USPTO Post-Grant Opposition Costs – A Forum Conveniens for Invalidity Disputes
The USPTO comments on proposed rules for post-grant proceedings under the America Invents Act include estimates of the comparative costs of inter partes review, post-grant review, and district court patent litigation. Not surprisingly, the costs of challenging patent validity in the USPTO are expected to be a fraction of the expenses of a comparable district court defense, due to the very limited discovery available in oppositions, and the statutory requirement that the USPTO generally must issue a final decision within a year of instituting an inter-partes proceeding.
Reduced costs will be a major factor driving validity disputes from district court to the more favorable administrative forum for patent challengers. The USPTO expects that the current high level of duplication between litigation and reexamination will be reduced by inter partes review, which will limit what it terms “unnecessary and counterproductive litigation costs.”
The average costs of oppositions, including substantial petition fees, are projected by the USPTO as follows for the petitioner and patent owner (PO):
These USPTO estimates are at best general approximations of average costs, but they have the advantage of a direct if blunt comparison of the three patent challenge avenues.
The USPTO projections of trial costs are based on the costs of the preliminary motions period in interferences, which provide the only model for comparable administrative litigation in the USPTO. Interference costs have been limited by the effective absence of district court fact and document discovery, and a compact schedule that has generally resulted in a decision on preliminary motions within one year. The survey data on which the USPTO estimates are based demonstrate that the typical costs of interferences through the preliminary motions period vary widely (from $50K to $450K). The expense of a post-grant opposition can similarly be tailored to the petitioner’s specific goals, strategy and budget.
As in district court litigation, the costs of interferences vary with the amount in controversy. Simple interferences can be concluded for less than $100K, providing an effective tool in licensing negotiations where a settlement is possible. In my experience, in disputes in complex technologies where the value of the subject matter is more than $20M, the costs of an interference preliminary motions period may approach comparable district court litigation expenses. Complex and multiparty interferences involve extensive motions practice and expert discovery, when several fact and expert witnesses testify on diverse patentability issues, as may be common in post-grant review and consolidated inter-partes review proceedings.
An appeal to the Federal Circuit could double the costs of a post-grant proceeding, while settlement could reduce the costs by half. About 33% of inter partes reexamination decisions are appealed to the Board, and the USPTO estimates that 16% of final decisions in post-grant proceedings will be appealed. The Office expects that 20% of post-grant proceedings will be settled, reducing the trial costs by 50%. These estimates seem very conservative, because the estoppel consequences of inter partes review and post-grant review will strongly favor both appeals and settlements.
Motions Practice
Motions practice will be a fundamental aspect of post-grant oppositions, involving essentially every proposed action of both parties. The proposed rules contemplate routine motions for amendment of claims, supplemental evidence, additional discovery, consolidation of proceedings, and sanctions, as well as substantive motions relating, for example, to issues of patentability and benefit.
It is evident that the costs of preparing a substantive response to the petitioner’s arguments or a motion to amend claims, supported by expert testimony, will involve substantial costs, similar to those for preparing the original petition. A motion to amend will likely result in a renewed attack on any proposed substitute claims, including a contested motion to respond and motions to submit additional documentary or fact evidence and supporting expert testimony.
The major variable in post-grant trial costs will be the number of motions filed by the parties, and the evidence required to support and oppose the motions. The USPTO estimates that an inter partes review trial will involve an average of 6.92 motions, oppositions, and replies at a cost of $48K per motion, including expert expenses. It estimates an average of 8.89 motions after institution of a post-grant review trial, at a cost of $44.2K per motion.
Expert and Fact Witness Testimony
Because the initial petition is required to present all of the arguments and evidence required to show that it is reasonably likely that at least one challenged claim is unpatentable, in many cases it will be necessary to prepare expert declarations to support the petitioner’s arguments. In interferences it is common for each party to present separate expert declarations relating to different aspects of validity. The costs of retaining experts, preparing their declarations, and depositions are comparable in interferences and district court litigation.
In a post-grant review, where patentability can be challenged on issues such as public use, prior sale or public availability of information anywhere in the world, the testimony of fact witnesses will also be critical. Where the patent owner relies on tests or data described in the patent, on declarations submitted during prosecution, or on unexpected results or commercial success, it will also be required to present a declaration of a fact or expert witness with personal knowledge of the relevant facts.
Experience of Inter-Partes Counsel
One factor that will significantly affect costs is the experience of counsel in inter partes trials. The USPTO considers that the skills necessary to conduct post-grant trials are similar to those needed to represent a party in an inter partes reexamination, and to represent a party in an interference proceeding. Unlike leisurely re-examination of patents by an examiner, oppositions in the USPTO will be administrative litigation conducted on a strict schedule, governed by general trial rules and separate inter partes, post-grant review, and derivation rules based on current interference procedure.
The costs of post-grant oppositions will be reduced by careful initial preparation of a complete litigation strategy, and the efficient management of a party’s case, which requires mastery of the rules and knowledge of extensive Board precedent relating to motions practice, discovery, the USPTO rules of evidence, sanctions, and estoppel issues, among others. The steep learning curve makes post-grant litigation an expensive forum for studying inter-partes procedure.
Basis of the USPTO Estimates
The USPTO’s estimates are based on the AIPLA Report of the Economic Survey 2011. Based on the AIPLA data, the Office estimates that the average cost for preparing a petition for inter partes review will be $46K, based on 135 hours of attorney time at $340/hour, in addition to the proposed petition fee starting at $27,200. The Office estimates that the patent owner’s costs of preparing a preliminary response for inter partes review will be $34K, based on 100 hours billed at $340. The cost of an inter partes review trial to each party is estimated to be 60% of the cost of the average cost of an interference preliminary motions period, which is $322K.
The higher estimated cost of post-grant review is based on the petitioner’s ability to allege unpatentability on any statutory basis, not limited to obviousness or lack of novelty based on prior art publications. The USPTO estimates that the average cost for preparing a petition for post-grant review will be $61K, based on 180 hours of attorney time at $340/hour, in addition to the proposed petition fee starting at $35,800. The Office estimates that the patent owner’s costs of preparing a preliminary response to a petition for post-grant review will be $34K, based on 100 hours billed at $340. The cost of a post-grant review trial to each party is estimated to be 75% of the cost of the average cost of an interference preliminary motions period, which is $322K.
These trial cost estimates do not correlate with the projected number and cost of motions in inter partes review (6.92 motions, oppositions, and replies at $48K per motion), and post-grant review (8.89 motions at $44.2K per motion), but are consistent with the broad and variable range of expected opposition costs.
The USPTO projects an average of 23.4 motions in a derivation trial, at a cost of $34K per motion. These estimates are not realistic, based on interference practice. The cost of a derivation proceeding should be similar to the cost of an interference priority phase raising derivation issues, because similar issues of prior invention, communication, and corroboration are involved. The average cost of an interference priority phase is about $300K.
The USPTO’s estimate of district court litigation costs is based on the average cost of district court litigation where the amount in controversy is $1M-25M.
The Requirement of Standing in USPTO Oppositions
Under the America Invents Act, any person who is not the owner of a patent may seek inter partes review or post-grant review in the USPTO, avoiding the jurisdictional case-or-controversy requirement that has limited district court declaratory judgment actions seeking to invalidate patents.
The post-grant opposition provisions will transform U.S. patent litigation, by providing an expert administrative forum for expeditiously challenging patent validity to parties who would otherwise be barred from district court for lack of standing. The post-grant review statutes contain no requirement that the petitioner have an actual, adverse, commercial interest in the subject matter, or that there be any prospect of eventual patent enforcement.
In contrast, the standing required to maintain a district court declaratory judgment action challenging the validity of a patent has generally barred actions in the absence of a substantial commercial interest in the patented subject matter. The constitutional case or controversy requirement was limited by MedImmune, but a declaratory judgment plaintiff must still show that the dispute is definite and concrete, touching the interests of parties having adverse legal interests, that is real and substantial and admits of specific relief through a decree of conclusive character. The case or controversy requirement raises a substantial barrier to declaratory judgment actions seeking advisory opinions on hypothetical states of fact.
The USPTO considers that there is a “standing” requirement to petition for a post-grant proceeding, but this requirement is far different from “standing” to maintain a district court action challenging a patent. Standing in a USPTO opposition is based on specific statutory time limitations and estoppel provisions that bar a party or its privies from requesting or maintaining a proceeding before the Office after a final decision in another post-grant review or inter partes review.
Proposed Rule § 42.104 requires that a petition for inter-partes review must set forth:
(a) Grounds for standing. The petitioner must certify that the patent for which review is sought is available for inter partes review and that the petitioner is not barred or estopped from requesting an inter partes review of the patent.
A patent is “available for inter partes review” under § 311(c) after the date that is 9 months after the grant of a patent or after termination of post-grant review, unless it is barred by the petitioner’s prior declaratory judgment action under § 315(a)(1) or the patent owner’s infringement action filed more than a year before the petition under § 315(b). These requirements are incorporated in proposed Rules 42.101 and 102(a).
Proposed Rule 42.204(a) similarly requires that a petition for post grant review set forth “grounds for standing.” A patent is “available for post-grant review” up to 9 months after the date of the grant of the patent under § 321(c), unless it is barred by the petitioner’s prior declaratory judgment action under § 325(a)(1), or is a non-broadening reissue patent filed more than 9 months after the grant of the original patent under § 325(f). These requirements are incorporated in proposed Rule 42.201 and 202(a).
With respect to estoppel, a petitioner in a USPTO review of a claim in a patent that results in a final written decision, or the real party in interest or privy of the petitioner, may not request or maintain another inter partes review under § 315(e)(1), or another post-grant review under § 325(e)(1) “on any ground that the petitioner raised or reasonably could have raised” during the first post-grant proceeding to end in a final written decision.
A determination of the scope of estoppel from a first USPTO post-grant proceeding thus depends on the challenged claims subject to a first final Board decision, any ground that the petitioner reasonably could have raised in the first proceeding, the identity of the real party in interest and its privies in the first proceeding, and the identity of the real party in interest in the later proceeding. Proposed Rule 42.8(b)(1) requires that the petitioner identify the real parties in interest in a post-grant proceeding, but not their “privies.”
In many cases, the determination of real parties in interest and their relationship to earlier privies will require detailed factual investigation and legal analysis, particularly if there is a change in the identity of a former real party in interest or privy as the result of corporate reorganization, acquisition or divestiture of patents, or an earlier petition was filed by a consortium or pursuant to a joint defense agreement in the course of litigation in which the issue of estoppel is raised. As the USPTO commentary explains,
in inter partes and post-grant review proceedings before the Office, the petitioner (including any real party-in interest or privy of the petitioner) is estopped from relitigating any ground that was or reasonably could have been raised. … What constitutes a real party-in-interest or privy is a highly fact-dependent question. … While many factors can lead to a determination that a petitioner was a real party-in-interest or privy in a previous proceeding, actual control or the opportunity to control the previous proceeding is an important clue that such a relationship existed. … Factors for determining actual control or the opportunity to control include existence of a controlling interest in the petitioner.
The identification of privies of an earlier real party in interest could be complex, in the absence of a requirement that a petitioner identify both real parties in interest and their privies. Where the issue is disputed, the commentary on the proposed rules indicates that the Board may grant the patent owner “additional” discovery based on sufficient concerns regarding the petitioner’s standing, that may ultimately be resolved by a district court ruling on a motion to dismiss defenses based on statutory estoppel. The scope of a potential estoppel underscores the importance of a thorough investigation before filing a petition, since the mandatory disclosure of real parties in interest must be filed by the petitioner as part of the petition under proposed Rule 42.8(a)(1).
The USPTO’s consideration of “standing” to file a petition for post grant review thus concerns the statutory time limits for filing, and the estoppel bar against relitigating issues that were raised, or could reasonably have been raised by the petitioner in an earlier post-grant proceeding. Neither the proposed rules nor the USPTO commentary indicates that the Office contemplates any other restriction on the ability of any person to petition for inter partes review or post-grant review.
Under the post-grant statutes and the USPTO’s proposed rules, standing to maintain an opposition does not require that a petitioner establish that a patent dispute is definite and concrete, or that touches the interests of parties having specific existing adverse legal interests. This conclusion rests on the fundamental assumption that the courts will not engraft a nonstatutory requirement of adverse potential commercial interest as a requirement for pursuing a post-grant opposition or appeal. As the D.C. Circuit has explained, federal agencies are not Article III courts, and are not bound to follow the law of standing derived from the “case or controversy” requirement. Judicially-devised prudential standing requirements are also inapplicable to an administrative agency acting within the jurisdiction Congress assigned to it, and the post-grant opposition statutes are broadly drafted to permit any person to seek invalidation of a patent in the USPTO.
