Orrick, Herrington & Sutcliffe LLP Mark Wine June 6, 2014 Patent Trial and Appeal Board- Inter Partes Review Los Angeles Intellectual Property Association Spring Seminar 2014 Orrick, Herrington & Sutcliffe LLP Mark Wine June 6, 2014

What kinds of proceedings are these?

Agenda Distinctions over District Court litigation USPTO Trial Proceedings Interaction between New AIA proceedings and District Court litigation Pitfalls in Filing Petitions Discovery limitations Joinder Issues Amending Claims

Key Distinctive Features over Litigation Limited Duration Reduced Cost Addresses invalidity only Narrow, Focused Discovery Early, Favorable Settlement Opportunities Broader claim construction Lower burden of proof Limited number of decisions on the merits and no appellate decisions to provide guidance

USPTO Trial Proceeding Notional Timeline Recent trend is to reduce discovery period to 2 or 2 ½ months

Who Decides these Proceedings?

USPTO Trial Proceedings Review Quasi-litigation process for challenging claims of issued patent Before three ALJs at PTAB; not Examiners Decisions can be appealed to Federal Circuit and/or Request Rehearing IPR not available more than one year after service of infringement complaint or if petitioner previously filed DJ action challenging validity Burden of Proof is preponderance of the evidence Estoppel: After final IPR decision, inter partes petitioner may not raise or maintain invalidity arguments in litigation, ITC or at the USPTO that could have been asserted during inter partes review

Inter Partes Review vs. Ex Parte Reexamination Ex Parte Reexaminations Handled by Patent Trial & Appeal Board Handled by reexamination examiners Appeal directly to Fed. Cir. Appeal to Patent Trial & Appeal Board One year time limit on decision No time limit on decision Estoppel provision No estoppel provisions Cannot be filed more than one year after being sued for infringement No deadline for filing May terminate by settlement No provision for settlement Limited discovery permitted No discovery

Inter Partes Review vs. CBM Review Covered Business Method Patent Review Threshold for initiating review is “reasonable likelihood of success” of finding at least one claim unpatentable Threshold for initiation is “more likely than not that at least 1 of the claims challenged in the petition is unpatentable” or to resolve novel or unsettled legal question. Not limited to any particular types of patents Limited to patents which claim “activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.” No required co-pending litigation Petitioner must be the real party in interest that has been sued or charged with infringement Estoppel provisions limited to 102/103 arguments raised or reasonably could have been raised Estoppel in court actions limited to those issues actually raised during review. Estoppel in PTO same as IPR estoppel. Discretionary stay provisions for District Court litigation. More favorable stay provisions for District Court litigation.

Inter Partes Review vs. Post Grant Review Threshold for initiating review is “reasonable likelihood of success” of finding at least one claim unpatentable Threshold for initiation is “more likely than not that at least 1 of the claims challenged in the petition is unpatentable” or to resolve novel or unsettled legal question. Basis: 102 and/or 103 based on patents and printed publications Basis: 101, 102, 103 and 112 (not limited to patents and printed publications) Petition must be filed: (1) within 1 year of service of complaint; (2) Before filing DJ; (3) For First-to-File (F-T-F) after 9 months from grant/ F-T-I anytime after granted; (4) If PGR initiated; after date of termination of PGR (1) Before filing DJ action; and (2) within 9 months from patent grant/reissue for F-T-F patents. First to Invent (F-T-I) patents not eligible for post-grant review. Estoppel provisions limited to 102/103 arguments raised or reasonably could have been raised Estoppel provision broader: includes 101 and 112 arguments raised or reasonably could have been raised Standard for additional discovery – “In the interests of justice” Standard for additional discovery “good cause”

USPTO Trial Proceedings– Analysis Pros for Petitioner Consideration of complex technical arguments by PTAB, not lay jury Burden of proof is lower than in litigation Puts patent validity at issue early in the case Little to no discovery permitted

USPTO Trial Proceedings– Analysis Cons for Petitioner Estoppel provision will likely limit invalidity case in court Claim amendments permitted but difficult to obtain Costs are front-loaded Institution on Limited Claims Institution on Limited Grounds

Institution on Limited Claims If IPR granted on fewer than all claims challenged, then IPR may not resolve all the claims raised in litigation Courts are less likely to stay litigation if IPR will not resolve all claims in the litigation

Institution on Limited Grounds PTAB tends to institute trial only on selected grounds, not all grounds presented Estoppel provisions prevent Petitioner from litigating validity based on any grounds raised or that reasonably could have been raised Any grounds not adopted by the PTAB may be estopped

Statistics and Observations

AIA Progress (as of May 29, 2014) AIA Monthly Filings Total 1,426 IPR 1,240 CBM 180 DER 6

AIA Progress (as of May 29, 2014) AIA Petition Technology Breakdown 0.6% 5.0% 8.3% Electrical/Computer (1,012) Mechanical (215) Chemical (119) Bio/Pharma (72) Design (8) 15.1% 71.0%

AIA Progress (as of May 29, 2014) Cumulative Patent Owner Preliminary Responses Filed Waived IPR 655 204 CBM 101 15

Total No. of Decisions on Institution AIA Progress (as of May 29, 2014) AIA Petition Dispositions Trials Instituted Joinders Percent Instituted Denials Total No. of Decisions on Institution IPR FY13 167 10+ 87% 26 203 FY14 346 3+ 79% 91 440 CBM 14 82% 3 17 52 1+ 67

Final Written Decisions AIA Progress (as of May 29, 2014) AIA Final Dispositions Settlements Adverse Judgments Final Written Decisions IPR FY13 38 2 FY14 103 26 64 CBM 3 1 13 10

Decision to Institute High grant rate (82%) looks promising for petitioners However…only granted on 50% of grounds raised on average and 60% of claims challenged Grounds often held redundant or cumulative

Observations on Proceedings to Date PTAB expects the use of expert declaration with the petition Petitions should include all evidence to be relied on Preliminary responses: Effective in narrowing the grounds for trial Don’t typically lead to outright denial Obviousness Grounds have been successful 19 Final Decisions (11 IPR/8 CBM) Combinations up to five references accepted Only limited number of decisions denied for not being a financial activity or service or being a technical invention

Oral Hearing Experience Orrick participated in one of the first IPR hearings Approximately 2 hours 40 minutes each for initial argument 20 minutes each for rebuttal Hearing focused on claim construction analysis Hearing was similar to Summary Judgment or Markman with an active judge, but more technical Same framework is used for CBM, with additional discussion of §101, §112 issues

First IPR Decision (Nov. 13, 2013) Garmin International, Inc. v. Cuozzo Speed Technology LLC (IPR2012-00001) PTAB initiated review of 3 of 17 claims, but denied review for remaining 14 claims Held that these 3 claims unpatentable for obviousness Petitioner filed a second IPR as to the remaining 14 claims, which was instituted for 11 of the 14 (IPR2013-00373) Patentee pursued the litigation with a focus on the 14 remaining claims, but then settled the case

First CBM Decision June 11, 2013 (SAP America, Inc. et al. v. Versata Development Group, Inc., CBM2012-00001) Issued after expedited trial and oral arguments Held that claims of a US patent covering business methods were invalid under 35 U.S.C. § 101 Seven additional final decisions 2 cancelled claims on §101 grounds 5 cancelled claims on §103 grounds No cases cancelled claims on §102 or §112 grounds

Covered Business Review Issues Allows petitioners to rely on prior art under section 102(a) as it existed before the passage of the AIA, and then creates another category of prior art in place of sections (b) through (g). New category is essentially 102(b) PTAB has concluded that this new category excludes references that are prior art under § 102(e)

Interaction Between USPTO Proceedings and District Court litigation Stays Estoppel provisions Real Parties in Interest Issues 27

Percent of Stays Granted and Denied (IPR/CBM) Issued Decisions As of 6/04/2014 Note: 91% of Post-Institution Stays granted

Reasons for Stays Denied Premature (prior to PTAB institution decision) Will not provide complete resolution of issues (Trial not instituted for all patents or all claims asserted in district court litigation) Relationship of the parties (i.e., direct competitors)

USPTO Trial Proceedings Estoppel Provisions A “final written decision” in an IPR/PGR/CBM will limit the invalidity arguments that can be raised by certain entities in subsequent litigation. Petitioner Real Party in Interest Privy

Parties Bound by Results of PTO Proceeding: Real Parties in Interest Who is a “real party in interest” (“RPI”) in a PTO proceeding? “At a general level, the RPI is the party that desires review of the patent.” Trial Practice Guide, 77 Fed. Reg. at 48759 A non-party to the proceeding that “funds and directs and controls an IPR … petition or proceeding” is a RPI. Id. at 48760 Indemnity obligation alone does not result in RPI

Parties Bound by Results of PTO Proceeding: Parties in Privity with Petitioner What entities are in “privity” with a petitioner? Standard applied is similar to privy standard for res judicata and collateral estoppel Determination will be made by a district court subsequent to the conclusion of the PTO proceedings in a pending or subsequently- filed litigation Thus, a party will not know with certainty if it will be estopped, until after estoppel attaches

Pitfalls in USPTO Trial Petitions Filing Petition without expert declaration Filing too many grounds of unpatentability leads to redundancy Not enough pages to effectively present case Risk of preferred grounds being rejected as redundant Failure to provide a construction of key terms may result in the Board construing it in a way unfavorable to your case Failure to strictly follow PTAB formatting instructions

Discovery Limitations Three types of Discovery “Mandatory” Initial Disclosures By Agreement; no one agrees By Motion; nobody has attempted this yet Limited – “Routine Discovery” Production of cited exhibits Cross examination of declarants Production of information known to the parties to be inconsistent with a position taken in the IPR – Narrowly Construed Limited – “Additional Discovery” By agreement OR By motion “In the interests of justice” (IPR) or “Good Cause” (PGR/CBM)

Scope of Additional Discovery Garmin v. Cuzzo, Case IPR2012-0001, Paper No. 26, (PTAB Mar. 5, 2013). Limited discovery is “significantly different from the scope of [district court] discovery,” and “restricts additional discovery to particular limited situations” Five additional discovery factors: “More Than A Possibility And Mere Allegation” “the requestor of the information should already be in possession of a threshold amount of evidence or reasoning tending to show beyond speculation that something useful will be uncovered.” “Litigation Positions and Underlying Basis” – Not allowed “Ability to Generate Equivalent Information by Other Means” - If so, no discovery “Easily Understandable Instructions” “Requests Not Overly Burdensome To Answer”

Mechanism where a later petitioner can join an existing trial Joinder Mechanism where a later petitioner can join an existing trial One-year bar does not apply to joinder (35 USC § 315(c)) Take-aways: If you want just a seat at the IPR table without making substantive decisions, the PTAB has been lenient in allowing joinder If joining will complicate or delay the case, joinder is not likely to be granted

Application of the IPR Filing Bars IPR Filing barred if petitioner files an invalidity DJ Counterclaim of invalidity is not a bar Civil Action for DJ Dismissed Without Prejudice Does Not Trigger Bar - IPR2013-00438 Civil Action for DJ Dismissed With Prejudice Does Trigger Bar - IPR2013-00114 IPR Barred if filed more than 1 year after infringement complaint served Prior infringement action does not bar subsequent IPR, if prior action was dismissed without prejudice (IPR2012-00004)

Amending Claims Amending claims is difficult Burden is on Patentee Not enough to argue over cited art Must explain the background of the prior art Must either identify which claim elements were not known, in any context, or explain why it would not be obvious to combine known elements Expert declaration is crucial here Only one petition has successfully amended claims to date

Redundant Grounds PTAB often denies grounds as redundant or cumulative (>50% of grounds in granted petitions denied) Board will pick the grounds it likes best unless Petitioner makes clear the strengths and weaknesses of each ground (Liberty Mutual, (CBM2012-0003) Redundant grounds interfere with “the just, speedy, and inexpensive resolution of every proceeding” as required under 37 C.F.R. § 42.1(b)

Appellate Review of PTAB Decisions

Federal Circuit – Exclusive Appellate Jurisdiction “A party dissatisfied with the final written decision of the Patent Trial and Appeal Board” following inter partes review or post-grant review “may appeal the decision” to the U.S. Court of Appeals for the Federal Circuit. “Any party to the . . . review shall have the right to be a party to the appeal.” (35 U.S.C. §§ 319, 329)

…and Many Appeals are on the Way About 400 final written decisions in contested cases are expected from PTAB’s first year The rate of IPR filings continues to increase A “tsunami” of patent appeals is “heading up the Potomac.” -Chief Judge Rader

Review of BPAI Decisions May Give Some Sense of What PTAB Appeals Will Look Like The Federal Circuit engaged in deferential review of Board of Patent Appeals and Interferences decisions. The AIA did not change the appellate standard of review. Factual issues are reviewed for substantial evidence. The court will uphold the Board’s factual determination if “a reasonable fact finder could have arrived at the agency’s decision,” even if the record would also have supported “another plausible alternative.” Legal issues are reviewed de novo.

Most Core Merits Determinations Will be Reviewed for “Substantial Evidence” Factual Questions (substantial evidence review) Legal Issues (de novo review) Findings underlying obviousness” determination (e.g., scope and content of prior art) Ultimate “obviousness” determination Findings underlying “enablement” determination* Ultimate “enablement” determination* Anticipation Lack of utility* Written description requirement* *Issues raised only in post-grant review, not in inter partes review

So it is Better to Win at the Board than to Have to Win on Appeal Federal Circuit Disposition of All BPAI Patent Cases, 1999-2009 (n=264) Source: Samuels & Samuels, The Impact of Dickinson v. Zurko on Federal Circuit Review of USPTO Board Decisions, 20 Fed. Cir. Bar J. 665, 677 (2011). Sample includes both ex parte and inter partes proceedings.

Certain Questions of Law Concerning the AIA Should Be Reviewed De Novo, e.g.: What qualifies as “during that inter partes [or post-grant] review”? What arguments “reasonably could have been raised”? When is a party a “privy”? When if ever is a litigation stay proper pending PTAB review? How much leeway should patentees have to amend claims during inter partes review? Estoppel Stays Claim Amendment

And, There are Reasons to Think Reversal Rates Could be Higher in PTAB Appeals PTAB plays a different role than BPAI did PTAB sits as a factfinder, whereas BPAI sat as an appellate body with respect to examinations Possibly more detailed factual findings One level of agency review, vs. two before Possibly more opportunity for the Federal Circuit to find error? But more detailed findings may make it harder to say there was no “substantial evidence” supporting the Board’s decision

And, There are Reasons to Think Reversal Rates Could be Higher in PTAB Appeals In the near term, the PTAB will be interpreting new provisions of the AIA in the first instance More opportunity for the Federal Circuit to find legal error on questions of first impression

Also, in Recent Appeals from Inter Partes Re-examinations, there have Been Notable Reversals Grounds for reversal of BPAI inter partes reexaminations In finding claims nonobvious, Board applied improper test and ignored relevant evidence (Randall Manufacturing v. Rea, 2013) Board’s claim construction was erroneous (Leo Pharmaceutical Products v. Rea, 2013) Board’s finding of anticipation was not supported by substantial evidence (Rambus v. Rea, 2013) Board wrongly found claims nonobvious by relying “only on minor distinctions between the prior art and the claimed invention” (PlaSmart v. Kappos, 2012)

Federal Circuit Review Will be a Critical Stage in the Process Whether defending a Board decision or fighting to reverse one, effective appellate advocacy will be essential to the outcome It will be necessary to build a record before the PTAB that can support a compelling narrative on appeal, e.g., about novelty or inventorship As always, telling a good story to the Federal Circuit is key

Thank You Mark Wine Co-Leader of Orrick Patent Practice Group Office Leader Orange County Office mwine@orrick.com