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39Xxxxxxxx | FeatureIntellectual Asset Management | March/April 2016www.IAM-media.com

Analysis shows how institution decisions made by the Patent Trial and Appeal Board of the UPatent and Trademark Office are a critical point in post-America Invests Act patent disputes

By Sam Jaffna, Shawn Ambwani, Jonathan Stroud and Robert Jain

In the initial months after the enactment of the

America Invents Act, little was known about howthe newly crafted post-grant procedures would

affect patent litigation in federal district court. As theclouds parted and the Patent rial and Appeal Board(PAB) issued its first decisions, new beacons haveemerged which are altering the way that parties navigatepatent litigation. In particular, the decision to institutereview has become a rising star of the PAB, with itsgravitational pull reaching beyond just “real partiesin interest” but also warping the litigation fabric forsurrounding “related matters”.

Previous commentators have addressed a variety ofstatistics and trends at the PAB, including institution,invalidity, settlement rates and district court stays. Tisstudy explores the PAB’s ripple effects in district courtand shows that there is a correlation between litigationsettlement timings and PAB institution decisions,

even for defendants which are not real parties to thePAB proceedings.Our analysis focuses on district court litigation:

• filed between January 1 2012 and December 31 2014;• that would have been identified as pending related

matters in at least one inter partes review petition; and• that was likely settled as of November 1 2015.

Further, this analysis focuses only on inter partes reviews, which comprise more than 90% of all petitionsfiled at the PAB. We show that, for the approximately1,100 cases which fit this profile, the majority had settled

within 180 days of the inter partes review petition filingdate. We also explore plausible explanations for thistrend and discuss its consequences.

Understanding institution decisions asperceived in 2012Before September 16 2012 there was little informationavailable to forecast the implications of the AmericaInvents Act’s new post-grant proceedings or thesignificance of the PAB’s institution decision. USPatent and rademark Office (USPO) DirectorMichelle Lee acknowledged that even the USPO didnot accurately predict the implications of the new law as:“the total number of petitions filed [before August 2015]reflect around three times more than what [the PO]initially expected.”

From a statutory perspective, the decision whether toinstitute proceedings involves a threshold inquiry into

whether the petitioner, as a matter of law, has satisfiedthe requirements for review. Te legal standard varies bythe type of review sought. For inter partes reviews, thepetitioner must show a reasonable likelihood that he orshe should prevail on at least one challenged claim.

Similar to the reasonableness standard that appears inother areas of law, ‘reasonable likelihood’ as defined by thUSPO, “is a somewhat flexible standard that allows thBoard room to exercise judgment”. Although this appeato establish a relatively minimal burden of proof, it wasclear from the outset that institution is not guaranteed.

Te USPO emphasised this point when it explainethat the PAB retains discretion to deny institutionin certain circumstances even if the legal requirementsare satisfied. As the first institution decisions began totrickle out of the PAB, the grant rates hovered slightlyabove 90%. However, by September 30 2015, institutionrates had fallen to slightly over 70% as petitions rapidly

accumulated on the PAB’s docket. Aside from legal standards, the inter partes reviewprocess offers only limited grounds for review andfollows a strict timeline in order to expedite proceeding

Te institution decision serves as the first major hurdleand is due no later than three months after the filing daof the rights holder’s response or six months after filingthe petition (whichever is earlier). If review is institutedthe PAB must produce a final written decision no latethan 12 months from the date of institution, unless theparties otherwise terminate the proceedings.

Before enactment, observers understood that inter partes review proceedings would provide a faster venuefor resolving patent validity than district court. Howeverfew could have anticipated the frequency with which the

PAB would institute proceedings or invalidate claims, ohow the institution decision might affect overall litigatiostrategies. Tree years later, it is now possible to accurateevaluate the impact of the PAB’s institution decision.

Review of patent disputes between 2012 and 201 Te data from the first three years shows that theUSPO has received 4,239 new petitions (including3,817 inter partes reviews). Tese disputes settledapproximately 36% of the time, with approximately795 total settlements since 2012; the majority of theseoccurred before institution.

Looking beyond USPO proceedings, it appears thathe PAB’s institution decision also substantially affectthe timing of district court settlements.

How PTAB proceedings are driving

district court settlements


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matters to at least one inter partes review proceeding, themedian overall duration was 420 days.

At first glance, this result seems counter-intuitive andcontrary to the America Invents Act’s efficiency andcost-saving goals. However, a closer look at this subsetof 1,100 related matters reveals most settled within180 days of the earliest inter partes review filing date.Specifically, the median adjusted duration for these cases

was 163 days as of the end of 2015. Te distribution of adjusted durations shows a sharp

concentration of cases being settled within 180 days of

Between 2012 and 2014 around 23,000 patent actions were filed in federal district court. By 2015, nearly70% of those cases had settled while the rest were stillpending or had been terminated. About 1,100 of settledcases involved one or more patent c laims that were thesubject of an inter partes review petition. Tese 1,100settled cases are the subject of this analysis.

For the 15,000 cases filed between 2012 and 2014that settled before the end of 2015, the median duration

was around 211 days. By contrast, for the much smallersubset of 1,100 cases which were identified as related

Related matters

District court

PTAB

FIGURE 1. PTAB reviews and related matters

Overall duration

Adjusted duration

District courtfiling

District courttermination

Earliest PTAB

filing

FIGURE 2. Overall duration of cases

0

50

100

150

200

250

0

400

800

1,200

1,600

2,000

New filings

Pending cases

1 0 / 1 / 1 2

1 1 / 1 / 1 2

1 2 / 1 / 1 2

1 / 1 / 1 3

2 / 1 / 1 3

3 / 1 / 1 3

4 / 1 / 1 3

5 / 1 / 1 3

6 / 1 / 1 3

7 / 1 / 1 3

8 / 1 / 1 3

9 / 1 / 1 3

1 0 / 1 / 1 3

1 1 / 1 / 1 3

1 2 / 1 / 1 3

1 / 1 / 1 4

2 / 1 / 1 4

3 / 1 / 1 4

4 / 1 / 1 4

5 / 1 / 1 4

6 / 1 / 1 4

7 / 1 / 1 4

8 / 1 / 1 4

9 / 1 / 1 4

1 0 / 1 / 1 4

1 1 / 1 / 1 4

1 2 / 1 / 1 4

1 / 1 / 1 5

2 / 1 / 1 5

3 / 1 / 1 5

4 / 1 / 1 5

5 / 1 / 1 5

6 / 1 / 1 5

7 / 1 / 1 5

8 / 1 / 1 5

9 / 1 / 1 5

FIGURE 3. Pending cases versus new filings

60%

70%

80%

90%

100%

400

0 50%

800

1,200

1,600

2,000

7 / 1 / 1 3

8 / 1 / 1 3

9 / 1 / 1 3

1 0 / 1 / 1 3

1 1 / 1 / 1 3

1 2 / 1 / 1 3

1 / 1 / 1 4

2 / 1 / 1 4

3 / 1 / 1 4

4 / 1 / 1 4

5 / 1 / 1 4

6 / 1 / 1 4

7 / 1 / 1 4

8 / 1 / 1 4

9 / 1 / 1 4

1 0 / 1 / 1 4

1 1 / 1 / 1 4

1 2 / 1 / 1 4

1 / 1 / 1 5

2 / 1 / 1 5

3 / 1 / 1 5

4 / 1 / 1 5

5 / 1 / 1 5

6 / 1 / 1 5

7 / 1 / 1 5

8 / 1 / 1 5

9 / 1 / 1 5

Institution rateInvalidity ratePending cases

FIGURE 4. Pending cases versus institution rates and invalidity rates


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Significance of institution decisions inprompting settlements

Tere are several plausible explanations for why theinstitution decision has become the centre of gravityin inter partes review proceedings. One explanationfor the increase in pre-institution settlements may bethat settling the dispute earlier allows patent owners toeliminate the risk that an adverse decision could be usedas grounds for institution in a later case. Although thePAB is not necessarily bound by its earlier decision,the patent owner’s incentive is rooted in the inherentlyprecedential effect of a prior determination on institutio

A second explanation may be that defendantpetitioners have an increased incentive to settle claimsbefore institution due to the low rate of institution –although this seems less likely. Similar to the risk facedby rights holders, an adverse institution decision mayestop defendants from making certain arguments or,at the very least, confer some degree of legitimacy tothe patent. However, unlike the dilemma facing rightsholders, district courts thus far have largely taken theposition that a decision denying institution of an inter partes review does not support an inference of validityin a related civil matter. Some courts have gone so far ato prohibit the presentation of such evidence to the jurat trial.

As a result, it seems unlikely that the risk of an adverinstitution decision would encourage defendants tosettle in the same way that it may incentivise rightsholders. Even if it could be demonstrated that parties’preference for settling before institution is attributableto some other incentive for defendants, the fact remainsthat in most cases defendants will benefit from fastersettlements. Accordingly, because parties to an inter partes review petition are more likely to settle within six

months, simply filing an inter partes review may providesome benefit to defendants in patent disputes. A third explanation is that the high probability that

an inter partes review, if instituted, will result in a final written decision that invalidates one or more claims ofthe challenged patent encourages rights holders to settlbefore an institution decision.

From 2012 through 2014, the probability thatthe PAB would institute an inter partes review wasrelatively low; approximately two-thirds of all petitions

were instituted. However, of the instituted petitions,there was a high probability – about an 89% chance –that the PAB would invalidate one or more c laims ina final written decision. As this trend emerged, rightsholders likely recognised that their chances of escaping

an inter partes review with all patent claims intact would decrease significantly if institution was granted. Accordingly, rights holders may have an increasedincentive to limit this risk by negotiating a settlementbefore any institution decision.

Tis is only one of several possible outcomes thatcould have resulted from the new post-grant proceduresOne could readily imagine a scenario where theinstitution decision was little more than a formality orrubber stamp and did not affect incentives to settle. Forexample, imagine that, rather than a 66% institutionrate, the PAB instituted 99% of all inter partes reviewpetitions. Further, imagine that only 50% of institutedclaims were later invalidated in a final written decision.In this scenario, the institution decision would retain

the earliest inter partes review filing, which is typically when the PAB delivers (or would have delivered)an institution decision. Further, the evolution of thisdistribution reveals a trend over time. In 2012 thenumber of related matters was 286 and the medianadjusted duration was 281 days. By the end of both2013 and 2014, the sample size of cases grew to 828 and1,100 respectively, while the median dropped to 197 and163 days.

Not instituted 33%

Final written decision 26%

Adverse judgment 5%

Settlement36%

Pending 46%

FIGURE 5. Pending cases and methods of settlement

Settled 68%

Otherwise terminated 22%

Pending 10%

Of the settled cases in district court, roughly 7% or

1,100 were identified as a pending “related matter”

in at least one inter partes review proceeding.

23,000

Total cases

FIGURE 6. Resolution of district court cases for cases filed in 2012-2014

Settlements in “related matter”

Area = 1,000 cases

Median = 420 days

Settlements in all litigation

Area = 15,000 cases

Median = 211 days

Settlements in “related matters”

Settlements in all litigation

0 90 180 270 360 450 540 630 720 810 900 990

Duration (in days)

FIGURE 7. Distribution of overall durations for litigations filed in 2012-2014


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less pressure on parties’ incentives to settle.Beyond the effect on the timing of settlements, the

analysis demonstrates the larger effect that seeminglysmall procedures at the PAB may have on the patentsystem as a whole. Similarly, it is natural to infer thateven modest changes to the existing framework have thepotential to – for better or worse – distort distant cornersof the patent universe.

little significance and parties would be unlikely toconsider settlement until around 18 months, rightbefore the PAB’s final written decision. Under suchcircumstances, petitioners and other defendants indistrict court would likely not receive the same degreeof benefit from inter partes review petitions in resolvingtheir civil litigation.

Setting aside the potential explanations for themoment, the apparent consequence of this trend is thatregardless of whether the PAB institutes an inter partes review, filing an inter partes review petition increases thelikelihood that parties will reach a settlement before anyinstitution decision is made. If, as suggested above, thistrend is attributable to the rights holder’s desire to avoidcertain risks associated with institution, this may be tothe defendant’s benefit.

In particular, filing an inter partes review increasesthe likelihood that parties will settle more quickly– thereby reducing the costs associated with civillitigation – independent of their belief in the likelihoodof institution. It is no surprise that patent litigation indistrict court can drag on for years before reaching anydefinitive resolution and that the resulting court costsand attorneys’ fees can be crippling. Because the AmericaInvents Act requires the PAB to issue an institutiondecision within six months from the date the petition isfiled, this strategy can significantly reduce the litigationcosts to defendants.

Tat said, filing an inter partes review also posescertain risks for defendants – for example, the possibilitythat arguments rejected in the inter partes reviewproceeding may estop the defendant petitioner fromraising those arguments in the district court. Estoppelmay not foreclose other defendants facing similarinfringement contentions from raising in district court

those arguments previously rejected by the PAB. Tismay create a free-rider problem, especially in situations where the other defendants are competitors of thedefendant-petitioner.

Small procedures, big impact Tere are certainly other explanations which mayprovide useful insight into the significance of thePAB’s institution decision and its impact on thetiming of settlement agreements. However, theseshould not displace the importance of the observationitself. Put another way, the effect that the PAB’sinstitution decision has in driving parties towards earliersettlements remains significant, independent of anypotential explanation.

As a result, the institution decision is importantfor both defendants and rights holders to consider indevising their litigation strategies. For defendants inparticular, it is worth reexamining the value of filing aninter partes review petition. Even though the likelihoodthat a particular claim may be instituted is relatively low,the data suggests that defendants may be able to inducean earlier settlement by simply filing a petition.

Once again, the current situation is just one of manypossibilities that parties could have predicted in 2012.Perhaps if the PAB had received only 35 petitions permonth, as originally estimated, the USPO would havemore resources to address each petition on the meritsand the resulting institution rates would be higher. Inthat case, the PAB’s institution decision would exert

Intellectual Asset Management | March/April 2016

Overall duration

Area = 1,000 cases

Median = 420 days

Adjusted duration

Area = 1,100 cases

Median = 163 days

Institution decision

six-month deadline Overall Durations

Adjusted Durations

0 90 180 270 360 450 540 630 720 810 900 990

Duration (in days)

FIGURE 8. Overall durations versus adjusted durations for related matters filed in 2012-2014

Institution decision

six-month deadline January 2012 to December 2014

Area = 1,100 cases

Median = 163 days

January 2012 to December 2013

Area = 828 cases

Median = 197 days

January 2012 to December 2012

Area = 286 cases

Median = 197 days

0 90 180 270 360 450 540 630 720 810 900 990

Duration (in days)

FIGURE 9. Evolution for adjusted durations for related matters filed in 2012-2014

How can companies’ IP divisions adjust their strategy to account for the significance ofPTAB institution decisions? § Law makers and policy makers should consider the system-wide implications for

proposed amendments or revisions to the current patent law framework. § All litigants should carefully evaluate the impact an inter partes review or potential

inter partes review can have on your patent licensing strategy.§ To other stakeholders, explore potential avenues to expose those areas where the

PTAB influences the nature of patent litigation.

Action plan

Sam Jaffna is director of analytics, Shawn Ambwani ischief operating officer, Jonathan Stroud is chief patentcounsel and Robert Jain is an IP analyst at Unified Patents,San Francisco, California, United States

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