Reexamination Proceedings During A Lawsuit: The Alleged Infringer s Perspective

Reexamination Proceedings During A Lawsuit: The Alleged Infringer s Perspective AIPLA 2007 Spring Meeting June 22, 2007 Jeffrey M. Fisher, Esq. Farella Braun + Martel LLP jfisher@fbm.com 04401\1261788.1

INTRODUCTION Reexamination proceedings in the United States Patent and Trademark Office ( PTO ) are becoming an increasingly more common forum for addressing invalidity issues that arise in patent infringement litigation. Having an understanding of these proceedings is therefore essential for any patent litigator. This paper discusses the potential benefits and pitfalls of reexamination proceedings from the perspective of the alleged infringer. Specifically, after providing an overview of both ex parte and inter partes reexamination proceedings, this paper discusses issues alleged infringers should consider when facing or contemplating reexamination proceedings. OVERVIEW OF REEXAMINATION PROCEEDINGS There are two forms of reexamination proceedings: ex parte and inter partes proceedings, described below. Ex Parte Proceedings Procedures relating to ex parte reexamination proceedings are set forth in 35 U.S.C. 302-307, 37 C.F.R. 1.510-1.570 and Chapter 2200 of the Manual of Patent Examination Procedure ( MPEP ). The reexamination statute was enacted in 1980 to accomplish three principal goals: First, the new procedure could settle validity disputes more quickly and less expensively than the often protracted litigation involved in such cases. Second, the procedure would allow courts to refer patent validity questions to the expertise of the Patent Office. Third, reexamination would reinforce investor confidence in the certainty of patent rights by affording the PTO a broader opportunity to review doubtful patents. Patlax Corp. v. Mossinghoff, 758 F.2d 594, 602 (Fed. Cir. 1985) (citations omitted). A request for ex parte reexamination may be filed by any person, including the patent holder or the alleged infringer. The reexamination request must cite prior art consisting of patents or printed publications which that person believes to have a bearing on the patentability of any claim of a particular patent. 35 U.S.C. 301. Reexamination will occur if there is a substantial new question of patentability affecting any claim of the patent. See id. 301, 303, 304. Although the patent holder may not enlarge the scope of any claims, during the course of the reexamination proceedings the patent owner may propose any amendment to his patent and a new claim or claims thereto, in order to distinguish the invention as claimed from the prior art cited under the provisions of section 301, or in response to a decision adverse to the patentability of a claim of a patent. Id. 305. In general, although an alleged infringer can initiate ex parte proceedings (id. 302) and file one response (id. 304), the alleged infringer 07811\1261058.1 1

has no other ability to participate in ex parte reexamination proceedings. The patent holder, however, may conduct personal or telephone interviews with the examiner. See MPEP 2281. Inter Partes Proceedings 1 Procedures relating to inter partes proceedings are set forth in 35 U.S.C. 311-318, 37 C.F.R. 1.510-1.570 and Chapter 2600 of the MPEP. Enacted in 1999 to provide another alternative to litigation (at least in part because ex parte reexamination proceedings were viewed by some to unfairly favor patent holders), inter partes proceedings are similar to ex parte proceedings in that (1) they may be filed by any third party requester and must be based on prior art patents or printed publications, (2) reexamination will proceed if there is a substantial new question of patentability affecting any claim of the patent, and (3) there is no ability of the patent holder to enlarge the scope of its claims. See 35 U.S.C. 311, 312, 314. Unlike in ex parte proceedings, however, the alleged infringer can comment upon any response filed by the patent holder in inter partes proceedings. See id. 314(b)(2) ( Each time the patent owner files a response to an action on the merits from the Patent and Trademark Office, the third-party requestor shall have one opportunity to file written comments addressing issues raised by the action of the Office or the patent owner s response thereto, if those written comments are received by the Office within 30 days after the date of service of the patent owner s response. ). In addition, there is no right for the patent holder to interview with the examiner. The alleged infringer also has a right to appeal the PTO s ultimate decision. 35 U.S.C. 315(b). There is a price to pay for the alleged infringer s enhanced participation in the process, however. If the alleged infringer s inter partes request results in an order, the alleged infringer will be estopped from asserting at a later time the invalidity of any claim finally determined to be valid and patentable on any ground which the third-party requestor raised or could have raised during the inter partes reexamination proceedings. Id. 315(c). 2 POTENTIAL BENEFITS FOR ALLEGED INFRINGERS There are several advantages to the alleged infringer of using the alternate forum of the PTO to attack the validity of a patent asserted against it. First, if the PTO determines that the patent is indeed invalid during reexamination proceedings, the claims of the patent are canceled and the patent holder can no longer pursue an infringement action against it. Second, there is no presumption of validity during reexamination proceedings. In re Etter, 756 F.2d 852, 856 (Fed. Cir. 1985) (en banc); Patlex Corp. v. Mossinghoff, 758 F.2d 594, 605 (Fed. Cir. 1985). Given this lesser standard, the alleged infringer may be more likely to 1 Inter partes reexamination proceedings are only available for patents that were filed on or after November 29, 1999. See 37 C.F.R. 1.913. 2 This provision does not prevent the assertion of invalidity based on newly discovered prior art unavailable to the third-party requestor and the Patent and Trademark Office at the time of the inter partes reexamination proceedings. Id. 07811\1261058.1 2

obtain a favorable result in reexamination proceedings than in the district court (particularly where the alleged infringer is litigating in what it perceives to be an unfriendly jurisdiction). Some empirical evidence is emerging that inter partes reexamination proceedings may offer alleged infringers a greater change of invalidating a patent than in litigation. See R. Shang and Y. Chaikovsky, Inter Partes Reexamination of Patents: An Empirical Evaluation, 15 Tex. Intell. Prop. L.J. 1 (Fall 2006) (finding a staggering 57% all-cancellation rate in inter partes proceedings). Third, during reexamination proceedings, the patent holder may be forced to make amendments or engage in colloquy with the PTO that will narrow or clarify to scope of the claims. Fourth, reexamination proceedings are heard by the PTO examiner, and not a jury. If the patent holder has particularly effective witnesses or a compelling story, it will not have the ability to take advantage of these assets as part of its presentation to the PTO. Fifth, there is no danger of getting an adverse judgment requiring payment of damages or being enjoined from the PTO. This may allow the alleged infringer to have a better feel for the lay of the land such that, if the patent does come out of the reexamination process, the alleged infringer has an opportunity to settle or take a license prior to any adverse ruling in the district court. This may therefore increase the chances that the matter may be resolved prior to resolution in the district court. Sixth, in patent battles where the parties have seemingly endless resources, putting the patent holder s patent into reexamination opens up another front in the battle where the alleged infringer could obtain a favorable result. There have been many examples of these types of multi-front patent battles in recent years, i.e., NTP v. RIM. Finally, while the cost of participating in reexamination proceedings will obviously vary from case to case, there is little doubt that the costs of reexamination proceedings to the alleged infringer will be considerably less than full-blown patent litigation. Not only are out of pocket costs less, but there will be considerable savings in terms of discovery costs (both in terms of money and time) for the alleged infringer, i.e., no document production, no depositions, etc. These cost savings will only be realized, however, if the district court stays the underlying litigation. A Note About Stays Of Litigation Pending Reexamination District courts have discretion to, and often do, stay litigation pending reexamination proceedings. Ethicon v. Quigg, 849 F.2d 1422, 1426-27 (Fed. Cir. 1988); see also ASCI Corp. v. STD Entertainment USA, Inc., 844 F. Supp. 1378, 1381 (N.D. Cal. 1994) ( [T]here is a liberal policy in favor of granting motions to stay proceedings pending the outcome of reexamination proceedings. ). Among the factors the court will consider are whether the stay would prejudice the non-moving party or provide a tactical advantage to the moving party, whether the stay would simplify the issues and whether discovery is complete and/or a trial date set. See, e.g., Whatley v. Nike Inc., 54 U.S.P.Q.2d 1124, 1125 (D. Or. 2000); GDAC Inc. v. D.W.W. Enterprises Inc., 23 U.S.P.Q.2d 1129, 1132-33 (D.N.J. 1992). 07811\1261058.1 3

The alleged infringer should therefore give careful consideration to whether it should seek a stay or oppose a request for a stay made by the patent holder. While obtaining a stay of the district court action certainly saves costs, it will also serve to delay resolution of the litigation. This may be a positive thing for many alleged infringers. For example, delaying resolution of the district court action allows more time to design a work around, to develop noninfringement or invalidity arguments, seek to settle the case, etc. There are, of course, also instances where it is beneficial for the alleged infringer to have prompt resolution of the infringement question, i.e., where the patent holder s infringement accusation are impacting customers and the alleged infringer wants to clear the air. A Further Note About Litigating Claims That Have Been Changed During Reexamination As noted above, even if the patent comes out of reexamination, the claims may have been narrowed during the proceedings and/or the patent holder may have made significant concessions. The reexamination proceedings must be carefully evaluated, as they may have changed the scope of the claims significantly. Even if there is infringement of the new claim(s), claims added during reexamination are not infringed by activity prior to issue when the claims differ in scope. 35 U.S.C. 307(b); see also 35 U.S.C. 252 (reissue). This doctrine is discussed, for example, in Bloom Engineering Co. v. North American Manufacturing Co., 129 F.3d 1247, 1249-51 (Fed. Cir. 1997), and Fortel Corp. v. Phone-Mate, Inc., 825 F.2d 1577, 1580-81 (Fed. Cir. 1987). POTENTIAL PITFALLS FOR ALLEGED INFRINGERS There are also a number of potential pitfalls for the alleged infringer in reexamination proceedings. First, there is a significant risk the alleged infringer s position will not prevail in the PTO. Indeed, although there is no presumption of validity during reexamination proceedings, it is certainly conceivable that the PTO, which issued the patent in the first place, will not change its conclusions. Alternatively, the claims may be narrowed, but in a manner that still covers the alleged infringer s product(s). This is of particular concern in ex parte reexaminations, where, although the alleged infringer may get the first word if it initiates the proceedings, it has a limited ability to participate in the proceedings thereafter. The patent holder, however, may not only submit responses, but may also arrange for interviews with the examiner. If the patent does come out of the reexamination process, it can have significant adverse consequences to the alleged infringer. Most notably, it is less likely the patent will be invalidated. Kaufman Co. v. Lantech, Inc., 807 F.2d 970, 973-74 (Fed. Cir. 1986); Fromson v. Advance Offset Plate, Inc., 755 F.2d 1549, 1555 (Fed. Cir. 1985) (reissue). Indeed, the PTO s decision to uphold the validity of reexamined patent claims is strong evidence the district court must consider in assessing whether the party asserting invalidity has met its burden of clear and convincing evidence. Custom Accessories, Inc. v. Jeffrey-Allan Industries, Inc., 807 F.2d 955, 961 (Fed. Cir. 1986). This is particularly important given that there is no ability of the alleged infringer to appeal a finding by the PTO should come out of ex parte reexamination proceedings. 07811\1261058.1 4

This second blessing of the patent by the PTO may have a significant impact on the trial judge and/or jury. See Transmatic, Inc. v. Gulton Industries, Inc., 53 F.3d 1270, 1275 (Fed. Cir. 1995) (dismissing claim for patent invalidity where, inter alia, patent claims had twice passed the scrutiny of the PTO, including a reexamination procedure in the [the accused infringer] participated as the requester ). In the case of inter partes proceedings, of course, the alleged infringer who participated in the proceedings will be estopped from raising invalidity arguments considered by the PTO. This estoppel effect must be carefully considered when evaluating whether to initiate an inter partes reexamination proceeding. Second, although reexamination proceedings are commonly thought to take less time than litigation, this may not be the case. Indeed, reexamination proceedings sometimes take several years, while certain district courts are routinely resolving patent disputes in a year or less. There is therefore no guarantee that pursuing reexamination proceedings will result in prompt resolution of invalidity issues. SHOULD YOU PARTICIPATE AT ALL? While participating in reexamination proceedings ensures that the alleged infringer s position is at least considered, the decision to participate in reexamination proceedings if initiated by the patent holder must be given careful consideration. Deciding to participate in the proceedings may limit the ability of the alleged infringer to argue to the district court that the PTO s actions should not be afforded any deference. The accused infringer therefore runs a risk in participating in a reexamination proceeding and turning its best prior art over to the PTO. If the alleged infringer decides to participate, it should be aware of the possibility that its own conduct in the reexamination proceedings may have unforeseen, adverse consequences in any subsequent litigation. See, e.g., Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1571 (Fed. Cir. 1996) (failure of alleged infringer to cite prior art reference to PTO in reexamination proceedings weighs heavily against argument that prior art was material prior art for purposes of inequitable conduct claim). CONCLUSION As an alleged infringer, deciding whether to initiate or participate in reexamination proceedings involves many difficult and often hard to predict issues which should be carefully considered in the face of patent infringement allegations. Given that reexamination proceedings have continued to become more prevalent in patent infringement litigation, having an understanding of the risks and benefits of these proceedings is essential. 07811\1261058.1 5

JEFFREY M. FISHER has a diverse intellectual property and high technology disputes practice including patent, trademark and copyright infringement, as well as antitrust, trade secret and unfair competition cases. He is chair of the Farella Braun + Martel s intellectual Property & Technology Department. Mr. Fisher has litigated patent infringement actions relating to digital data compression, email encryption software, silicon wafer drying technology, cellular telephones, motion picture soundtrack technology and a screen for Down s Syndrome during pregnancy. He received his J.D. from the University of Illinois College of Law, summa cum laude, where he received the Order of the Coif and was editor of the University of Illinois Law Review. He serves as Vice President of the Ninth Judicial Circuit Historical Society and Vice Chair of the Intellectual Property Section of the Bar Association of San Francisco. 07811\1261058.1 6