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Inter Partes Review – a Useful Tool for Overcoming Freedom-to-Operate Obstacles

December 7, 2012
By Eric K. Steffe, Eldora L. Ellison, Ph.D., Todd Spalding, and Deborah A. Sterling, Ph.D.

For companies facing freedom-to-operate obstacles, the AIA provides a number of tools for dealing with troublesome patents.  While proceeding at risk in the face of such patents sometimes make sense, inter partes review (IPR) provides a viable option for challenging them and should be considered as a valuable addition to one's freedom-to-operate toolbox.

Inter partes reexamination (IPX), which (bio)pharma used very little in spite of the high success rate enjoyed by petitioners (see Steffe, Ellison & Gallo 2012), was recently replaced with IPR.  IPRs enjoy a statutorily-mandated short time-frame until resolution at the USPTO; typically about 18 months from filing the petition. This relatively quick resolution time — made possible because IPRs are adjudicated in the first instance by the Patent Trial and Appeal Board (PTAB)) ­— has significant strategic implications for freedom-to-operate.

For example, proactively challenging a patent by petitioning for IPR may be a smart move for biotech companies in clinical trials. Such companies routinely contend with third party patents encompassing commercial manufacturing methods, patient administration protocols and formulations.  Even if IPR does not entirely invalidate such patents, the proceeding can provide useful intelligence about design-around alternatives that mitigates the negative impact of an unsuccessful challenge.

Even in situations where designing-around a patent is not feasible, challenging a patent by IPR may still constitute sound strategy where there is minimal risk of future injunction. A strong predictor of injunction is whether the patentee practices the patented invention and competes in the marketplace with the infringer.  Indeed, since the Supreme Court’s decision in ebay (eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006)), those factors have determined 86% of the injunction cases. (See, e.g., Simler & McClelland 2011). There are only two decisions since e-bay where a non-practicing entity (NPE) was able to obtain an injunction (Id. at p. 2).

The hesitancy of (bio)pharma to embrace IPXs may be due to the statutory prohibition against directly attacking patents for lacking enablement and written description. However, In re NTP (In re NTP, Inc., 654 F.3d 1268 (Fed. Cir. 2011)), makes clear that a patent’s entitlement to an earlier priority date may be challenged in reexamination, and presumably in an IPR, based on arguments that an earlier-filed priority application fails to satisfy the written description and enablement requirements. The ability to show that a patent is not entitled to an earlier priority date in a chain of continuation applications raises the possibility of introducing some of the most damaging prior art, viz. the inventor's own art, in an IPR.

To date IPRs have primarily been used as a supplement, rather than an alternative, to litigation.  Of the 43 IPR petitions filed to date, 35 pertain to patents that are also involved in litigation.  Presumably, defendants in litigation find IPRs attractive due to the lower preponderance-of-the-evidence standard for proving unpatentability (as opposed to the clear-and-convincing evidence standard at trial), the broader claim interpretation applied at the USPTO (as compared to the interpretation applied in court), and because the PTAB judges are technically-trained and well-versed in patent law.

Concurrent challenges via IPR also remain attractive to defendants in light of Federal Circuit decisions such as In re Translogic (In re Translogic Tech, Inc., 504 F.3d 1249 (Fed. Cir. 2007)), where a district court’s finding that a patent was not-invalid was vacated in favor of the USPTO’s findings of unpatentability in an IPX.  It has also been common practice for defendants to file an IPX to support a motion to stay the litigation pending resolution of the IPX.  When granted, such stays can put significant pressure on a patentee to settle.  Given the statutory mandate that IPRs be expeditiously resolved, it is our view that district courts will be at least as inclined to grant litigation stays pending resolution of IPRs.

One potential drawback of IPR is that estoppels attach upon issuance of a final written decision by the PTAB.  This estoppel concern may contribute to the preference for filing IPR as a supplement, rather than an alternative, to litigation.  But, it is also arguable that the estoppel provision is exaggerated, at least in certain circumstances. Considering the lower standards for adjudicating patentability at the USPTO than in court, and further considering that IPR is instituted only where a petitioner has demonstrated a reasonably likelihood of prevailing, it is perhaps appropriate to question whether a petitioner who fails at the USPTO would have succeeded in district court.

An additional concern is that IPR does not provide for district court-style discovery. Rather, absent exceptional circumstances, IPR only provides for cross-examination of declarants.  Thus, the pros in favor of petitioning for IPR must outweigh the concern that broad discovery may be necessary for appropriately developing one’s invalidity position.

In sum, whether proactive or reactive, IPR provides a useful tool that every company should consider adding to its toolbox when faced with freedom-to-operate obstacles.

Eric Steffe, Eldora Ellison are Directors, and Deborah Sterling is an Associate at Washington-based intellectual property law firm Sterne, Kessler, Goldstein & Fox P.L.L.C. Todd Spalding is Assistant General Counsel for Patents, at Bristol-Myers Squibb Co., Princeton, NJ.  The authors all participated on a panel sponsored by Sterne, Kessler, Goldstein & Fox at the Fall IP Counsels Committee Conference in Charleston, South Carolina.  The content of this article emerges from their workshop titled “Picking the Best Tools From Your Toolbox: Responding Strategically to Freedom to Operate Obstacles Under the AIA.”

The opinions expressed are those of the authors and do not necessarily reflect the views of their companies or its clients.  This article is for general information purposes and is not intended to be and should not be taken as legal advice.