PTAB Challenges Can Reduce Royalty Obligations, Open New Markets
Intellectual Property Update
Date: March 30, 2016
Beginning in 2012 and 2013, three new types of administrative proceedings became available to anyone wanting to challenge a U.S. patent. The new proceedings – Inter Partes Review, Post-Grant Review and Covered Business Method Review – take place before the United States Patent and Trademark Office’s (USPTO) Patent Trial and Appeal Board (PTAB). U.S. companies initially were skeptical of the new proceedings, but their popularity has since skyrocketed. The PTAB is now the second most popular venue for challenging patent validity, only behind the U.S. District Court for the Eastern District of Texas. One-fourth of all patent challenges in 2015 were brought before the PTAB, and over 70 percent of patent claims challenged in the PTAB have been invalidated.
The PTAB proceedings’ impact has been sensational in a number of industries. The high number of invalidation decisions prompted the former chief judge of the federal appellate court for patents to call the PTAB a “death squad” for patents. The proceedings are commonly initiated by alleged patent infringers in response to lawsuits claiming that they have infringed. Those challenging patents file in the PTAB partly because it applies substantive law and procedural rules that are widely considered to favor patent challengers compared to the laws and rules federal district courts apply.
While PTAB proceedings are widely used by companies that have been sued for patent infringement, companies have not yet taken advantage of the proceedings to reduce or eliminate their obligations to pay royalties for patent licenses. A patent license can cost a company up to 50 percent of its profits and impose royalty obligations of $100,000 or more. Sometimes those payments go directly to an arch competitor. A successful challenge before the PTAB, however, eliminates the obligation to pay royalties. Merely the fear of being challenged in the PTAB can cause a patent owner to offer better and lower royalty terms. By law, a patent owner-licensor cannot prevent its licensee from challenging patent validity.
Another overlooked opportunity presented by PTAB proceedings is the chance for companies to enter into what they thought were forbidden zones of new products and services. The new proceedings have revealed vulnerabilities in patent protection as a result of the legal standards and rules applied by the PTAB. A decision to respect a competitor’s patent rights may have made sense when the decision was made, if it was made prior to implementation of the new proceedings in 2012. But now a revised approach and a PTAB challenge can result in the elimination of royalties, increased profit margins, important new market opportunities and more favorable competitive positions.
Not all patents are susceptible to invalidation. But even where challenged claims are not invalidated, a PTAB proceeding can require the patent owner to amend the claims to narrow the patent’s scope. The amendment can be enough to enable the challenger to avoid the patent or effectively design around it. The mere threat of a proceeding can persuade a patent owner to agree that a proposed product or service will not infringe.
PTAB proceedings have limited downsides where the patent challenger has not been sued for infringement. If the challenger is a licensee, a complete loss in the PTAB simply requires that the challenger continue to pay royalties. If the challenger brings the proceeding to remove a patent obstacle to a new market and fails, the challenger simply continues to refrain from entering the new market. If anonymity is desired, ex parte reexamination remains a viable tool for invalidating patents at the PTO.
When considering a PTAB challenge, a first step is to determine whether invalidation or narrowing of the patent will have a value that warrants the cost. Sometimes a challenger’s commercial goals can be realized without completing a PTAB proceeding. But the challenger should be prepared to litigate until a final PTAB determination is reached, and government and attorneys’ fees are likely to total $200,000 or more. Petitions for PTAB proceedings must comply with non-extendable filing deadlines and other PTO rules and regulations. Companies with an interest should consult with their patent attorney as soon as possible.
FOR MORE INFORMATION
For more information, please contact:
Theodore D. Lienesch
Clifton E. McCann
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