Administrative Patent Validity Determinations If The Proposed US Patent Reform Act Of 2009 Passes

By Matthew A. Smith, Stephen B. Maebius & Jon W. Dudas¹

On 3 March, 2009, bills² were introduced by Congressman John Conyers (Michigan) and Senator Patrick Leahy (Vermont) respectively, setting forth the proposed “Patent Reform Act of 2009”. The legislation proposes significant changes to post-issuance proceedings available to challenge patents in the United States.

Creation of a Third Type of Post-Issuance Proceeding

Among the many significant amendments, one of the most significant is the introduction of an entirely new “post-grant review” proceeding.³ The post-grant review (“PGR”) proceeding would be an opposition-style proceeding, which could be initiated only after a patent has already issued.⁴ This means that the patent would be enforceable during the pendency of the proceeding.⁵ The PGR proceeding would be available alongside the current ex parte and inter partes reexamination procedures, but for a window of only 12 months after a patent’s issuance or upon consent of the patent owner.

The proposed proceeding would be conducted by three judges of the renamed “Patent Trial and Appeal Board”, thus skipping the examiner stage altogether.⁶ The first draft of the legislation requires the board to issue a final decision within one year of the filing of a petition, extendable by the director for good cause for up to six months.⁷ The time limits are not hard-coded into the legislation, but rather would require the Patent & Trademark Office (“PTO”) to issue regulations incorporating the limit. This presumably gives the PTO the ability to waive the limits if necessary.

The planned PGR proceeding would be a formidable new weapon to challenge the validity of a patent, even taking into consideration the modifications being made to reexamination proceedings. Most importantly, the scope of the PGR proceeding is not limited to questions related to patents and printed publications. Instead, essentially any basis for invalidity can be asserted, except for failure to meet the best mode requirement of section 112.⁸ Further, the threshold for a PGR proceeding is not a substantial new question of patentability, just a substantial one.⁹ This would allow petitioners to request cancellation based on issues reviewed in ex parte prosecution.

The proposed legislation also foresees a limited form of discovery, to be fleshed out by the PTO.¹⁰ This is a perhaps necessary aspect of the legislation to deal with situations where the parties should be allowed to explore questions relating to non-publication prior art, or complex issues under 35 U.S.C. § 112.¹¹ The legislation would limit discovery to subjects commensurate with the intended purpose of the proceedings and the interests of justice, and to things directly relevant to the questions presented (and not, for example, discovery of material “likely to lead to relevant evidence”).¹²

A PGR proceeding would be initiated by a petition, which must be filed within 12 months after the issuance of a patent or a reissue patent.¹³ The petition must identify the real party in interest.¹⁴ If a claim is found patentable in the PGR proceeding, the petitioner would not be allowed to challenge the claim in essentially any other proceeding (reexamination, derivation, PGR, district court, or the International Trade Commission) on the basis of issues raised in the PGR proceeding.¹⁵ Reciprocally, if a court or ITC enters a final judgment or determination that a defendant failed to prove the invalidity of a claim, the defendant and its privies may not petition for PGR, and the PTO may not maintain a PGR proceeding.¹⁶

In addition to the establishment of the PGR proceeding, the proposed legislation would make some significant changes to ex parte and inter partes reexamination proceedings. The most significant of these changes would be the inclusion of “substantial public uses” and “on sale” into the types of prior art that can be asserted in reexamination.¹⁷ The scope of reexamination proceedings will remain narrower than that of the proposed PGR proceedings, but will expand significantly if the legislation passes. Because reexamination does not entail discovery of the type envisioned for PGR proceedings, reexaminations could see more PTO-origin requests for information to deal with substantial public use and on sale prior art challenges.

Reforms To Existing Reexamination Procedures

Most proposed changes to reexamination would impact only the inter partes variety. Perhaps the most significant change to the perception of the proceeding would occur through the amendment of 35 U.S.C. § 315(c), to narrow the scope of estoppel attaching to losing requesters.¹⁸ The proposed legislation would limit estoppel to issues actually raised, not issues that “could have been raised”. It is likely that the narrowing of this estoppel would greatly increase the use of the inter partes reexamination.¹⁹

The proposed legislation would also amend 35 U.S.C. § 317(b), which is the section of the statute specifying the effect of a court decision or prior inter partes reexamination decision on a pending inter partes reexamination proceeding. The proposed amendment would make clear that section 317(b) limitation applies after the “judgment of a district court”,²⁰ in essence forcing a requester to file a request early in the start of a parallel litigation or risk having the reexamination cut off by a judgment of the district court, or alternatively file before litigation even begins. Currently, the statute applies to “final decisions”, which has been interpreted by the PTO to mean decisions “after any appeals”.²¹ The PTO has in some cases suspended inter partes reexaminations after district court validity rulings where further appellate proceedings were underway, but only upon petition by the patent owner and on a case-by-case basis.²²

A current problem vexing reexamination practitioners has been that there are no clear guidelines to coordinate parallel litigation and inter partes reexamination. In some cases, the PTO has agreed to suspend an inter partes reexamination co-pending with a litigation at an advanced stage. In other cases, the PTO has not done so. The PTO has indicated that it decides each petition to suspend on a case-by-case basis. By applying estoppel after a final judgment is entered by the district court, requesters may be forced under this amendment of 317(b) to file an inter partes reexamination request before litigation or at least at an early stage in litigation if they are to have any hope of reaching a final decision from the PTO before the district court reaches such a point. Given the current timelines for handling reexamination, even filing after the start of litigation will not lead to a final decision from the PTO before a district court would reach its judgment unless the litigation is stayed. Although courts vary tremendously in their willingness to grant stays, in general, the earlier the reexamination starts during a district court litigation, the more likely there is to be a stay of the litigation.

One effect of forcing early filing of reexamination requests is likely to be that a greater number of district court actions will be stayed pending outcome of the reexamination, thus effecting one of the original goals of the inter partes reexamination legislation: providing an alternative to litigation rather than enhancing the complexity of litigation. Properly coordinating parallel litigation and reexamination to conserve judicial and PTO resources should be a paramount goal.

The proposed legislation would also eliminate § 4607 of the American Inventor Protection Act (“AIPA”).²³ This section prohibited third party requesters from challenging “at a later time” facts established in “during the process” of an inter partes reexamiantion. This is an overdue legislative step that would eliminate the vague and uncodified factual estoppel²⁴ that threatened third-party requesters in inter partes reexamination.

Perhaps the most uncertain change proposed by the legislation is the assignment of inter partes reexamination cases to an administrative patent judge. Unlike PGR, an inter partes reexamination would not be heard directly by the Patent Trial and Appeal Board, but rather by a single APJ.²⁵ This change has potentially far-reaching implications, but has largely been left to the PTO to implement through rule-making. The parties would have the right to an oral hearing before the APJ,²⁶ which could further slow the proceedings.

The proposed legislation also changes the nature of requester participation. Under the current form of the legislation, requesters would be able to comment on BOTH an office action and a patent owner submission, having 60 days to comment in both cases.²⁷

Although the legislation places a one year (+6 months) limit on the length of a PGR proceeding, no effort is made to improve the speed of reexamination. In fact, the legislation may introduce delay into inter partes reexamination, by giving the parties an opportunity for an oral hearing, and by allowing requesters to file comments within 60 days after an office action on the merits and a patent owner submission. The legislation does mandate that the PTO study the efficiency of reexamination, but does not specifically require an evaluation of the causes of delay.²⁸ This is a disappointment to many observers.

The legislation concerning post issuance proceedings (including reexamination) would take effect one year after the date of enactment.²⁹ The changes to the reexamination statutes would apply to all patents,³⁰ which is perhaps in modest tension with AIPA § 4608.³¹

Post-Grant Validity Determination Landscape After Proposed Patent Reform

If the legislation is adopted as is, a number of options would be available to challengers of patents. The significant features of the post-issuance landscape would be as shown in the chart below:

Post-Grant Review Ambiguities Created Proposed Patent Reform

The proposed legislation, if adopted in its present form, would introduce or leave in place a number of ambiguities. The authors suggest attending to at least the following details in further drafts of the legislation:

Clarify the scope of the limitation in proposed subsection 324(1): Proposed subsection 324(1) prohibits PGR proceedings based on petitions that identify “the same cancellation petitioner and the same patent as a previous petition for cancellation filed under such section”. This section is triggered by a previous petition, not a previous proceeding or previous certificate. A petition that was dismissed for formal reasons would not be re-fileable. A proceeding that is terminated under proposed subsection 332 could not be requested again. Similarly, the limitations placed on the estoppel provisions of subsection 335(3) (for example, that estoppel applies only to matters actually raised in the PGR proceeding) would seem to be meaningless in light of section 324(1).

Clarify the meaning of “final” Changes in the proposed legislation would also introduce some new questions about the meaning of “final”. The word “final” is used in multiple contexts to mean different things, leaving room for argument on behalf of the parties and PTO about the proper implementation and effect of PGR proceedings. Proposed subsection 326(b)(1) requires regulations specifying that the “final determination” in a post-grant proceeding will issue not later than one year”. It is unclear what stage in the proceedings must be reached within a year. Subsection 330 requires the board shall issue a “final written decision“, but not a “final determination” as in section 326. Section 331 refers to a “final decision” (not a “final determination” or “final written decision”) in referring to section 330, but then states that the PTO may issue a certificate when all matters are “finally determined” (presumably after any appeals). Section 334 refers to the effect of a “final decision” in court on an ongoing PGR proceeding. Thus, the legislation proposes getting rid of “final decision” in subsection 317(b), only to put that language back into section 334. The opening paragraph of section 334, as applied to the ITC, does not refer to a “final determination”, but rather a “determination that has become final“. This probably reflects the fact that the ITC actually issues a “final determination” prior to an appeal to the Court of Appeals for the Federal Circuit. Proposed section 334 then moves away from the language “determination that has become final”, however, referring in subsection (2) to a “final determination” of the ITC. Proposed section 335 refers to section 330 and invokes the estoppel provisions after that final written decision of that section, calling it however a “final decision“. As it is written, section 335 would appear to apply the estoppel provisions to the “final written decision” of the Patent Trial and Appeal Board, that is, prior to any appeals and prior to the issuance of a certificate under section 331.

Clarify the application of subsection 333(2): Proposed subsection 333(2) governs the use of evidence from a PGR proceeding in a co-pending or later litigation. It states that “the commencement of a post-grant review proceeding … (2) shall not be cited as evidence relating to the validity of any claim of the patent in any proceeding before a court or the International Trade Commission concerning the patent”. The section currently only refers to “commencement”. Is it intended, for example, that a litigant would not be able to refer to a commencement in litigation, but would be able to refer to a “final written decision” under section 330, or any other intermediate decision prior to the “final written decision”? It is also unclear what “evidence relating to the validity” excludes. Claim construction is potentially related to validity, but evidence from post issuance proceedings has historically been available to introduce on claim construction matters. Similarly, courts have allowed evidence from reexamination for a variety of other litigation matters potentially related to validity, for example whether a likelihood of success on the merits has been established in a motion for preliminary injunction.

Inter Partes Reexamination Ambiguities Left By Proposed Patent Reform

Clarify differences between the parties, privies and real parties in interest: The legislation that would form the basis of the PGR proceeding uses the term “cancellation petitioner” rather consistently. Proposed amendments to 35 U.S.C. § 100 specify that the “cancellation petitioner” is the real party in interest behind the petition. In reexamination, however, there has historically been a distinction between the requester and the real party interest, principally because ex parte reexamination requests may be filed without identifying a real party in interest. When the AIPA introduced inter partes reexamination, an attempt was made to distinguish between the different users of the system, and to treat each consistently. This attempt, however, was only partly successful. Confusion remains as to the application of the estoppel provisions in subsections 315(c) and 317(b). Subsection 315(c) by its literal language applies only to the “third party requester”, even though it would seem that the real party in interest and its privies are the real target of the estoppel. Subsection 317(b) applies to a “party or its privies”, but never uses the term “real party in interest”.

Clarify the final sentence of 35 U.S.C. § 317(b): The final sentence of subsection 317(b) carves out an exception to the limitation on filing or maintaining an inter partes reexamination when the real party in interest has lost in court or in inter partes reexamination on a claim. The last sentence states “[t]his subsection does not prevent the assertion of invalidity based on newly discovered prior art unavailable to the third-party requester and the Patent and Trademark Office at the time of the inter partes reexamination proceedings.” The sentence is ambiguous when applied to the rest of the subsection.³²

Four situations present themselves. In the first, a court proceeding has concluded before the request for inter partes reexamination is filed. In that case, the language “at the time of the inter partes reexamination proceedings” can only refer to one request. However, if the prior art is “unavailable…at the time of the inter partes reexamination proceedings”, then it by definition can not form the basis of the request. Thus, the exception if taken literally should never apply to the situation involving a prior court judgment, which was probably not intended.

In the second situation, a prior inter partes reexamination concluded unfavourably for the requester, and a new one is being filed. In that situation, the phrase “at the time of the inter partes reexamination proceedings” is ambiguous, because there are two reexaminations. If the language (more logically) applies to the prior proceeding, then it is ambiguous as to the point in time during the multi-year proceeding. The requester may or may not be precluded from seeking inter partes reexamination on prior art that was admittedly known to the requester during the prior proceedings, but too late to have it introduced.

In the third situation, a litigation concludes during a co-pending inter partes reexamination. This situation initially suffers from the same logical problem – the exception can never apply if “at the time of the inter partes reexamination proceedings” means “at all times during the inter partes reexamination” In this situation, however, the reexamination has been going on for some time, and a the PTO could potentially choose from multiple points in time during the proceedings. For example, one could interpret “at the time of the inter partes reexamination proceedings” to mean “at the time of the request for inter partes reexamination”. In that case, the application of subsection 317(b) would depend on whether the requester had managed to introduce new prior art after the request had been filed. This does not seem particularly germane, however, because the determination would have nothing to do with whether the prior art was considered in the litigation.

In the fourth situation, a first inter partes reexamination concludes when a second is still pending. In this situation, the director has presumably granted a petition under 35 U.S.C. § 317(a). Here again, the exception does not specify which inter partes reexamination is referenced. If the exception refers to the concluded inter partes reexamination, it would cause the second reexamination to terminate, because the second proceeding is co-pending with the end of the first. Based on the literal wording of the statute, the result does not depend on whether new prior art is being reexamined in the second proceeding, and is despite the fact that the director presumably had good cause to allow a second reexamination in the first place.

Consider the effect of amending 35 U.S.C. § 100(e): The proposed amendment to subsection 100(e) would eliminate “person requesting….inter partes reexamination” from definition of “third party requester” in section 100. Thus, a “third party requester” would be defined as a person who requests ex parte reexamination. However, the term “third party requester” is used throughout the current statute (and in the proposed legislation) to mean the third-party requester in an inter partes reexamination.³³ The text was potentially removed as preparation for resolving references to the “third party requester” or “party and its privies” in subsections 315(c) and 317(b) (discussed above), but no corresponding definition of these terms for inter partes reexamination was introduced in the legislation.

Revise amendments to section 314: The proposed amendment to subsection 314(e) would allow the requester to file comments on any office action on the merits and any patent owner response, if the comments are filed within 60 days after service. These amendments were undoubtedly introduced to deal with the perceived harshness of the current, non-extendable 30-day comment period, as well as the requester’s inability to respond to a PTO action allowing the claims, if a patent owner chooses not to respond. The amendments as written, while they solve these problems, introduce a few irregularities. First, the requester will now have the right to comment twice – once on the office action, and once on the patent owner’s response – while the patent owner may comment only once. Second, the requester will have different deadline triggers and different dates for response than the patent owner, potentially causing confusion. For example, it is current PTO practice to allow a patent owner 30 days or one month, whichever is longer, to respond to an action closing prosecution.³⁴ Under the proposed changes to section 314, the requester would have a statutory right file a response within 60 days after the mailing date (service date) of the action closing prosecution, and another response within 60 days after being served with the patent owner’s response. We suggest that the requester’s right to respond be triggered by the patent owner’s right to respond, and that the deadline be two months or 60 days, whichever is longer, triggered by the earlier of service of the patent owner’s response or expiration of the patent owner’s time to respond.

Consider adopting a total length of time requirement for reexamination similar to proposed subsection 326(b)(1): The drafters of the legislation should consider placing reasonable limits on the total length of a reexamination proceeding, as was done for PGR proceedings. The PTO has a nearly flawless record complying with the 3-month limit of 35 U.S.C. § 312 for issuing a determination in inter partes reexamination.³⁵ Yet later stages of reexamination can often lag, even when there is no perceptible reason.³⁶ A statutory mandate may be sufficient impetus for a reorganisation of PTO resources that would significantly improve the speed of reexamination. A reasonable length of time for the conclusion of examiner-level proceedings might be 18 months, supplemented by any patent owner extensions provided under 37 C.F.R. § 1.956, and extendable by the director for good cause shown.

Conclusions

The current legislation would be a major step toward the goal of improving patent quality through effective post-issuance review. If the post-grant review proceedings are adopted, requesters will have a powerful option alongside reexamination with which to challenge faulty patents.

¹ Matthew A. Smith is an IP attorney with Foley & Lardner LLP in Washington, DC. He is the author if the treatise “Inter Partes Reexamination”. Mr. Smith may be contacted at masmith.work@gmail.com. Stephen B. Maebius is an IP partner with Foley & Lardner LLP in Washington, DC. Mr. Maebius may be contacted at smaebius@foley.com. Jon W. Dudas is an IP partner with Foley & Lardner LLP in Washington, DC and is the former Director of the US Patent & Trademark Office. Mr. Dudas may be contacted at jdudas@foley.com. All three co-authors are members of Foley’s Reexamination Practice Group. This article represents the work and opinion of the authors, and should not be imputed to Foley & Lardner LLP or its clients.
² See H.R. 1206 and S. 515, introduced March 3, 2009.
³ See H.R. 1206, proposed section 321 et seq.
⁴ See H.R. 1206, proposed subsection 322(1).
⁵ See H.R. 1206, proposed section 333(c)(1).
⁶ See H.R. 1206, proposed section 333(c)(1).
⁷ See H.R. 1206, proposed subsection 326(d).
⁸ See H.R. 1206, proposed sections 321 and 324(2).
⁹ See H.R. 1206, proposed subsection 325(a).
¹⁰ See H.R. 1206, proposed subsection 326(a)(3).
¹¹ Under the current system of reexamination, there is already a possibility to obtain limited “discovery” through the use of proposed information requests under 37 C.F.R. 1.105 by the requester (this rule states that “[i]n the course of examining or treating a matter in a pending or abandoned application filed under 35 U.S.C. 111 or 371 (including a reissue application), in a patent, or in a reexamination proceeding, the examiner or other Office employee may require the submission, from individuals identified under § 1.56(c), or any assignee, of such information as may be reasonably necessary to properly examine or treat the matter”). For example, one of the co-authors of this article submitted proposed information requests in a pending ex parte reexamination for the Examiner’s consideration to obtain additional information from the patent owner about a working example in the patent’s specification. The Examiner accepted the proposed requests and issued them in the next action, forcing the patent owner to respond and provide the requested information. This led to the cancellation of several claims in the patent.
¹² Compare H.R. 1206, proposed subsection 326(a)(3) with F.R.C.P. 26.
¹³ See H.R. 1206, proposed subsection 322(1).
¹⁴ See H.R. 1206, proposed subsection 323(2) and proposed amendments to section 100 adding subsection 100(k).
¹⁵ See H.R. 1206, proposed section 335.
¹⁶ See H.R. 1206, proposed section 334.
¹⁷ See H.R. 1206, proposed amendments to sections 301, 303 and 311.
¹⁸ See H.R. 1206, proposed amendments to subsection 315(c).
¹⁹ The application of estoppel against a requester for all issues that “could have been raised” as opposed to only those which were actually raised has been blamed for the limited use of inter partes reexamination as an alternative to litigation. Even with the “could have raised” standard, there has been a steady year-to-year increase in the number of inter partes proceedings. Since 2003, there has been a six-fold increase in the number of such proceedings. See http://271patent.blogspot.com/2008/05/another-critical-study-on-inter-partes.html.
²⁰ See H.R. 1206, proposed amendments to subsection 317(b).
²¹ See MATTHEW A SMITH, Inter Partes Reexamination 1E, pp. 24-26.
²² See MATTHEW A SMITH, Inter Partes Reexamination 1E, pp. 205-214, inter partes reexamination 95/000,314; Sony Computer Entertainment America, Inc. v. Dudas, U.S. Dist. LEXIS 36856 (E.D. Va. 2006).
²³ See H.R. 1206, Sec. 6(j), repealing AIPA § 4607.
²⁴ See MATTHEW A SMITH, Inter Partes Reexamination 1E, pp. 38-40.
²⁵ See H.R. 1206, proposed amendments to subsection 314(a).
²⁶ See H.R. 1206, proposed amendment adding subsection 314(d).
²⁷ See H.R. 1206, proposed amendment subsection 314(b).
²⁸ See H.R. 1206, Sec. 8.
²⁹ See H.R. 1206, Sec. 7(k)(1).
³⁰ See H.R. 1206, Sec. 7(k)(2).
³¹ See MATTHEW A SMITH, Inter Partes Reexamination 1E, pp. 73-76.
³² See MATTHEW A SMITH, Inter Partes Reexamination 1E, pp. 30-33.
³³ See, e.g., 35 U.S.C. §§ 134, 141, 311, 312, 314, 315 and 317.
³⁴ See MPEP § 2671.III.(D).
³⁵ See MATTHEW A SMITH, Inter Partes Reexamination 1E, pp. 54-55.
³⁶ See, e.g., inter partes reexamination 95/000082 (2007-10-03 Termination)(2.5 year delay between denying reexam request and termination of case); 95/000112 (2006-03-02 Requester Comments; 2007-11-29 Notice returning comments for failure to comply with form requirements); 95/000124 (2006-11-13 Requester Comments; 2007-11-28 Notice returning comments for failure to comply with form requirements); 95/000129 (2006-06-12 Request for extension; 2008-10-09 Decision (correctly) denying request with three paragraphs of reasoning, potentially ending the reexam); 95/000140 (2006-09-11 Amendment, 2008-05-28 Notice returning amendment for failure to comply with form requirements); 95/000150 (2007-03-30 Amendment; 2008-09-04 Notice Re: Defective Paper); 95/000085 (2007-01-25 Action Closing Prosecution with no Patent Owner Response, 2007-08-17 Right of Appeal Notice, 2008-02-13 Notice of Intent to Issue A Reexamination Certificate, as of 2009-03-05, no certificate issued); 95/000086 (2005-09-02 Requester’s comments received, 2008-08-08 Next Action); 95/000097 (2006-06-06 Appellant’s Brief, 2006-06-16 Respondent’s Brief, 2007-05-22 Notice Re: defective Appellant’s Brief; 2007-06-06 Revised Brief; 2008-08-20 Examiner’s Answer); 95/000102 (2006-11-13 Requester Comments, 2008-06-26 Notice Re: Defective Paper); 95/000109 (2007-05-17 Notice of Intent to Issue A Reexamination Certificate, no certificate as of 2009-03-05).