THE REEXAMINATION CENTER:  Do you feel that legally the separation of powers in the Constitution has been violated in a situation where the Federal Circuit has affirmed the validity of a patent and now it’s in reexam and the same claims have now been found to be invalid on the same art?

JUDGE MICHEL:  Well I don’t know if it’s a breach of the Constitution, but I think it’s an extremely unfortunate, unwise result to permit.  It seems to me if a patent has been upheld in Court, particularly in the face of some specific challenge – some specific prior art, for example – to permit the Patent Office subsequently to invalidate the patent based on the same prior art seems like a terrible result to me.  So whether or not there’s a constitutional problem, I think there’s a serious policy problem and there’s a very bad appearance problem.   You know, part of the patent reform debate in its larger dimension – not just the part relating to post-grant review – assumes that the Courts can’t do their job right – that Court results aren’t dependable. I find that highly questionable.  From my experience, and I must have sat on well over 1,000 patent cases – maybe 2,000 – I really never made a count – over the 22 years, the trial courts, in a very large percentage of the cases, did quite a good job and so did the juries and  the results, with a few exceptions, looked fair and just and reliable to me.  To the extent that the patent reform bill or the post-grant procedures in particular are based on the assumption that the Courts usually get this wrong and allow bogus patents to stand and find infringement when it isn’t there, etc. – I don’t accept that.  I think that’s propaganda, not fact.

THE REEXAMINATION CENTER:  The argument is often made that the Patent Office, as an administrative agency with great expertise, is a better forum for decisions relating to patents and printed publication prior art.  So from the perspective of a District Court Judge, what impact is this parallel universe that exists between the courts and the patent system having on the ability to enforce patents in the District Courts?

JUDGE MICHEL:  Well, it’s a very bad effect.  The District Courts in all 94 districts are overburdened and in about a third of the districts – the metropolitan districts – severely backlogged and overburdened.  And therefore the pressure is on District Judges – if there’s any pending proceeding in the Patent Office of any sort whatever – is to stay forward progress in the infringement case. And the infringement case normally takes three to six years to get to a final result anyway between discovery and motions practice and trial and post-trial and appeals.  So  the delays are already upwards of a half a decade and if a case is going to be put in the deep freeze for let’s say five years to go through the reexam process and two levels of appeals – at least under current law – then you’re talking about potentially another five years.  So now you could have a valid patent that’s being plainly infringed that might not be enforced for almost a decade.  I just find that horrific.  Patents ought to be enforceable within 18 months just the way they ought to be granted within 18 months, in my opinion.  I’m very upset with the impact on getting justice in the Courts that the long delays and the multiple post-grant channels are increasingly causing.

THE REEXAMINATION CENTER:  Now the length of time even with the push that the Patent Office is making to speed up the reexamination process is considerable and can often take four to eight years to work through the Central Reexamination Unit to the Board of Appeals and then to the Federal Circuit.  In light of that, Judge, do you feel that District Court Judges confronted with a stay request should be loath to grant a stay?  Or under what circumstances do you think it’s appropriate for a District Court Judge to grant a stay?

JUDGE MICHEL:  Well, maybe I’m not experienced enough to be able to set out some sort of formula.  I think it would be very desirable for the country and for innovation and for job creation and economic growth and recovery from recession and all the rest for patent applications to get prompt action and for infringement law suits to get prompt action.  And the country seems to have been headed for a least a decade in  the  direction of slower and slower when it needs to get faster and faster in both those pathways.  And, so, when you get the interplay where post-issuance reexaminations can take years and years and years, and then the subsequent enforcement could take many, many years more, I don’t see how that gets past the adage that “ justice delayed, is justice denied.”  If you own a valid patent and I’m infringing it, but it’s going to take 10 years for you to get any kind of a remedy because of the parallel universe being pursued sequentially, I don’t see how you’ve gotten justice.

THE REEXAMINATION CENTER:  Now going to this justice delayed is justice denied, the situation where the requestor files the reexam request later in the trial proceeding or maybe even after verdict or even on appeal, should a Court grant a stay in that circumstance in your opinion? 

JUDGE MICHEL:  It’s hard to imagine a case where the trial has already been held where stopping the judicial machinery and waiting for years for the PTO would be justified and productive.  I wouldn’t even favor granting stays where a case is nearly ready for trial.  If discovery has been finished, it would seem to me too late to start post-grant type proceedings in the Patent Office.  If they’re filed within months – a few months of the filing of the complaint, that’s a totally different matter.  But part of the problem is the threshold is so low in the Patent Office in the current reexam proceedings.  In that sense, I think the Bill makes a big improvement at least as to inter partes reexamination – renamed “inter partes review” – because at least they raised the threshold and they have substantial estoppel provisions and other safeguards.  But since the low threshold and the lack of safeguards associated with ex parte reexamination continue, it’s not good enough to tighten up the inter partes track – particularly when they’re adding this new post-grant review track and the inter partes proceeding can’t even start, as I read the Bill, until after the post-grant review had concluded.  And that might take several years by itself.  So you could have a reexam – an ex parte reexam filed first, and then a little later a post-grant review.  And then after that’s concluded, an inter partes review.  And with appeals and overlapping timeframes, you could be talking about four or five, six, seven years before it’s all over even if the proceedings ultimately are merged or consolidated in some fashion.  So it seems to me the potential for abuse  is substantial today and it will increase hugely if the Bill is passed with their current post-issuance provisions.

THE REEXAMINATION CENTER:  In the current system where you have a reexam concurrently being handled on the same claims that are being enforced in the Courts, and the District Court decision is now before the Federal Circuit, but the reexam is still being processed at the Patent Office, should the Federal Circuit wait for the reexam to catch up or should it decide the decision before?

JUDGE MICHEL:  Well, my personal preference is that Trial Judges and Appellate Judges should decide cases expeditiously and I think it’s a very rare circumstance where either level of the judiciary is justified in stopping forward motion and awaiting some action in some other part of the government.

THE REEXAMINATION CENTER:  Now the Patent Office in current reexam practice has a different burden of proof and different claim construction rules than the Courts do for the same claims and the same prior art.  Do you think that that’s appropriate and warranted?  I know that the argument is that the patent owner can amend claims in reexam and not in the Courts, but from a system integrity perspective and public policy viewpoint, do you think that the different rules are appropriate?

JUDGE MICHEL:  Well, it is certainly awkward where you have Court proceedings and Patent Office proceedings overlapping one another.  I can see the argument for broadest reasonable interpretation of claim scope as a way to prompt narrowing amendments.  But in the final stage of a reexamination, it seems to me that the construction of the patent claims should be the same as in Court, because otherwise we have a potential for opposite results, which just makes a mockery of both systems.

THE REEXAMINATION CENTER:  Now the Patent Examiners are – under the current system – are loath to take attorney argument as being persuasive and instead rely on record evidence that is produced through the Rule 131 and 132 Declaration approach or mechanism.  That evidence, of course, is not subject to cross examination.  It’s merely submitted and made part of the record.  Do you think that that system is one that is protective enough of the patent owner and also the public interest or should there be some type of ability for the Central Reexamination Unit to cross examine, if you will, the Declarants?

JUDGE MICHEL:  Well, cross examination has  for centuries been relied on as the principal guarantor of getting to the truth in English and American jurisprudence, and in many other countries as well.  And over and above cross examination by opposing parties attorneys, any tribunal needs an ability to sort out conflicting assertions.  So one of the things that troubles me about the Patent Office procedure is the lack of cross examination, the lack of live witnesses.   Another thing that troubles me is the lack of experience and training and ability to explain in opinions how conflicting expert Declarations are reconciled or sorted out or assessed.  In Federal Court, that’s usually the heart of the controversy : who should be believed when saying what?  It looks to me like the Patent Office procedure sort of skips over that aspect of adjudication in favor of what I suppose is regarded by some as neutral technological expertise by the Examiner or re-Examiner so he doesn’t – or she doesn’t – need to sort out the conflicts because they’re going to see the truth on their own and just ignore the Declarations.  But I don’t like that approach either because it ignores the evidence submitted by the two sides.  That doesn’t seem right.  And if the adjudicator doesn’t sort out the conflicts or assess the credibility of the Declarations, I don’t see how you can get a reliable and just result in the eyes of the law or even a technologically correct result.

Read part 1 of 3 in this interview series here.

Read part 3 of 3 in this interview series here.

THE REEXAMINATION CENTER:  Why don’t you talk a little bit about coming off the Court, your reaction to being off the Court, what you’re doing and what you’re focusing on and why.

JUDGE MICHEL:  Well, I resigned at the end of May of 2010 as I was nearing the term limit of my time as the Chief Judge, motivated principally by the desire to be free to speak out on issues affecting intellectual property rights beyond the walls of the court house.  Sitting judges are restricted to commenting on policy matters within the narrow confines of how a policy change would impact the courts, and I wanted to be free to talk about whether the policies were wise and productive and would help innovation occur and create jobs or destroy jobs.  I decided  during the latter part of my 22 years on the Court to take that pathway even though my original intention was to stay forever – eventually maybe as a Senior Judge.  So right from the start, June 1 of last year, I busied myself with a heavy  schedule speaking around the country to patent lawyers and other intellectual property experts of one kind of another.  And I’ve written a number of articles – half a dozen or so.  I’ve been spending much of my time on things related to patent policy, patent reform, the pending legislation in Congress and I’ve found it enormously invigorating and exciting , slightly frightening and very satisfying.  I have no regrets at all about leaving the Court.  I loved being a Judge. I had always wanted to be a Judge and when I had the good luck of serving in that capacity, I enjoyed it hugely and for most of the 22 years I served on the Court expected I would never leave.  But having left and now looking back from the vantage point of more than a year, I am quite sure I did the right thing at the right time for the right reasons and it’s working out very, very well.

THE REEXAMINATION CENTER:  What is your overall impression, now that you’re off the Court, as to the effectiveness of the patent system for innovators in the United States?

JUDGE MICHEL:  I think that the patent system is critical to many companies and many industries – but not all – and that the patent system is performing on the whole rather well.  But there are areas where important improvements can and should be made.  I think a lot of improvements that were needed actually have been made in the last five years or so – primarily by the Courts, particularly the Federal Circuit and the Supreme Court.Meanwhile, particularly in the last two years, considerable reforms have been instituted within the Patent Office, most of which look very productive or at least very promising to me..  I do think there’s a role for the Congress but any time something gets in the hands of Congress that involves a lot of money it becomes a target of massive lobbying and campaign contributions and public relations campaigns and there can be a lot of exaggeration or distortion or political pressure that can cause legislative provisions that, in my view, won’t serve the country or innovation well.  I’ve been inclined to think that the evils of the patent system  or its shortcomings have been greatly exaggerated by certain companies, certain coalitions, certain individuals including some academics – and they all have something of a point, but in my view have greatly overstated the problems in the system and greatly underestimated the benefits of the system as it has functioned in recent years.  And one of the results of all this is that the Congress seems poised to try to pass what I guess can fairly be called comprehensive patent reform when maybe something much more selective and simple – something much narrower and easier would actually be better than this 150 page bill that tries to solve 50 different problems that have been alleged by somebody or other who can get the ear of Congress.  I’m hoping that the process can continue whereby the Congress is taking account of things that have been fixed by the Patent Office, by the private bar, by the Courts, and limit its legislative role to things that none of those institutions have or could fix.  I’m a little bit worried that there’s such a rush now to pass the House Bill 1249 that it may end up containing some good features, but many which will have harmful effects.  And I’m very hopeful that the Congress will slow down and be careful and having taken at least seven years in the effort will be willing to take another seven weeks or seven months perhaps – whatever it would take – to refine the existing proposal so that the beneficial features would all be retained and questionable or plainly improper ones would be deleted.  But it’s very unclear whether they have the patience and stamina to do a final round of refinements and corrections or whether they’re just going to pass it regardless.

THE REEXAMINATION CENTER:  Do you think that the provisions currently contained in HR 1249 as it relates to post-grant review and expanded reexamination are needed and warranted?

JUDGE MICHEL:  I don’t think they’re needed or warranted.  Congress has enacted two different post-grant reexamination procedures in recent decades and while many felt that they were not as fully utilized as desirable, that’s changed hugely in the last five or ten years and they’re now very commonly used – almost routinely used by any accused infringer who sees an advantage in pursuing reexaminations back in the Patent Office.  My perception is that they’re very easy to initiate because almost any competent patent lawyer can find one or more prior art references that weren’t before the Examiner  before the patent was granted and thereby frame a “substantial new question of patentability.”  So the threshold to prevent abusive post-grant reexaminations mainly designed to delay or harass the patent owner is not a meaningful threshold in my view.  It’s way too low, way too easy to meet and it’s met in over 90% of the cases.  So not only is there an existing and now well-utilized pair of reexamination procedures, but they actually are subject to abuse and I think are being abused today – not in every case, but in many cases – and that the improvement needed would be to tighten some of the safeguards, particularly the threshold to initiate reexamination in the first place.  And the problem with the Bill is not only what it does – creating a third, new, unproven procedure that they call” post-grant review”, but also leaves in place the current ex parte reexamination track, unchanged.  So with the special procedure for business method patents, there will be four different kinds of post-issuance review dealing with validity and one more dealing with inequitable conduct issues.  So I think adding more layers, more procedures in the post-grant phase is a bad idea – not justified – and will be additional weapons in the hands of accused infringers.  It seems to me that if you assume that nearly all patents are bad, then you say the more reexams we have, the better.  But if you take a realistic view of how asserted patents are carefully screened before people go the trouble to file a law suit – at least in most instances – and you consider the downside risks to the patent owner of getting his patent invalidated, either in the Court or the Patent Office, that whatever number of potentially invalid patents may be out there, very few of them are in court.  I don’t accept the assumption that most patents are bad and therefore the more reexams we have the better and who cares how long they take because that assumption also says that in the end they’re going to be invalidated.  But what about the ones that aren’t invalidated and may take years and years and cost enormous sums of money to a patent owner who meanwhile probably can’t enforce what turns out to be a valid patent?  And in the case of clear infringement, it doesn’t seem to me to be a just result that a valid patent that’s clearly being infringed can be made effectively unenforceable for something on the order of about a half a decade.

Read part 2 of 3 in this interview series here.

Read part 3 of 3 in this interview series here.

Richard Levick, Founder and CEO of Levick Strategic Communications

1. Richard, Welcome.  Before we go to the meat of this topic, would you please give us a little about your background and what led you and your team to focus on this reexamination area?

Our firm is a world leader in high-stakes crisis and litigation communications. For more than a decade, we’ve been directing strategic crisis and litigation communications engagements in the highest-profile global matters for countries and companies. We are the exclusive global communications Joint Business Relationship partner with PricewaterhouseCoopers (PwC). Intellectual property has long been an important part of our litigation practice, and reexaminations are, of course, an important part of IP litigation strategies. We have represented many of the world’s leading intellectual property law firms, and we’ve supported client initiatives in Asia, Europe, and throughout the world. Importantly, we have directly represented their clients – from the largest corporate portfolios on the planet, to entrepreneurial companies across a range of industries – at every stage of the litigation process, before, during, and after legal decisions are rendered. Every litigation matter is unique. Fact patterns and causes of action differ, and opponents vary. The one constant is the need to meet the challenge of litigation communication head-on and not allow the opposition to define the case – and the audience’s perception of your company – for the media and your critical target audiences.

2. Now turning to our topic at hand, from a public communications standpoint, what are the benefits of success in a reexamination?

There is a logical, direct connection between the legal benefits of success and the benefits that naturally accrue from a related communications initiative. Obviously, a favorable outcome at the PTO – whether you’re defending or challenging a patent – can affect future court deliberations, short- and long-term stock prices, capitalization, acquisitions, and other transactions. For defending companies, success represents a vote of confidence that deters competitors or others by sending the clear message that your patents are strong. A strong communications campaign will leverage that success to the hilt on an ongoing basis. When, for example, the Electronic Frontier Foundation sought re-examination of a C2 Communications Technologies patent (No. 6,243,373), C2 Executive Vice President, Secretary and CFO Stephen Weintraub spoke to PC World, confidently and effectively underscoring the company’s current strength by referencing past success: “We don’t expect that they’ll be successful…the company and the patent office both have examined its validity and not found any problems, and the service providers that C2 sued couldn’t find a way to strike it down either.” The faster such messages get sent, the better. The more prominently and virally, they appear online, the more of a deterrent impact it will have on potential challenges. If you are challenging a patent, and the outcome is positive for you, the same viral news dissemination puts an enormous burden on the defending company to explain the result to their shareholders and other vital constituents. It can torpedo their stock values instantaneously and significantly weaken their negotiating position. The experience of Tessera Technologies Inc. in 2008 is a well-known case in point, as stock values tumbled immediately upon the Patent Office rejecting every claim of that company’s 6,133,627 patent in ex parte reexamination.

3. Which leads to the next question – from a public communications standpoint, how can those defending companies manage that burden if the reexamination is adverse?

An adverse reaction to an unfavorable reexamination is best managed if a company is prepared beforehand. There should be a communications plan already in place to address a negative result before that result occurs – just as there should be such a plan in place to leverage a positive outcome or respond to mixed news. To prepare for all three possibilities, the following materials should be developed before the PTO delivers its decision:

• News releases addressing all possible outcomes so the appropriate version may be posted on an electronic news wire and distributed to media and shareholders as soon as the decision is announced. Regardless of the outcome, the news release should offer insight on what the company intends to do next, and whether it intends to pursue further litigation;
• Statements, if only brief “holding statements” attributed to the CEO for each scenario. Along with sending them to interested reporters, the statement can also be posted on digital forums, such as Twitter, to provide a wider public with the company’s immediate response.
• Q&As to prepare for difficult questions that consumers and shareholders as well as reporters may ask. Once the PTO’s decision is announced, relevant questions drawn from the Q&As can be posted on the company’s website along with the PTO decision itself.
• A list of key reporters and bloggers to contact once the PTOs decision is announced. The list should include IP/legal reporters like Susan Decker at Bloomberg, as well as reporters who cover your company or industry in general. High-authority legal and industry blogs must also be identified, monitored, and, as appropriate, contacted.
• They include PatentlyO, IP Watch, and the National Law Journal’s BLT: The blog of Legal Times. The best practice is to always treat high- authority bloggers – those that are respected, well read and linked to – just like any major traditional media journalist. These bloggers are the ones who increasingly decide what the traditional reporters will cover and, of course, their own distribution is much faster.

Connect with these key media and blog contacts early. Develop personal relationships with them now, before you need them. They’ll be much more amenable to conveying your messages if they understand and trust you first. Especially if your company is a major industry player, consider launching an industry blog or company news site. This forum may be used to tout your products, thought leadership, and messages before, during, and after legal disputes.

4. What actual messages should these diverse communications venues disseminate if the reexamination ends adversely for the defending company?

In typical situations, there are generally two messages. The first addresses the immediate situation by confirming that the PTO decision is not necessarily the final outcome and that there is further recourse. The specific recourse should be spelled out so that intelligent persons can understand it without law degrees or years of experience as patent examiners. It must be both credible and easily communicable. Second, and very important, address what’s at stake for consumers and shareholders. For example, the message may be that the patent in question is not the company’s sole crown jewel or even all that important to future earnings growth; and that the company continues to innovate other products and services that are driving real growth for the company. Strategically, it’s an example of something we often talk about: the transformation of adversity into opportunity. What begins as a threat – a bad result in a reexamination – becomes a chance to highlight all the presumably greater things that the company is doing, and that have nothing directly to do with the reexamination. Should a company’s patent be invalidated, the very patent at issue may have no bearing on an entire product, nor necessarily halt the company’s use of the product. A company should therefore move quickly to separate itself from situations like the one that nearly collapsed RIM’s Blackberry in its litigation with NTP, by highlighting all the ways in which a negative ruling does not significantly impact its business. Conversely, RIM strengthened its position in its pending U.S. litigation against Motorola after a UK court recently invalidated Motorola’s patent. RIM underscored the broader business implications the case has on its competitor by saying, “Motorola has been trying to compensate for its losses in the marketplace and its inability to sell its mobile division by resorting to court actions.”

5.   What are the best practices to mitigate fear among shareholders?

First, put yourself in the shareholder’s shoes: What questions would you ask if a company in which you’ve invested money just had an adverse PTO ruling? Clearly contextualize what the reexamination results mean for the business, which may indeed be very little. The problem for shareholders is the intimidating mystique of IP and the queasy feeling they get when they don’t quite understand what’s happened. So help them understand it. Here too, clarify what was lost in this one case versus the strong assets that the company still commands and the upcoming gains that lie in store. Watch for any signs of confusion. As with many types of crisis communication, use pictures as much as possible. By pictures, I mean, literally draw them a map that shows every stage of the process that has occurred so far, and every stage that lies ahead. One company we worked with took just such a painstaking approach to simplifying a multifaceted patent and commercial dispute. They didn’t just win. They were indefatigable in letting the world know they won. Suffice it to say that, by the end of the day, it acquired one of the companies that had challenged its patents. I’d conclude by emphasizing the need – whether it’s a positive or negative situation, or whether you’re talking to shareholders or consumers – to always use technology smartly. Monitor the entire blogosphere on a 24/7 basis and, of course, fully optimize everything you post, of course. Utilize social media like Twitter and Facebook as aggressively as possible. The importance of the digital media in these situations is all the greater, especially for defending companies when their message is that they’re developing state-of-the-art technology that minimizes the impact of the adverse reexamination. Who is going to believe that message if it’s not communicated in a technologically savvy and proficient way? No one, really. The medium is a big part of the message in all public communications that have to do with technology.

Chairman Comment

Thank you Richard for sharing all of this deep insight and practical advice.  No doubt, as more reexams are ordered against important patents, particularly those in concurrent patent litigation, the more important what you are addressing will become.

The Reexamination Center:  It is our understanding that you have been in patent law for over 18 years and have developed a broad range of experience in many areas?

TARANEH MAGHAME:  Yes, I’ve been practicing law for over 18 years, primarily in the IP area with a focus on patent issues.  I’m admitted to practice before the USPTO and worked at three major law firms for the first 10 years of my career, including Perkins Coie and the former Brobeck, Phleger and Harrison.  I started out litigating mostly patent infringement cases, including a major temporary exclusion order (TEO) proceeding in the USITC, but eventually became more involved in a range of other transactional IP matters.  In 2000, I joined Compaq to manage all of that company’s IP litigation, and also became responsible for the company’s anti-counterfeiting efforts.   But less than two years later, in 2002, the company merged with Hewlett-Packard. I then joined HP’s IP group to provide legal support in a wide range of matters, including litigation, licensing, and acquisitions.

My last in-house position was with Tessera Technologies in San Jose, California, where I was a VP and senior lawyer handling corporate, M&A and licensing matters, and an interim General Counsel.  Because of the critical importance of the patent laws to a company like Tessera (TSRA), whose revenues are in significant part derived from developing and licensing innovative technologies and the patents that cover such innovations, I saw a need to create a Government Relations function.  In 2006 I established Tessera as a strong voice in the patent reform debate in Washington, DC.   Tessera, along with a number of other technology companies, founded the Innovation Alliance, an organization dedicated to representing the interests of small to mid size technology developers whose businesses involve IP licensing for their innovations.  The best part of my last in-house position at Tessera was the strategic role I played in all functions I was responsible for including interim General Counsel and head of Government Relations, and the opportunity to testify before the Senate Judiciary Committee and the Federal Trade Commission in connection with the Patent Reform Act of 2009.  From all of these positions, I have developed a broad range of experience in IP and other areas of the law with a particular focus on patent issues.

TRC:  Based on this broad experience, what is your perception about the reexamination process in the United States?

TM:  Frankly, I think the reexamination process needs much improvement.  Of course, there are significant differences between the ex parte and inter partes processes, so it is hard to generalize.  But for the most part, the current reexamination process is ineffective, lengthy, unpredictable and expensive for all parties involved.  Although I’ve seen the reexamination process evolve significantly over the past few years – the biggest change being the creation of the inter partes proceeding and the establishment of the Central Reexamination Unit (CRU) – despite all the good intentions of the US Congress and the US Patent and Trademark Office (PTO), I think the reexamination process has gotten worse rather than better in many respects.  For example, much of the problem with how reexaminations are handled today is due to the simple fact that the PTO just does not have enough resources and manpower to perform its job effectively.

But I do not see this PTO resource problem as one that is limited to reexaminations – examiners are also overburdened, overworked and under-resourced when handling original patent applications and, as a result, the PTO loses a lot of good examiners after just a few short years at the PTO.  So adequate funding for the PTO should be first and foremost in the mind of legislators who are looking to improve the reexamination system in the US.  Interestingly, having dealt with this issue while working for companies that are on opposite ends of the spectrum when it comes to the patent reform debate, I am confident that this is the one point that we can get consensus on – and I am hopeful that with the appointment of David Kappos, a very seasoned patent practitioner, as the new chief executive of the PTO, we will see a great deal of improvement in that organization.

TRC:  Having had experience representing a patent owner with a large and robust patent portfolio, what do you think works in the reexamination process for the patent owner?

TM:  What many patent owners do not realize is that they can strategically use the reexamination process to strengthen their portfolios.  In many cases, patent owners are on the defensive side of reexaminations – in other words, they have to fight to maintain their patents in the face of third party challenges.  This most often occurs when the patent owner is attempting either to assert the patent or otherwise obtain value for the use of the patented technology by others.  In situations where the patent owner files an ex parte reexamination to bring additional prior art before the PTO in order to ensure that the patent is valid over the art, the patent owner is in a much better position to survive the reexamination and in some instances can come out with stronger, more defensible patent claims.  That is how the reexamination process can work effectively for the patent owner.  Unfortunately, when others are challenging the patent through reexamination, particularly in an inter partes proceeding, the patent owner does not usually fare nearly as well.  In fact, statistics show that in a large majority of inter partes cases, the claims are cancelled by the PTO.

Also, turning to what works in the process itself, the fact that in an ex parte reexam the patent owner can request an interview with the CRU examiners to explain her position is very important in achieving a successful result.  In fact, Director Kappos has stated publicly that the statistics show that when there is an early interview in the prosecution of an original application, there is a better chance that the claims will be granted.  So interviews are an important part of the original application process as well as in the ex parte reexamination process.  Unfortunately, the same opportunity does not exist in the inter partes process, where such communications with the CRU examiners are prohibited by the current PTO rules but are even more critical due to the fact that there is a third party involved who can repeatedly rebut the positions taken by the patent owner.  In the inter partes process, it is essential for CRU examiners to fully understand the story of the invention, the technology, the details of the patent, the SNQs and the rejections so that they can  make a fully informed and justified decision.  An interview right would greatly improve the inter partes reexamination process.

TRC:  Now that you have discussed what is working for the patent owner, please explain what is failing for the patent owner in current reexamination practice?

TM:  The reexamination system is weighted heavily against the patent owner.  Several points show this bias.  First, over 90% of requests for reexamination are granted and in almost all those proceedings, all of the claims are initially rejected in the first Office Action.  So, before the patent owner even gets a chance to respond to the request, she has two strikes against her.  This is a difficult position for the patent owner to start from.   Second, there is no page limits on the size of the reexamination request in an inter partes proceeding.  However, the patent owner is limited to 50 pages to respond to the Office Actions.  This is a fundamental flaw in the inter partes process and a denial of due process because it does not allow the patent owner an opportunity to provide full and complete arguments to refute rejections.  Third, the delays and backlog inherent in the reexamination process through appeal from the CRU to the BPAI to the Federal Circuit work against the patent owner much more than against the third party requester.  This delay problem is especially egregious where the third party requester is able to get a court in concurrent patent litigation to stay the litigation until the reexamination process is completed.   Patents in concurrent litigation can be easily tied up in reexamination proceedings for years, often for a period longer than the useful life of the technology.

The original purpose of establishing reexamination processes was to provide a faster, cheaper and better process (when compared with litigation) for accused infringers to challenge weak or bad patents.  That goal is commendable.  However, due in part to the concerns I discussed earlier, the reexamination system is now subject to abuse by third party requesters who may choose to tie up a competitor’s patent(s) in reexamination for many years, perhaps through successive challenges by one or more requesters.  This casts a cloud over the patent’s validity and enforceability, and puts the third party requester(s) in a better negotiating position vis a vis the patent owner.  Surprisingly, the third party requester does not even need to show that the challenged patents are relevant to his business or a threat of any kind before a reexamination proceeding is initiated.  In other words, reexamination can be employed more as a bargaining tool these days, used to put pressure on the patent owner in litigation or licensing negotiations.  In fact, numerous businesses have been established over the last couple of years whose sole purpose is to file reexamination requests on behalf of subscribers or members.  Surely, this was not the intent of Congress.

That said, in light of certain legislative proposals and the aggressive agenda established by Director Kappos in terms of drastically reducing the time it takes to complete a reexamination (to one year, I believe, is his goal) and reducing the PTO backlog, I am hopeful that some of the concerns will be alleviated in the near future.  However, patent owners need to consider all of these aspects of reexamination in developing an IP strategy, particularly ones that involve monetization of a portfolio through licensing or assertion.

Obviously, these comments do not describe all that works and does not work in reexaminations, but illustrate the need for changes to be made to the reexamination process to ensure that it works fairly and efficiently for all stakeholders.

TRC:  What should be done to ensure that the patent owner can maintain its legitimate patent rights?

TM:  As I said, the reexamination process needs to work efficiently and fairly for all parties involved, and certain changes can be made to get us closer to this necessary goal.  Let me begin with some of the problems I discussed above – successive challenges by multiple requesters and page limitations on responses to Office Actions.  Establishing rules that would ensure that all real parties in interest are identified in inter partes reexamination proceedings (and thus effectuating the estoppel provisions) and giving the patent owner the opportunity to respond to the request before the examiner makes any determination regarding the merits, without unreasonable page limitations, would help the patent owner protect her rights.  But more generally, the U.S. patent system needs to recognize the reality that once a patent is issued, a great deal of its value is associated with the certainty that the patent can be enforced against infringers.  Thus, there are two changes I propose that would improve the U.S. system in this regard: (1) allowing the examiner that handles the original patent application sufficient time and resources to make the right decision on the merits, and (2) establishing a higher threshold than the current SNQ standard for a reexamination proceeding to be initiated.  Ultimately, the PTO needs to minimize opportunities for requesters to abuse the reexamination system.  Such abuse takes the form of serial reexaminations of the same patent by one or more requesters, or the filing of non-meritorious requests for reexamination that today are almost automatically granted.  It is easy to see how such abuse is not only damaging to patent owners but also results in wasted PTO resources which are already too scarce.

TRC:  You have also been on the other side of patent disputes where defendants had to challenge patents being asserted against them.  How does the reexamination process effectively balance the interests of these parties?

TM:  I think the root of the problem trying to be addressed by the reexamination process could be better solved if quality patents are issued in the first instance and the time to process original applications is shortened. Also, the time to complete a reexamination proceeding should be shortened. Certain companies have become serial defendants in patent infringement cases, partly due to the complexity of the products they sell, and partly because there are entities that have made a business out of buying and asserting patents against these companies, regardless of the validity or quality of those patents.  Reexamination is now seen as a more cost-effective way of defending against such assertions, and often results in a better outcome for the defendants.  But if we were to ensure that the PTO issues quality patents in the first place and reexamination is no longer used as a litigation tactic but is employed when there are serious concerns about the validity of a patent, the system would benefit both patent owners and patent users.  Again, this gets us back to the necessity of adequately funding the PTO and properly incentivizing the examiners to issue quality patents that will stand up to a reexamination challenge.

TRC:  What can the PTO do in the near term to help the reexamination situation?

TM:  Certain rule changes can be implemented by the PTO in the near term to improve efficiency, predictability and results.  I have discussed a number of these in response to the prior questions, but below are a few suggestions:

• Establish time limits for concluding a reexamination proceeding (for example, require that a final decision be issued by the CRU within 12-18 months of initiating a proceeding);
• Increase the number of senior examiners in the CRU and ensure that sufficient expertise is included to properly handle reexamination cases in different technology fields;
• Allow a patent owner to file a response to a request before a decision is made to institute the reexamination proceeding;
• Eliminate the page limitations on patent owners’ responsive filings or make them commensurate to the number of pages of the request and the office actions;
• Establish rules to enforce the provision requiring identification of real parties in interest in inter partes proceedings;
• Incentivize the CRU examiners to better evaluate  requests in terms of SNQs and proposed rejections before deciding to grant the request

Thank you for the opportunity to share these views.

The Reexamination Center interviews Wayne B. Paugh on the subject of

THE REEXAMINATION CENTER:  As a key counsel on Capitol Hill during the passage of the American Inventors’ Protection Act in 1999 – which created inter partes reexaminations – can you give us a little background about how the law was passed?

WAYNE B. PAUGH:  When the landmark American Inventors Protection Act (AIPA) was signed into law in November 1999, it represented the culmination of a careful but friendly negotiation of a wide cross section of Members of Congress and stakeholders alike.  In contrast to the emotional debates witnessed in the previous Congress, the AIPA was a cohesive and inclusive process almost from the beginning.

With regard to the creation of the inter partes reexamination system, the title of that section of the bill says it all: Patent Litigation Reduction Act.  The intent of Congress was clear: with the costs of patent litigation soaring,  inter partes reexamination was designed to encourage third parties to settle validity disputes before the U.S. Patent and Trademark Office (PTO).  In fact, numerous witnesses testified before Congress that the volume of lawsuits in district court would be reduced if third parties were given the opportunity to make their case before the PTO.

With that motivator in mind, Congress sought to establish a mechanism which could provide a chance for third parties to challenge patent validity – but not going so far as to create a true trial setting and further burden the PTO.  Additionally, Congress was determined to prevent harassment of patent owners.  As a result, the original inter partes enactment estopped participants from litigating any issue in a subsequent court action which was raised or could have been raised.  Ultimately, through inter partes reexam, Congress was primarily seeking to reduce the financial burdens of patent litigation on small business and increase the PTO’s role as an expert agency in determining matters of patent validity.  In sum, Congress desired an alternative to litigation, not simply a new avenue to attack a patent.

TRC:  With nearly ten years passed since inter partes reexamination was enacted, please give us your thoughts regarding its operation in practice?  Has the statute been a success?  Is it functioning in the manner envisioned by its creators?

WBP:  Initially, the majority of law firms, corporations and academia panned the newly established inter partes reexam as a significant statutory failure.  Many thought it was a hodgepodge of non sequiturs which repelled potential participants due to restrictive and suffocating estoppels.  But Congress knew it would take time for industry to warm to the inter partes procedure – especially since the statute was prospective and only applied to issued patents going forward.

That said, when we investigate the recent history, we see that inter partes was utilized 118 and 142 times respectively over the last couple years and has been witness to steady growth since its enactment.  In fact, the current fiscal year is on target to reach 200 grants alone.  This is certainly an encouraging trend.

The feedback on inter partes performance, however, is not all positive.  One aspect of inter partes reexam operation which was not anticipated is the increasingly accepted practice of employing reexam as a post-litigation tactic.  Congress clearly envisioned reexam as an alternative to litigation.   The fact that many reexams are filed after an infringement trial concludes seemingly turns the statute on its head.

Another unanticipated aspect is the length of time it takes to complete an inter partes reexamination.  The average reported duration of approximately three years is longer than planned, especially with ‘special dispatch’ still the prevailing pace.  Some practitioners even report that inter partes reexams can last five or as long as ten years.  A patent validity challenge before the PTO was expected to consume much less time so as to increase its attractiveness as an alternative to litigation on issues of validity.

TRC:  Looking into to the future, especially with Congress now considering patent reform, what changes do you think will happen in the next year or two to inter partes reexaminations?

WBP:  With the sweeping patent reform bill still hanging in the balance before Congress, many significant changes are still in play.  Included among those changes, Congress is considering a new Post Grant Review (PGR) system which would create a tool used to challenge a patent immediately post-issue.  But I want to stay on topic and mainly limit my remarks to the context of inter partes reexam.

Some in industry have suggested broadening the statutory scope of inter partes reexam to permit a wider challenge.  Additionally, many are seeking to dilute the current estoppel structure.  While I believe those sentiments are well-placed, Congress should not neglect consideration of the skeletal framework of the inter partes system itself.  In other words, before equipping the car with additional horsepower and increasing the speed limits, pause should be given to the effectiveness of the steering wheel.

Additionally, there have been legislative discussions weighing the wisdom of making all patents eligible for inter partes reexam.  In other words, the current prospective-only requirement would be lifted.  Finally, there have been debates on abolishing the inter partes system altogether and replacing it with a robust PGR system which has two “windows” – the first to challenge the patent in the 12-month time period immediately post-grant, and the second which would surface when a third party is sued for infringement.  Overall, at this stage it is quite possible we could see significant changes to reexam practice in the near future.

TRC:  As the Chief of Staff for Director Rogan from 2002 to 2004, you must have witnessed a lot in terms of how Director-ordered reexaminations functioned within the agency?  What can you tell us about that process?

WBP:  Yes, serving as Chief of Staff for Under Secretary Rogan was a wonderful opportunity and it enabled me to experience America’s patent system from a much different perspective than I had when I was a patent examiner in the agency.

In general, Director-ordered reexams are a rare occurrence – and were designed to be that way.  Historically, I believe the Director-ordered reexams account for approximately 2% of all reexams conducted since the original statute was enacted in 1980.  There is certainly a much higher standard adhered to in making a decision to initiate this type of reexam, even when there exists a substantial new question of patentability.

During my time at the PTO, I recall the Director-ordered reexam process involving the now famous Eolas patent as well as the controversy surrounding the Campana patents at stake in the Research in Motion Ltd. dispute.  To be sure, there are absolutely no political elements involved in the process.  Being a former Congressman and judge, Under Secretary Rogan ensured that his authority to issue such reexams was delegated to our Deputy Commissioner for Patent Examination Policy.  Mr. Rogan accepted no meetings, phone calls, or correspondence regarding public input on patents identified as ripe for reexamination.  This policy, however, may have been limited to Mr. Rogan’s (and subsequently Jon Dudas’) tenure.  Statutorily, the head of the PTO has the option to participate personally in the process of evaluating whether to grant a Director-ordered reexam on a particular patent.

Regardless of who ultimately signs the order to proceed with a Director-ordered reexam, the standard for granting such an order remains difficult to surmount.  A Director-ordered reexam may be permissible only if (a) at least one claim of an issued patent is prima facie unpatentable and (b) there is a compelling reason to order a reexamination.  Such compelling circumstances might include an overwhelming “public outcry” from a substantial segment of the industry.  This could yield the extraordinary situation required for a Director-ordered reexam to be appropriate.  Fortunately, this power is pursued only when unusual circumstances arise, since the specter of abuse is never far from being summoned.

TRC:  I understand you have a new law review article on reexaminations which is scheduled to publish in the near future.  Can you give us some detail about this article?

WBP:  Yes, thank you for that question.  The Federal Circuit Bar Journal intends to publish my article, “The Betrayal of Patent Reexamination: An Alternative to Litigation, Not a Supplement” in its 2009 winter issue.

Essentially, my goal in the article is to demonstrate that modern reexam practice has run off course from what its congressional creators envisioned.  As included in the original report accompanying the new reexam statute, reexamination was intended to “permit efficient resolution of questions about the validity of issued patents without recourse to expensive and lengthy infringement litigation.”  The theory of reexam as an alternative to litigation has not played out in practice.  This is as true of ex parte reexam as it is of inter partes reexam.

Through the loopholes left open by Congress, practitioners are taking every advantage available to attack a patent, often in the sequence of litigation followed by reexamination.  In contrast, Congress anticipated reexam would either precede litigation or be employed during the course of litigation, where a court could stay proceedings and refer the question of validity to an expert agency before moving to the question of infringement.  In fact, the original ex parte reexam structure was designed to protect the patent owner, especially independent inventors and small businesses.  In today’s environment, however, the emphasis has been placed on the variety of ways to eradicate patents of dubious quality.

Ultimately, Congress has the opportunity to make the necessary statutory changes to ensure reexamination respects its roots.  By focusing on changes in the areas of estoppels, court-issued stays, and limiting the duration of reexam, Congress has the chance to revise a statutory procedure which is important to the function of our patent system.