue portion of first bar). Another 21% were pulled from the appeal cycle by the Examiner via an office action (green portion of first bar). The post-Brief allowances and office actions were issued relatively quickly (on average: 3 months after the Brief), such that the multi-year delay was avoided. With the current fee structure, these Appellants also would have avoided the substantial PTO forwarding fee ($2,000 for large entities).
Given that a substantial portion of Briefs result in issuance of new office actions, we further explored the statuses of these applications. Were they left in a prosecution purgatory, or did prosecution become more fruitful? Most of these applications had been subsequently allowed, with 59% of the applications being patented. Another 15% were still pending and 26% were abandoned. In total, across all applications for which the appeal cycle was terminated after the Brief, 77% of the applications had a patented status.
Exits After Examiner’s Answer are Rare
For the remaining 60% of appeals (those that “Move On” and that are represented by the white portion of the first bar), an Examiner’s Answer is issued. The vast majority of appeals having received an Examiner’s Answer move on to be considered by the Board (white portion of the second bar): Appellants filed an RCE or abandoned an application only 0.2% of the time following issuance of an Examiner’s Answer.
It is unsurprising that Appellant-initiated appeal exits are rare after filing a brief, as an Appellant recently made a decision to invest in preparation of an Appeal Brief. Further, during the time period our data was taken (between January 1, 2010, and December 31, 2011), no fee was required to forward the appeal brief to the PTAB. Today, however, large entities must pay a $2,000 forwarding fee[v] to submit an appeal to the PTAB for consideration (after filing of the appeal brief and receipt of an Examiner’s Answer). Despite this additional fee, a separate analysis of ours has shown that such Appellant-initiated withdrawals remain uncommon (approximately a 5% withdrawal rate responsive to Examiner Answers issued in calendar year 2014). This decision to continue onwards may be due to the past investment in attorney fees to draft the Appeal Brief and encountering no new arguments from the Examiner in the Answer.
Appeal-Cycle Exits At Board Decision: Approximately 50% Reversal/Reversal-in-Part Rate
Of those appeals that reach the Board, 41% of the PTAB decisions led to a next-action allowance (blue portion of the third bar), while 38% were followed by an abandonment (red portion of the third bar). The next events are not precise reflections of the PTAB decision. Thus, we also examined the distribution of the decisions: 34% of the PTAB decisions were reversals; 13% were reversals-in-part; and 53% were affirmances. (Figure 3.)
Interestingly, the average Examiner allowance rate among appeals reaching the PTAB is 50%. It is worth recognizing that the “similarity” between these probabilities (of at least partial PTAB reversals and of Examiner allowance) may be misleading. It is our opinion that (on average) potential Appellants’ allowance prospects in front of their Examiner are lower than the Examiner’s reported allowance rate. For example, the fact that the Applicant is considering the appeal suggests that an impasse has been already reached with the Examiner. Further, the Examiner’s refusal to have already allowed the application may suggest that the patentability of the application is more questionable than of other applications that the Examiner has allowed.
Frequently, when an Applicant considers whether to appeal a rejection, the benefits and drawbacks of a full appeal are considered. Presently, the Applicant would consider the fee as the attorney fees, the PTO Notice of Appeal fee and the substantial forwarding fee, and the Applicant would consider the multi-year delay of receiving a decision. Our data indicates that, while these considerations remain relevant, they are not the end of the story.
Rather, Examiners frequently terminate an appeal cycle expediently with an office action (often leading to an allowance) or an allowance, in which case the delay and a portion of the expense is avoided. Such changes of an Examiner’s heart may be a result of engagement of the Examiner’s supervisor. Specifically, an appeal conference between the Examiner, the Examiner’s supervisor, and another Examiner (known as a conferee) is required in response to filing of a compliant Appeal Brief.[vi] Similar conferences are required in response to filings of Requests for Pre-Appeal Brief Conferences, so it is possible that the distribution of post-Brief examiner responses mirror a distribution of responses to Pre-Appeal Brief requests.[vii]
Should an Application endure a full appeal cycle, our data indicates that approximately half of the appeals are at least partly reversed by the Board. This is approximately equal to the average allowance rate of the Examiners examining the application. However, a selection bias would suggest that the applications with weaker patentability arguments are more likely than others to be reviewed by the Board. Meanwhile, frequently, the Board issues only partial reversals, in which case a rejection of one type may prevent a claim from being allowed despite a reversal of another type of rejection, or an allowable claim may be of undesired scope.
Thus, we emphasize that data is nuanced. Just as it is important to be cognizant of applicants’ unique objectives for a given application, it is also important to recognize the complex distribution of potential outcomes of engaging in the appeal cycle.
[i]. For a related discussion on promoting predictability and consistency of PTAB decisions, see Kate S. Gaudry & Thomas D. Franklin, Only 1 in 20,631 Ex Parte Appeals Designated as Precedential by PTAB, IPWatchDog, Sept. 27, 2015; see also Kate S. Gaudry & Justin Krieger, The Patent Bar’s Role In Setting PTAB Precedence, Law360, Sept. 10, 2015, available at http://www.kilpatricktownsend.com/~/media/Files/articles/2015/The%20Patent%20Bars%20Role%20In%20Setting%20PTAB%20Precedence.ashx.
[ii]. E-mail from U.S. Patent & Trademark Office, to Kate Gaudry, Attorney, Kilpatrick Townsend & Stockton, LLP (Aug. 20, 2015) (on file with author).
[iii] See American Intellectual Property Law Association, Report of the Economic Survey I-117 (2013).
[iv]. Kate S. Gaudry & Sameer Vadera, The Appeal Process: The Statistical Likelihood of Success, Landslide, Vol. 8, No. 4, at 12 (March 2016).
[v]. The forwarding fee is $1,000 for small entities and $500 for micro-entities. See USPTO Fee Schedule, infra note 6.
[vi]. U.S. Patent & Trademark Office, Manual of Patent Examining Procedure, 9th ed., (Mar. 2014) (hereinafter “MPEP”) § 1207.01, available at http://www.uspto.gov/web/offices/pac/mpep/s1207.html.
[vii] Karl Fazio & Kate Gaudry, 10 Years Later – A Look at the Efficacy of the Pre-Appeal Brief Conference Program, IPWatchDog, July 21, 2015.