18-MONTHS POST-AIA: HOW HAS PATENT LITIGATION. Rebecca Hanovice, Akarsh Belagodu, Lauren Bruzzone and Clay Holloway

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1 CHEAT SHEET Increased petitioner participation and evidence gathering throughout the AIA post-grant proceeding provides more incentive for petitioners to pursue patent office litigation. Decreased opportunities to amend. When a patent owner wishes to amend the claims, the proposed amendments must include specific citations to the original patent specification, discussion about how the amendments are supported, claim construction of the proposed claim amendments and expert testimony to support all patent owner statements. Increased board personnel. AIA post-grant proceedings take place before administrative law judges of the PTAB. They are experienced patent law judges and only handle post-grant proceedings and appeals during patent prosecution. Addition by subtraction. The AIA effectively eliminated prior art that is kept secret and the requirement of disclosing a best mode in the patent specification. Reprinted with permission of the authors and the Association of Corporate Counsel as it originally appeared: Rebecca Hanovice, Akarsh Belagodu, Lauren Bruzzone and Clay Holloway, "18 Months Post AIA: How Has Patent Litigation Changed?," ACC Docket, September 2014: Copyright 2014, the Association of Corporate Counsel. All rights reserved. If you are interested in joining ACC, please go to call x360, or membership@acc.com.

2 18-MONTHS POST-AIA: HOW HAS PATENT LITIGATION CHANGED? Rebecca Hanovice, Akarsh Belagodu, Lauren Bruzzone and Clay Holloway In the lead up to, and first months after, the enactment of the America Invents Act (AIA), a number of articles and bulletins focused on the potential impact of the many provisions enacted by the AIA on patent litigation. Now, roughly 18 months after the first AIA provisions became effective on Sept. 16, 2012, the patent litigation bar recognizes that the AIA is changing the litigation landscape and braces for its reach. This discussion will highlight some practical trends in how patent litigation is approached and conducted in this new landscape. The AIA introduced a variety of provisions that affect patent litigation, including four new post-grant proceedings adjudicated by a new Patent Trials and Appeal Board (PTAB) to challenge the validity of a patent: Post-Grant Review (PGR), Inter Partes Review (IPR), Covered Business Method (CBM) and Supplemental Reexamination. The AIA also changed the availability of certain prior art and removed the best mode requirement for patent applications. A discussion of how these provisions have affected patent litigation and other aspects of the practice before the patent office follows. ACC DOCKET SEPTEMBER

3 Overview of post-grant proceedings Post-Grant Review (PGR) offers the greatest opportunity for invalidating a patent. A third party can petition for a PGR of an issued patent within nine months of its issuance. This proceeding is only available for applications filed on or after March 16, 2013, and must be petitioned for before the requester files for a declaratory judgment of invalidity. Any ground for invalidity under 35 U.S.C. 282(b)(2) or (3) (defenses to patent infringement) may be raised; this includes invalidity under 35 U.S.C. 101 (subject matter eligibility), 102 (anticipation), 103 (obviousness) and 112 (requirements for a patent specification), with the exception of compliance with the best mode requirement. Additionally, the petitioner can challenge the validity of the patent under 35 U.S.C. 102 and 103 based on patents, publications and evidence of public use, sale or other forms of public disclosure. PGR is only available for patents issued after March 16, 2013, so its impact on patent litigation strategy remains to be seen. Inter Partes Review provides a more limited opportunity to invalidate a patent. This proceeding is available to challenge the validity of any issued patent, regardless of the date of issue. A petitioner may request IPR nine months after the patent has been issued and must file the petition within one year of service of an infringement complaint. Additionally, only 35 U.S.C. 102 and 103 basis for invalidity are available 35 U.S.C 101 or 112 basis for challenging the validity are unavailable in IPR and must be based on printed publications or patents. No evidence of public use, sale or other public disclosure is available for 35 U.S.C. 102 or 103 challenges to validity. Covered Business Method Review is limited to specific subject matter. A party accused of infringement of a covered business method patent, as defined in AIA 18(a)(1)(B), may petition for review of the issued patent. A covered business method has at least one claim for a method or apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service. Technological inventions, as defined by 37 CFR (b), are specifically excluded from CBM Rebecca Hanovice is senior intellectual property & litigation counsel at Callaway Golf Company. She focuses her practice on patent prosecution, product clearance, litigation and licensing. rebecca.hanovice@callawaygolf.com Akarsh Belagodu, an associate at Kilpatrick Townsend & Stockton LLP, focuses his practice on patent litigation involving a variety of technologies, including electronics and telecommunications, and specializes in post-grant proceedings and district court litigation. abelagodu@kilpatricktownsend.com Lauren Bruzzone is group IP counsel for IBM supporting the Global Business Service, Global Technology Service, Sales & Distribution and Softlayer divisions. bruzzone@us.ibm.com Clay Holloway, a partner at Kilpatrick Townsend & Stockton LLP, focuses his practice on patent litigation covering a broad range of technologies and has expertise at all stages of patent litigation, including post-grant proceedings, trials and appellate level hearings. cholloway@kilpatricktownsend.com review. These are patents that only claim as a whole a technological feature that is novel and unobvious over the prior art, and solves a technical problem using a technical solution. The CBM petition may be filed before, during or after a district court trial, and may assert 35 U.S.C. 101, 102, 103 or 112 grounds for invalidity, except compliance with the best mode requirement. CBM has a sunset provision for Supplemental Examination is limited to a patent owner. A patent owner may cure inequitable conduct during the prosecution of an issued patent by petitioning for a supplemental examination of the patent. The patent owner can cite patents, printed publications or any other type of previously undisclosed information material to the patentability to cure any false statements or misrepresentations made during prosecution of the issued patent. For example, an issued patent may be susceptible to an inequitable conduct attack due to a false statement or a misrepresentation made to the patent office during prosecution of the patent. The patent owner may institute a supplemental examination proceeding to cure the inequitable conduct, thereby strengthening the patent for future litigation. Shift in litigation strategy IPR and CBM have had the most noticeable impact on patent litigation strategy. Again, PGR is only available for patents filed on or after March 16, 2013, so its impact on patent litigation is yet unknown. Supplemental examination is only available for patent owners and thus not an option as a defensive tactic, though it may be a useful tool for a patent owner who wishes to make the patent more defensible in later litigation. IPRs and CBMs have increasingly become an important litigation tactic for many reasons the most obvious being cost, speed and perceived success rate. 54 ASSOCIATION OF CORPORATE COUNSEL

4 IPR v. CBM IPR and CBM differ in a few ways: Grounds for challenging a patent: IPR only allows for the petitioner to challenge validity based on printed publications (which includes printed patent applications) or patents under 35 U.S.C 102 and 103. The petitioner cannot challenge validity with evidence of sale, prior disclosure, patent eligibility or insufficient disclosure. In CBM, the petitioner can challenge validity under 35 U.S.C 101, 102, 103 or 112 for any application filed on or after March 16, For applications filed prior to March 16, 2013, the petitioner s challenge is limited to 35 U.S.C. 102(a) prior art and prior art that is more than a year older than the filing date of the patent. Prior art that would qualify under 35 U.S.C 102(e), (f) or (g) cannot be used for applications filed prior to March 16, Standing to challenge the patent: Any challenger who is not the owner of the patent may petition for an IPR of the patent. In CBM, only a challenger who has been sued or has been charged with infringement (such that declaratory judgment is available) of the patent may institute a review. For example, if a party receives an invitation to license a patent, and the invitation has the appropriate context such that declaratory judgment is available as determined by the Federal court, then the party may have standing to challenge the patent with a CBM. Timing: In IPR, the challenger must file the petition at least one year before the date the petitioner is served with a complaint alleging infringement and before the petitioner files a civil action challenging the validity of the patent. Additionally, the petitioner must wait nine months after the date the patent was granted, even if no PGR has been instituted, and wait for termination of a PGR if one has been instituted, before filing an IPR petition. In CBM, the petitioner may petition for review only after being sued for or charged with infringement (such that there is standing to bring declaratory judgment action) on the patent. After such occurrence and after the period for request for a PGR has expired, the petitioner may petition for CBM at any time. Qualification for review: CBM is only applicable for a patent that has at least one claim for a method or apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service. AIA 18(a)(1)(B). There is no such restriction for IPR. Estoppel: After the PTAB renders a final decision on an IPR, the petitioner may not request another review before the patent office with respect to the patent on any ground that was raised or reasonably could have been raised in the IPR. Further, the petitioner may not institute a civil action in district court or an action before the International Trade Commission (ITC) asserting that one or more claims of the patent is invalid on any ground that was raised or reasonably could have been raised in the IPR. After the PTAB renders 56 ASSOCIATION OF CORPORATE COUNSEL

5 a final decision in a CBM, estoppel is similar to that in IPR except that the petitioner is not estopped from instituting a civil action in district court or an action before the ITC on grounds that reasonably could have been raised in the CBM. See sidebar on p. 60 for the cost projections of IPR and CBM proceedings, as well as the average cost of litigation in district court, as reported by AIPLA. IPR and CBM metrics Parties have increasingly recognized the unique advantages of post-grant proceedings, as shown by the number of petitions filed since these proceedings became available. In fact, 1,300 IPRs and CBMs have been requested as of May 1, 2014, as demonstrated by data released by the United States Patent and Trademark Office (USPTO). The USPTO issued statistics on derivation (DER), which is the AIA replacement for interferences. Derivation is not available for most patent challengers. A noticeable trend in the number of proceedings before the PTAB since the AIA became effective has emerged: As of May 1, 2014, the number of AIA petitions surpassed the total number of petitions filed in 2012 and 2013 for IPR, CBM and DER. A majority of the AIA petitions filed to date have been in the electrical and computer technology area: Of the AIA petitions filed by petitioners, a substantial majority of the trials are instituted from the petitions: As of May 1, 2014, the PTAB has issued 58 final written decisions and 25 adverse judgments. Additionally, AIA petitions have led to 148 settlements: Thus, of the 1,300 IPR and CBM petitions that have been filed since AIA became effective in September 2012, 231 petitions (17.7 percent) have already reached some form of finality as of May 1, Visit the USPTO website for published statistics: boards/bpai/stats/aia_trial_statistics. jsp. Increasing popularity of postgrant proceedings The advantages of IPR and CBM over district court proceedings are well documented: lower burden of proof (preponderance of evidence in IPR and CBM versus clear and convincing in district court); broader claim construction (broadest reasonable interpretation in IPR and CBM versus the single correct construction as understood by a person of ordinary skill in the art in district court); lower costs and time (18-month table for IPR and CBM versus unpredictable timetable in district court). 1 Many of these advantages existed pre-aia with the ex-parte and inter partes reexamination predecessors, but IPR and CBM are already demonstrating a higher degree of popularity than their inter partes and ex parte reexamination predecessors. Increased petitioner participation: This increased popularity can be attributed to the advantages provided by the AIA post-grant proceedings over the pre-aia predecessors. For example, increased petitioner participation and evidence gathering throughout the proceeding provides more incentive for petitioners to pursue patent office litigation. The AIA arms the petitioner with tools, such as evidentiary challenges subject to the Federal Rules of Evidence, protective orders, depositions and other litigation style mechanisms to challenge evidence and statements set forth by the patent owner. These tools give the petitioner greater control over how the patent and its prior art are interpreted without having to sit on the sidelines. Decreased opportunities to amend: AIA post-grant proceedings limit the opportunities given to a patent owner to amend the claims of its patent. In the inter partes and ex-parte reexamination predecessors, patent owners could counter a petitioner s challenges by freely amending the claims any number of times. Now, when a patent owner wishes to amend the claims, the proposed amendments must include specific citations to the original patent specification, discussion about 58 ASSOCIATION OF CORPORATE COUNSEL

6 how the amendments are supported, claim construction of the proposed claim amendments and expert testimony to support all patent owner statements. The PTAB has issued several opinions relevant to a patent owner s motion to amend the claim language. See Nichia Corp. v. Emcore Corp., IPR regarding the burden on the patent owner to identify written description support for proposed claim amendments and Idle Free Sys v. Bergstrom, IPR , which establishes that a proposed claim amendment must distinguish over all prior art known to the patent owner and all other substitute proposed claim amendments for the original claim. Sneak peak at claim construction: The PTAB provides detailed claim construction analyses in its decisions, which allow a petitioner to preview claim construction in later or copending litigation (e.g., in a district court). Although the AIA requires petitioners to provide proposed claim construction for key claim terms and take specific claim construction positions, the PTAB has taken a similar approach to district courts with regard to claim construction analysis. The court of appeals for the federal circuit applies the same standard of review for claim construction, regardless of whether the construction occurred in front of the patent office or in district court. This provides a party faced with infringement a first look at claim construction, which allows the party to evaluate positions in later or pending litigation. Increased board personnel: AIA post-grant proceedings take place before administrative law judges of the PTAB, which replaces the Board of Patent Appeals and Interferences (BPAI). The administrative law judges on the PTAB are experienced patent law judges and only handle post-grant proceedings and appeals during patent prosecution. Importantly, they are not current patent examiners and thus are not burdened by the demands of a large prosecution docket. The USPTO has been aggressively increasing the number of administrative law judges to TIMELINE AND COST PROJECTIONS FOR IPR AND CBM AVERAGE COST OF LITIGATION REPORTED BY AIPLA ( 60 ASSOCIATION OF CORPORATE COUNSEL

7 METRICS ON STAYS ( alleviate the problems with delay and backlog that were so prevalent with the BPAI. A more active PTAB results in a shorter timeline for a final decision and thus provides faster results for petitioners. Stays: District courts selected for the Patent Pilot Program have been found to be more likely to stay litigation pending an IPR or CBM proceeding, as compared to district courts that are not in the Patent Pilot Program. The overall rate of granting motions to stay pending IPR or CBM in district courts has remained largely the same as before AIA. However, the odds of a district court granting a motion to stay increase dramatically after the PTAB has instituted an IPR or CBM proceeding. See sidebar on p. 62 for a comparison of the grant rate of stays pending re-exam and pending IPR/CBM. What does patent litigation look like now? While the current trend shows a marked increase in the use of post-grant proceedings, it will be as the first wave of those proceedings concludes, and inevitably rises to the Federal Circuit for review, that the bar will see the permanence of that practice. For now, patent litigation is truly a two-front battle. Plaintiffs and defendants alike must consider the possibility that validity will be tried first to the PTAB. Even though stays are currently granted more frequently than seen in the past, it is not a guarantee. Accordingly, parties must still consider the possibility that a patent litigation will involve two forums. This also gives rise to the possibility of a three-front contest when foreign patent rights and issues exist. From the international perspective, we are seeing more attention paid to determinations made by the PTAB in post-grant review proceedings, in view of the higher deference foreign courts and litigants pay to the Patent Office, as compared to district courts with notoriously high reversal rates on appeal. This will continue to be the case if the Federal Circuit affirms the ultimate resolution of post-grant proceedings, which, in turn, will increase the likelihood of stays of US-based patent litigations. Also on the international front, the AIA aligned the United States more closely with international standards for obtaining a patent by changing how secret prior art is dealt with, as well as eliminating the best mode requirement as grounds for invalidating a patent. The following discussion elaborates on the addition by subtraction that aligned US patent law with international standards. Addition by subtraction Among its many provisions, the AIA effectively eliminated prior art that is kept secret and the requirement of disclosing a best mode in the patent specification. By removing these two provisions, the AIA became more closely aligned with the international standards for obtaining a patent. While much was made about the loss of these two requirements, very little impact 62 ASSOCIATION OF CORPORATE COUNSEL

8 2001/2002 UPTICK IN PATENT LITIGATION The first graph below demonstrates the number of patent filings from at the USPTO, the European Patent Office (EPO) and the Japanese Patent Office (JPO). Note the uptick in USPTO filings in 1995, when the patent term conversion from 17 years to 20 years was implemented. has been observed in this post-aia patent litigation world. Pre-AIA, the relevant section of 35 U.S.C. 102 read: 102. A patent shall be entitled to a patent unless (b) invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patenting in the United States. Patent and Innovation: Trends and Policy Challenges, Organisation for Economic Co-Operation and Development (OECD) 2004, at 7. The second graph demonstrates the number of patent cases adjudicated in Federal Courts between 1996 and Note the uptick in cases from , occurring after issuance of the swath of filings in IMAN LORDGOOEI, BEAR MARKET LITIGATION: SHOWING THE RELATIONSHIP BETWEEN PATENT LITIGATION AND DOWN ECONOMY, 27 J. INT L L. 1077, 1089 (2006). Historically, this section of Title 35 was interpreted to mean a noninforming public commercial sale of the invention was deemed to be prior art against the inventor even though the invention may not be discernible without significant reverse engineering. The corresponding AIA section reads: 102(a). A person shall be entitled to a patent unless (1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention. The critical difference is the otherwise available to the public language that was introduced in AIA. The USPTO has indicated that the term otherwise modifies the preceding phrase, and thus, any secret sale or secret use activity is no longer prior art. Although the USPTO has commented on this provision of Title 35, there have not been any court decisions interpreting this AIA provision. The observable impact on this AIA provision is that prior art in the United States more closely aligns with the international definition, which makes identifying prior art a truly international endeavor. The removal of the best mode requirement has similarly not been that impactful. The AIA eliminated best mode as a defense to patent infringement even though patent applicants are still required to disclose the 64 ASSOCIATION OF CORPORATE COUNSEL

9 HAVE A COMMENT ON THIS ARTICLE? VISIT ACC S BLOG AT Glossary of terms Best mode Pre-AIA, the applicant had to disclose the best manner for carrying out or making an invention. Issued patent A patent that was granted by the USPTO upon prosecution. Declaratory judgment A preventive adjudication by the court to resolve a legal uncertainty. Subject matter eligibility Technology that is susceptible for patent protection. Anticipation A single prior art reference or event that reveals all of the claim elements. Obviousness A person of ordinary skill in the art would know how to make or perform the patent claim without undue experimentation. Patent specification A description of the claimed invention. Inequitable conduct A defense to patent infringement available when the patent applicant committed fraud on the patent office. Derivation Occurs when one obtains an invention from another. Patent pilot program A 10-year program designed to enhance expertise in patent cases. best mode in each patent specification. While disclosing the best mode serves an important purpose of public disclosure, this requirement has effectively been rendered meaningless, because the failure to disclose the best mode cannot be asserted as a defense. Many commentators believe that the other public disclosure defenses of written description and enablement will take on a higher significance as a result of the unavailability of best mode. This is even more apparent as the Federal Circuit s recent decision in In re Thomas G. Packard, issued on May 6, 2014, and the Supreme Court arguments in Nautilus Inc. v. Biosig Instruments, Inc., show that indefiniteness is likely to become a more liberal test. The not-too-distant horizon In 2001 and 2002, the patent bar saw the first of several upticks in the prevalence of patent litigation resulting from the swath of patent applications filed on the eve of the conversion to the 20 years from filing date rule, effective June The patent prosecution bar saw a similar mass filing in March 2013, as the AIA s provision on inventorship took effect. Under the AIA, the United States now aligns itself with most of the world and shifts from a first to invent state to a first to file state. As a result of that change, many entities pursuing both large and small portfolios before the Patent Office filed scores of new applications to take advantage of the old rule. If history does in fact repeat itself, we will see a new crop of patents issued in four to six years that will undoubtedly lead to another uptick in patent litigation filings both between competitors and those brought by non-practicing entities, depending on whether those still exist in four to six years. ACC NOTES 1 See Flo Heathcare Solutions, LLC v. Kappos, 697 F.3d 1367, for a discussion on the differences between the PTAB s broadest reasonable interpretation standard and the construction applied in district courts, and the Federal Circuit s potentially shifting view of how it reviews these on appeal. ACC EXTRAS ON Patent litigation after the AIA ACC Docket Game Changer: The America Invents Act (Sept. 2012). docket/gc-aia_sep12 Top Ten Top Ten Action Items in Response to AIA (Nov. 2011). QuickCounsel Ramifications of the Final Inter Partes Review Practice and Trial Rules Under the AIA (Aug. 2012). quickcoun/aia_ aug12 Quick Reference Top Ten Action Items for Effectively Responding to the AIA (Nov. 2011). quickref/respondaia_apr11 Presentation New Challenges to U.S. Patents Under AIA Strategies and Considerations (May 2012). presentation/aia_ may12 Practice Resource For more on change in patent litigation, read ACC Alliance partner Thomson Reuters article regarding the Teva vs. Sandoz case and the possible affect of a Supreme Court decision on patent litigation of all kinds. bit.ly/tevasandoz ACC HAS MORE MATERIAL ON THIS SUBJECT ON OUR WEBSITE. VISIT WHERE YOU CAN BROWSE OUR RESOURCES BY PRACTICE AREA OR SEARCH BY KEYWORD. Reprinted with permission of the authors and the Association of Corporate Counsel as it originally appeared: Rebecca Hanovice, Akarsh Belagodu, Lauren Bruzzone and Clay Holloway, "18 Months Post AIA: How Has Patent Litigation Changed?," ACC Docket, September 2014: Copyright 2014, the Association of Corporate Counsel. All rights reserved. If you are interested in joining ACC, please go to call x360, or membership@acc.com. ACC DOCKET SEPTEMBER