This article was originally published on IPWatchdog, and is republished here with permission.
It is not unusual for there to be unintended consequences in the law or life. A loved one gives you something you don’t really like, but you do such a good job of feigning happiness that it becomes a regular gift. Who knew you could ever have too many “lovely” ties or too much single malt Scotch? Congress is in the process of giving the patent bar some welcome relief on some important issues, but may be throwing in that unwanted gift along with it.
The STRONGER Patents Act intends to address the potential for inconsistent rulings between district court cases and inter partes reviews (IPRs). The Act achieves this by expressing a preference for district court rulings and by requiring IPRs to apply the same standards for validity determinations that are used in the district court. This is already the case by USPTO regulation with respect to claim construction, but the Act would make it statutory for both claim construction and validity, and thus not subject to change by the USPTO. While the use of the same standard for validity in both forums will make the rulings more consistent, the statutory preference for the district court over the IPR may have an unintended consequence.
A Laudable Goal
The STRONGER Patents Act requires the USPTO to use the same claim construction standard as is applicable in a district court. Further, this section requires the patent office to take into account any claim construction ruling that has been issued by district court. The Act also requires the patent office to use the clear and convincing evidence standard in determinations of validity in an IPR. The Act further limits IPRs by requiring a party bringing an IPR to have been accused of infringement either by the filing of a patent infringement case against them or by a demand letter sufficient to support declaratory judgment jurisdiction. This will prohibit an IPR from an interested third party that has not been accused of infringement. IPRs are further restricted by prohibiting the Director from instituting an IPR with respect to a claim that has been the subject of a previous IPR. This last provision may be particularly significant, as it will prohibit a second party who was not involved in a first IPR from filing their own later. There are other provisions also restricting IPRs, including strengthening the estoppel provisions and limiting IPRs on other claims in the same patent. The definition of real party in interest has also been expanded. The net effect of these changes is to limit the number and scope of IPRs while reducing the likelihood of a decision inconsistent with a district court by applying the same standards.
The STRONGER Patents Act goes further and prefers district court decisions over IPR decisions. The Act includes a section titled “Priority of Federal Court Validity Determinations.” One provision prohibits the institution of an IPR on a claim if there has been a final determination with respect to the validity of that claim in either the district court or the International Trade Commission (ITC). The section may have little applicability, since it would be rare for a final judgement in district court to be made before the deadline for an IPR institution decision. The decision whether to institute an IPR will necessarily be within 18 months of the service of the complaint. The IPR petition itself must be filed in one year of the service of the complaint and the institution decision must be made within six months after the filing of the petition. If the IPR petition is filed sooner, then there would be even less time for a district court to make a final determination regarding validity. While some courts will be able to proceed from filing of the complaint to a final determination on validity within 18 months, in most cases it will take longer than that. Thus, this provision may have little impact.
An additional section generally requiring deference to district court decisions is likely to have unintended consequences. The intent is laudable. It makes district court decisions controlling over IPR decisions with respect to the same claim. Specifically, the section requires that an IPR be stayed if there is a final judgment in a district court or the ITC regarding the validity of the claim as to which the IPR has been instituted. The section goes on to require a pending IPR to be terminated in the event that the validity of a claim subject to the IPR is upheld in a final judgment. Thus, if there is no appeal or the result of the appeal is that one or more claims subject to an IPR are upheld as valid, the IPR cannot reach a different result and must be terminated.
Since an IPR proceeding will last one year after institution, it would typically be two to two-and- a-half years between the service of the complaint and final IPR decision. If at any point in time the district court enters a final judgment regarding validity, the IPR proceeding must be stayed. If the district court decision is upheld, the IPR proceeding must be terminated. While this section is not clear on this point, it seems likely that a final judgment from the district court will be held to take precedent over a final decision in an IPR even if the final decision from the district court is issued later than the final IPR decision. If both matters are under appellate review at the same time, preference for the district court would likely apply there as well as prior to a final determination in the IPR.
The Ugly Sweater
The Stronger Patents Act leaves intact the district court’s discretion whether to stay its proceedings in a patent infringement case in favor of an IPR. Different district courts have developed different practices with respect to whether to grant a stay. Some district courts refuse to grant a stay under any circumstances. These district courts also tend to have faster time to trial. Other district courts routinely deny a stay unless an IPR has actually been instituted. These district courts allow the case to proceed until the USPTO has decided whether to institute the IPR. Other district courts will grant a stay based solely on the IPR petition and will revisit that stay if the IPR is not instituted.
The interaction of these new rules with the court’s discretion to grant a stay will likely make clear which district courts want to have patent cases and which do not. There are number of districts that receive a substantial portion of all patent litigation. These include the District of Delaware, the Northern Districts of California, Illinois, and Texas, as well as the Eastern and Western Districts of Texas. In these districts, as well as several others, local patent rules and practice have resulted in judges with substantial expertise in patent litigation. Judges in these districts need only have confidence that their decision on validity can be reached within two-and-a-half years to be confident that their decision will not be overturned by a contrary IPR decision, and thus waste judiciary resources. These judges will likely not grant a stay in favor of an IPR, even if instituted, but instead will proceed to judgment on validity.
In contrast, there are a number of district courts that rarely see patent infringement litigation. Judges in those districts, while no doubt extremely capable judges, do not have the same expectation or need to develop expertise with respect to patent matters. Some judges simply do not want to handle patent cases. The requirement that the IPR, when instituted, apply the same claim construction standards and the same burden of proof in determining validity can give these judges comfort that a proper decision would be reached by the IPR. They will therefore be incentivized to grant a stay in favor of the patent office decision.
Thus, the unintended consequence of the preference for the district court combined with IPRs proceeding under the same standard may well lead to the development of a number of district courts in which IPRs are effectively eliminated and a different group of district courts where IPRs are effectively determinative.