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Article: Inter Partes Review and the ITC: The Benefits and Risks of Filing IPR on Patents Asserted in an ITC Investigation

March 01, 2015
Business Litigation Reports

Since the advent of the America Invents Act (“AIA”) in 2012, parties accused of patent infringement in district court cases have taken advantage of the newly established Inter Partes Review (“IPR”) procedure for challenging the validity of patents. IPRs allow an accused infringer in a pending litigation to separately challenge the validity of a patent to the Patent Trial and Appeal Board (“PTAB”), a division of the United States Patent and Trademark Office (“PTO”). IPRs are an appealing alternative, in part because the standard for invalidating a patent in an IPR—preponderance of the evidence—is lower than the clear and convincing standard applied in district court actions. 35 U.S.C. § 316(e). Moreover, district court judges are often willing to stay the district court action until the IPR is complete. Indeed, recent reports indicate that district courts are granting or granting-in-part stays of cases pending the completion of an IPR at a rate of over 72%. See El-Gamel, Samuel, Siddoway, The New Battlefield: One Year of Inter Partes Review Under the America Invents Act, 42-1 AIPLA QUARTERLY JOURNAL, 39, 55 (2014) (“The New Battlefield”).

But while the benefits of filing an IPR in a district court litigation are clear, in the ITC the benefits are less apparent. Operating under a mandate that ITC investigations conclude “at the earliest practicable time” after an investigation is filed, patent litigation in the ITC typically runs less than two years. And the ITC has never stayed a case pending an IPR. Thus, an ITC case will likely conclude before an IPR is resolved.
This article will consider the potential benefits and risks of filing an IPR concurrent with an ITC action.

A. The Interplay Between Inter Partes Review and an ITC Action
1. Inter Partes Review and Potential Estoppel
An IPR is initiated by an accused infringer in a patent infringement action. The purpose is to challenge the validity of the asserted patent or patents. If considering an IPR, an accused infringer must file an IPR petition within one year of the filing date of the patent infringement action. 35 U.S.C. § 315(b). The IPR validity challenge must be based on prior art patent(s) or printed publication(s); it cannot be based on a commercial device or system. 35 U.S.C. § 311(b). Preparation of an IPR will usually take a few months as the accused infringer will need to identify the best prior art and prepare the petition, including one or more expert declarations. The cost of an IPR is not insubstantial—in many ways it’s a “mini-litigation” of its own, with its own hearing, and the combination of attorneys’ fees and expert fees can approach seven figures.

An accused infringer often seeks a stay of pending litigation upon filing an IPR, at least for district court actions. Courts have granted or granted-in-part more than 72% of such stay requests. The New Battleground at 55. District courts are more likely to grant a stay at an early stage of the litigation. See, e.g., Robert Bosch Healthcare Sys., Inc. v. Cardiocom, LLC, 2014 WL 3107447, at *2 (N.D. Cal. 2014). The ITC, however, has never granted a stay of an ITC investigation based on an IPR petition.

The timeline for an IPR “start to finish” is approximately two years. See 37 C.F.R. §§ 42.100(c), 42.107(b), and 35 U.S.C. § 314(b). After an accused infringer files its IPR petition, it takes about six months for the PTAB—the government entity that evaluates IPRs—to grant or deny the petition. 37 C.F.R. § 42.107(b); 35 U.S.C. § 314(b). The PTAB’s standard for institution is the “reasonable likelihood that [the] petitioner would prevail.” 35 U.S.C. § 314(a). In contrast, the standard for an ex parte reexamination is whether a “substantial new question of patentability” has been shown. 37 C.F.R. § 1.510(b)(1). The PTAB initially granted most of the petitions it received, but lately it has become more selective and has rejected a growing number of petitions. See, e.g., AIA Progress Statistics, aia_statistics_1_1_2015.pdf (87% in FY13 declining to 75% in FY14). Assuming the PTAB grants the petition, it then takes between 12-18 months for the PTAB to reach a final decision on the merits of the petition. 37 C.F.R. § 42.100(c).

The final decision may invalidate some or all of the claims, subject to appeal to the Federal Circuit. Once the PTAB renders a final decision, however, the accused infringer is estopped from asserting in the pending litigation the prior art alleged in the IPR or art that the accused infringer “raised or reasonably could have raised” in the IPR. 35 U.S.C. § 315(e)(2). The accused infringer is similarly estopped from asserting any such art in a future litigation involving the same patent. Id. Thus, a final decision means the accused infringer will effectively be precluded from relying on patent or publication prior art in the pending litigation. Id. The accused infringer may, however, rely on system or device prior art not raised in the IPR. 35 U.S.C. § 311(b).

The invalidity standard of proof in an IPR is not as stringent as a district court action or ITC investigation: preponderance of the evidence instead of clear and convincing evidence. 35 U.S.C. § 316(e). Not surprisingly, accused infringers have had more success challenging patents in IPRs than in district court actions or ITC investigations. See Jonathan Engler, Patent Litigation Outcomes At ITC Vs. District Courts, (February 25, 2013, 12:31 PM),; Daniel F. Klowdowski & Jonathan R.K. Stroud, Claim And Case Disposition, Indeed, as of December 1, 2014, IPRs resulted in invalidating claims over 74% of the time. See Klowdowski, Claim And Case Disposition. This number, however, is slowly decreasing for granted petitions, suggesting that the PTAB may be cognizant of the high percentage of patents being invalidated. Id. In any event, accused infringers have embraced IPRs as a preferred option for invalidating patents as opposed to through district court actions or ITC investigations.

2. ITC 337 Investigation
A patent-based ITC investigation begins when a patentee files a complaint based on patent infringement. 19 C.F.R. § 210.8; 35 U.S.C. § 1337. The ITC reviews the complaint, 19 C.F.R. § 210.9, and typically institutes the investigation within 30 days after the complaint is filed. 19 C.F.R. § 210.10(a)(1). The ITC assigns an Administrative Law Judge (“ALJ”) soon after institution of the investigation. 19 C.F.R. § 210.10(b). Depending on the number of asserted patents, the ALJ will set a “target date” for completion of the investigation, with a schedule from “start to finish” of roughly 16-19 months from institution, and an evidentiary hearing or “trial” about 10-12 months after institution. The ALJ can extend the investigation (subject to approval by the ITC) based on a party request or for other reasons, but this will usually add no more than a few months to the schedule. The ITC’s final decision—called a “Final Determination”—will usually result in either termination of the investigation (no infringement and/or invalidity) or an exclusion order (infringement). An exclusion order is a form of injunctive relief, administered by U.S. Customs, that excludes infringing imports from the United States. 19 U.S.C. § 1337(d)(1). An exclusion order from the ITC is subject to an additional 60-day “Presidential Review,” in which the United States Trade Representative, acting under authorization from the President of the United States, can disapprove the exclusion order for policy reasons. 19 U.S.C. § 1337(j)(2). The President has only disapproved ITC remedial orders six times, and only once since 1987; it is rare indeed for a President to take such an action. Thus, an ITC investigation will typically end within two years of the initial filing.

The patentee can also seek money damages through a companion (but separate) district court action, typically filed at the same time as the ITC complaint but stayed as a matter of right until completion of the ITC investigation (including appeals). 28 U.S.C. § 1659.

B. Considerations for Filing an IPR During an ITC Investigation
There are many factors for an ITC respondent to consider in determining whether to file an IPR concurrent with the ITC action. This article provides a non-exhaustive analysis of some of those factors. Each case of course is unique and other factors may come into play in determining whether to proceed with an IPR.

1. No Stay in an ITC Action
In the context of IPRs, the primary distinction between a district court action and an ITC investigation is the likelihood of a stay. In a district court action, the accused infringer has a decent chance for a stay so long as it files the IPR relatively early in the litigation. Because the initial pleading stage for a district court case can typically last 3-6 months, a party can easily draft and file an IPR well before fact discovery even begins. In an ITC action, however, fact discovery usually commences a little over a month after the complaint is first filed (i.e., after institution of the investigation); the clock begins ticking right away. And as noted above, the ITC has never granted a stay based on an IPR. Thus, even if a party can prepare and file an IPR within a month of the complaint—very unlikely—the IPR clock will not even begin to run until a month has already passed in the ITC timeline, with little chance for a stay.

2. ITC Investigation Likely over Before the IPR Concludes
An ITC respondent can reasonably ask why it would want to file an IPR if the ITC investigation will be over before the IPR is complete. This is a particularly germane question considering the immediate and continuous pressure of an exclusion order facing an ITC respondent throughout the investigation. The respondent (and potentially its customers) often immediately recognize that they must succeed on the merits and/or design around the asserted patent(s) before the ITC reaches its final determination, meaning within about 18 months if not sooner. An IPR will be of little immediate help. Indeed, the threat of an exclusion order will likely dictate action right away. The attorneys’ fees and costs associated with an IPR are not insubstantial, meaning an ITC respondent may prefer to allocate resources differently in defense of the suit.

3. Lower Invalidity Standard of Proof for an IPR
There are, however, a few possible benefits for an ITC respondent to consider when deciding whether to file an IPR concurrent with the ITC investigation. First, because of the lower evidentiary standard, an IPR may represent the best opportunity to invalidate a patent. Indeed, the invalidity success rate for granted IPR petitions exceeds that of invalidity challenges in an ITC investigation. Compare Engler, Patent Litigation Outcomes At ITC Vs. District Courts with Klowdowski, Claim And Case Disposition.

If the ITC investigation is delayed in any material way, the IPR could finish before the end of the investigation. This is relatively rare, however. The IPR would certainly overlap with the ITC’s companion district court action, which is usually stayed until the ITC investigation is complete (including appeals). But companion cases rarely go forward, in part because the stay remains in place through a Federal Circuit Appeal. As a result, the parties can fairly predict the final outcome. Such clarity often results in settlement rather than further litigation.

4. IPR Could Impact a Federal Circuit Appeal
The IPR could also become a factor in a Federal Circuit appeal. If the ITC initially found a patent to be valid and infringed, but the PTO later found the same patent to be invalid via an IPR, the Federal Circuit could merge the appeals and consider the PTO’s finding under the lesser preponderance standard. See 35 U.S.C. §§ 315(e)(2), 316(e). Moreover, if the IPR decision came very soon after the conclusion of the ITC investigation, the accused infringer could rely on the IPR in asking the Federal Circuit to stay the injunction/exclusion order pending appeal. With the unpredictability of the timing and result of an IPR, however, an accused infringer facing an exclusion order will most likely design around the patent or settle with the patentee. A Federal Circuit finding of invalidity would be a hollow victory if the accused infringer previously needed to change its product to avoid an exclusion order.

5. Leverage in Settlement Negotiations
An IPR could also provide some leverage to an accused infringer in settlement negotiations. The patentee may wish to assert the patent against other competitors. An ITC victory followed by invalidation of the patent could be akin to the proverbial “winning the battle but losing the war.”

6. Risk of Overturning a Successful Finding of Invalidity at the ITC
One risk to an ITC respondent in separately pursuing an IPR while defending an ITC action is the possibility of invalidating the patent in the ITC investigation but soon thereafter obtaining the opposite result in the IPR. This could nullify the ITC’s invalidity finding depending on the timing, or prompt the patentee to re-file the ITC complaint. See 37 C.F.R. §§ 42.100(c), 42.107(b); 35 U.S.C. §§ 314(b), 315(e)(2). But the likelihood of this result is low due to the ITC’s higher clear and convincing standard versus the IPR’s preponderance standard. For the ITC to invalidate a patent that the PTAB endorses would be highly unusual.

There appear to be few benefits for an ITC respondent to file a concurrent IPR. The respondent’s decision will likely rest on many factors, including the strength of the non-infringement defenses, the ITC schedule, available budget, and quality of the published prior art. Few ITC respondents have chosen to pursue IPRs to date. It will be interesting to see if that trend continues.