PTAB challenges are a costly, uphill battle for patent owners

By Rob Sterne
April 22, 2018

On April 5, 2018, IPWatchdog published (with permission) my article Follow the Money, which was an essay I wrote and distributed to my own e-mail distribution list on April 4, 2018. This essay generated considerable attention. Many emailed support of my analysis, including a famous patent judge, who said “you nailed it.” Not surprisingly, others disputed the analysis, including Shawn Ambwani, co-founder and COO of Unified Patents.

On April 9, 2018, in a LinkedIn post Ambwani wrote:

If you are going to throw shade on the PTAB, get the facts right. Rob Sterne is a very successful and accomplished lawyer who I respect as the builder of Sterne, Kessler, Goldstein & Fox.  He recently posted an article in IPWatchdog, Inc which discusses the PTAB.  He made a number of statements which were “fair and balanced” :), but one which was factually incorrect was his statement that – “In most court suits, PTAB challenges are made by the accused infringer, especially in the cases where the patent infringement involves significant financial risk.” https://lnkd.in/eXpabS7

Unfortunately, there is no evidence or source for this statement.  Unified Patents analysis of the overlap shows more than 80% of patents in the PTAB has a co-pending litigation when filed.  The reverse shows less than 15% of the litigated patents has a PTAB petition filed against it.  To say “most court suits” is not based on any objective report that I am aware of.  Nor the “significant financial risk” modifier.  That is simply rhetoric to push a point of view without any source.

I respect the PTAB has effected his firm’s profitability, though Sterne continues to be one of the largest practitioners at the PTAB and has had a reasonable success rate on our ISIX score. https://lnkd.in/egiNh-r

Shawn’s assertion is centered on my sentence, “In most court suits, PTAB challenges are made by the accused infringer, especially in the cases where the patent infringement involves significant financial risk.” My point is critical to the PTAB’s impact and warrants reply on substantive grounds. As you will see, I stand by it, and here’s why.

First, Shawn states I lack the stats to support my statement and cites to Unified Patents’ stats – “The reverse shows less than 15% of the litigated patents has a PTAB petition filed against it.” This legal mud fight reminds me of Mark Twain’s famous adage: “lies, damned lies, and statistics.”

I well know what goes on at the PTAB. My law firm is one of the largest IP boutiques in the United States, have handled the second largest number of contested proceedings at the PTAB (according to Docket Navigator), I was/am personally counsel in 171 contested proceedings, and me and my team literally wrote the book – Patent Office Litigation 2nd Edition. I know what is going on behind the closed doors of patent owners and petitioners alike, and the strategy and tactics used to drive desired outcomes. I know all of the PTAB stats bantered around and know their correctness and flaws. I approach the PTAB not just as a lawyer, but as an experienced businessman advising other business owners. All of my experiences with the PTAB are the reasons why I can say with great authority — what Ambwani says is at odds with what happens in the real world.

Second, Ambwani states that “less than 15% of the litigated patents has a PTAB petition filed against it.” Assuming his 15% number is true (who knows), it presents an incomplete, and frankly grossly misleading, statistic that begs the question of what is the impact of these proceedings on disputes involving U.S. patents.

PTAB challenges are very expensive, often topping 1M+ USD through Federal Circuit appeal. They add 2-4 years to most district court suits. Proceedings can be remanded to the PTAB by the Federal Circuit, causing additional delay. District courts often stay the lawsuit pending completion of the PTAB proceeding. The patent owner faces – even according to petitioner-biased statistics – roughly a 50% chance of success for a given claim and must win at every stage through appeal. But once the patent is found invalid in any PTAB proceeding, it is invalid forever. While a proceeding can be settled, the administrative record is not expunged, providing the public with a road map of the challenge while potentially creating a cloud over the patent.

Multiple proceedings can be filed against the patent by a petitioner. In addition, any third party can file a petition without a jurisdictional requirement. Serial filings by one petitioner and/or parallel filings by multiple petitioners are not uncommon, particularly involving a financially significant patent or a patent being asserted against more than one accused infringer. Joint defense groups are often formed in the later circumstance to coordinate the PTAB strategy against the common patent.

Against this backdrop, companies like Unified Patents were formed to aggregate the PTAB opportunity and threat of accused infringers. For a subscription fee, these enterprises launch PTAB proceedings against many asserted patents, particularly where the patent is being asserted against more than one accused infringer. These PTAB aggregators offer several benefits to accused infringers, including reduced PTAB cost, no estoppels, and the ability to circumvent the one-year challenge requirement. They act as a surrogate for the accused infringer, who never files a PTAB challenge.

All of this is known by experienced PTAB attorneys and their clients. Often, a PTAB proceeding is threatened by an accused infringer to successfully settle the dispute with the patent owner. Often, no PTAB petition is ever filed. When the patent is asserted in two or more district court suits, often only one PTAB proceeding is filed. Many valuable and infringed patents are not asserted because of the threat of PTAB challenge. Everyone knows the extreme threat of a PTAB challenge and the costly, time-consuming, uphill battle to win faced by the patent owner.

Thus, Ambwani’s 15% number is at odds with what happens in the real world of U.S. patent enforcement, monetization, and licensing. Perhaps he is playing word games with his caveat of “litigated patents” to exclude all these strategies and tactics that predominate the PTAB ecosystem. It reminds one of a carefully crafted sound bite where the word “litigated” excludes most of the circumstances where the PTAB threat drives the result of the patent assertion.

 

The Author

Rob Sterne

Rob Sterne is a founding director of Sterne Kessler Goldstein & Fox. At the age of 26, and just one year out of law school, he set out to create a different kind of law firm—one that recognized the contributions of all its members and put a strong emphasis on scientific and technical knowledge. Now, nearly four decades later, Sterne has helped to nurture and grow this revolutionary idea into one of the top five largest intellectual property specialty firms in the country. And in so doing, he has established his place as one of the leading patent lawyers in the United States. In fact, Rob has been recognized by the Financial Times as one of the "Top Ten Most Innovative Lawyers in North America 2015," by Law360 as one of the "Top 25 Icons of IP," and among the country’s "IP Trailblazers & Pioneers 2014" by the National Law Journal. He is highly respected by his peers and has received some of the most prestigious awards and rankings for professional excellence in intellectual property law.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 27 Comments comments.

  1. Paul Morinville April 22, 2018 11:37 am

    “All of this is known by experienced PTAB attorneys and their clients.” All of this is also known by investors, who are now fleeing to China.

  2. Josh Malone April 22, 2018 12:51 pm

    If it is true that only 15% of litigated patents have a corresponding PTAB petition then it is simply because the other 85% are estopped as having been filed more than one year before the infringer’s counsel became aware of the fantastic second bite offered by the PTAB.

    Nearly every litigated patent will see a PTAB petition if not estopped. It would be malpractice for an attorney to pass up the opportunity to kill the patent in the PTAB, relegating the client to a fair fight in a real court.

    Ambwani is not credible on this point. It is sheer nonsense.

  3. Jonah Probell April 22, 2018 3:47 pm

    If I understand Rob’s point, so few litigated patents have PTAB petitions because parties are settling early. Isn’t that a good thing?

  4. Bemused April 22, 2018 4:25 pm

    Wonder what new garbage business model Shawn Abwani and the rest of the tools at Unified Patents are going to get into after SCOTUS knocks out inter partes review in Oil States?

  5. Gene Quinn April 22, 2018 5:20 pm

    Jonah-

    Settling is not a good thing if it is a capitulation. What is also happening, without any doubt, is patent owners are simply not enforcing patents and allowing infringers to steal their rights because they cannot afford to fight (and lose) at the PTAB.

    So, no, this is most certainly not a good thing.

  6. Anon April 22, 2018 6:12 pm

    I echo Bemused’s post.

    Past interactions with Mr. Abwani on these threads have left me well under impressed.

    To me, this is just another group that wishes to feed off of actual innovators and do nothing but make rewards for innovation more precarious, less certain, and more expensive to enforce – the very attributes of the Efficient Infringer Mantra.

  7. Paul Morinville April 23, 2018 1:04 am

    Ambwani is the only person I had to block in LinkedIn. He was trolling me.

  8. Benny April 23, 2018 5:40 am

    Gene,
    I don’t follow your logic. As a patent owner, how am I to assume that I will be up against the PTAB rather than reach an reasonable out-of-court business agreement if I don’t enforce my patent? Why would I bother to obtain a patent if I’m too chicken to enforce it? Why would a patent owner assume that PTAB proceedings are the infringer’s best (or only) option ? Why would you assume that as a business, we would look to theft rather than legitimate purchase as a business model?
    If I wanted to copy a competitor’s technology, I would rather buy a license for 500K$ than spend 750K$ on attorney fees (and free up the tech for other competitors in the process). We can do the math.

  9. angry dude April 23, 2018 9:45 am

    Benny @8

    “Why would you assume that as a business, we would look to theft rather than legitimate purchase as a business model?”

    Playing an idiot, dude ?

    Why ? Because it’s infinitely cheaper to quietly steal patented technology until and if (and that’s a big IF) patent owner knows everything about it for sure and decides to do something about it (which is nearly impossible nowadays for under-capitalized patent owners due to lack of contingency representation)

    And in the very worst case infringer doesn’t risk injunction and loss of product line anyway – just some greatly reduced damages paid out many many years later after the fact

    google “efficient infringement”

    I say: to hell with such patent system

  10. Benny April 23, 2018 10:09 am

    Angry,
    It’s also infinitely cheaper to download pirate copies of MS Office rather than buy licenses, but we don’t do that, either. For a business, honesty and reputation carry brand value. That has a price too, We are not some anonymous Fred-In-The-Shed outfit who can shrug it off or re-brand ourselves every Monday. and Thursday. As for your “big IF” – ha!. Our competitors follow our every move, just as we follow theirs. I wouldn’t be surprised if our nearest competitor knows what I ate for lunch yesterday.

  11. Xtian April 23, 2018 10:09 am

    @benny
    “As a patent owner, how am I to assume that I will be up against the PTAB rather than reach an reasonable out-of-court business agreement if I don’t enforce my patent?”

    Your question is a flawed conditional question. Turning it around, “If I don’t enforce my patent, how am I to assume that I will be up against the PTAB rather than reach an reasonable out-of-court business agreement?”

    The flaw is that with IPRs, you don’t have to enforce your patent. You need to assume that because of the existence of your patent there will be an IPR filed and you will be brought before the PTAB. There is no standing requirement for a third party to bring an action. So, the conversation goes like this:

    Unified Patents: It would be a shame if someone filed a PTAB proceeding against your patent that covers your commercial product. That would probable cost you $2M in legal fees and create an overhang on your company’s stock price.

    You: Ok. But why would you do that? My patent was duly granted with 4 office actions and an RCE. It’s rock solid. You don’t even make a product so how am I to defend my patent rights in district court? You are not even competing in the market place with me?

    Unified Patents: Just to let you know, 50% of all patent claims are invalidated in an IPR. You probably want to mention that to your management. And even though I don’t compete with you (but my clients will, soon after…) why don’t you give me a royalty free license, with the right to sub-license, and this whole thing will just go away…..

  12. Benny April 23, 2018 10:16 am

    Xitian,
    …continued…
    Me – How about I sell you a license for slightly less than it would cost you to invalidate the patent?

    Unified – I don’t know. We can’t do math, don’t employ accountants, and have no business sense. We’ll take the option that creates the greatest financial loss for us. It’s good for our statistics.

  13. Paul Morgan April 23, 2018 10:48 am

    Re: “Ambwani states that “less than 15% of the litigated patents has a PTAB petition filed against it.” Assuming his 15% number is true (who knows), it presents an incomplete, and frankly grossly misleading, statistic that begs the question of what is the impact of these proceedings on disputes involving U.S. patents.”
    Agreed. How could the 15% number be arrived at even by dividing the number of IPRs per year by the number of patent suit complaints per year? Also, there are still individual complaints asserting multiple patents. Furthermore, many patent suits are settled quickly to avoid legal expenses including before any IPR petition need be filed, and everyone professionally involved in patent suits these days is aware that there is a one year deadline for filing the IPR petition. Also, some suits are now preliminarily ended by 101 motions.

  14. Bemused April 23, 2018 11:38 am

    Careful, Mr. Morgan. Your comment may lead Anon to stop trolling you as being anti-patent. 🙂

    (Sorry, Anon. Couldn’t help teasing you there.)

  15. Josh Malone April 23, 2018 11:42 am

    Benny, that is called extortion.

  16. Josh Malone April 23, 2018 11:50 am

    Little Pink House is screening. Susette Kelo lost her property rights in an Article III Court. Oil States dispenses with the judge and jury. If SCOTUS endorses PTAB, shopping mall developers will get their friends on the city council to do the dirty work – no role for an independent judiciary.

    https://www.youtube.com/watch?v=RUptZEZdT-M

  17. StrongPatents April 23, 2018 12:20 pm

    Benny – what happens if the competitors patent is far more valuable to your core (or future) business plan?

    What if you are a large business and the fair license cost is $500k annually?

  18. xtian April 23, 2018 12:49 pm

    @josh@14

    How is that extortion? While I don’t agree, I have yet to see how the scenario Benny and I play out is criminal extortion.

    EXTORTION: The obtaining of property from another induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right. 18 U.S.C.A. No. 871 et seq.; No. 1951. A person is guilty of theft by extortion if he purposely obtains property of another by threatening to:
    (1) inflict bodily injury on anyone or commit any other criminal offense; or
    (2) accuse anyone of a criminal offense; or
    (3) expose any secret tending to subject any person to hatred, contempt or ridicule, or to impair his credit or business repute; or
    (4) take or withhold action as an official, or cause an official to take or withhold action; or
    (5) bring about or continue a strike, boycott or other collective unofficial action, if the property is not demanded or received for the benefit of the group in whose interest the actor purports to act; or
    (6) testify or provide information or withhold testimony or information with respect to another’s legal claim or defense; or
    (7) inflict any other harm which would not benefit the actor.

  19. Benny April 23, 2018 1:50 pm

    Strongpatents,
    Sometimes you win, sometimes you learn. We can’t all be top dog all the time. Carving out our own niche is a better business plan than tailing the leaders in our market. For essential, core patents the normal practice in our field is to pay a reasonable royalty – factored into the product cost – and get on with our lives.

  20. StrongPatents April 23, 2018 2:18 pm

    Benny – it is heartening if this has been your personal experience in how your company has dealt with Patent owners.

    Unfortunately, over the last five (post AIA) years, the largest players (esp. in the tech space) have not followed your lead. By following a “scorched earth” policy early on (post AIA), the large players with unlimited budgets successfully re-vamped the cost/reward analysis for small patent owners to enforce their rights. As others have pointed out, the term “efficient infringement” did not even exist pre-AIA. The new cost vs. likelihood of success for a small patent owner to enforce their property rights has become so lopsided against them that untold numbers have abandoned their right to pursue compensation.

    …Which is exactly how the big guys wanted it. By going “all in” against every patent asserted against them, irrespective of their odds of winning, the big guys have created a massive disincentive for every small player with a legitimate property right to pursue compensation. The big guys were playing the
    (very rationa) long game and, so far, it has been working….

  21. angry dude April 23, 2018 6:01 pm

    Benny @10

    “It’s also infinitely cheaper to download pirate copies of MS Office rather than buy licenses, but we don’t do that, either. For a business, honesty and reputation carry brand value”

    Playing an idiot again, dude ?

    You would most certainly download pirate copies of MS Office (if doing so would noticeably improve your bottom line) as well as crack your competitor’s embedded code and use it “as is” (without expensive reverse engineering) in your own robotics products without any shame and remorse..

    The only reason stopping you from doing it is that copyright violation is criminal so you (theoretically) could go to jail for that

    Willful patent infringement on the other hand poses absolutely no threat to you personally and very negligent financial threat to your company while significantly improving your company’s bottom line by not paying for patent licenses (effectively free-loading on someone else’s R&D)

    That’s why, dude, and you know it !

    To hell with such patent system !

  22. angry dude April 23, 2018 6:16 pm

    xtian @18

    Dude,

    What is your problem understanding very simple things ?

    It is 100% criminal fraud and extortion if Unified Patents is connected in ANY possible way to ANY of the past, present or future infringers of the patent in question

    Is that clear or I need to explain it further ???

    You are free to try to invalidate any US patent on your own dime, dude
    Just please don’t expect financial gain of any kind for doing that, OK ??

  23. xtian April 24, 2018 9:08 am

    @angry dude

    I wish it were as simple as you state. I invite you to clarify it for me with citation to black letter law or a case where a criminal extortion claims was successfully brought.

    Please don’t get me wrong. The hypothetical actions as outlined in this thread are deplorable and I want to agree with you that they are indeed criminal. But I am not sure they actually illegal per se. What i think is that there are unintended consequences from the AIA that actually allows for this type of “soft extortion.”

    I look at it this way, could I assert a state claim of extortion against Unified Patents for filing IPRs against me?

    I am not so sure after looking at Allergan, Inc. v. Ferrum Ferro Capital, LLC

    https://content.next.westlaw.com/Document/I0a9c50f1af3911e598dc8b09b4f043e0/View/FullText.html?contextData=(sc.Default)&transitionType=Default

  24. Paul Morgan April 24, 2018 9:36 am

    Thanks 23, including your case citation. Also note that it was not unusual for many years before IPRs to similarly threaten to file a declaratory judgement suit against a patent being aggressively licensed as a negotiation tactic. Also note that a threat of an IPR has no real negotiation teeth without good prior art patents or publications backing it up.
    If such clearly material prior art [or clear non-infringement evidence] is disclosed to the patent owner in license negotiations and the patent owner proceeds to sue anyway, there is now a greatly increased risk of attorney fee sanctions.

  25. Paul Morgan April 24, 2018 9:45 am

    P.S. This is not to deny that the potential for IPRs have made patent license monetizing more difficult, especially for individual inventors.

  26. angry dude April 24, 2018 10:19 am

    Paul Morgan @24

    “note that a threat of an IPR has no real negotiation teeth without good prior art patents or publications backing it up”

    yeah right, dude

    Tell it to founders of Zond Inc. (and countless other startups and individuals)

    Do we live on the same planet ?

  27. Anon April 24, 2018 10:48 am

    i4i would also have a word against Microsoft as to “without good prior art patents or publications backing it up”….

    Big Corp disrespects patents when ever – and how ever – it may benefit them.