Cuozzo Speed Technologies, LLC v. LeeInter Partes Review & The Effect on Innovation

OutlineI. Patent Law & America Invents Act (AIA)II. Inter Partes ReviewIII. ControversyIV. Cuozzo Speed Technologies, LLC v. LeeV. Implications on BusinessVI. Survey (if time)

Patents

Patents•Protects: inventions and innovations• Processes, machines, products, phrases, algorithms, etc.• Protects against: others making, using, selling innovation, even if

they independently came up with it

•Requirements: novel, useful, non-obvious•Term: 20 years from filing; typically must file within a year

of being publicly disclosed•Cost: Relatively high, in time and cost

Patent Process

America Invents Act (AIA)• The America Invents Act (AIA) established several

new mechanisms for challenging issued U.S. Patents:

• Inter partes review• Post grant review• Cover business method review• Derivation proceedings

•All of these new proceedings are conducted before a new Patent Trial and Appeal Board (PTAB)

Inter Partes Review“The Death Squad”

Inter Partes Review (IPR)1. Accused infringer files a petition seeking review of issued patent

claims. The patent owner may file a response.2. PTAB then institutes IPR if it determines that the information

presented in the petition and any response shows that “there is areasonable likelihood that the petitioner would prevail with atleast 1 of the claims challenged in the petition.”

3. Once IPR is instituted, the parties engage in discovery, briefing,and oral argument before a three-judge panel of PTAB.

4. Following trial, PTAB issues a final written decision determiningwhether the claims are invalid.

Why IPR is Popular• Technology companies in particular have embraced the

proceedings because they are seen as faster and less expensive than traditional litigation in courts • One ruling against a patent owner can wipe out dozens of lawsuits

• No presumption of validity• Preponderance of the evidence burden of proof• Limited opportunity to amend claims• Claims given “broadest reasonable interpretation”• Improved chance for stay of concurrent litigation

Criticism of IPRs• Performed in an administrative court where judges are beholden to the

political whims of whoever happens to be President• Radically favors large multinational infringers by shifting the burden to the

party least able to withstand that burden• IPR’s left fewer than 5% of claims unscathed• IPR “kill rates” are devastating and the cost is high• Most contingent fee attorneys have left the patent business altogether leaving a huge swath

of unenforceable patents.

• IPRs transfer the property rights of the small inventors to large international corporations free of charge

Patent TrollsTerror or Myth?

“O, beware, my lord, of [greediness];It is the green-ey'd [patent troll], which doth mockThe meat it feeds on.”

― WillAIAm Shakespeare, Othello (Redux)

Patent Trolls• Some firms that own patents but do not make products with them

play an important role in U.S. innovation ecosystem• However, patent trolls (a.k.a. Patent Assertion Entities (PAE) or Non-Practicing Entities (NPE)) do not

play such roles. Instead, they focus on aggressive litigation, using such tactics as: • Threatening to sue thousands of companies at once, without specific evidence of

infringement against any of them; • Creating shell companies that make it difficult for defendants to know who is

suing them; and • Asserting that their patents cover inventions not imagined at the time they were

granted.

Patent Trolls, cont’d• Suits brought by PAEs tripled from 2011-2012, rising from 29 percent of all

infringement suits to 62% of all infringement suits. • Estimates suggest that PAEs threaten over 100,000 companies with patent

infringement in one year alone• PAE activities hurt firms of all sizes. Although many significant settlements are

from large companies, the majority of PAE suits target small and inventor-driven companies• In addition, PAEs are increasingly targeting end users of products, including

many small businesses• PAEs take advantage of uncertainty about the scope or validity of patent

claims, especially in software- related patents

61%

35%

4%

IPR Petitions (cir. 2013)

PAEsIndustryUniversities

Patent “War Chests”• Companies build up collections of patents to avoid lawsuits• Apple's iPhone patents (e.g. vs. Samsung)• Google buys Motorola, largely for mobile phone patents• Microsoft vs. Google (Android); Microsoft / SCO vs. Linux• Kodak vs. digital camera companies• Verizon vs. Vonage (VoIP technology)

• Results of patent lawsuits:• Settlement (e.g. cash payout)• License the patents (Google pays MS $5-10 for every Android device sold)• Dismissal of suit for lack of merit (SCO vs. Linux)

Cuozzo Speed Technologies, LLC v. Lee

Background• Although IPR was created as an efficient alternative to district court litigation, PTAB uses a

different claim construction standard.• Federal courts have long construed patent claims according to their “ordinary meaning” – that which is

understood by a person of skill in the art.”

• PTO issued a rule directing PTAB to construe claims in IPR their “broadest reasonable construction [or broadest reasonable interpretation (BRI)] in light of the specification of the patent in which it appears.”

• PTAB’s use of this standard has contributed to IPR’s high rate of claim invalidation, because a broad reading of claim language makes it likelier that the claim encroaches upon prior art.

• PTAB also took the position that its actions in instituting IPR are insulated from judicial review by Section 314(d) of the AIA, which provides that the Board’s determination “whether to institute” IPR “shall be final and nonappealable.”

Facts of Cuozzo• Garmin International, Inc. and Garmin USA (collectively, Garmin) filed a petition seeking IPR of all claims

of a patent held by Cuozzo Speed Technologies, LLC.

• PTAB instituted IPR of claims 10, 14, and 17 of the Cuozzo patent.

• PTAB’s decision to institute IPR of claims 10 and 14 was not based on the grounds specifically presented in Garmin’s petition with regard to those claims; rather, it was based on the grounds specified in the petition with regard to claim 17.

• PTAB then issued a final written decision invalidating claims 10, 14, and 17.

• Cuozzo appealed PTAB’s ruling, and a divided panel of the Federal Circuit affirmed the Board’s use of the BRI standard in interpreting Cuozzo’s claims.

• The panel majority also held that, even if PTAB had exceeded its authority in instituting IPR for claims 10 and 14 by relying on information not identified in the petition as grounds for institution for those specific claims, PTAB’s decision to institute was judicially unreviewable.

• The Federal Circuit denied rehearing by a vote of 6-5. Cuozzo filed a petition for certiorari to resolve the proper claim-construction standard and whether the Board’s institution decisions are reviewable.

Supreme Court Decision June 20, 2016, issuedJustice Breyer, author

Holding re: Judicial Review • The Court first held that the AIA bars judicial review of “mine-run” challenges

to PTAB’s decision whether to institute IPR.• Review is unavailable where “the grounds for attacking the decision to

institute [IPR] consist of questions that are closely tied to the application and interpretation of statutes related to the [PTAB’s] decision to initiate [IPR].” • Review may be available, by contrast, for challenges “that implicate

constitutional questions, that depend on other less closely related statutes, or that present other questions of interpretation that reach, in terms of scope and impact, well beyond” § 314. • Those types of challenges, the Court indicated, would be judicially reviewable under either

the AIA or the Administrative Procedure Act.

Supreme Court Decision (June 20, 2016)

Holding re: BRI Standard• The Court held that IPR is a reasonable exercise of the PTO’s rulemaking authority. • Under the AIA, the PTO may issue regulations “establishing and governing” IPR, and

in the Court’s view that regulatory authority is not limited to issuing procedural rules.• The Court deemed the PTO’s rule reasonable because IPR is a “hybrid proceeding”

intended to “reexamine an earlier agency decision” to grant the patent.• PTO had used the broadest-reasonable-construction standard for a century in various

proceedings; and the standard protects the public by preventing a patent from “tying up too much knowledge.”

• Justice Thomas concurred on the ground that, in his view, the doctrine of Chevrondeference was not necessary to the Court’s decision in light of the express statutory grant of rulemaking authority to the PTO.

• Justice Alito, joined by Justice Sotomayor (!?!), dissented in part because he would have permitted judicial review of the Board’s institution decision.

Cuozzo: Battle Lines DrawnCompanies that signed amicus briefs against Cuozzo:• Google• LinkedIn• eBay• Dell• Cisco• Cannon• Toyota

Lobbying organizations that signed amicus briefs against Cuozzo• Internet Association, the Alliance of Automobile Manufacturers, and the National Retail Federation, whose combined

members make up most of the Fortune 500.

Companies that signed amicus briefs in support of Cuozzo:• United Inventors Association• U.S. Inventor, Inc, • Edison Innovators Association, • Inventors Network, • San Diego Inventors Forum, • Independent Inventors of America, • Tampa Bay Inventors Council

Business Implications of Cuozzo• The Cuozzo decision preserves current IPR practice before PTAB, which has frustrated Big

Pharma, large chemical corporations, and patent holding companies• IPR has become a popular venue for companies like Apple and Google, in large part because the BRI

standard is more challenger-friendly than that used in district courts• Under the Court’s ruling, PTAB may continue to use the BRI standard in IPR and other post-grant

patent proceedings, including post-grant review, covered business method review, and ex parte reexamination

• Absent action by Congress or the PTO, Cuozzo permits patent claims to continue to be construed differently depending on the chosen forum (the Board, International Trade Commission, or federal district court)

• The Court noted that an alternative ruling would frustrate the “congressional objective” of eliminating “bad patents” by permitting PTAB decisions invalidating such patent claims to be “unwound under some minor statutory technicality.”

• Cuozzo also limits judicial recourse for patent owners when PTAB exceeds its statutory authority in instituting IPR. • PTAB has aggressively asserted that challenges to its institution authority implicate its decision whether

to institute IPR.

Survey: Patent Law PracticionersInter Partes Review & The Supreme Court's Decision in Cuozzo Speed Technologies v. Lee

Overview of Survey• Online survey delivered by email using the Survey Monkey platform

• Administered exclusively to a large sample of U.S. News & World Report’s Best Lawyers® in Patent Law, mostly partners from the most prestigious law firms in the U.S.

• Ten total questions based on Likert Scale

• All of the questions were related to the issues discussed in the Court’s decision in Cuozzo

• Principal Aim: To determine whether the industry reaction to Cuozzo was in line with ongoing narratives from the beginning of the case and predictions of the Court’s outcome. • In other words: Ask the lawyers whether Cuozzo lived up to the hype

• Note: Web surveys frequently suffer from low response rates: the typical response rates for web surveys are in the single digits where no relationship exists between the surveyor and the surveyed population. • Therefore, the response rate is a not sample that represents a definite generalization of a larger group;

it should be regard as merely “a hybrid of a convenience and snowball sampling methods.

Thank You