Three Crucial Words in Patent Reform: Inter Partes Review (Part 2)

Note: This is Part 2 in a three-part series. If you’re not comfortable with how inter partes review works, you may want to start with Part 1.

The Complaints About Inter Partes Review (IPR)

Some patent owners are complaining that IPRs are unfair to them. The biggest complaint is that too many patents are being invalidated. As I wrote the other day, this complaint isn’t based in reality. Only about a quarter of the claims for which review is requested have been invalidated.

The “80% kill rate” you hear about is misleading. While it may be true that 80% of the patents being reviewed have 1 or more claims invalidated, most of the claims in those patents are surviving. At best, it’s an 80% flesh wound rate.

Furthermore, IPRs aren’t cheap, and as I noted in Part 1, there’s a real risk for the petitioner. One would expect that petitioners would only file IPRs on truly vulnerable patents. This is exactly the way IPRs are supposed to be used.

I also haven’t seen any cases singled out as being incorrectly decided. Although there have only been a few completed appeals to the Federal Circuit, so far the PTAB has been affirmed in every one. There’s just no evidence of a problem at the PTAB.

Another major complaint is that IPRs don’t give patent owners all of the advantages they get in district court. The claim construction standard (that is, the way the judges determine what the claims mean) is broader, which makes it more likely that challenged claims will be invalid. (I’ll explain more in a moment.) And there’s no strong presumption of validity. In district court, a patent must be proven invalid by clear and convincing evidence. (Despite that high standard of proof, nearly half of patents that go to a decision on the merits are at least partly invalidated.) In an IPR, the petitioner just has to prove that it’s more likely than not that the patent is invalid.

Making IPRs consistent with district court proceedings does sound reasonable. But if you dig a little deeper, you’ll understand why they’re different.

With respect to claim construction, it’s true that the PTAB uses the broadest reasonable interpretation (BRI) of the claim language, while a district court interprets the claims as someone of ordinary skill in the art would understand them. The reason the PTAB uses BRI is because patents are supposed to provide clear notice to the public of what the invention is. If a claim is found invalid, the patent owner can move to substitute a new one.

To be fair, motions to amend have some procedures that are unfamiliar to most patent attorneys. For example, in the motion to amend, the patent owner has to prove that the substitute claim is probably patentable over the prior art, not just the references at issue in the IPR. There is no right to amend in an IPR. But patent owners can always request a reexamination, and amend their claims that way.

The amendment procedure has come under fire as well, because there is no right to amend the claims and motions to amend have all been denied. The argument is that there’s something wrong with the PTAB if it’s denying every motion to amend.

There are a few responses to this. First, I took a look at the most recent 25 or so motions to amend. In every single case, the patent owner failed to comply with the rules. In some cases, the patent owner tried to broaden the claims, which isn’t allowed. In the other cases, the patent owners didn’t make complete arguments. Basically, it seems that they treated the motion to amend like a response to an office action, which is not correct. (If you don’t know what that means, you just need to understand that amending claims when working with an examiner is very different than filing a motion to amend in an IPR. It seems that attorneys haven’t figured out the differences yet.) As patent attorneys learn the procedure, they’ll do better with their motions.

Also, patent owners can amend their claims more flexibly by filing a reexamination request on the same art used in the IPR.  Perhaps most importantly, the amendment procedure only matters if a claim is found invalid. The patent owner is given the opportunity to substitute a new claim with similar (or narrower) scope, which is something they cannot do in district court. The catch is that the patent owner has to prove to the PTAB (using evidence, not just attorney argument) that the new claim is probably patentable. It’s a trade-off.

The big thing to remember is that patent owners generally bring this on themselves by suing others for patent infringement. Any time you do that, you put your patent at risk. That’s life.

There is an exception to this that’s come up recently. A hedge fund manager, Kyle Bass, has teamed up with patent troll king Eric Spangenberg to challenge key patents of pharmaceutical and biotech companies. (subscription required) His plan is to short the stock of those companies, invalidate their key patents, and make a killing.

Naturally, pharmaceutical and biotech companies are screaming about abuse. The fact that Spangenberg is involved makes me uncomfortable, but it seems too early to panic.

None of Bass’s petitions have been granted yet (they’re all still pending), so we don’t know if his plan has a chance. And the stock of most of the target companies hasn’t gone down.

The larger point, though, is, if their patents are invalid, why should companies be allowed to monopolize an invention that should belong to the public?

All of these complaints seem to be based on a belief that a patent owner is somehow entitled to a virtually unchallengeable monopoly. I say that because the proposals to change IPR would rig the system to make it nearly impossible to successfully invalidate a patent.

I’ll discuss those proposals in Part 3.