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Tuesday, April 21, 2009

Patent Reform: Toothless Changes for Post-Grant Review
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After the reintroduction of the patent reform bill in the Senate, I posted some of my initial thoughts on this blog.  This post follows up with some more thoughts about the revised schemes for reexamination and cancellation.  These procedures provide redress when a patent should never have been granted in the first place.  The trouble with the current system is that it is too slow and expensive.  The delay prejudices patentees for whom reexaminations cast clouds on their patent rights, and for members of the public, for whom long-pending reexaminations cast clouds on their ability to practice potentially infringing inventions.  Although a substantial portion of Congress's attention to patent reform has been directed to fixing the reexamination scheme, the changes to reexamination procedures are too modest to have any measurable effect.  Meantime, Congress's new "cancellation" procedure suffers from judicially unenforceable deadlines and is likely to be abused.

Reexamination is the process of asking the Patent & Trademark Office (PTO) to examine aspects of the validity of a patent that has already issued.  It is a "re"-examination because the PTO necessarily went through the process of examining validity prior to the issuance of the patent.  But the PTO examination process is not free of oversights, and reexamination enables issued patents to be challenged administratively without resort to expensive (and slow) lawsuits.

We currently have a system for reexamination.  For the administrative procedures, see here and here.  There are two types of reexaminations:  ex parte and inter partes.  In an ex parte reexamination, a member of the public "requests" that the PTO reexamine the patent.  This happens roughly 600 times per year, and roughly 90 percent of these requests are granted.  For the most recent annual statistics, see here.  Once granted, the reexamination acts in much the same way as the initial examination of a patent application -- there is a lot of back and forth between the patentee and the examiner.  Other than by an initial counterstatement, the requestor does not participate in the administrative process.   A helpful PTO flowchart can be found here.

There are about 150 inter partes requests for reexamination each year, and hardly any requests are denied.  (Annual statistics here.)  Unlike the ex parte process, in an inter partes proceeding, the requester gets to challenge the assertions made by the patentee.  The PTO has a useful flowchart for this too, which demonstrates the process.

Congress separately enacted ex parte reexamination and inter parte reexamination, but for both, Congress hoped that the procedures would be quick and inexpensive ways to nullify patents that never should have issued.  Congress demanded that reexamination be conducted with "special dispatch" for both types of reexamination.  See 35 USC 305, 314.  The examiners' guidelines reiterate this requirement.  MPEP section 2261.  Those guidelines provide that patents undergoing reexamination that are in dispute in pending litigation are to undergo essentially special special dispatch -- they are to be prioritized ahead of non-litigated reexaminations.

Yet the reexamination system has ground to a halt.  Litigations are routinely stayed for years pending the resolution of reexamination.  The median ex parte reexamination lasts about 20 months, but he mean is 25 months, meaning that a lot of reexaminations are lasting a lot more than 25 months.  Statistics hereInter partes reexamination is even slower.  The median is 33 months and the mean 35 months.  Statistics here.  Although inter partes reexamination has existed for about a decade, no contested proceeding has yet reached a conclusion.  See Dennis Crouch's observations here.

The proposed reforms to the reexamination system are not likely to fix this problem.  Reexaminations will be allowed under the proposed legislation for challenging the validity of a patent based on public use or or an on-sale bar.  That's sensible, but will result in more reexaminations.  The ex parte reexamination process will otherwise remain the same.

Inter partes reexaminations are also likely to be far more common.  Besides the public-use/on-sale-bar challenges that will now be appropriate for inter partes reexamination, the scope of estoppel is greatly reduced.  Inter partes reexaminations have been comparatively unpopular compared to ex parte reexamination because the party requesting inter partes reexamination is presently precluded from arguing later on -- in court, before the International Trade Commission, etc. -- any argument that actually was raised or could have been raised in the reexamination.  That dissuades would-be requestors who are afraid of compromising their future litigation defenses.  The proposed legislation limits preclusion to validity challenges actually raised in the inter partes reexamination, making it less dangerous for parties to request reexamination, with the expectation that more people will do so.

The legislation also makes changes to the internal procedures governing inter partes reexaminations.  Inter partes reexaminations will no longer be heard by patent examiners, but by an administrative patent judge (an administrative law judge, or ALJ, employed by the PTO).  Doing so promises to cut through the examiner-level bureaucracy in the PTO.  But there are some potential drawbacks to this change.  While examiners may be overworked, at least they have technical competence in the area of the invention.  The administrative law judges likely will not.  (The lack of technical expertise matters much less for patent interferences, which are currently heard by ALJs and which mostly address the timing issue of who invented something first.)  And there is no reason to believe that the ALJs will somehow avoid the backlog to which the examiners have succumb under the present regime.  To the contrary, while the number of inter partes reexaminations has been growing year over year, at least there is an almost bottomless well of patent examiners to draw upon; there is no such reservoir of ALJs.  The details remain to be determined -- in the legislation, Congress expressly instructs the PTO to develop itself the procedures for the revised inter partes system -- but there is little reason to be particularly optimistic.

If it is unreasonable to rely upon either form of reexamination to provide quick redress for ill-issued patents, the only remaining hope is in the new "cancellation" procedure created in the reform legislation.  A petition for cancellation can be filed within 12 months of issuance of a patent, and the PTO has 60 days to choose whether to initiate cancellation proceedings.

These cancellation proceedings look a lot different from reexamination.  The most fundamental difference is that there is no presumption of validity of the issued patent; instead, a patent can be proven invalid based on a preponderance of the evidence.  Thus, patentees really lack a certain degree of repose in the strength of their patent until the first year after issuance has passed.  This concept is not much different from the idea that a trademark becomes incontestable after a certain amount of time.  Another fundamental difference is that instead of the usual back and forth between the PTO and applicant (in the case of patent examination) or the patentee (in the case of reexamination), the patentee in a cancellation proceeding gets only one shot to amend its claims -- after that it needs "good cause" to do so.  What constitutes good cause in this context has yet to be determined.

The final difference between cancellation and reexamination is that cancellation proceedings are adjudicated by the Patent and Trial Appeal Board, whose findings are appealed directly to the Federal Circuit.  This cuts a couple of layers out of the ordinary exhaustion-of-administrative-remedies process.  Yet Federal Circuit appeals can be slow and unpredictable, and may well result in remands back to the Board.  Nowhere is this more true than where the Federal Circuit deals with questions of claim construction, which are bound to be implicated in many, if not most, validity challenges at issue in cancellation proceedings.

There are three additional potential drawbacks to cancellation.  First, members of the public need to become aggrieved within a year of a patent's issuance.  That's a pretty tight deadline, especially given that the current draft of the Senate bill strips away publication of the patent application for applications filed only in the United States.

Second, if members of the public are so alert to detect an improperly issued patent, there is no reason to believe that cancellation proceedings will be administered quickly.  While the bill has an ostensible deadline of one year for conclusion of cancellation proceedings (extendable for another six months by the PTO upon good cause), these deadlines are probably not legally enforceable as a matter of administrative law.  When an agency misses a deadline, the recourse is to petition the courts for mandamus.  But courts are loathe to grant such relief.  The leading case on the issue, Telecommunications Research & Action Ctr. v. FCC, 750 F.2d 70 (D.C. Cir. 1984) makes clear that the failure of an agency to meet a statutory deadline is not in and of itself actionable, and there is no reason to believe that the Federal Circuit will disagree.  Rather, when deciding whether to grant mandamus relief, the court needs to take account of "the effect of expediting delayed action on agency activities of a higher or competing priority," and the "nature and extent of the interests prejudiced by delay."  Moreover, the courts are more tolerant of delay "in the sphere of economic regulation" as opposed to activities that touch on "human health and welfare."  This bodes poorly for the enforceability of the one-year deadline.  Moreover, if an agency is overwhlemed, there's really not much a court can do, particularly if, by the time the court rules, the cancellation petition has run its course.

Despite the extraordinary delays in the current reexamination process, I am not aware of any mandamus action by the federal courts to speed reexaminations up.  Given the statutory and administrative requirements of "special dispatch," a mandamus petition would hardly be frivolous.  I am also not aware of any beneficial effect of petitioning the Director of the PTO administratively to try to get a reexamination moving.  See 37 C.F.R. 1.181.  It is notable that a patent applicant is not likely to be aggrieved by agency delay because the applicant is compensated with an extension of the patent term.  See 35 U.S.C. 154(b)(1).  The patentee whose patent is stuck for years in reexamination and who has no judicial recourse to block infringement during that time gets no comparable remedy.  While the bill suggests that cancellations may be stayed pending litigation and that the patent owner can commence actions for infringement, there is little reason to believe that district courts will actually choose to go forward (instead of staying their own cases) pending these administrative procedures.

Third, if members of the public are in fact quick to discover wrongly issued patents, there is a real danger of the administrative process becoming overwhelmed.  There is no standing requirement that blocks any member -- or every member -- of the public from petitioning for cancellation.  The only gatekeeper realistically is the fee that the PTO will assess for filing such a petition, but that fee has yet to be determined.

Under all these circumstances, I think that anyone unduly hopeful that the patent-reform bill "fixes" post-grant review procedures suffers a trace of naivety or political self-interest (in slow reexamination schemes).  Maybe there's no good fix for post-grant review, in which case more attention should be paid to fixing the patent document itself to make its scope clearer.  Greater patent clarity would mean that it would not take years to conclude whether one or all claims of a patent are valid in light of certain pieces of newly-discovered prior art.

posted by Sidney Rosenzweig @ 2:30 PM | IP

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