Will the America Invents Act (AIA) Change Patent Litigation in the Eastern District of Texas?

Will the AIA Change Patent Litigation in the Eastern

District of Texas?November 2011

Why Do So Many Patent Suits Get Filed in the Eastern District of Texas?

• Judges prefer not to stay for reexam• Judges do not like to transfer venue• Jury pool is sympathetic to plaintiffs• Location• Judge shopping• “Rocket Docket” local rules

How Will The AIA Affect Litigation In the Eastern District of Texas?

Some suggest it will have little or no overall effect.

Goals:1. Reduce cost of disputes (particularly validity)2. Increase speed of decision on the merits3. Reduce perceived stranglehold of NPEs4. Create/increase quality control mechanisms

Changes/Additions:• Joinder• Creating Post Grant Review (PGR)• Inter Partes Reexam/Review (IPR)

Joinder: Changes

As of 9/16/2011 infringement can only be asserted against multiple parties joined in a single suit if

• relief is asserted jointly or severally, or• arises out of the same infringing “transaction

or occurrence” relating to “the same accused product or process”

• and questions of fact common to all defendants will arise in the action.

Joinder: Result

As the signing of the AIA became a reality, NPEs began filing large numbers of complaints, many in the ED of TX.

And after the AIA was signed? . . .

Joinder: Result

It appears NPEs kept right on filing!

NPEs filed 186 suits (nationwide) from 9/16 – 10/31 compared to 89 for the same period in 2010

More suits, fewer defendants per suit:• Average defendants per NPE suit pre-AIA: 5• Average defendants per NPE suit post-AIA: 2

Joinder: Trends to Watch For

• Reduction in patent suits filed in ED of TX (?)• Overall reduction in patent litigation (?)• Cost/complexity more suits w/fewer parties

going to price NPEs out of litigation (?) Early results suggest this is not the case.

• Another theory: NPEs will take cases to the ITC where joinder rules don’t apply (?)

Post Grant Review: Litigation Snapshot

• As of 9/16/2012, PGR gives 9 months after patent grant or reissue to file petition

• Petitioner’s Threshold: More likely than not at least 1 claim is unpatentable.

• Basis for invalidity: Anything in para 2 or 3 of 35 USC 282(b) includes written description and enablement

• USPTO can impose limits on PGRs in first 4 years. No guidance in statute on how many to allow.

Post Grant Review: Litigation Snapshot

• Petitions are publicly available “as soon as practicable”

• Petitioner barred by prior DC invalidity claim• Petitioner’s later filed DC suit automatically

stayed• Estoppel: Decisions of PTAB binding on

positions taken in DC or ITC for any issues raised or reasonably could have been raised

Post Grant Review: Unique Issues• Only have 9 months to act: Litigation tool or

improving quality of patents? Increased monitoring required = increased expense.

• Functionally unavailable until ~2015 (exception for business method patents):– Applies to patents issued from applications with

claims filed on/after 3/16/2013– These applications won’t issue until ~2015/2016– For first ~3+ years PGR is available, essentially

won’t have any PGR available.• How will “more likely than not at least 1 claim

is unpatentable” be construed? Higher threshold than SNQP with broader basis.

Inter Partes Review: Litigation Snapshot• As of 9/16/2012 IPR replaces inter partes

reexam (IPX)• Must file after PGR or 9 months after grant• Defendants cannot petition more than 1 year

after service• Decisions mandated 12-18 months after filing• Possible caps: USPTO can cap at FY 2011

IPX grants or more for next 4 years. • Basis for invalidity: 102 and 103 based on

patents or printed publications.

Inter Partes Review: Litigation Snapshot• Petitioner’s Threshold: reasonable likelihood

petition would prevail with respect to at least one claim. NOTE: As of 9/16/2011, this is now the new threshold for IPX as well. Higher than SNQP!

• Petition publicly available as soon as practicable.

• Petitioner barred by prior DC invalidity claim.• Petitioner’s later filed DC suit automatically

stayed.• Estoppel: Decisions of PTAB binding on

positions taken in DC or ITC on any issues raised or reasonably could have been raised.

Inter Partes Review: Unique Issues• Date of Service Quirk: Short-Term Plaintiff’s tool against PGR/IPR

– Post 9/16/2012: Must file for PGR within 9 months– Post 9/16/2012: Must file for IPR within 1 year of service but can’t file until

after PGR concludes or 9 months passes– No PGR until 2015/2016 when first-to-file patents issue– So Crafty plaintiff does the following:

Patent issues 10/1/2013 on pre-AIA app filed 2009 Plaintiff patentee files suit next day on 10/2/2013 in ED of TX Defendant cannot file for PGR because patent has no first-to-file claims Defendant is barred from IPR until 7/1/2014 Defendant also cannot file for IPR after 10/2/2014: Only 3 month window!

• Result: Defendant is now 9 months into the ED TX “rocket docket” wanting IPR and a stay from a court that doesn’t like to give them anyway. . . Some districts are even faster as we’ll see later!

• Temporary issue/extreme case: Exposes issues with serial nature of these provisions. More on this later.

Inter Partes Review: Unique Issues cont.New IPR rules makes Defendant’s stay much more likely? • AIA estoppel makes written decision of PTAB in IPR (or PGR) binding on

arguments made in DC or ITC. Don’t have to wait for appeals.• AIA failure to prove invalidity in DC means IPR continues in parallel. Not

like current inter partes reexam!• If stay is granted: PTAB will simplify the issues in DC by estoppel or

resolve the dispute by invalidating the patent.• If stay is not granted:

– IPR will continue in parallel and estoppel will attach if it finishes first. Will it finish first? Looking at 18-24 months. What about appeals to CAFC?

– If DC finishes first, verdict is in a strange state because IPR might invalidate some or all of the claims anyway. See next slide. . .

• Argument for stay: DC should hold off because IPR might result in invalidity after the verdict. Why go to the trouble of having a trial when the result won’t vacate the IPR and the IPR might invalidate the claims afterward anyway? Expensive and potentially very wasteful.

• Remember: Defendant must file for IPR within 1 year of service!• Question: What can’t USPTO make an analog to 37 CFR 1.907(b) and

vacate IPR if validity fails in DC? I can’t see why not. Don’t have IPR rules yet.

Inter Partes Review: Unique Issues Cont.

More twists to parallel litigation and inter partes review: Estoppel is blind

• DC finds a claim infringed, but invalid over prior art. Both sides appeal.

• PTAB issues its “final written decision” invalidating the same claim over the same prior art triggering estoppel

• Claim is now invalid twice, but now defendant infringer who used IPR “may not assert” the claim is invalid in court.(!)

• Enforcement of estoppel is not discretionary!• Another good argument for defendants asking for a stay of

litigation pending outcome of IPR!• Otherwise courts might reopen the judgment or (only at the

CAFC), affirm the PTAB decision and vacate infringement on that ground.

Inter Partes Review: Unique Issues Cont.• Defendants cannot wait until late stages of

litigation: Must file within year of service.• How will “reasonable likelihood the petition

would prevail” be construed? Tougher standard than SNQP on its face.

Litigation vs. PGR/IPR: Issues• Speed: USPTO promises 12-18 for the decision. Altogether the

process will take 18 – 24 months:– Does USPTO have $$$ to adequately fund this mandate? Recall: Fee

diversion amendment lost by 2 votes!– Adequately funded or not, will it actually be faster than ED of TX with

Median Time to Trial (MTT) of 2.14 years?– MD of FL with MTT of 1.71 years?– WD of WI with MTT of 1.07 years?– ED of VA with MTT of 0.93 years?– What about appeals to the CAFC from PGR/IPR decisions?

• Cost: Most sources think PGR/IPR will be cheaper (factor of 10). Some not so sure. USPTO hasn’t give us procedural rules yet. What about appeals?

• Trial Considerations: Location, jury pool, ALJs vs. EDTX bench. NOTE: Bigger change may be judge turnover. Judge Ward and Magistrate Judge Everingham are now in private practice. Chief Judge Folsom is leaving in March of 2012. Will ED TX be the same without Ward, the architect of its current legacy?

Litigation vs. PGR/IPR: Trends• Estoppel provisions: Petitioner can’t make the

same arguments in DC later and can’t argue in USPTO and DC at the same time. Will this dampen offensive use of PGR?

• Mass Migration from ED TX to USPTO? Nobody seems to be expecting that for now.

• Who Will Use PGR/IPR and When?• Will there be a flood of PGR/IPR to beat caps?

Litigation vs. PGR/IPR: Trends cont.• Serial nature of PGR and IPR potentially leave

enforceability of patent in doubt for years as competitors line up.– Actual PGR time to complete 18-24 months.– Appeals to CAFC after that– Then IPR from competitor 1 18-24 months.– Appeals to CAFC after that– Then IPR from competitor 2 18-24 months.– Remember: Competitors see petitions, before

they are accepted by the USPTO.

• Odd tension: Less litigation vs. desire to tighten grant of administrative review.

Summary

AIA attempts to reduce the volume and cost of frivolous patent litigation by:

• Changing joinder rules to loosen the perceived strangle-hold NPEs maintain on patent litigation, particularly in ED TX

• Adding PGR and changing IPR to provide alternatives to expensive law suits

It remains unclear what changes these provisions will have on cost and strength of patent protection.