Patent reexaminations gain popularity, despite their risks

By Craig Anderson

Daily Journal Staff Writer

A few years ago, defense attorneys faced with infringement lawsuits rarely tried to get plaintiffs' patents invalidated by the U.S. Patent and Trademark Office, and instead waited to challenge them in court.

Today, it's increasingly common to ask that the patents be given a second look in the hopes of winning the case without a trial or at least forcing the plaintiff to spend time defending the patents and possibly limiting their scope.

The process, known as re-examination, can be a powerful weapon in a patent infringement case, and its popularity has steadily increased over the past decade, accelerating during the past three years.

A plaintiff whose patent is deemed legitimate not once but twice through re-examination has the upper hand in an infringement trial. But the process is most popular with defense attorneys, who view it as a tactical decision with multiple possible benefits. In the best case scenario, patent office examiners invalidate the patent.

"You can win the case for a fraction of the cost of going to trial," said Jeffrey M. Fisher, a San Francisco-based partner with Farella Braun Martel LLP who has tried numerous patent cases.

Plaintiffs also may be forced to amend their patents, giving up their right to past damages, and many re-examinations can take three to five years to complete before all appeals are exhausted, even if plaintiffs ultimately prevail. In the meantime, defendants often successfully ask that the infringement case be stayed until the re-examination is done.

"I anticipate re-examination will be a standard weapon in any defense attorney's arsenal," said Darin W. Snyder, a San Francisco-based partner at O'Melveny & Myers LLP who handles patent defense work. "It's a way of putting additional pressure on the plaintiff."

There are currently two different types of re-examinations. The first are called ex parte re-examinations, in which the validity of a patent is questioned based on published information or previous inventions, known as prior art, that raise "substantial new questions of patentability." An ex parte re-examination is considered more plaintiff-friendly because, while the patent office takes another look at the patent and the patent holder can respond, the defendants are not allowed to participate.

The second type of re-examination is known as inter partes, and is different because challengers are allowed to present their own evidence to the patent office questioning a patent's validity based on prior art. The main disadvantage for defendants is that they give up the right to challenge the examiner's conclusions at the upcoming trial.

"One big downside to an inter partes re-exam is that once you bring forward prior art to the patent office, you've shot your wad," said Jonathan S. Kagan, a Los Angeles-based partner with Irell & Manella LLP who handles patent cases.

While the risk of a decision affirming the patent had made many attorneys skittish after inter partes re-examinations were introduced in 1999, they have embraced it in recent years.

The number of inter partes filings has skyrocketed, rising from four a decade ago to 374 last year, and more than doubling in the past three years, according to patent office statistics.

The number of ex parte re-examination filings also has increased steadily, from 272 a decade ago to 780 in 2010. During the first nine months of 2011, there were 759 ex parte re-examination filings, according to patent office statistics.

But the rules of the re-examination game are about to change. A patent reform law passed by Congress and signed by President Barack Obama last year includes a provision introducing post-grant review, a system that allows anyone to challenge new patents and will go into effect in September.

Andrew S. Baluch, special counsel with Foley & Lardner LLP who acted as a special adviser to patent office chief David Kappos on implementing the patent reform law, said the new system will gradually replace inter partes re-examination with a review in the patent office that will determine a patent's validity within a year or 18 months. The rules governing ex parte challenges will remain the same.

Patent attorneys are not quite sure how it will work.

"That's kind of a big mystery right now," Kagan said. "I think everybody in the industry is kind of holding their breath to see how it works out."

But for now, patent lawyers are still operating under the current re-examination rules.

Plaintiffs' attorneys routinely complain about the prospect of an inter partes re-examination, during which the infringer continues to make money off the patents because the lawsuit is on hold.

"The one certainty is that the re-examination will add, on average, three years to an already-delayed case," wrote Mark W. Wasserman, a Reed Smith LLP attorney, in an unsuccessful opposition last fall to a motion to stay a lawsuit filed by his client, holding company Pragmatus AV LLC, against several Silicon Valley companies.

But re-examination is hardly risk-free for defendants, and presents defense attorneys with several strategic choices that might backfire, especially if plaintiffs' lawyers persuade a judge to allow the jury to hear about the patent office decision that the patents are valid. Attorneys say juries are very deferential, in most cases, to the patent office.

"In the wrong situation, it can be playing with fire," said Stefani E. Shanberg, a Palo Alto-based partner with Wilson Sonsini Goodrich & Rosati PC who frequently asks for stays after putting patents filed against her clients in re-examination.

Infineon Technologies AG put Volterra Semiconductor Corp. patents in re-examination after the Fremont-based company sued a subsidiary for infringing its flip chip technology patents, but the patent office affirmed their validity.

During the trial last year before U.S. District Judge Joseph C. Spero in San Francisco federal court, Fisher of Farella Braun Martel LLP, who represented Volterra in the case, said he played up the patent office's conclusion that all of the patents were valid, and prevailed.

"That was a big part of our pitch to the jury," Fisher said. "It was a pretty powerful thing we emphasized." Volterra Semiconductor Corp. v. Primarion Inc. et al, 08-05129 (N.D. Cal., filed Nov. 12, 2008).

But re-examination can pay off for defendants as well.

Shanberg has a good shot at winning a patent infringement case filed by holding company Pragmatus against her client, Google Inc. subsidiary YouTube, after she and Heidi L. Keefe, a Palo Alto-based Cooley LLP partner who represents Facebook Inc., persuaded U.S. District Judge Edward J. Davila of San Jose to stay the lawsuit until the re-examination is done.

Shanberg's chances are bolstered by the fact that Pragmatus' patents expire in 2013. Wasserman, Pragmatus' attorney, argued in court papers that his client would likely be unable to enjoin the defendants because the re-examinations will not be concluded until later.

Davila, however, ruled in October that Pragmatus had no right to complain, because it has not sought injunctive relief yet. The judge wrote that the re-examination results would "simplify the issues and streamline the trial," reducing the burden on the court. Pragmatus AV LLC v. Facebook Inc. et al, 11-00494 (N.D. Cal., filed Feb. 3, 2011).

One big uncertainty is whether district court judges will agree to stay patent infringement lawsuits during the long re-examination process. Attorneys say it depends on the judge's attitude about stays and the circumstances of the case.

Some believe judges will be encouraged to grant motions to stay if the patent office is able to resolve validity questions quicker instead of forcing all of the litigants to wait for years.

"I think there is a trend among federal judges to see what the patent office says about validity before investing time in the case," said Chris R. Ottenweller, a Menlo Park-based partner at Orrick, Herrington & Sutcliffe LLP.

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