Will Inter Partes Reexamination Be Embraced By Third Parties as an Alternative to Litigation?
By Robert T. Pous and Charles L. Gholz
On November 29, 1999, the President signed P. L. 106-113 which, amongst its other provisions, enacts the long awaited inter partes reexamination procedures in a newly created Chapter 31 of Title 35 of the United States Code. These new reexamination procedures supplement the existing ex parte reexamination under Chapter 30 of Title 35 of the United States Code and create a new, though still imperfect, avenue for third parties to contest the validity of a U.S. patent before the Patent and Trademark Office (PTO).
There has long been a need for a way by which members of the public can challenge the validity of a U.S. patent outside of the context of a declaratory judgement action under 28 U.S.C. 2201 or as an affirmative defense in a suit for patent infringement. Contesting validity in a suit for patent infringement is expensive, time consuming and fraught with risk: an unsuccessful challenger may be subjected to considerable monetary damages and an injunction. In addition, the challenger bears the heavy burden of proving invalidity by clear and convincing evidence, even when relying upon prior art which had not been considered by the Examiner during the prosecution of the challenged patent.
To date, the only alternative avenue has been ex parte reexamination under Chapter 30 of Title 35 of the United States Code. This permitted a member of the public to request the PTO to reexamine an issued patent based on prior patents or written publications which raised a substantial new question of patentability affecting at least one claim of the patent. However, ex parte reexamination permits only limited participation by third parties once reexamination is ordered by the Commissioner, even if initiated by the third party, and so the Examiner in the ex parte reexamination does not have the benefit of rebuttal arguments to counter those put forth by the patent owner. As a result, despite the absence of a presumption of validity during reexamination, ex parte reexamination is generally viewed as advantageous to the patent owner as compared to an inter partes validity challenge in a civil proceeding, and so ex parte reexamination has been little used by third parties.
Indeed, ex parte reexamination often serves as an avenue by which the patent owner converts an infringed but invalid patent into an infringed and valid patent. In a common scenario, an alleged infringer presents the patent owner with invalidating prior art during litigation or a negotiation. The patent owner then requests ex parte reexamination based on this prior art and narrows its claims while taking care to see that they continue to read on the accused infringer's technology. Since the Examiner lacks the benefit of any rebuttal to the patent owner's arguments, he or she may not appreciate the claim scope envisioned by the patentee and may well allow the narrowed, but still overly broad, claims.
The newly created Chapter 31 of Title 35 of the United States Code permits one to request inter partes reexamination under new section 311 rather than ex parte reexamination under existing section 302. While Chapter 31 introduces certain significant restrictions (discussed below) on third parties who take advantage of its provisions, it permits significantly increased third party participation once reexamination has begun. Specifically, the new sections 314 and 315 create three important new rights for the third party requester: (1) the right to file written comments addressing issues raised by an action on the merits from the PTO and issues raised by the patent owner's response thereto, (2) the right to appeal, within the PTO, any final decision favorable to the patentability of an original or proposed amended or new claim of the patent, and (3) the right to be a party to any appeal taken by the patent owner under 35 U.S.C. §134.
New Section 314
Section 314, like section 305, specifies that reexamination "shall be conducted according to the procedures established for initial examination under the provision of sections 132 and 133," except as otherwise provided in section 314. This indicates that ex parte prosecution procedures should remain the norm, and the ability of the third party to participate in the reexamination proceedings on an inter partes basis will be strictly limited to the provisions permitted in section 314. Specifically, a third party requester is permitted to file one set of "written comments" addressing those issues raised by each action on the merits from the PTO and the patent owner's response thereto. Presumably, the third party will not be permitted either to present comments which address other prior art raised in the initial reexamination request, but not adopted by the Examiner in the relevant Office Action, or to raise entirely new issues.
The fact that new section 314 limits the third party's comments to "written comments" appears to preclude the possibility of the third party's initiating or participating in Examiner interviews, and it limits the third party to only a single set of comments filed within thirty days after the date of service by the patent owner. However, section 314 does not place any other limits on the nature of the "written comments." This raises several questions regarding the possible scope of the written comments.
While simultaneous multiple inter partes reexaminations based on requests by the same requester or its privies is prohibited, simultaneous inter partes reexaminations based upon requests by different unrelated requesters, and putting forth different prior art as raising a substantial new question of patentability, can still arise and may be merged. In such a case, will a given requester's right to submit written comments in the merged proceeding be restricted to those issues which are both raised by the Office Action (or the patent owner's response thereto) and based on the substantial new questions of patentability raised by prior art for which that party is the requester, or can all third party requesters comment on all issues raised by an Office Action or a patent owner's reply thereto? The PTO may be tempted to restrict the possible comment scope, even though such a restriction is not expressly found in section 314, because each requester is arguably not a third party requester with respect to those substantial new questions of patentability which it did not raise. Limiting each third party requester to commenting on only those issues raised by the prior art which that party cited would "streamline" prosecution and thereby reduce Examiner workload -- always a PTO goal. Moreover, arguably, it would not affect the outcome since the comments of the various requesters would be apt to parallel or repeat one another as to each issue. However, the argument against such a restriction on the right of the third party requester seems more compelling: since the third party has given up its "day in court," it should have a full opportunity to present written arguments to the Examiner as to all material issues, whether it raised them or not.
Another question is whether the PTO will restrict the right of the third party requester to submit expert declarations equivalent to declarations under 37 CFR §1.132 as part of the "written comments." Currently no such restriction exists for the limited third party replies permitted in ex parte reexamination. On the other hand, given the inter partes nature of the reexamination proceedings under Chapter 31, there will likely be an escalation in the submission of declarations under 37 CFR §1.132 by patent owners during reexamination (to back up their arguments in anticipation of rebuttal by the third party requester), and the PTO may be tempted to place some restrictions on the scope of the permissible "written comments" to reduce the Examiner workloads and "streamline" prosecution.
Any such restriction, however, would be contrary to the goal of making inter partes reexamination a practical alternative to civil litigation. Fundamental fairness and the third party requester's right to submit written comments addressing issues raised by the patents owner's response suggest that the third party requester should be permitted to submit 37 CFR §1.132 type declarations of a nature commensurate with, and responsive to, those submitted by the patent owner. Indeed, there is no reason why the third party requester should not also be permitted to initiate the submission of 37 CFR §1.132 type declarations, even where the patent owner has chosen not to do so, as long as the third party requester's declarations address only those issues raised by the Examiner or the patent owner. This right seems implicit in the right of the third party requester to submit written comments addressing those issues raised by an action on the merits from the PTO. Moreover, as a matter of fairness this right should be available in any administrative proceeding, such as this, that can estop the third party requester from raising the same issues in court.
Another question is whether the patent owner's participation in an Examiner interview will constitute "an action on the merits from the Patent and Trademark Office" which will give the third party requester an opportunity to file written comments under section 314. Under the current rules, a patent applicant is obligated to submit a complete written statement of the reasons for patentability presented in any interview. In addition, Examiners are obligated to complete an Examiner Interview Summary form. Presumably, parallel requirements will be set out in the PTO rules implementing Chapter 31.
There is no reason why any Examiner Interview Summary form and/or patent owner written statement, or their equivalent, should not constitute "an action on the merits" or response which will trigger the right of a requester to file written comments. While the third party will not have the right to attend or participate in the interview, any interview will almost certainly address the validity of one or more claims in the patent, and the requester should have the right to submit comments on the patent owners's arguments and to reply to points raised by the Examiner or the patent owner. Otherwise patent owners will use the interview to bypass the inter partes provisions of the reexamination; substantive issues will be raised and disposed of without the possibility of any third party comments or participation.
Since the third party requester is not permitted to participate in the interview, there is a concern that if the patent owner and the Examiner reach an agreement during the interview, the third party requester's subsequent comments will oppose a fait accompli and will be meaningless. In order to preserve the rights of the third party, it seems that the PTO rules should provide that no agreement be reached as to any issues discussed during an interview until such time as the third party requester has had an opportunity to submit its written comments.
New Section 315
According to section 315, a third party requester may appeal any final decision favorable to the patentability of any original or proposed amended claim or new claim of the patent. The third party requester may also be party to an appeal taken by the patent owner. The procedural provisions for implementing the right of the third party to appeal or participate in a patent owner's appeal will be spelled out in the rules which are ultimately promulgated by the PTO. While the provisions of H.R. 1732 are somewhat different from those of Chapter 31, its language concerning appeals is identical to that of Chapter 31, and so the ultimately implemented rules may well be identical to the 1995 proposed rules for inter partes appeal in H.R. 1732.
According to the then proposed 37 CFR 1.949, upon allowance of all of the claims, or the consideration of the issues and/or grounds of rejection a second time, the Examiner may issue an Office Action closing prosecution. Following responses by the patent owner and the third party requester (§1.951), the Examiner may then issue a "Right of Appeal Notice" (§1.953) setting a time period for either party to appeal. Following any appeal or cross appeal by the parties (§1.959), each party is given time periods to file a brief (§1.963) and a Reply Brief to the Examiner's Answer (§1.971). Either party can request and participate in an oral hearing (§1.973).
THIRD PARTY ESTOPPEL
Unlike ex parte reexamination, a third party requesting inter partes reexamination must identify itself. Paragraph (c) of section 315 estops a third party that requests inter partes reexamination from later raising the same issues in a court proceeding. Specifically, if the Director orders inter partes reexamination under section 313 in response to a third party request, the requester is thereafter estopped from later asserting invalidity in a civil action arising under 28 U.S.C. § 1338 "on any ground which the third-party requester raised or could have raised during the inter partes reexamination proceedings." However, the requester still could assert invalidity based on grounds which could not be raised in reexamination, such as lack of enablement, failure to disclose the best mode, or prior use or sale. Also, the third party could later assert "invalidity based on newly discovered prior art unavailable to the third-party requester and the Patent and Trademark Office" at the time of the inter partes reexamination -- for example, a 35 U.S.C. § 102(e) reference which had not issued at the time of the reexamination.
Interestingly, while section 317(b) prohibits a third party requester and its privies from requesting a subsequent reexamination on grounds which could have been raised in the first inter partes reexamination, the estoppel provisions of section 315(c) limit only the third party itself, not its privies. Thus cooperating entities with a common interest in invalidating a patent are not estopped from later raising the same issues in a court proceeding, so long as they are not bound as the third party requester.
The requirement for the inter partes reexamination request to name the real party in interest would seem to preclude naming a straw man to avoid the estoppel effect of section 315(c), and it would likely also require naming a parent company as the real party in interest when a subsidiary is the nominal requester. But otherwise independent members of the public, acting in concert to some degree to challenge the validity of a patent, are not estopped under section 315(c) so long as they are not lumped in as real parties in interest. Thus, if the party with the smallest liability can be induced to "volunteer" to be the requester, the others may be insulated from the estoppel effect of section 315(c).
Note that the proposed 37 CFR 1.911 of 1995 mentions the factors to be considered in determining "privies." Paragraph (c) of 37 CFR 1.911 indicates that "a person who is not a party to the reexamination proceeding but who controls or substantially participates in the control of the presentation of the reexamination proceeding on behalf of the party is bound by the determination of issues as though it were a named party." This suggests that only those who control or substantially participate in the control of the presentation of the reexamination will be deemed real parties in interest, and that only such entities will be bound by the estoppel effect of section 315(c). However, the actual degree of cooperation which separates those who are merely "privies" from "the parties in interest" will need to be decided by the courts on a case-by-case basis.
At first glance, the estoppel effect of section 315(c) appears so draconian as to effectively deter potential third parties from relying on inter partes reexamination -- especially since the third party requester is also prohibited from appealing a final decision favorable to the patent owner beyond the Board of Patent Appeals and Interferences. A third party who takes on the role of a requester under Chapter 31 thus gives up its "day in court," as well as court review, with respect to invalidity issues which can be raised in the reexamination. However, in some cases the opportunity for an inter partes challenge in the PTO may outweigh the loss of an opportunity for a day in court. The post-Zurko standard of court review of PTO decisions (i.e., no substantial evidence to support factual findings) is difficult for an appellant to satisfy, and so little is lost in the prohibition against the third party requester's appealing a PTO final decision to the courts.
Balanced against this are a number of factors which make an inter partes reexamination more appealing to a third party than a court challenge. First and foremost is the lack of any presumption of validity in reexamination, which greatly reduces the third party requester's burden of proof. Also, most patent Examiners are relatively expert in making decisions as to patentability based on prior patents and printed publications. They are less likely to be swayed by specious patent owner arguments or expert testimony than might a judge, who may be a non-technical person hearing these types of arguments for the first time. Indeed, the high profile that inter partes reexaminations are likely to have within the PTO will mean that they will probably be handled by the most senior and experienced Examiners. Finally, the third party's arguments will tend to reinforce the Examiner's natural inclination to be skeptical of patent owner arguments. This skepticism will likely also transfer to any appeal within the PTO, where the requester will take on the familiar role which the Board usually associates with the Examiner: that of the party traversing patentability.
NEW SECTION 317
Once the Director issues an order under section 313, section 317(a) prohibits both the patent owner and the third-party requester, and their privies, from filing a request for a subsequent inter partes reexamination until after a reexamination certificate has been published, except as authorized by the Director. This provision is intended to prohibit third parties, alone or in concert with others, from harassing the patent owner with multiple simultaneous inter partes reexamination requests. In addition, if a final decision in an inter partes reexamination proceeding instituted by a third-party requester is favorable to the patentability of any original or proposed amended or new claim of the patent, then section 317(b) prevents that party or its privies from thereafter requesting an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in the inter partes reexamination proceeding.
Since all of the claims of a patent are reexamined, even if the initial request specifies fewer than all of the claims, this provision would appear to effectively prohibit the requester or its privies from initiating a subsequent inter partes reexamination, even if different claims are later specified. As a practical matter, this requires an accused infringer who wishes to challenge the validity of a patent to be careful to raise all material prior art issues in its inter partes reexamination request, lest any missed issues later be raised by the patent owner in the more patent owner friendly environment of an ex parte reexamination proceeding.
Section 317(b) provides the same prohibition against inter partes reexamination after a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of Title 28, United States Code, that the party has not sustained its burden of proving the invalidity of any patent claim in suit. Here, however, the third party presumably would not be prohibited from requesting inter partes reexamination for any claims which were not at issue in the suit. In this case, since the PTO does not consider itself to be bound by a final court decision affirming validity, and since the PTO will reexamine all claims in the patent, this may provide a third party with a back door avenue for a second "bite" at invalidating the patent claims which were previously litigated.
Despite the prohibitions of section 317, merger issues in simultaneous proceedings will arise. For example, will merged ex parte and inter partes reexamination proceeding be conducted ex parte or inter partes? What about a merger between an inter partes reexamination and an application to reissue the same patent, or multiple inter partes reexaminations requested by unrelated parties? Assuming that the 1995 proposed rules for H.R. 1732 still represent the PTO's thinking, the PTO rules implementing Chapter 31 will make an effort to ensure that any merged proceedings will preserve the third party requester's right to participate as to issues within the scope of the inter partes reexamination. For example, according to proposed section 1.989(b), an ex parte reexamination merged with an inter partes reexamination will be conducted inter partes. The third party requester will be able to participate in a merged a inter partes reexamination and an application to reissue the same patent (section 1.991), although only as to issues within the scope of reexamination; merger should not give the third party requester the right to comment on, for example, failure to disclose best mode issues.
Assuming that the rules that the PTO ultimately promulgates for Chapter 31, like the 1995 rules, do not make the time of filing determinative of the conduct of merged ex parte and inter partes proceedings, we should not see the patent owner and third party racing to be first to file at the PTO. Also, assuming that the third party requester is permitted to comment on all issues which are raised by an Office Action or the patent owner's response thereto, regardless of whether they were first raised by the third party requester or the patent owner in an ex parte request, issues of timing should not affect the merits of reexamination proceeding. The third party requester will have an opportunity comment on all prior art issues during the pendency of the inter partes reexamination.
According to section 318, once an order for inter partes reexamination of a patent has been issued under section 313, the patent owner may obtain a stay of any pending litigation which involves an issue of patentability of any claims of the patent which are the subject of the inter partes reexamination order unless the court before which the litigation is pending affirmatively determines that a stay would not serve the interests of justice. Thus, a patent owner seeking a stay has a presumption working in its favor, which may well make the issuance of the stay almost automatic. However, a third party requester seeking a stay has no such presumption working in its favor and, if the third party wants a stay, it must carry its burden of convincing the judge that a stay is appropriate.
Section 4606 requires the Director to submit a report to Congress within five years evaluating whether inter partes reexamination is "inequitable to any of the parties in interest" and, if appropriate, containing recommendations for changes in the procedures mandated by P. L. 106-113. The full effect of inter partes reexamination and the extent to which changes will be required to fairly balance the competing equitable concerns of protection of the patent owner against harassment and the ability of the public to challenge validity in a fully participatory administrative setting will depend heavily on the implementing rules promulgated by the PTO. Ideally these rules will reflect an understanding that third parties will perceive inter partes reexamination to be a useful alternative to civil litigation only if the third parties have a full and fair ability to participate in the resolution of all of the issues raised in the reexamination.
Published in Intellectual Property Today, Vol. 7, No. 3, March 2000, page 37.
35 U.S.C. § 311-318.
The inter partes reexamination procedures of P.L. 106-113 are entirely prospective. They are limited to "any patent that issues from an original application filed in the United States on or after" the date of enactment thereof -- i.e., November 29, 1999. See section 4608. Although the phrase "original application" is not defined in the statue, it likely means that inter partes reexamination is not available for patents based upon continuing applications filed after November 29, 1999 but claiming the benefit of the filing date of an earlier patent application under 35 U.S.C. §120.
Although in those instances where one can provoke an interference via a pending patent application, one can effectively challenge validity on an inter partes basis via 37 CFR § 1.633(a). See Gholz, You Can Use Interferences to Save Big Bucks in Patent Litigation, 17 Biotechnology Law Report 737 (1998).
35 U.S.C. § 302.
To be referred to as the "Director" after March 29, 2000. Section 4713.
In re Etter, 756 F.2d 852, 225 USPQ 1 (Fed. Cir. 1985)(in banc).
Unlike earlier versions of the inter partes reexamination provisions, those included in P.L. 106-113 do not include the right to participate in Examiner interviews.
Section 317, infra.
Note the current merger rules in 37 CFR § 1.565; MPEP § 2283.
37 CFR § 1.535. But declarations cannot form the basis of a rejection. MPEP § 2258.
However, it seems probable that the PTO will not permit either the patent owner or the third party requester to cross examine the other party's declarant.
The PTO might try to limit the right of the requester to respond with declarations only to rebut those declarations submitted by the patent owner, in order to reduce the possibility of a "war of declarations" after every Office Action. If so, this would seem unnecessary. A deterrent to the initiation of declarations by the third party requester could easily be built in by permitting the patent owner to reply with a declaration for rebutting any requester declaration that was not itself submitted merely as a rebuttal to a patent owner's earlier declaration; a requester tempted to submit a declaration will be deterred by the knowledge that it will permit the submission of an unrebuttable declaration from the patent owner.
Assuming that the PTO permits interviews in inter partes reexaminations.
37 CFR 1.133.
Note that the PTO proposed a set of provisional rules (proposed 37 CFR 1.901-1.997; Fed. Reg. Vol. 60, No. 155) for the revised reexamination procedures proposed in H.R. 1732. Although never adopted, these proposed rules would have required a written statement of issues discussed in an Examiner interview. See proposed section 1.955.
See supra, n. 16.
The "real party in interest" must be identified. Section 311(b)(1).
The third party requester is also collaterally estopped from later challenging, in a civil action, any fact determined during the inter partes reexamination, except based on information unavailable at the time of the reexamination. Section 4607. Thus, for example, factual determinations as to the scope of the prior art are binding of the third party requester, even if it is later able to challenge the validity of the patent based on that prior art together with newly discovered prior art.
This may be unconstitutional as a denial of due process. Note that section 4607 itself contemplates that its estoppel effect "may be held to be unenforceable."
Dickinson v. Zurko, ___U.S.___ , 119 S. Ct. 1816, 50 USPQ2d 1930 (1999).
The exception is where all of the claims are clearly invalid, since reexamination gives the patent owner the opportunity to amend the claims, which is not possible in a court action. But in this case the patent owner will likely file a reissue patent application before asserting the patent in court.
Also, claims of unexpired patents are given their broadest reasonable interpretation during reexamination. MPEP § 2258.
It is not clear how the patent owner would request or participate in an inter partes reexamination. The patent owner already has the obligation to present arguments supportive of patentability in ex parte reexamination, and so it would have no need to request inter partes reexamination in order to participate as to these issues. Also, it is unlikely that a court would give the results of the reexamination greater deference simply because it was filed under section 311 rather than section 302. In either case, it is a de facto ex parte proceeding. The supposed right of the patent owner to request inter partes reexamination may simply be a drafting error in the statute.
This does not prevent the assertion of invalidity based on newly discovered prior art unavailable to the third-party requester and the Patent and Trademark Office at the time of the inter partes reexamination proceedings.
MPEP § 2258(IV).
There is no restriction against any member of the public, including the patent owner, requesting ex parte reexamination during the pendency of an inter partes reexamination. Such requests can be based on different, or even the same, prior art as in the pending reexamination. MPEP § 2240.
MPEP § 2286.
In addition to merger, a concurrent proceeding may cause the PTO to stay an inter partes reexamination. See proposed sections 1.987 and 1.993 of 1995.