I wrote this article for IP Law360. I am cross-posting it here with permission — thank you Law360 — because inter partes review (“IPR”) is increasingly a valuable strategy for retailers, just like all patent litigation defendants.
Inter partes review has become a popular, powerful tool for patent defendants. In many cases, it allows the defendant to get the expensive district court litigation stayed in favor of the Patent Trial and Appeal Board’s more focused and more economical validity review. The IPR proceeding must be completed within 12 months of the PTAB instituting the IPR, with a possible six-month extension for cause. That is half, or less, the lifespan of a typical district court litigation, and the cost is far less than half of defending a patent litigation.
The statistics show that most, but not all, district courts stay related litigation in the face of an IPR, particularly after an IPR is instituted. District courts have granted stays approximately 72 percent of the times they are sought. So, most litigants will get a stay, but 28 percent will be left with parallel district court and PTAB proceedings.
You can often confidently predict whether your stay will be granted based upon your judge’s history with stay motions. But even if your judge typically grants a stay pending an IPR, there is always some risk that the judge denies the stay in your case because of the particular facts of your case or a changing philosophy. So, when considering an IPR, it is important to consider whether the advantages from parallel PTAB and district court proceedings outweigh the risks, typically the added cost. Here are several benefits to adding a parallel IPR to your district court litigation:
1. Early Claim Construction
The PTAB’s decision instituting an IPR comes with an initial claim construction ruling. It is not the PTAB’s final claim construction, and it is not controlling on the district court. In fact, even the final PTAB claim construction is not binding upon the district, at least, because the PTAB’s claim construction standard — the broadest reasonable construction — is broader than the district court’s ordinary and customary meaning standard. But a noncontrolling claim construction is still powerful.
Additionally, the PTAB’s administrative law judges have uniformly excellent credentials and experience. That generally has led to claim constructions that evidence a deep understanding of the technology and the relevant case law. So, even if they may be broader than the appropriate district court construction, they are likely to be clear and true to the technology. So, if you are confident in your claim construction positions, particularly where you have two or three potentially dispositive arguments that are well supported by the intrinsic and extrinsic evidence, the PTAB’s initial claim construction may be exceptionally valuable.
Of course, the PTAB’s constructions do not bind the district court, but any litigator who has been in a later filed patent case knows that it is very difficult to argue against a non-controlling, prior construction, even when a different court or judge issued the construction. So, both parties are forced to argue from the PTAB’s initial constructions as a starting point, as opposed to being able to argue for any position they want. That can be a powerful tool to focus the claim construction process. Finally, while you may likely get a broader construction than you would from the district court, that at least opens up invalidity arguments for you and in many cases it may not matter where you believe even a broad construction will prove that you do not infringe.
Finally, in many courts you may get to the conclusion of the IPR process and the PTAB’s final claim constructions, which still are not binding upon the district court, but necessarily carry more weight than the initial constructions.
Parallel proceedings necessarily add cost for both parties, but it can often be especially painful for plaintiffs being represented on contingent fee agreements. Generally, contingent fee counsel does not want to handle PTAB proceedings on a contingent fee because there is no direct monetary upside to IPRs. Of course, more and more plaintiff’s counsel are working possible IPRs into their fee arrangements, but it remains an added cost.
Furthermore, while the PTAB has been relatively liberal in granting nonpatent barred litigation counsel pro hac vice admission, the PTAB still requires that a party’s lead counsel be patent barred. So, if your opponent’s counsel does not have any registered patent attorneys, the IPR adds extra fees for the counsel that must be hired to lead the IPR. Regardless of the patent holder’s attorney’s fee arrangement, dual proceedings add time and complexity to the patent holder’s case. There is a cost to someone in the extra time, whether or not the plaintiff pays it directly.
3. Increased Risk
Most patent litigation is settled because of a combination of high costs and significant uncertainty in the outcome. When faced with more than $1 million in attorneys fees and a risk, even a small one, of losing a seven- or eight-figure sum at trial, it is often hard for an accused infringer to stay in a suit just because they are confident that they do not infringe and/or that the asserted patents are invalid. Typically, the plaintiff does not have a similar risk profile. There is certainly a cost to prosecuting a patent litigation, but it is often born by counsel in the form of a contingent fee. Especially in nonpracticing entity cases, defendants have very few opportunities to create counter-balancing risk for the plaintiff. Plaintiffs know that because invalidity and inequitable conduct are fact-intensive and generally battles of experts, they are hard to win on summary judgment.
That means the defendant often has to take those defenses to trial in order to win, along with all of the expense of litigating a case through trial. IPRs, however, are different. They are faster, as detailed above, promising a ruling within one year of the IPR’s institution. And the PTAB has routinely invalidated the challenged claims. As of early this year, approximately 84 percent of IPR petitions are being instituted. Of those cases, 264 out of 274 challenged claims that went to trial were invalidated — more than 95 percent.
Those are staggering numbers, which is likely what has led some in the plaintiff’s bar to call the PTAB judicial panels “roving patent death squads.” Of course, sophisticated plaintiffs are aware of these statistics and are resolving cases that include IPRs quickly. One indication of this is that, the 41 percent of IPRs settle before the PTAB issues a decision regarding institution of the proceedings, indicating that seeking an IPR is strong leverage for a patent defendant.
While virtually every patent defendant that seeks an IPR would prefer that their district court litigation be stayed pending the IPR, there is real value in adding an IPR proceeding to your district court litigation, even without a stay.