Tech firms are often confronted by nonpracticing entities (NPEs) that threaten them with dubious patents in hopes of reaching quick “cost of defense” type settlements. Because NPEs (by definition) do not practice the patents themselves—or even offer any product beyond a license to their patents—discovery and all its costs are essentially a one-way street.
Settling with NPEs is both tempting and dangerous. Settlement is tempting because it eliminates disruptions to the business, provides certainty and is often less costly than hiring expensive attorneys to defend you. Even if you feel that the patents are absolutely invalid, often the time and expense in proving them invalid is difficult to justify. On the other hand, settle for too much and too often and you could find your company developing a reputation of paying out.
Recently, tech firms have had success using patent re-examinations as leverage to reduce and even eliminate this threat. Re-examinations are processes before the U.S. Patent & Trademark Office (PTO) where the office takes a second look at patents in light of new information. The office tries to do its best in original prosecution, but it has limited resources and lacks the ability to focus in the same way as a business’ defense team. In our experience with re-examinations, defendants/targets have been able to substantially reduce settlements, and in some instances obtain walk-away agreements, because of the availability of re-examinations.
Re-examinations create a downside for the patent owner—the loss of their patents. If a NPE is contemplating an extended campaign against multiple targets, even the filing of a re-examination can slow or even halt the inflow of settlement cash. An adverse decision can jeopardize an entire licensing program.
Determined and sophisticated NPEs often point out that the time period involved in completing a re-examination is often so long that trial will have concluded long before the re-examination. This point is not without some merit. Indeed, the average pendency of re-examinations has also been cited by courts denying stays of litigation in favor of re-examination proceedings.
Congress also has taken notice. Re-examinations were always intended to be a viable alternative to litigation. However, the process simply takes too long to work its way through multiple layers of bureaucracy at the PTO. With the America Invents Act and its creation of the new post-grant opposition proceedings Inter Partes Review (IPR) and Post Grant Review (PGR), Congress wisely eliminated the internal appeals within the PTO and created a mini-trial format instead of the old administrative action format.
The end result of these procedural changes will be an 18-month pendency for IPRs and PGRs, rather than the three- to five-year pendency historically reserved for re-examinations. Coupled with a provision allowing for interlocutory appeals if stays of litigation are denied, NPEs will be losing even more leverage.
In terms of specifics, Post Grant Review can be filed on any patent within nine months of issuance, provided that the patent application was filed after March 15. Moreover, unlike the old re-examination proceedings, the PTO will look at any potential grounds for challenging the validity of a patent claim—not just prior patents or printed publications. In addition, if the patent falls within the broad category of “covered business methods,” a Post Grant Review can be requested regardless of the target patent’s filing date. A patent can fall into the covered business-method exception by virtue of the fact your company is engaged in financial services. In contrast, IPR can be filed on any patent, regardless of its filing date; however, it can only be requested within one year of a suit being filed. IPR is limited to challenges based on prior patents and printed publications.
IPR and PGR are already gaining wide acceptance. Since September 2012, when IPRs and PGRs (covered business methods) were available, approximately 180 individual requests have been filed. In comparison, it took about eight years for that many ex-parte reexamination requests to be filed after the process was instituted in 1982 and about five years for that many inter parte reexaminations to be filed after it was made available in 1999.
When a NPE shows up on your doorstep threatening the future of your company and/or its technology, there are other options available besides protracted litigation or simply settling to buy your way out. IPR and PGR provide the technology-based company with a third option to stem these ever-increasing attacks.