Risks and Rewards of Using Re-examination As a Strategy in Patent Litigation

Patent litigation is becoming almost prohibitively expensive to all but the most well-heeled litigants, particularly due to the significant costs associated with electronic discovery. Even if the invalidity question is dispositive, it will probably take months or even years of costly discovery, not only on the validity issue but also on issues of infringement, damages, and equitable defenses, to posture a case for a summary judgment motion to decide the validity of the patent. In the meantime, the accused infringer is operating under a cloud with damages accruing, and the patentee is being denied the exclusive use of his invention.

Against this backdrop, it is not surprising that re-examination is playing an ever-increasing role as a strategy in patent litigation. But while there are aspects of re-examination that can greatly benefit both the patent owner and the accused infringer, there are also significant risks that must be considered before pulling the trigger on re-examination.

Re-examination is the process of sending an issued patent back to the Patent Office to reconsider whether the Patent Office should have granted the patent. There are two types of re-examinations: ex parte and inter partes. Ex parte re-examination takes place primarily between the patent owner and the Patent Office, while inter partes re-examination involves the third-party requester in the process.

For the first part of this article, only ex parte re-examination will be addressed. Once ex parte re-examination has been covered, inter partes re-examination can be explained by comparing and contrasting. Also, because the primary focus of this article is on the risks and rewards of re-examination procedures as a litigation strategy, the details of re-examination procedures will be covered only briefly.

Ex Parte Re-examination

Re-examination begins with the filing of a Request for Re-examination with the Patent Office. The Requester can be the patent owner, a third party with an interest in having the patent revoked or narrowed, or even the Commissioner of Patents. According to Patent Office statistics covering the period of CY 1995 through CY 2008, 31% of requests for re-examination were filed by patent owners and 69% by third parties. Roughly one-fourth of the patents for which re-examination was being requested were known to be involved in litigation, although if re-examined patents involved in threatened litigation were included, that number would probably be significantly higher.

Patents and printed publications are the only types of prior art that can be considered during a re-examination. Other invalidity issues, such as prior art consisting of public uses or offers for sale, or whether a patent applicant complied with enablement, disclosure, and best-mode requirements, are not proper subjects for re-examination.

The threshold question in determining whether to grant re-examination is whether the prior art references create a “substantial new question” (“SNQ”) of patentability. The SNQ standard is a fairly low hurdle to clear. A SNQ does not even mean that a patent examiner would have necessarily rejected a claim over the prior art identified in the request. Rather, it means only that there is a substantial likelihood that a reasonable examiner would consider the prior art patent or printed publication important in deciding whether or not the claim is patentable. Historically, well over 90% of requests for re-examination have been granted.

Once a re-examination has begun, it cannot be abandoned, nor are continuations allowed. Re-examination proceeds relentlessly until a re-examination certificate issues. In addition, the second Office Action is generally a final action, so the patent owner's opportunities to present arguments are limited. Because a re-examination jeopardizes a patent, why would a patent owner request re-examination?

If an accused infringer has brought prior art to the patent owner's attention, or if the patent owner has otherwise become aware of prior art not considered by the examiner during the prosecution of the original application, re-examination provides a way to have the Patent Office vet the patent over the new prior art before the patent owner spends millions on patent litigation. It also strengthens the patent owner's case for validity at trial ' the fact that the Patent Office has already considered the prior art and confirmed the patent makes it less likely that a judge or jury will be persuaded that the patent is invalid over those same references.

More strategically, a patent owner can submit new claims during re-examination that specifically target a competitor's product. A patent cannot be broadened during reissue, but new, narrower claims are permissible. It is possible that the broadest claims of a patent will be struck down, either during litigation or re-examination, leaving the patent owner with no valid claims to assert against the accused infringer. To avoid this possibility, the patent owner can add claims that are narrower than the broad claims but still cover the competing product. Even if the broad claims are found unpatentable or invalid, the narrower claims targeting the competitor's product may withstand scrutiny.

There are some factors that are advantageous for both the patent owner and the third party. One is cost. The preparation and filing of a routine ex parte re-examination request by a third party usually runs around $20,000, depending upon the breadth of the prior art search. Once the re-examination has been initiated, the third party effectively sits on the sidelines and lets the patent examiner man the laboring oar. While the patent owner's expenses are usually more, they are insignificant when compared with the cost of litigation.

Another factor advantageous for both parties is timing. Re-examination, though supposedly handled by the Patent Office with special dispatch, typically has a pendency of about two and a half years (not substantially shorter than the typical litigation). But unlike litigation, the parties have an early view of the examiner's leanings from the first Office Action. This early knowledge can provide the parties with an opportunity to reassess their case and possibly reach early settlement. In addition, many courts are willing to stay litigation pending the outcome of re-examination.

Further, re-examination is conducted by a patent examiner, who is typically knowledgeable about both the technology and patent laws. The outcome of re-examination is, therefore, usually more reasoned and predictable than submitting the issue to a judge or jury that may have little knowledge of patent law and even less knowledge about the technology involved.

There are other factors in re-examination that are more favorable to the third-party requester and disadvantageous to the patent owner. There is no presumption of validity in the Patent Office, and the standard for proving the claim unpatentable is lower than the standard for proving a claim invalid in court. In re-examination, the determination is whether the Patent Office made a mistake in issuing the patent initially, and consequently the standard of proof applicable during the prosecution of the original application is also applicable in re-examination. Whereas in court a claim must be proven invalid by “clear and convincing evidence,” a claim must be proven unpatentable in re-examination only by a preponderance of the evidence. This point is reflected in the use of the term “invalid” by a court, whereas an examiner in re-examination will call a claim “unpatentable.”

Also, for purposes of determining patentability, a court will construe the claims according to the specification and other intrinsic and extrinsic evidence. This approach usually results in a narrower interpretation more in line with how a person skilled in the art would construe the claims. In contrast, the Patent Office construes claims according to the “broadest reasonable interpretation” standard. This latter standard results in a broader claim construction, opening up the door to a wider scope of prior art and making it less likely that a claim will survive re-examination unscathed.

Arguments and admissions made by a patent owner during re-examination can create file wrapper estoppel that can be used to narrow the scope of the claims at trial. And duties of candor and disclosure apply to the patent owner in its dealings with the Patent Office during re-examination. Failure to comply with these duties can result in the patent being unenforceable due to inequitable conduct.

A re-examination can have a successful outcome for a third party even if the patent survives re-examination. If claims of the patent have to be substantively amended to avoid the new prior art, the original claims are no longer enforceable, and damages cannot be recovered prior to the date the re-examination certificate issues. Damages may be further limited under the theory of “intervening rights.” See 35 U.S.C. ” 252, 307(b).

A third party's involvement in an ex parte re-examination is limited. The third party can file a request for re-examination. If re-examination is granted, the patent owner has the option of filing a preliminary statement that the examiner will consider before issuing the first Office Action. If the patent owner files a preliminary statement, the third-party requester can file a response. To prevent the requester from having another opportunity to advance his arguments, the patent owner usually does not file a preliminary statement. From that point on, the third party does not participate. If the patentee makes spurious arguments during the course of the re-examination, or if the examiner fails to appreciate a nuance of a prior art reference, there is no way for the third party to bring the errors to the examiner's attention.

Inter Partes Re-examination

In 1999 Congress passed a law intended to address some of the shortcomings of ex parte re-examinations, while at the same time trying to provide closure. A new kind of re-examination procedure, inter partes re-examination, was created in which a third-party requester is able to play a more active role throughout the entire re-examination procedure. But in return, the third party forfeits certain rights to make arguments in multiple forums.

Only a third party can initiate inter partes re-examination. After re-examination has begun, where the third party would normally be excluded from ex parte re-examination, the third party can continue to participate and can file a reply to every submission made by the patent owner. Further, the third party can initiate and/or participate in appeals to the Patent Office Board of Appeals and Interferences and to the Court of Appeals for the Federal Circuit. This participation can help ensure that a patent examiner does not overlook a critical portion of a reference and that a patent owner's spurious arguments do not go unchallenged.

The riskiest part of inter partes re-examination to the third-party requester is that the third party is estopped from asserting at a later time the invalidity of any claim finally determined to be valid and patentable on any ground that the third-party requester raised or could have raised during the inter partes re-examination proceedings. This means that the third party cannot later assert in court the same prior art considered by the examiner in a re-examination. It also means that the third party cannot “keep some powder dry” by asserting only some references during re-examination with the intent of asserting the other references at trial. If he could have presented those references to the patent examiner during re-examination but failed to do so, he is estopped. This estoppel is intended to bring finality by preventing a third party from asserting the same references in re-examination and again later at trial, but it presents risks serious enough that some attorneys feel it would be malpractice to recommend inter partes re-examination to their clients.

Conclusion

Re-examination can provide great benefits to both a patent owner and an accused infringer under the right circumstances, but there are serious risks that must be taken into account before rushing to the Patent Office.

Larry Roberts is a partner in the Atlanta office of Kilpatrick Stockton LLP. His practice includes patent prosecution and patent infringement litigation. He additionally handles re-examinations (both ex parte and inter partes) and reissues, as well as appeals and interferences before the Patent Office Board of Appeals and Interferences. Roberts has served as a patent expert in several patent infringement cases and as an adjunct professor at Emory Law School and John Marshall Law School. He has served on the faculty of the National Institute for Trial Advocacy and has been named to Georgia Trend magazine's Legal Elite and Atlanta magazine's Georgia Superlawyers.

Patent litigation is becoming almost prohibitively expensive to all but the most well-heeled litigants, particularly due to the significant costs associated with electronic discovery. Even if the invalidity question is dispositive, it will probably take months or even years of costly discovery, not only on the validity issue but also on issues of infringement, damages, and equitable defenses, to posture a case for a summary judgment motion to decide the validity of the patent. In the meantime, the accused infringer is operating under a cloud with damages accruing, and the patentee is being denied the exclusive use of his invention.

Against this backdrop, it is not surprising that re-examination is playing an ever-increasing role as a strategy in patent litigation. But while there are aspects of re-examination that can greatly benefit both the patent owner and the accused infringer, there are also significant risks that must be considered before pulling the trigger on re-examination.

Re-examination is the process of sending an issued patent back to the Patent Office to reconsider whether the Patent Office should have granted the patent. There are two types of re-examinations: ex parte and inter partes. Ex parte re-examination takes place primarily between the patent owner and the Patent Office, while inter partes re-examination involves the third-party requester in the process.

For the first part of this article, only ex parte re-examination will be addressed. Once ex parte re-examination has been covered, inter partes re-examination can be explained by comparing and contrasting. Also, because the primary focus of this article is on the risks and rewards of re-examination procedures as a litigation strategy, the details of re-examination procedures will be covered only briefly.

Ex Parte Re-examination

Re-examination begins with the filing of a Request for Re-examination with the Patent Office. The Requester can be the patent owner, a third party with an interest in having the patent revoked or narrowed, or even the Commissioner of Patents. According to Patent Office statistics covering the period of CY 1995 through CY 2008, 31% of requests for re-examination were filed by patent owners and 69% by third parties. Roughly one-fourth of the patents for which re-examination was being requested were known to be involved in litigation, although if re-examined patents involved in threatened litigation were included, that number would probably be significantly higher.

Patents and printed publications are the only types of prior art that can be considered during a re-examination. Other invalidity issues, such as prior art consisting of public uses or offers for sale, or whether a patent applicant complied with enablement, disclosure, and best-mode requirements, are not proper subjects for re-examination.

The threshold question in determining whether to grant re-examination is whether the prior art references create a “substantial new question” (“SNQ”) of patentability. The SNQ standard is a fairly low hurdle to clear. A SNQ does not even mean that a patent examiner would have necessarily rejected a claim over the prior art identified in the request. Rather, it means only that there is a substantial likelihood that a reasonable examiner would consider the prior art patent or printed publication important in deciding whether or not the claim is patentable. Historically, well over 90% of requests for re-examination have been granted.

Once a re-examination has begun, it cannot be abandoned, nor are continuations allowed. Re-examination proceeds relentlessly until a re-examination certificate issues. In addition, the second Office Action is generally a final action, so the patent owner's opportunities to present arguments are limited. Because a re-examination jeopardizes a patent, why would a patent owner request re-examination?

If an accused infringer has brought prior art to the patent owner's attention, or if the patent owner has otherwise become aware of prior art not considered by the examiner during the prosecution of the original application, re-examination provides a way to have the Patent Office vet the patent over the new prior art before the patent owner spends millions on patent litigation. It also strengthens the patent owner's case for validity at trial ' the fact that the Patent Office has already considered the prior art and confirmed the patent makes it less likely that a judge or jury will be persuaded that the patent is invalid over those same references.

More strategically, a patent owner can submit new claims during re-examination that specifically target a competitor's product. A patent cannot be broadened during reissue, but new, narrower claims are permissible. It is possible that the broadest claims of a patent will be struck down, either during litigation or re-examination, leaving the patent owner with no valid claims to assert against the accused infringer. To avoid this possibility, the patent owner can add claims that are narrower than the broad claims but still cover the competing product. Even if the broad claims are found unpatentable or invalid, the narrower claims targeting the competitor's product may withstand scrutiny.

There are some factors that are advantageous for both the patent owner and the third party. One is cost. The preparation and filing of a routine ex parte re-examination request by a third party usually runs around $20,000, depending upon the breadth of the prior art search. Once the re-examination has been initiated, the third party effectively sits on the sidelines and lets the patent examiner man the laboring oar. While the patent owner's expenses are usually more, they are insignificant when compared with the cost of litigation.

Another factor advantageous for both parties is timing. Re-examination, though supposedly handled by the Patent Office with special dispatch, typically has a pendency of about two and a half years (not substantially shorter than the typical litigation). But unlike litigation, the parties have an early view of the examiner's leanings from the first Office Action. This early knowledge can provide the parties with an opportunity to reassess their case and possibly reach early settlement. In addition, many courts are willing to stay litigation pending the outcome of re-examination.

Further, re-examination is conducted by a patent examiner, who is typically knowledgeable about both the technology and patent laws. The outcome of re-examination is, therefore, usually more reasoned and predictable than submitting the issue to a judge or jury that may have little knowledge of patent law and even less knowledge about the technology involved.

There are other factors in re-examination that are more favorable to the third-party requester and disadvantageous to the patent owner. There is no presumption of validity in the Patent Office, and the standard for proving the claim unpatentable is lower than the standard for proving a claim invalid in court. In re-examination, the determination is whether the Patent Office made a mistake in issuing the patent initially, and consequently the standard of proof applicable during the prosecution of the original application is also applicable in re-examination. Whereas in court a claim must be proven invalid by “clear and convincing evidence,” a claim must be proven unpatentable in re-examination only by a preponderance of the evidence. This point is reflected in the use of the term “invalid” by a court, whereas an examiner in re-examination will call a claim “unpatentable.”

Also, for purposes of determining patentability, a court will construe the claims according to the specification and other intrinsic and extrinsic evidence. This approach usually results in a narrower interpretation more in line with how a person skilled in the art would construe the claims. In contrast, the Patent Office construes claims according to the “broadest reasonable interpretation” standard. This latter standard results in a broader claim construction, opening up the door to a wider scope of prior art and making it less likely that a claim will survive re-examination unscathed.

Arguments and admissions made by a patent owner during re-examination can create file wrapper estoppel that can be used to narrow the scope of the claims at trial. And duties of candor and disclosure apply to the patent owner in its dealings with the Patent Office during re-examination. Failure to comply with these duties can result in the patent being unenforceable due to inequitable conduct.

A re-examination can have a successful outcome for a third party even if the patent survives re-examination. If claims of the patent have to be substantively amended to avoid the new prior art, the original claims are no longer enforceable, and damages cannot be recovered prior to the date the re-examination certificate issues. Damages may be further limited under the theory of “intervening rights.” See 35 U.S.C. ” 252, 307(b).

A third party's involvement in an ex parte re-examination is limited. The third party can file a request for re-examination. If re-examination is granted, the patent owner has the option of filing a preliminary statement that the examiner will consider before issuing the first Office Action. If the patent owner files a preliminary statement, the third-party requester can file a response. To prevent the requester from having another opportunity to advance his arguments, the patent owner usually does not file a preliminary statement. From that point on, the third party does not participate. If the patentee makes spurious arguments during the course of the re-examination, or if the examiner fails to appreciate a nuance of a prior art reference, there is no way for the third party to bring the errors to the examiner's attention.

Inter Partes Re-examination

In 1999 Congress passed a law intended to address some of the shortcomings of ex parte re-examinations, while at the same time trying to provide closure. A new kind of re-examination procedure, inter partes re-examination, was created in which a third-party requester is able to play a more active role throughout the entire re-examination procedure. But in return, the third party forfeits certain rights to make arguments in multiple forums.

Only a third party can initiate inter partes re-examination. After re-examination has begun, where the third party would normally be excluded from ex parte re-examination, the third party can continue to participate and can file a reply to every submission made by the patent owner. Further, the third party can initiate and/or participate in appeals to the Patent Office Board of Appeals and Interferences and to the Court of Appeals for the Federal Circuit. This participation can help ensure that a patent examiner does not overlook a critical portion of a reference and that a patent owner's spurious arguments do not go unchallenged.

The riskiest part of inter partes re-examination to the third-party requester is that the third party is estopped from asserting at a later time the invalidity of any claim finally determined to be valid and patentable on any ground that the third-party requester raised or could have raised during the inter partes re-examination proceedings. This means that the third party cannot later assert in court the same prior art considered by the examiner in a re-examination. It also means that the third party cannot “keep some powder dry” by asserting only some references during re-examination with the intent of asserting the other references at trial. If he could have presented those references to the patent examiner during re-examination but failed to do so, he is estopped. This estoppel is intended to bring finality by preventing a third party from asserting the same references in re-examination and again later at trial, but it presents risks serious enough that some attorneys feel it would be malpractice to recommend inter partes re-examination to their clients.

Conclusion

Re-examination can provide great benefits to both a patent owner and an accused infringer under the right circumstances, but there are serious risks that must be taken into account before rushing to the Patent Office.

Larry Roberts is a partner in the Atlanta office of Kilpatrick Stockton LLP. His practice includes patent prosecution and patent infringement litigation. He additionally handles re-examinations (both ex parte and inter partes) and reissues, as well as appeals and interferences before the Patent Office Board of Appeals and Interferences. Roberts has served as a patent expert in several patent infringement cases and as an adjunct professor at Emory Law School and John Marshall Law School. He has served on the faculty of the National Institute for Trial Advocacy and has been named to Georgia Trend magazine's Legal Elite and Atlanta magazine's Georgia Superlawyers.