Welcome to Winston & Strawn’s Patent Trial and Appeal Board Practice Update. This publication is a digest of decisions and orders from the weeks of August 26th, September 2nd & 9th.

To read the update, please click here.

Empirical Analysis of IPR Institution Decisions. Since September 16, 2012, the Board has issued a total of 175 institution decisions under 37 C.F.R. 42.108 in inter partes review proceedings. An empirical analysis of those decisions shows that in 132 of those decisions, the Board granted the petition on at least one ground for each of the challenged claims. In 18 of those decisions, the Board refused to institute trial on any of the claims. Finally, the Board’s decision was “mixed”—with trial on some challenged claims being instituted, and on other challenged claims being denied—in 25 trials. This is shown in the chart below:

Collectively, the Board has reviewed petitions for inter partes review of 2707 claims through September 13, 2013. Of those 2707 claims, the Board has determined: (1) to institute trial on 2146 of those claims, (2) to deny the petition to institute trial on 556 of those claims, and (3) 5 of the challenged claims were disclaimed, resulting in no decision by the Board on the petition as to those claims. The breakdown is shown below.

The 175 institution decisions were also reviewed to determine how long it took the Board to issue a decision under 37 C.F.R. 42.108. According to the PTO’s expected timeline for IPR as published in the Federal Register, the Board expected preliminary proceedings (the time between the filing of the petition and the issuance of a decision under section 42.108 to last no more than 6 months. As a general matter, this has held true. The average time from the time a petition is filed to the Board’s decision under 42.108 is just over 5 months (5.02 months). However, the average is skewed slightly by decisions based on motions for joinder, which substantially decrease the time between filing and an institution decision. For example, the fastest time between the filing of a petition and a decision to institute was only 35 days. The largest time between the filing of a petition and a decision to institute trial was 235 days, or nearly 8 months (7.83 months).

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IPRs By the Numbers. The Board has received 483 petitions for IPR since September 16, 2012, a rate of 9.29 per week. Thus, the number of petitions for IPR has relatively consistently increased month-to-month. The number of IPRs instituted reflected in the table below includes more than just decisions on the merits of petitions. The graph reflects termination decisions as well, and therefore includes 15 settlements or terminations before a Rule 42.108 decision was issued by the Board.

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Failure to raise arguments in patent owner response that were previously raised in the patent owner preliminary response can result in a waiver of those arguments. If a patent owner raises a certain argument in its patent owner preliminary response, and then fails to make the same argument in its patent owner response following institution, the Board may determine that the patent owner has waived the argument. This is exactly what the Board decided in connection with Versata Development Group’s request for rehearing on the Board’s final decision finding four of Versata’s patent claims unpatentable under 35 U.S.C. 101. Specifically, Versata raised six arguments in connection with its request for rehearing and the Board concluded that three of the had been waived. Versata argued: (1) the patent at issue was not a “covered business method patent,” (2) the petition for CBM review was barred by claim and issue preclusion, and (3) 35 U.S.C. § 101 was not a basis for reviewing a claim in a CBM review. See SAP Am., Inc. v. Versata Dev. Group, Inc., CBM2012-00001, Paper 81 (Sept. 13, 2013). The Board concluded that the Patent Owner had waived these arguments by not presenting them in its patent owner response. The Board explained that while the patent owner raised these issues “in its Preliminary Response,” it “did not identify or maintain any of those issues once the trial was instituted.” The Board denied the request for rehearing on those grounds explaining that “[a] request for rehearing of a final decision is not an opportunity for a party to raise issues that were waived.” The Board analogized to Georgia Pacific Consumer Products, LP v. Bon Drehle Corp., 710 F.3d 527, 533-34 (Fed. Cir. 2013), and explained that “the defenses of claim preclusion and issue preclusion are affirmative defenses that must be pleaded,” and “[e]ven when a preclusion defense is not available at the outset of a case, a party may waive such a defense arising during the course of litigation by waiting too long to assert the defense after it becomes available.” Id. The Board, therefore, refused to consider the arguments that it deemed waived by failing to include them in the patent owner response. Thus, patent owners that elect to file preliminary responses should carefully consider the consequences of failing to raise an argument that was made in the preliminary response when it submits the full patent owner response.

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Are Challenges to a Petitioner’s Standing Because of Claim or Issue Preclusion Moot After Institution of Trial? In its petition for rehearing, Verstata Development Group raised the argument that SAP was precluded from pursuing the covered business method patent review because of claim and issue preclusion (recall that the Federal Circuit has affirmed Versta’s judgment against SAP). Although the Board found that Versta had waived that argument, the Board still addressed it in a footnote. Turning to the merits of the claim and issue preclusion argument, the Board indicated that the defenses of claim and issue preclusion were not applicable after trial is instituted. The Board reached this conclusion based on the fact that it may proceed to reach a final written decision even after the petitioner is no longer participating in the proceeding. The Board explained “once trial is instituted, the Patent Trial and Appeal Board shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.…To make such a determination, the Petitioner need not be a party. Therefore, the defense of issue and claim preclusion would have no effect on the Board’s statutory duty to determine patentability.” This suggests that if a patent owner has a defense of claim and issue preclusion, it should raise that issue in a preliminary response even though a preliminary response is optional. See SAP Am., Inc. v. Versata Dev. Group, Inc., CBM2012-00001, Paper 81 (Sept. 13, 2013).

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CBM Review Cannot Raise Prior Art Under Pre-AIA Section 102(e). One key difference between IPR and CBM review is the availability of prior art. Certain prior arg cannot be raised in a CBM review. In what has been described as an “ambiguous” provision which has wording that presents “a puzzle,” See Donald S. Chisum, America Invents Act of 2011: Analysis and Cross-References at 112 (Dec. 5, 2011) (available at http://www.chisum.com/wp-content/uploads/AIAOverview.pdf) (last visited Nov. 27, 2012), section 18(a)(1)(C) provides

3. A petitioner in a transitional proceeding who challenges the validity of 1 or more claims in a covered business method patent on a ground raised under section 102 or 103 of title 35, United States Code, as in effect on the day before the effective date set forth in section 3(n)(1), may support such ground only on the basis of—
   
   
   1. prior art that is described by section 102(a) of such title of such title [sic] (as in effect on the day before such effective date); or<
   2. prior art that—

• discloses the invention more than 1 year before the date of the application for patent in the United States; and

• would be described by section 102(a) of such title (as in effect on the day before the effective date set forth in section 3(n)(1)) if the disclosure had been made by another before the invention thereof by the applicant for patent.
  
  This provision appears to allow 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).

This new category of prior art appears to operate, at least in part, as a substitute for pre-AIA § 102(b) because it refers to prior art that “discloses the invention more than 1 year before the date of the application for patent in the United States.” However, as one commentator has noted, subsection (ii)(I) refers to “the date of application for patent” instead of the “effective filing date” of a claimed invention, even though the AIA defines the latter term expressly. See Manzo, et al., PATENT REFORM 2011 – THE LEAHY-SMITH AMERICA INVENTS ACT: COMMENTARY AND ANALYSIS 101 (2011). Applying the principle that different words in the same enactment typically carry different meanings, the phrase “before the date of application” may be interpreted to mean that the prior art only need to predate the filing date (rather than an earlier filing date) of the application for the pa-tent being challenged. However, this interpretation may be viewed as being inconsistent with 35 U.S.C. § 120, which, as a matter of law treats later-filed application as having “the same effect” as the earlier-filed application if the requirements of section 120 are complied with.

Subsection (ii) then adds an additional requirement when it refers back to section 102(a) and states that the prior art must also be covered by pre-AIA section 102(a) if the disclosure had been made by another before the invention thereof by the applicant for patent. This provision might be read to exclude prior art under § 102(e) from being used in a business method patent review. Such an interpretation, if intended by Congress, is not stated anywhere in the legislative history and does not appear to have a reasoned basis. While the PTO’s interpretation of this pro-vision in the rules is not particularly helpful in terms of bringing clarity to the meaning of § 18(a)(1)(C) because it mirrors the language of the statute, the PTAB has concluded that this limitation excludes references that are prior art under § 102(e).

Recently, the Board authorized trial in connection with a CBM review based on a reference that was prior art only under pre-AIA 35 U.S.C. 102(e). After trial was instituted, the Board realized that the rules and statute appear to preclude reliance on that particular reference in a CBM review. Neither the Petition nor the Patent Owner’s Preliminary Response recognized that Tengel does not support a ground to challenge patentability under AIA § 18(a)(1)(C), given its filing and issue dates relative to those of the [patent at issue]. AIA § 18(a)(1)(C) requires that a challenge to a claim in a covered business method patent be supported by prior art that is (i) described by pre-AIA 35 U.S.C. § 102(a) or (ii) (I) that discloses the invention more than 1 year before the date of application for patent in the United States and (II) would be described by pre-AIA 35 U.S.C. § 102(a) if the disclosure had been made by another before the invention thereof by the applicant for patent. Although Tengel is prior art under 35 U.S.C. § 102(e), it does not meet the criteria to support a challenge under AIA § 18(a)(1)(C).” The Board gave the parties the option to proceed under § 101 and § 103, but since the patent owner objected, the Board determined it would proceed only under § 101 and issued a shorter schedule given the narrowing of the issues. See Meridianlink, Inc. v. DH Holdings, LLC, CBM2013-00008, Paper 24 (Sept. 12, 2013).

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Upcoming Oral Hearings. The Board will hear the following oral arguments in post-issuance proceedings:

• Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027. Oral argument will be heard on October 7, 2013 at 1 PM. The hearing is open to the public for in person attendance.
  
• Research in Motion Corp. v. MobileMedia Ideas LLC, IPR2013-00016. Oral argument will be heard on October 18, 2013 at 3:30 PM. The hearing is open to the pblic for in person attendance.

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Alternative Contingent Claims Not Permitted in Motion to Amend Absent Showing of “Special Need.” The Board has repeatedly acknowledged that a motion to amend claims may be contingent on the Board determining an original claim is unpatentable. One patent owner sought to expand on the conditional motion to amend a patent claim by seeking the Board’s view on whether it could present alternative, contingent substitute claims. See BAE Sys. Information & Electronic Sys. Integration, Inc., IPR2013-00175, Paper 26 (Aug. 27, 2013). In this case, “Patent Owner asked whether it is permissible to propose two replacement claims for an existing claim. For example, ‘replacement claim 1’ would add an additional limitation to claim 1 and be contingent on claim 1 being found unpatentable. ‘Second replacement claim 1’ would add a different limitation to claim 1 and be contingent on both claim 1 and ‘replacement claim 1’ being found unpatentable. Pursuant to 37 C.F.R. § 42.121(a)(3), ‘[t]he presumption is that only one substitute claim would be needed to replace each challenged claim, and it may be rebutted by a demonstration of need.’ The Board referred Patent Owner to the guidance provided in Case IPR2012-00027, Paper 26, dated June 11, 2013 (“Idle Free”). In particular, ‘a patent owner has to show a special need to justify more than one substitute claim for each challenged claim. In such situations, the patent owner needs to show patentable distinction of the additional substitute claim over all other substitute claims for the same challenged claim.’…Thus, should Patent Owner propose a ‘second replacement claim 1,’ Patent Owner would need to establish a special need for doing so and a patentable distinction over ‘replacement claim 1.’”

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Who Bears the Burden of Proving The Effective Filing Date of a Patent Claim in a Post-Issuance Trial? The Board appears to have been inconsistent in its conclusions about who bears the burden of proving the effective filing date of a patent claim. Earlier this year, the Board held that it did not need to determine if a petitioner was correct in its argument that claims at issue were not entitled to an earlier priority date “because entitlement to a priority date for any claim is a matter for which [Patent Owner] bears the burden of proof.” Liberty Mutual Ins. Co. v. Progressive Cas. Ins. Co., CBM2013-00009, Paper 10 (Mar. 28, 2013). The Board explained that since the patent owner only made a “conclusory statement” regarding the effective filing date of a claim, the claim would be treated as having the filing date of the patent at issue, and not an earlier filing date for the purposes of the institution decision. Id.

Last week, however, the Board denied certain grounds in a petition for IPR because the petitioner only provided conclusory statements regarding the effective filing date of a claim. See Hewlett-Packard Co. v. MCM Portfolio, LLC, IPR2013-00217, Paper 10 (Sept. 10, 2013). The Board noted that the petitioner “provides little explanation regarding its proposed effective filing date, basing its entire argument” on an alleged admission by the patent owner’s exclusive licensee made during an ITC investigation. The petitioner “does not explain why the actions of [patent owner’s] licensee in another proceeding would be applicable here; not does [petitioner] provide any evidence, aside from one conclusory statement by an expert…to support this assertion.” The Board noted that none of the priority applications were in the record in the proceeding, and the expert does not even mention the earlier filed applications cited in a certificate of correction, suggesting that he may not even have been aware of them. Therefore, the Board declined to institute inter partes review based on the intervening references.

Thus, it appears to be an open issue as to who bears the burden of showing that a patent claim is entitled to an earlier effective filing date in the petition. At this point, however, would-be petitioners should err on the side of caution and provide substantive evidence and analysis of the priority date until this apparent split in authority has been resolved.

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