(IPR) Analysis of Recent Rule Changes for Inter Partes Review
December 15, 2016
Technology and Telecommunications
Life Sciences and Biotechnology
Pharmaceutical and Medical Device
Cosmetics and Personal Care Products
The U.S. Patent and Trademark Office (PTO) has issued new rules for practice before the Patent Trial and Appeal Board (PTAB), which took effect on May 2, 2016. We review the key rule changes and consider their most likely effects on inter partes review (IPR) practice. The four main rule changes address (1) patent owners’ ability to include testimonial evidence in preliminary responses, (2) an alternative claim construction standard for expiring patents, (3) a Rule 11-type certification requirement for papers filed with the PTAB, and (4) new word count limitations for certain documents.
Testimonial Evidence in Patent Owner Preliminary Responses
The most significant rule change permits patent owners to include testimonial evidence in their preliminary responses to IPR petitions.[1] This change remedies a perceived disadvantage to patent owners under the old rules, which permitted expert testimony in IPR petitions but did not permit patent owners to include rebuttal expert testimony in their preliminary responses.[2] Patent Owners are expected to take advantage of the rule change to rebut petitioners’ expert testimony with their own prior to institution. As the PTO has noted, allowing patent owners to include testimonial evidence in their preliminary responses levels the playing field between petitioners and patent owners and allows the PTAB to base institution decisions on the best information available to both sides.[3]
But the new rule has a major caveat, as the PTAB will resolve material factual disputes in favor of petitioners when deciding whether to institute IPR.[4] This addresses petitioners’ concerns that allowing patent owners to include testimonial evidence in their preliminary responses might lead the PTAB to deny petitions before petitioners have a chance to cross examine patent owners’ experts.[5] Petitioners were especially concerned because decisions not to institute present serious estoppel issues and cannot be appealed.[6]
The actual effects of this rule change will become clearer in coming months. But while the PTO has touted the rule as giving patent owners more influence on the decision to institute,[7] the practical impact of the new rule may be limited. Because the PTAB now resolves fact issues in favor of petitioners when deciding whether to institute, it is unlikely to deny institution solely on the basis of conflicting expert testimony. It will more likely institute IPR and permit petitioners to cross-examine patent owners’ experts during trial, particularly given the estoppel implications of denying institution. Therefore the rule change may have little actual impact on institution rates.
One area where the rule change may have a greater impact is claim construction. Some observers have noted that the PTAB rarely changes the constructions it adopts upon institution.[8] Patent owners may therefore obtain more favorable constructions upon institution, and subsequently at trial, by supporting their proposed constructions with expert testimony in a preliminary response.[9] Another area where the rule change may be significant is early resolution. It may promote earlier settlement of disputes by encouraging patent owners to lay out their fully supported positions prior to institution.[10]
From a practical standpoint, patent owners should consider the costs and benefits of including expert testimony in their preliminary responses. Working with one or more experts in the preliminary phase may not be worth the significant cost if institution appears likely regardless. And the PTO has made clear that it will not draw a negative inference if a patent owner chooses not to include testimonial evidence in its preliminary response.[11] But it may be worthwhile to include expert testimony in a preliminary response to secure a favorable construction of a critical term. And it may also be worthwhile where a petition seems especially weak or contains one or more glaring errors. In these situations, including even a short—and therefore less expensive—expert declaration seems less likely to create a fact issue and may convince the PTAB not to institute. It also reduces the risk that the PTAB dismisses the response as mere attorney argument.
Alternative Claim Construction Standard for Expiring Patents
The second rule change concerns the claim construction standard applied to soon-to-expire patents. The PTAB typically applies the broadest reasonable interpretation (BRI) standard when construing claims in IPR.[12] But under the new rule, either party may request that the PTAB apply the district court claim construction standard to any patent that will expire within 18 months of the filing date of the petition.[13] A party must make the request by motion within 30 days from the filing of the petition, and must certify that the patent will expire within 18 months from the entry of the Notice of Filing Date Accorded to Petition.[14] The district court claim construction standard often results in narrower constructions than the BRI standard.[15] This rule should therefore benefit patent owners by making it harder to invalidate claims in soon-to-expire patents.
The new rule is really more of a tweak to existing rules than a major substantive change. The PTO already applies the district court claim construction standard to expired patents in IPR[16] because patent owners cannot amend invalidated claims that have already expired.[17] So the revised rule just moves up the critical date for applying district court-type claim construction from “expired patent” to “expiring in eighteen months.” The PTO apparently settled on 18 months because this is the normal duration of an IPR proceeding.[18] Patent owners whose patents expire within 18 months of the initial IPR filing probably cannot benefit from amending claims during IPR, as the claims will no longer be enforceable after the proceeding. The narrower claim construction standard, which is more likely to preserve existing claims, is therefore appropriate. But the PTO rejected commenters’ proposals to move up the critical date even further to allow appeals to the Federal Circuit.[19]
The practical impact of this rule change is likely limited for several reasons. First, the percentage of patents in IPR that will expire within 18 months of the petition filing date is probably small. A study conducted in December 2014 found only 14 cases where patents had expired between filing of the petition and the conclusion of the IPR.[20] And the same study found that the PTAB already applied the district court claim construction standard in all 14 cases, seemingly anticipating the eventual rule change.[21] Finally, while district court-type claim construction cannot result in a broader construction than BRI, the two standards can produce the same construction[22] and often do.[23] This should limit the rule’s impact even for soon-to-expire patents, depending on how many claim terms would be construed identically under the two standards.
But the rule change is significant nonetheless. Parties must be aware of the 30-day deadline for requesting district court-type claim construction and of the certification requirement. Knowing these requirements is especially important for patent owners. They are more likely to benefit from district court-type claim construction and are therefore more likely to request it, yet they may not be prepared to respond when a petition is filed unexpectedly. They will need to act quickly to meet the new deadline. Finally, there appears to be a trend toward asserting soon-to-expire patents in litigation, with some companies seeing less risk in asserting expiring patents because they will lose the patents soon regardless of the outcome.[24] This would logically lead to a disproportionate percentage of soon-to-expire patents in IPR.
Rule 11-Type Certification Requirement for Papers Filed with the PTAB
The third rule change involves new certification requirements for papers filed with the PTAB. The revised PTO rule expressly incorporates the signature requirement of 37 C.F.R. § 11.18, which includes a certification that any paper filed with the PTO is a true and accurate representation and is not being filed for any improper purpose.[25] The revised rule also provides a new procedure concerning motions for sanctions.[26] Some commenters felt the revised rule was unnecessary because 37 C.F.R. § 11.18 already establishes signature requirements for papers filed with the PTO, while 37 C.F.R. § 42.12 already provides for sanctions.[27] But the PTO proceeded with the rule change, countering that it provided clarity and added substantive new material on moving for sanctions.[28]
The most substantive changes are the new requirements concerning motions for sanctions.[29] These requirements closely follow Rule 11 of the Federal Rules of Civil Procedure, mandating that the moving party serve any proposed motion for sanctions on the non-moving party at least 21 days before seeking authorization from the PTAB to file the motion.[30] This so-called “safe harbor” provision gives the non-moving party time to withdraw a challenged paper or cure any cited deficiencies before the moving party notifies the PTAB.
Although the new requirements concerning motions for sanctions closely follow F.R.C.P. Rule 11, there are at least two notable distinctions. First, Rule 11 requires that law firms be sanctioned for the conduct of their partners, associates, and employees.[31] But the revised PTO rule omits law firms, and limits sanctions to “any attorney, registered practitioner, or party” responsible for a violation.[32] Second, Rule 11 prohibits monetary sanctions against represented parties and limits courts’ ability to impose monetary sanctions unilaterally,[33] but the revised PTO rule omits these limitations.[34]
Word Count Limitations
The final rule change is a shift from page limits to word counts for certain documents filed with the PTAB. This change applies only to petitions for IPR (changed to 14,000 words from 60 pages), patent owner preliminary responses (same), patent owner responses (same), and petitioner replies to patent owner responses (changed to 5,600 words from 25 pages).[35] All other documents filed with the PTAB during IPR remain subject to page limits.[36] The new rule further requires parties to include a certification stating the number of words in the document.[37] Parties can rely on the word count reported by their word processing program in doing so.[38]
According to the PTO, the rule change is intended to improve administrative efficiency.[39] For instance, under the new rule the PTAB will no longer review claim charts to determine whether they contain argument, which counts against the page limit.[40] But one possible practical effect of the rule change involves figures. Some observers note that patent figures and other demonstrative content, which occupy significant page space, may not count toward the word limit.[41] This should give petitioners and patent owners more flexibility to fully brief their arguments both before and after institution.
Conclusion
It is still too early to evaluate the impact of these four rule changes. Overall, we expect modest effects only, but each rule change will likely have a more significant impact in the right circumstances. For instance, resolving fact issues in favor of petitioners prior to institution will probably blunt the impact of allowing patent owners to include testimonial evidence in their preliminary responses. But this rule change may help patent owners avoid institution on weak petitions or on those with major errors. Similarly, while the rule change on claim construction only affects a subset of patents, this subset may be larger than expected if the apparent trend of asserting soon-to-expire patents continues. The rule also contains an important new timing requirement. The Rule 11-type certification requirements introduce little new material, but the safe harbor provision gives non-moving parties an important opportunity to cure deficiencies in their papers or positions. And while the new word count restrictions are limited in scope, they may be significant for papers that use figures extensively.
December 15, 2016
Technology and Telecommunications
Life Sciences and Biotechnology
Pharmaceutical and Medical Device
Cosmetics and Personal Care Products
The U.S. Patent and Trademark Office (PTO) has issued new rules for practice before the Patent Trial and Appeal Board (PTAB), which took effect on May 2, 2016. We review the key rule changes and consider their most likely effects on inter partes review (IPR) practice. The four main rule changes address (1) patent owners’ ability to include testimonial evidence in preliminary responses, (2) an alternative claim construction standard for expiring patents, (3) a Rule 11-type certification requirement for papers filed with the PTAB, and (4) new word count limitations for certain documents.
Testimonial Evidence in Patent Owner Preliminary Responses
The most significant rule change permits patent owners to include testimonial evidence in their preliminary responses to IPR petitions.[1] This change remedies a perceived disadvantage to patent owners under the old rules, which permitted expert testimony in IPR petitions but did not permit patent owners to include rebuttal expert testimony in their preliminary responses.[2] Patent Owners are expected to take advantage of the rule change to rebut petitioners’ expert testimony with their own prior to institution. As the PTO has noted, allowing patent owners to include testimonial evidence in their preliminary responses levels the playing field between petitioners and patent owners and allows the PTAB to base institution decisions on the best information available to both sides.[3]
But the new rule has a major caveat, as the PTAB will resolve material factual disputes in favor of petitioners when deciding whether to institute IPR.[4] This addresses petitioners’ concerns that allowing patent owners to include testimonial evidence in their preliminary responses might lead the PTAB to deny petitions before petitioners have a chance to cross examine patent owners’ experts.[5] Petitioners were especially concerned because decisions not to institute present serious estoppel issues and cannot be appealed.[6]
The actual effects of this rule change will become clearer in coming months. But while the PTO has touted the rule as giving patent owners more influence on the decision to institute,[7] the practical impact of the new rule may be limited. Because the PTAB now resolves fact issues in favor of petitioners when deciding whether to institute, it is unlikely to deny institution solely on the basis of conflicting expert testimony. It will more likely institute IPR and permit petitioners to cross-examine patent owners’ experts during trial, particularly given the estoppel implications of denying institution. Therefore the rule change may have little actual impact on institution rates.
One area where the rule change may have a greater impact is claim construction. Some observers have noted that the PTAB rarely changes the constructions it adopts upon institution.[8] Patent owners may therefore obtain more favorable constructions upon institution, and subsequently at trial, by supporting their proposed constructions with expert testimony in a preliminary response.[9] Another area where the rule change may be significant is early resolution. It may promote earlier settlement of disputes by encouraging patent owners to lay out their fully supported positions prior to institution.[10]
From a practical standpoint, patent owners should consider the costs and benefits of including expert testimony in their preliminary responses. Working with one or more experts in the preliminary phase may not be worth the significant cost if institution appears likely regardless. And the PTO has made clear that it will not draw a negative inference if a patent owner chooses not to include testimonial evidence in its preliminary response.[11] But it may be worthwhile to include expert testimony in a preliminary response to secure a favorable construction of a critical term. And it may also be worthwhile where a petition seems especially weak or contains one or more glaring errors. In these situations, including even a short—and therefore less expensive—expert declaration seems less likely to create a fact issue and may convince the PTAB not to institute. It also reduces the risk that the PTAB dismisses the response as mere attorney argument.
Alternative Claim Construction Standard for Expiring Patents
The second rule change concerns the claim construction standard applied to soon-to-expire patents. The PTAB typically applies the broadest reasonable interpretation (BRI) standard when construing claims in IPR.[12] But under the new rule, either party may request that the PTAB apply the district court claim construction standard to any patent that will expire within 18 months of the filing date of the petition.[13] A party must make the request by motion within 30 days from the filing of the petition, and must certify that the patent will expire within 18 months from the entry of the Notice of Filing Date Accorded to Petition.[14] The district court claim construction standard often results in narrower constructions than the BRI standard.[15] This rule should therefore benefit patent owners by making it harder to invalidate claims in soon-to-expire patents.
The new rule is really more of a tweak to existing rules than a major substantive change. The PTO already applies the district court claim construction standard to expired patents in IPR[16] because patent owners cannot amend invalidated claims that have already expired.[17] So the revised rule just moves up the critical date for applying district court-type claim construction from “expired patent” to “expiring in eighteen months.” The PTO apparently settled on 18 months because this is the normal duration of an IPR proceeding.[18] Patent owners whose patents expire within 18 months of the initial IPR filing probably cannot benefit from amending claims during IPR, as the claims will no longer be enforceable after the proceeding. The narrower claim construction standard, which is more likely to preserve existing claims, is therefore appropriate. But the PTO rejected commenters’ proposals to move up the critical date even further to allow appeals to the Federal Circuit.[19]
The practical impact of this rule change is likely limited for several reasons. First, the percentage of patents in IPR that will expire within 18 months of the petition filing date is probably small. A study conducted in December 2014 found only 14 cases where patents had expired between filing of the petition and the conclusion of the IPR.[20] And the same study found that the PTAB already applied the district court claim construction standard in all 14 cases, seemingly anticipating the eventual rule change.[21] Finally, while district court-type claim construction cannot result in a broader construction than BRI, the two standards can produce the same construction[22] and often do.[23] This should limit the rule’s impact even for soon-to-expire patents, depending on how many claim terms would be construed identically under the two standards.
But the rule change is significant nonetheless. Parties must be aware of the 30-day deadline for requesting district court-type claim construction and of the certification requirement. Knowing these requirements is especially important for patent owners. They are more likely to benefit from district court-type claim construction and are therefore more likely to request it, yet they may not be prepared to respond when a petition is filed unexpectedly. They will need to act quickly to meet the new deadline. Finally, there appears to be a trend toward asserting soon-to-expire patents in litigation, with some companies seeing less risk in asserting expiring patents because they will lose the patents soon regardless of the outcome.[24] This would logically lead to a disproportionate percentage of soon-to-expire patents in IPR.
Rule 11-Type Certification Requirement for Papers Filed with the PTAB
The third rule change involves new certification requirements for papers filed with the PTAB. The revised PTO rule expressly incorporates the signature requirement of 37 C.F.R. § 11.18, which includes a certification that any paper filed with the PTO is a true and accurate representation and is not being filed for any improper purpose.[25] The revised rule also provides a new procedure concerning motions for sanctions.[26] Some commenters felt the revised rule was unnecessary because 37 C.F.R. § 11.18 already establishes signature requirements for papers filed with the PTO, while 37 C.F.R. § 42.12 already provides for sanctions.[27] But the PTO proceeded with the rule change, countering that it provided clarity and added substantive new material on moving for sanctions.[28]
The most substantive changes are the new requirements concerning motions for sanctions.[29] These requirements closely follow Rule 11 of the Federal Rules of Civil Procedure, mandating that the moving party serve any proposed motion for sanctions on the non-moving party at least 21 days before seeking authorization from the PTAB to file the motion.[30] This so-called “safe harbor” provision gives the non-moving party time to withdraw a challenged paper or cure any cited deficiencies before the moving party notifies the PTAB.
Although the new requirements concerning motions for sanctions closely follow F.R.C.P. Rule 11, there are at least two notable distinctions. First, Rule 11 requires that law firms be sanctioned for the conduct of their partners, associates, and employees.[31] But the revised PTO rule omits law firms, and limits sanctions to “any attorney, registered practitioner, or party” responsible for a violation.[32] Second, Rule 11 prohibits monetary sanctions against represented parties and limits courts’ ability to impose monetary sanctions unilaterally,[33] but the revised PTO rule omits these limitations.[34]
Word Count Limitations
The final rule change is a shift from page limits to word counts for certain documents filed with the PTAB. This change applies only to petitions for IPR (changed to 14,000 words from 60 pages), patent owner preliminary responses (same), patent owner responses (same), and petitioner replies to patent owner responses (changed to 5,600 words from 25 pages).[35] All other documents filed with the PTAB during IPR remain subject to page limits.[36] The new rule further requires parties to include a certification stating the number of words in the document.[37] Parties can rely on the word count reported by their word processing program in doing so.[38]
According to the PTO, the rule change is intended to improve administrative efficiency.[39] For instance, under the new rule the PTAB will no longer review claim charts to determine whether they contain argument, which counts against the page limit.[40] But one possible practical effect of the rule change involves figures. Some observers note that patent figures and other demonstrative content, which occupy significant page space, may not count toward the word limit.[41] This should give petitioners and patent owners more flexibility to fully brief their arguments both before and after institution.
Conclusion
It is still too early to evaluate the impact of these four rule changes. Overall, we expect modest effects only, but each rule change will likely have a more significant impact in the right circumstances. For instance, resolving fact issues in favor of petitioners prior to institution will probably blunt the impact of allowing patent owners to include testimonial evidence in their preliminary responses. But this rule change may help patent owners avoid institution on weak petitions or on those with major errors. Similarly, while the rule change on claim construction only affects a subset of patents, this subset may be larger than expected if the apparent trend of asserting soon-to-expire patents continues. The rule also contains an important new timing requirement. The Rule 11-type certification requirements introduce little new material, but the safe harbor provision gives non-moving parties an important opportunity to cure deficiencies in their papers or positions. And while the new word count restrictions are limited in scope, they may be significant for papers that use figures extensively.
