Marathon Patent Group

America's New Bifurcated Patent Litigation System

April 15, 2015

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America's New Bifurcated Patent Litigation System

We've often said that patent reform has unintended consequences, and as a result it pays to move slowly and cautiously.

The America Invents Act introduced the inter partes review (IPR) as a way to get rid of "weak patents" that "patent trolls" were ostensibly using to extract money from operating companies trying to run a business. The Supreme Court's ruling in the Alice v. CLS case similarly seems to be an attempt to throw out weak patents that improperly seek to protect an "abstract idea."

Between IPRs and Alice all of a sudden America's patent litigation system is starting to look more and more like Germany's. That may not have been what the "patent reformers" really had in mind.

There are two major questions in any case of patent litigation: is the patent valid (and what does it cover) and does the product or activity in question infringe that valid patent.

Germany has a bifurcated system where separate courts consider the questions of validity and infringement. Obviously the patent owner has to win in both courts to receive any compensation.

In America, in theory, both validity and infringement are considered in a single case at federal court. In the case of a jury trial, the judge rules on what the patent covers (claim construction) and the jury rules on both the validity of the patent and whether there is infringement.

We say "in theory" because thanks to the above-mentioned changes, America is rapidly moving toward a bifurcated system. It is becoming standard practice that as soon as a lawsuit alleging patent infringement is filed the first thing the defendant does is file an IPR. Meaning that in essence validity will be tried by the patent office, and infringement by the court.

There are several recent examples.

In December, 2014, Cisco's General Counsel, Mark Chandler, posted a blog in which he explained that the company was reluctantly filing two patent infringement lawsuits against a competitor, Arista, because of its "repeated and pervasive copying of key inventions in Cisco products." Chandler cites the violation of Cisco's patents:

The heart of our action regards Arista's deliberate inclusion in its products of 12 discrete and important Cisco features covered by 14 different U.S. patents.

What was Arista's response? On April 1 it applied for IPRs covering two of the Cisco patents, and it filed a petition for an IPR against a third on April 10. More could be coming.

It's a little ironic, in a way, because in 2006 Chandler was a champion of new post grant review procedures. In testimony to Congress he said:

The obvious solution to this problem [courts find patents valid 71% of the time] is to allow effective post-grant administrative proceedings to challenge the issuance of a patent, presided over by administrative judges trained not to view the patent applicant as the agency's "client" and the agency's mandate as "issuing patents", which is the PTO's current posture, but to assess fairly whether validity objections have merit.

We wonder if he still feels so good about "effective post-grant administrative proceedings" now that a competitor is using them in an attempt to invalidate Cisco's patents.

There have been a few other recent examples of competitors filing IPRs. Baxter filed patent infringement charges against competitor Ethicon, a Johnson & Johnson subsidiary; Ethicon responded by filing IPRs.

IT company ServiceNow seems to have discovered that IPRs are a great tool for patent infringers - not only have they successfully knocked out some HP patents with IPRs, it has recently petitioned for IPRs against another competitor, BMC.

In the rush to "stop patent trolls" we now have a situation where the tools created for that purpose are getting extensive use by "copy cats" who would rather imitate leaders than develop their own technology. Is that what Congress had in mind?

In essence the AIA's new post-grant review procedures have transferred responsibility for determining the validity of patents from the court system to the patent office. If a patent survives an IPR it would almost certainly survive a court challenge. But there is no doubt that even if the patent office refuses to initiate an IPR, or initiates one but rules in favor of the patent owner, the defendant will still try to challenge the patent in court. As a result, validity will be tried twice, raising costs and complexity. Not only that, since anyone can file a petition for an IPR, the system discourages licensing. Why pay for a license without first trying to knock the patent out with an IPR?

We hope that experiences such as these will cause operating companies such as Cisco to rethink their push for patent reform. Weakening America's patent system will not help innovative companies. Sometimes the "cure" can be worse than the "disease."