Terminating Inter Partes Review Proceedings Before the Patent Trial and Appeal Board Eldora L. Ellison, Ph.D. Dennies Varughese, Pharm. D. Trey Powers, Ph.D. I. Introduction Among the myriad changes precipitated by the America Invents Act ( AIA ), none have garnered more attention than the advent of the new Inter Partes Review ( IPR ) proceedings. IPRs replaced the previously-existing Inter Partes Reexamination ( IPRex ) proceedings and are intended to be a true alternative to district court litigation to contest issued patents. In contrast to IPRex, IPRs are adjudicatory in nature, proceed under a much faster timeline, and provide for limited discovery, among other differences. This paper examines one particular difference the ability to settle an IPR without creating an estoppel and possibly prompt termination of the proceeding. Unlike IPRex, the governing statute expressly provides that parties can request termination of an IPR at any point in the proceeding. As discussed below, however, what appears to be a straightforward mechanism is anything but, and parties should carefully consider a number of issues that may arise in the context of seeking a termination of an active IPR. II. Overview of statute and regulations governing settlements of IPR Settlement of IPRs is governed by 35 U.S.C. 317, which provides that a joint request between the parties terminates the proceedings unless the Office has decided the merits of the proceeding before the request for termination is filed. (35 U.S.C. 317(a)) This section of the statute also provides that if the IPR is terminated with respect to the petitioner, no estoppel attaches to the petitioner based on the IPR petition under 315(e). And, 317 states that If no
petitioner remains in the inter partes review, the Office may terminate the review or proceed to a final written decision under section 318(a). 37 CFR 42.74(a) adds that the Board is not a party to the settlement and may independently determine any question of jurisdiction, patentability, or Office practice. Therefore, the Board may continue on with the IPR even if no petitioner remains in the contest. Such Board discretion is emphasized in the Office s responses proffered during the rulemaking period. In response to comments that suggested that the review should be terminated if all petitioners in a proceeding had settled, the Office stated that The statutory language for inter partes and post-grant review confers discretion to the Office in determining based on the facts in a particular review whether to terminate or proceed to final written decision. (77 Fed. Reg. 48612, 48649 (Aug. 14, 2012)). Subpart (b) of 317 requires that any agreement or understanding between the patent owner and a petitioner made in connection with, or in contemplation of, settlement be reduced to writing and further requires that the written document be filed with the Office before the termination of the IPR between the parties. This requirement extends to collateral agreements referred to in any settlement agreement. Pursuant to 317(b), upon request, a settlement agreement or understanding shall be treated as confidential business information and shall be kept separate from the file of the involved patents. However, 317(b) provides that the written agreement shall be made available to Federal Government agencies on written request or to any person on a showing of good cause. 2
III. Termination via Settlements a. Procedure The Board has advised that it will be available to facilitate settlement discussions and may even require settlement discussions as part of the proceeding. (See, e.g., Office Patent Trial Practice Guide, 77 Fed. Reg. 48756, 48768 (Aug. 14, 2012)). And generally, the Board expects that a proceeding will terminate after the filing of a settlement agreement. Id. Once the parties have agreed to a settlement, they should contact the Board and arrange for a call to discuss settlement and seek guidance from the judge handling their case. Id. at 48767. Typically, the Board will authorize a Joint Motion to Terminate the proceeding and will remind the parties of their duty to file a written agreement or understanding made in connection with, or in contemplation of the settlement. Indeed, the Board sometimes notifies parties of this requirement during the initial conference call following institution of trial. And, as mentioned above, parties to a settlement may request that the settlement agreement be kept separate from the patent file under 37 CFR 42.74. During the settlement call, the party or parties seeking to keep the agreement separate may notify the Board of their intention of making such a request. Under 37 CFR 42.74, the request to keep separate must be filed together with the Joint Motion to Terminate and the settlement agreement. b. Termination not guaranteed Although the parties have a statutory right to seek termination of an IPR, that the Board will actually grant the request and end the proceeding is not absolute. In its recent decision in Interthinx, Inc. v. Corelogic Solutions, LLC, the Board affirmed that the decision to terminate a proceeding remains discretionary and rests solely with the Board. 3
IPR2012-00007, Paper No. 47, 2. As explained in the decision, the Board is not a party to the settlement and may independently determine any questions of patentability. Id. (citing 37 C.F.R. 42.74(a)). The Board s ability to maintain the proceeding is consistent with the USPTO s authority to reexamine a patent sua sponte. In predicting whether the Board will grant or deny a request to terminate pursuant to a settlement, the stage of the proceeding is an important factor to consider. In Interthinx, the case was fully briefed and ready for oral hearing at the time the parties moved to terminate. As such, the Board explained that [i]n view of the advanced stage of the proceeding, rather than terminate the proceeding, the Board will proceed to a final written decision. Id. (citing 35 U.S.C. 327(a)). An important takeaway for practitioners, thus, is that those parties desiring to settle an IPR should attempt to come to a resolution as early as possible and request termination. Although there is no bright line as to how early, delaying settlement may be to the peril of the patent owner. But note that the advanced stage of a proceeding is not dispositive, and the Board may also consider the impact of termination on the public or on other litigants to a related litigation. For example in Sony Corp. v. Tessera Inc., IPR2012-00033, Paper 46 (P.T.A.B. Dec. 20, 2013), the Board terminated a settled case on the eve of the oral hearing. In that case, the Board took into consideration Sony s co-defendant in the concurrent litigation, which had been stayed pending outcome of the IPR. The Board noted that the Sony s codefendant could have, but did not, file a petition for inter partes review of the 337 patent and motion for joinder, in order to join this review. Under these circumstances, the Board grants the joint motion to enter judgment and terminate the trial without rendering a final written decision. Id. 4
If the Board refuses to terminate the entire proceeding, the patent owner will move forward to oral hearing without any opposition, such as in the Interthinx case. Id. at Paper 50. In this regard, the continued proceeding resembles situations in which a third party requester discontinued participation in an IPRex: the reexamination became a de facto ex parte reexamination. Because there is no guarantee that the Board will terminate the proceeding, parties crafting settlement agreements are wise to contemplate the possibility of a Board refusal to terminate the proceeding. Perhaps certain settlement terms may be contingent upon termination of the proceeding or upon confirmation of the patent claims. c. Maintaining Secrecy of Settlements Though kept separate from the IPR and patent files, an IPR settlement agreement theoretically may be disclosed under limited circumstances. Under 35 U.S.C. 317(b) and 37 CFR 42.74(c), a settlement agreement may be provided to a Government agency on written request to the Board or [t]o any other person upon written request to the Board to make the settlement agreement available, along with the fee specified in 42.15(d) (currently $400) and on a showing of good cause. It is noteworthy that during the comments period for the proposed rules, the Office received several comments that suggested that a higher standard than a good cause should be set for a member of the public to obtain access to a sealed settlement agreement in an IPR. Other comments suggested that the good cause standard should be interpreted to rarely permit access to a settlement that includes confidential material. (Rules of Practice for Trial Before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions, 77 5
Fed. Reg. 48612, 48649 (Aug. 14, 2012)). However, in response the Office noted that the good cause standard was required by statute and thus it must be adopted by the Rules. Id. For now, the requirements for showing good cause for a third party to unseal a settlement agreement remain obscure. It is likely to be a very difficult burden to meet and we know of no cases in the IPR context where it has happened. A similar requirement has long existed for gaining access to a confidential settlement agreement from a patent interference. Anectdotally, one Administrative Patent Judge has explained that in 10 years of practice, he was aware of only one party that had successfully obtained a settlement agreement and it was that party s own settlement agreement and even that party had to show good cause. d. Avoiding submitting the settlement agreement When seeking termination of an IPR pursuant to a settlement, the Board requires parties to submit the settlement agreement. Although the agreement may be kept separate from the IPR and patent files, and it may be filed with a request to be maintained as confidential, parties may nevertheless wish not to the submit the agreement at all. But a party s options to avoid submission are limited under the Board s current practice. One option would be to ask the Board to administratively exempt the party from having to submit the settlement agreement. While this might at least be a theoretical option, there is no order to date from the Board indicating a willingness to make such an exemption. Another option would be for the patent owner to request adverse judgment under 37 C.F.R. 42.73(b), but the regulations require the party to disclaim, cancel, abandon, or concede its position. Potential petitioners should consider the Board s strict stance on this issue before filing a petition. The 6
Board has not permitted parties simply to dismiss an IPR as though it were a civil action in district court. IV. Estoppel considerations with settling Upon settlement and termination of a petitioner from an IPR, the governing statute expressly precludes any estoppel effect that otherwise attaches once a final written decision is issued in an IPR. 35 U.S.C. 317(a). Thus, theoretically, a petitioner could later assert the same grounds of unpatentability/invalidity against the patent in a different proceeding. But parties to a settlement can build estoppel into a settlement agreement. That way, the patentee can ensure that it is not later faced with a challenge to the patent on the same grounds as the settled IPR. Even though settlement and termination may alleviate estoppel concerns for the petitioner, there could remain collateral consequences for the patent owner in the scenario where the Board refuses to terminate the entire proceeding. In such circumstances, the patent owner still faces the risk that it will be precluded from taking action inconsistent with the adverse judgment, such as pursuing patentably indistinct claims or pursuing amendments to the specification or drawing that were denied during the IPR. See 37 C.F.R. 42.73(3)(i),(ii). V. Hatch-Waxman-Specific Considerations IPRex proceedings were seldom used as complements to generic drug (i.e., ANDA) litigation arising under the Hatch-Waxman Act, largely due to their long pendency. But generic challengers in these niche patent cases have evinced a willingness to use IPRs as a parallel mode of attack against Orange Book-listed patents. The first IPR filed in conjunction with ANDA litigation, IPR2013-00012 involved a patent that had previously survived an invalidity challenge in district court, yet the Board instituted the IPR trial over the same art that previously had been 7
litigated. While the prior district court litigant was found to have infringed the patent, which was deemed not invalid in district court, the patent owner and the subsequent IPR petitioner settled their dispute without the Board issuing a final written decision on the merits. Given the nuanced nature of Hatch-Waxman litigation, the ability to settle an IPR is an added attractive feature contributing to the proceeding s relative popularity within this sector of patent litigation. Although multiple generic companies may be adverse to the same brand company and face similar allegations of infringement against the same patent, the generic companies compete with one another. Accordingly, and to the extent possible, generic challengers would prefer to reach a resolution where the patent is no longer an obstacle to their own market entry, but where it serves as block to other generic players. Settling an IPR provides the opportunity for such a benefit. In contrast to the electronics or tech sector, the brand pharmaceutical industry relies heavily on a starkly fewer number of patents to support market exclusivity. That reality, coupled with the fast pace of IPRs, provides a powerful incentive for brand patent owners to seek settlement if the Board institutes trial. Unique to Hatch-Waxman patent cases is the statutory requirement that any settlement agreement between a generic company and a brand company be submitted to the Federal Trade Commission and Department of Justice (Antitrust Division) for review. The Federal Agencies typically raise any objections to settlement agreements within 60 days. When terminating Hatch- Waxman actions in district court pursuant to a settlement, parties commonly include a built-in mechanism to re-open the matter in the event the FTC or DOJ raises problems with the settlement. While no provision of the statute expressly forbids a petitioner from filing an additional IPR petition following a settlement in the absence of a final written decision, a patent owner settling an IPR may wish to include such a prohibition in the settlement agreement. 8
Often, however, the petitioner will be precluded from filing a subsequent IPR petition because of the statutory bar that arises one year after service of a complaint alleging patent infringement. 35 U.S.C. 315(b) Thus, Hatch-Waxman litigants who intend to seek termination of an IPR pursuant to a settlement may wish to try to allow for at least a 60-day cushion for any mandatory deadline in the IPR, or expect to continue with the IPR for a time period to allow for Federal Agency review. But IPRs, once instituted, proceed at a fast pace. And parties to an IPR cannot stipulate to move certain of the later deadlines in the IPR. While such parties may be able to obtain some relief from the Board, depending on the circumstances, such parties should not assume that the IPR schedule will be modified to accommodate their settlement objectives. In general, the Board is reluctant to delay proceedings, particularly in light of the statutory mandates to issue a final written decision within one year of instituting trial, absent good cause or joinder. 35 U.S. C. 316(a)(11). VI. Conclusion The ability to terminate an IPR without creating an estoppel has been an attractive feature of IPRs as compared with IPRexs. And roughly 25% of IPRs have been settled. Approximately 80% of patents involved in IPRs are also involved in district court litigation. And parties to an IPR must understand that settling an IPR has markedly different constraints and considerations than settling a civil action, as discussed above. 1797929 9