Over the past five years, inter partes reviews (IPRs) have caused a dramatic shift in how patent disputes get resolved. Filing IPRs is a common first step for defendants faced with new litigation, allowing them to challenge patent validity early, without months of costly litigation, and thus potentially resolve cases more quickly. Now that the US Supreme Court has affirmed the review proceeding’s constitutionality in Oil States Energy Services v. Greene’s Energy Group, IPR’s role as a key defensive tool appears set to solidify even further.
Unsurprisingly, IPR is an especially popular tool for companies that are regularly hit by patent infringement cases. To illustrate this, 88% of petitions are filed by defendants against whom those patents were previously asserted, and the top four IPR filers by number of petitions, each a frequent defendant, account for 12% of the petitions filed through March 31, 2018. For such companies, IPR has become a practical necessity, due to the benefits of challenging validity early in the course of litigation and thus providing greater leverage with respect to settlement. Given that such IPR filings are borne out of necessity, however, defendants are not able to be as selective with regard to the patents they target for IPR. In initiating IPR filings, they must generally target allasserted patents, rather than focusing only on those patents that are most vulnerable to a validity challenge.
Companies that do not regularly find themselves the targets of patent infringement cases (“non-litigants”), in contrast, are able to file petitions without the strategic constraints imposed by litigation. For example, RPX uses IPR as a cost-effective way to address irrational price expectations in the patent market and encourage greater market-wide rationality.
IPR Success Rates and the Importance of Merits-Based Analysis
In February 2017, RPX released a first-of-its kind study addressing the merits-based success rates of top petitioners for IPR. Since the release of that study, analyzing merits-based decisions at the PTAB has become all the more essential: in the wake of the Federal Circuit’s 2016 ruling in Shaw Industries Group v. Automated Creel Systems, which established that estoppel does not apply for grounds not instituted, more district courts have applied § 315(e)(2) estoppel as a function of whether a prior PTAB decision was based on the merits. The importance of focusing on such outcomes has been further underscored by the PTAB’s ensuing precedential and informative decisions,* which have arguably provided panels with more discretion to deny institution of a petition on the basis of previous merits-based consideration of prior art in the petition. With that in mind, the study below provides updated data on merits-based success rates of top filers.
As of March 31, 2018, RPX data indicate that petitioners receive favorable institution decisions on the merits 75% of the time—a decline of around 3% from December 31, 2016. The institution decision success rates of the top litigants decreased over that same period by an amount comparable to the drop in the industry average. However, over the same time period, the institution decision success rates of the top four non-litigant IPR filers have increased by 6%, departing from the industry average, likely because non-litigant filers have had the luxury of developing and implementing more sophisticated filing criteria being unburdened by the aforementioned strategic constraints.
In addition, RPX data show that as of March 31, 2018, IPRs cancel at least one claim 83% of the time at the final decision stage. This high petitioner success rate is largely because institution decisions, by their very nature, weed out the asserted grounds for invalidity that are unlikely to succeed. As a result, most of the top litigant IPR filers were within 3% of the industry average success rate for final decisions, with Apple’s success rate reaching 93%. RPX, meanwhile, has enjoyed a success rate of 94%.
The Road Ahead
While IPR has already become an essential tool for litigants in particular, its popularity among defendants could further increase in the months ahead should other means for bringing early validity challenges become less readily available: for example, if district courts become less inclined to grant early Alice motions due to the Federal Circuit’s decisions in Berkheimer v. HP and Aatrix Software v. Green Shades Software. IPR filing levels are likely to increase now that the Supreme Court has upheld IPR’s constitutionality in Oil States.
However, the Court has also rejected the PTAB’s practice of issuing partial institution decisions in Oil States’s companion case, SAS Institute v. Iancu, which has the potential to significantly alter the strategic considerations for some litigant petitioners. This is partly due to estoppel, which in this context means that an IPR petitioner is barred from raising any invalidity arguments in a district court lawsuit that the petitioner “raised or reasonably could have raised during” an IPR. Petitioners may need to reconsider which claims they target in a petition in view of potentially broader estoppel attaching to final written decisions. For example, targeting claims beyond those at issue in a district court infringement case and getting an adverse final written decision may create opportunities for downstream patent owners asserting different claims and/or other patents within the same families. Nonetheless, SAS Institute may benefit defendants if it leads courts to more readily grant stays in litigation.
Finally, the past year has seen a number of arguably patent-owner-friendly changes to the IPR regime, including the PTAB’s imposition of a more stringent threshold for follow-on petitions in General Plastic Industrial v. Canon, and the Federal Circuit’s decision in Aqua Products v. Matal, which essentially shifted the burden of proof for the unpatentability of amended claims to the IPR petitioner.
Despite the potential impact of such changes, IPRs remain a popular tool for both litigants and non-litigants alike, and they serve as a key part of a holistic strategy for reducing patent risk.
- The study covers petitions filed through March 31, 2018 and final decisions through March 31, 2018. Institution decisions are not counted for petitions with filing dates that are still within the six-month pre-trial window to avoid bias against those petitions for which an institution decision remains pending. All decisions were manually coded and verified.
- Only merits-based decisions were counted. Examples of excluded non-merits-based decisions include discretionary denials (e.g., 35 USC § 325(d); General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha (IPR2016-01357); NVIDIA Corp. v. Samsung Elec. Co. (IPR2016-00134)); denials of institution under 35 USC § 315(b); denials of institution under 35 USC § 311(b) based on the Board finding that the petitioner failed to qualify an alleged prior art reference as prior art; and denials pursuant to the patent owner having filed, before a decision on institution, a statutory disclaimer thus disclaiming all or some of the petitioned claims. Adverse judgments and joinders were counted as merits-based decisions where applicable: adverse judgments because of the related estoppel provisions, and joinders because joining parties often contributed to arguments and prosecution of the IPRs.
- Institution decisions and final decisions are considered successful if at least one claim challenged in the petition is instituted or cancelled, respectively.
- Because of estoppel provisions, adverse judgments granted against the patent owner prior to institution are counted as both successful institution decisions and successful final outcomes, and adverse judgment against patent owner post institution, are counted as successful final outcomes.
*See General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha (IPR2016-01357); Cultec, Inc. v. Stormtech LLC (IPR2017-00777); Hospira, Inc. v. Genentech, Inc. (IPR2017-00739); Unified Patents, Inc. v. Berman(IPR2016-01571); Kayak Software Corp. et al. v. International Business Machines Corp. (CBM2016-00075); and Becton Dickinson & Co. v. B. Braun Melsungen AG (IPR2017-01586).