[author: Alan W. Krantz]
The Leahy-Smith America Invents Act (AIA), signed into law in 2011, promises the most radical changes to U.S. patent law in over 50 years.1 The act eliminates the first-to-invent system of granting patents in favor of a first-to-file system,2 gives the U.S. Patent & Trademark Office (USPTO) the authority to set its own fees,3 and authorizes—indeed mandates—the establishment of USPTO satellite offices outside of the Washington, D.C. area.4
Another watershed change is the creation of a “post-grant review” (or “PGR”) procedure by which any member of the public can challenge the validity of an issued patent, on a variety of grounds, before a USPTO tribunal. Prior to the establishment of PGR, the grounds for challenging patent validity before a USPTO tribunal were generally limited to prior description of the claimed invention in a patent or publication. Challenges based on prior public use or sale were not permitted in the USPTO, but instead were allowed only in district court.5 Such restrictions limited the number of patent validity challenges before the USPTO. The AIA eliminates the old procedures and establishes PGR as a less-restrictive means for challenging patent validity. In addition to the greater number of grounds on which to challenge patent validity, PGR provides for limited discovery by both parties and an accelerated timeline for a decision by the tribunal. With these changes, the AIA endeavors to create a “quicker, lower cost alternative to district court litigation.”6
Yet with these relaxed restrictions come drawbacks. Chief among them are that the losing party in PGR is essentially barred from re-arguing validity of the patent in a subsequent district court action.7 This “collateral estoppel” created by a decision on patent validity in PGR is not unusual. Indeed, the general rule in federal courts is that a valid and final judgment in favor of the plaintiff prevents the defendant in a subsequent action by the plaintiff from raising any defense that the defendant raised or could have raised in the first action, and judgment in favor of the defendant bars another action by the plaintiff against the defendant on the same claim.8
But application of collateral estoppel by a district court subsequent to a PGR decision may prove problematic. Again, unlike previous procedures for challenging the validity of a patent before the USPTO, which limited the grounds for invalidity to description of the patent in a prior patent or publication, PGR is not so limited and allows challenges based on prior use, knowledge, or sale. Accordingly, factual issues are no longer limited to the text of the prior patent or publication, but extend beyond its four corners to embrace issues such as specifics of the item used or sold, the scope of knowledge acquired by the public as a result of the item’s use or sale, and the credibility of witnesses testifying to the use or sale. The restricted discovery procedures in PGR may prevent a party from investigating these issues in a way that would otherwise be allowed in district court. Consequently, PGR tribunals and district courts could come to differing conclusions on the validity of the same patent.
While application of collateral estoppel is likely to give challengers pause before deciding to proceed with PGR, it could also usurp patent owners’ abilities to fully investigate a challenger’s bases for invalidity.
1. Estoppel in Post-Grant Review
The PGR estoppel provision of the AIA provides: The petitioner in a post-grant review of a claim in a patent under this chapter that results in a final written decision . . . may not assert either in a civil action . . . that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review.9
As discussed previously, the PGR estoppel provision is a statutory codification of the common-law doctrine of “collateral estoppel,” which treats a final decision in an action as the full measure of relief to be accorded between the same parties on the same claim or cause of action.10 Accordingly, the plaintiff cannot bring a subsequent action based on the same claim of a previous action, and the defendant cannot re-assert in a subsequent action any defense that was raised in a prior action. Importantly, the estoppel extends to all issues relevant to the same claim between the same parties, whether or not raised in the proceeding.11 The purpose of claim preclusion is thus to avoid multiple suits on identical grounds between the same parties and thus redetermination of identical issues.12
Common law provides for exceptions to the application of collateral estoppel. One such exception is that collateral estoppel will not apply in a subsequent proceeding if the party otherwise to be estopped was not allowed a “full and fair” opportunity to litigate the issue in a prior proceeding. The U.S. Supreme Court stated that application of collateral estoppel in a subsequent action may be improper if a party “in the first action was forced to defend in an inconvenient forum and therefore was unable to engage in full scale discovery or call witnesses.”13 Thus, there is a tension between PGR and statements of the Court.
2. Post-Grant Review Procedure
The discovery allowed in a district court patent-validity proceeding is broader than that allowed in PGR. Admittedly, both proceedings require that the sought evidence be “relevant.”14 But district courts apply a relaxed standard for relevancy during discovery. Rule 401 of the Federal Rules of Evidence provides that “[e]vidence is relevant if: (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b) the fact is of consequence in determining the action.”15 Yet the U.S. Supreme Court has stated that relevancy “has been construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.”16 Further, “discovery is not limited to issues raised by the pleadings, for discovery itself is designed to help define and clarify the issues . . . or is discovery limited to the merits of a case, for a variety of fact-oriented issues may arise during litigation that are not related to the merits.”17 Moreover, the Federal Rules of Civil Procedure state that the discovery sought need not be “directly” related to a claim or defense raised in a given action:
For example, other incidents of the same type, or involving the same product, could be properly discoverable under the [Federal Rules’ discovery] standard. Information about organizational arrangements or filing systems of a party could be discoverable if likely to yield or lead to the discovery of admissible information. Similarly, information that could be used to impeach a likely witness, although not otherwise relevant to the claims or defenses, might be properly discoverable.18
In contrast to the broad scope of discovery allowed in district court proceedings, discovery in PGR is further limited to “evidence directly related to factual assertions advanced by either party in the proceeding.”19 The “Office Patent Trial Practice Guide” also prescribes that the name of each individual likely to have discoverable evidence, along with the location (or a copy) of documents that the party may use to support its claims or defenses, must be disclosed “unless the use would be solely for impeachment.”20
Neither the AIA nor the patent rules explicitly define when evidence is “directly related” to a factual assertion, or how the addition of this limitation to the relevance limitation is intended to limit the scope of discovery. One possibility is that the “directly related” limitation is no limitation at all: as long as a party makes a factual assertion regarding an issue, whether or not that issue is relevant to a claim or defense, then the party is allowed discovery on that issue. Accordingly, a party could obtain evidence to impeach a witness’s testimony by making a factual assertion that the witness is a liar, for example.
But such a broad interpretation of “directly related” is unlikely to be adopted by the Patent Trial and Appeal Board at the USPTO. Such a reading would allow for discovery broader than that allowed in a district court, since the AIA does not require that the evidence be relevant to a “claim or defense,” but only a “factual assertion,” and the statute does not purport to limit those factual assertions in any way. Further, Congress intended that the scope of discovery in PGR be narrower than that in district court: “The legislative history further states that it was anticipated that the Office would be conservative in its grants of discovery due to the time deadline constraints on the proceedings.”21 Thus, discovery in PGR is limited “due to concerns over imposing costs and potential delays upon a party desiring a quicker, lower cost alternative to district court litigation.” 22 Moreover, that evidence used solely for impeachment is not generally discoverable suggests that not just any “factual assertion” will give license for discovery regarding issues to which that assertion relates. It seems unlikely then that the Board would adopt any interpretation of “directly related” that would allow for as much (or more) discovery in PGR than in district court.
Thus, evidence that is clearly relevant may not be discoverable in PGR. Impeachment evidence is just one example. The credibility of witness testimony could prove decisive
in a proceeding challenging patent validity on the ground of prior use, knowledge, or sale. The importance of witness credibility is evidenced by the Federal Circuit’s noting that “[g]enerally, oral testimony of prior public use must be corroborated in order to invalidate a patent.”23 The patent owner may be denied discovery of impeachment evidence in PGR, even though such evidence is relevant to the witness’s credibility, and though witness credibility can be so important.
Additionally, the time allowed for discovery and trial preparation in a district court patent-validity proceeding is generally longer than that allowed in PGR. The average time to trial for a patent infringement action in district court is 2.5 years.24 Some district courts allow each party as much as nine months of fact discovery, and other districts may allow more time.25 In contrast, the PGR rules provide a one-year timeframe from a decision to institute trial to a final decision, with up to a six-month extension for good cause.26 The patent owner is allowed only three months of discovery, extensible upon a showing of good cause.27 Thus parties in a district court action might be afforded twice as much time for discovery (or more) as is allowed in PGR, and twice the amount of time to prepare their cases prior to trial.
3. The Upshot
There seems a strong argument that PGR is not a “full and fair opportunity” to challenge the validity of a patent. As noted above, the scope of discovery allowed in PGR is almost certainly narrower than that in district court. A liberal discovery procedure would be at odds with the intent of Congress to provide a “quicker, lower cost alternative to district court litigation.” And impeachment evidence is just one example of relevant evidence that is not generally discoverable in PGR that would be discoverable in district court.
Moreover, the time allowed for discovery and trial preparation is much shorter in PGR than in district court. The one-year target for completing PGR provides parties less time to prepare briefings and motions as compared to the average 2.5 years in district court to prepare such pleadings.
Nonetheless, a PGR petitioner’s argument that collateral estoppel should not apply in district court is almost certain to fail. The petitioner has its choice of forum— the USPTO (by way of PGR) or district court. The court in a subsequent action is unlikely to sympathize with petitioner’s choice to proceed in a forum with restrictive and accelerated discovery.
Accordingly, a would-be challenger must choose its forum carefully, since it is allowed only one shot to challenge patent validity. On one hand, the challenger could proceed in the USPTO. Though discovery is limited and timing accelerated, the total cost of challenging patent validity is almost certain to be lower than a challenge in district court—precisely because of the limited discovery and accelerated timeline. On the other hand, the challenger may be willing to accept the higher cost of district court litigation in exchange for broader discovery.
Patent owners fare worse than challengers, however. A challenger could prevent the patent owner from proceeding with district court discovery by filing for PGR. The patent owner would then have to proceed with the abbreviated discovery of PGR and, if the challenge to validity is successful, have its patent claims narrowed or cancelled altogether. Once the claims are narrowed or cancelled, the patent owner may have no redress in district court.
1 See generally Leahy-Smith America Invents Act, Pub. L. No. 112–29, 125 Stat. 284 (2011).
2 Id. § 3. A more precise characterization is a “first-inventor-to-file” system. See, e.g., Changes To Implement the First Inventor To File Provisions of the Leahy-Smith America Invents Act, 77 Fed. Reg. 43,742, 43,74243 (July 26, 2012).
3 Leahy-Smith America Invents Act § 10.
4 Id. §§ 23-24.
5 35 U.S.C. §§ 301, 311 (2010).
6 Rules of Practice for Trials Before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions, 77 Fed. Reg. 48,612, 48,637 (Aug. 14, 2012).
7 See Leahy-Smith America Invents Act § 6, 125 Stat. 284, 308 (codified as 35 U.S.C. § 325(e) (Supp. 2011)).
8 Restatement (Second) of Judgments § 1819 (1982).
9 Leahy-Smith America Invents Act § 6(d), 125 Stat. 284, 308 (codified as 35 U.S.C. § 325(e) (Supp. 2011)).
10 See Kremer v. Chemical Constr. Corp., 456 U.S. 461, 466 n.6 (1982).
12 See, e.g., Kaspar Wire Works, Inc. v. Leco Eng’g & Mach., Inc., 575 F.2d 530, 535 (5th Cir. 1978).
13 Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331, n. 15 (1979)
14 35 U.S.C. § 326(a)(5) (“The Director shall prescribe regulations… setting forth standards and procedures for discovery of relevant evidence….”); F.R.C.P. 26(b)(1) (“Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense….”).
15 Fed. R. Evid. 401.
16 Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978).
18 Advisory Comm. on Evidence Rules, Proposed Amendments to the Federal Rules of Evidence, H.R. Doc. No. 106-225, at 227 (2000) (reprinted in 192 F.R.D. 340, 389 (2000)).
19 Changes to Implement Inter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional Program for Covered Business Method Patents, 77 Fed. Reg. 48,680, 48,731 (Aug. 14, 2012) (codified at 37 C.F.R. § 42.224).
20 77 Fed. Reg. 48,762 (Aug. 14, 2012).
21 Rules of Practice for Trials Before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions, 77 Fed. Reg. 48,612, 48,63637 (Aug. 14, 2012).
22 Id. at 48,637.
23 Juicy Whip, Inc. v. Orange Bang, Inc., 292 F.3d 728, 737-38 (Fed. Cir. 2002).
24 2012 patent litigation Study: litigation continueS to riSe aMid growing awareneSS of patent value 25 (2012). http://www. pwc.com/en_US/us/forensic-services/ publications/assets/2012-patent-litigationstudy.pdf.
25 See, e.g., Northern District of Illinois Local Patent Rules, https://www.ilnd.uscourts. gov/LocalRules.aspx?rtab=patentrules (last visited Nov. 1, 2012).
26 Changes to Implement Inter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional Program for Covered Business Method Patents, 77 Fed. Reg. 48,680, 48,690 (Aug. 14, 2012) (citing 37 C.F.R. 42.200(c)).
27 Id. at 48,730-31.
Alan W. Krantz, an MBHB associate, prepares and prosecutes patent applications, conducts legal research, and provides technological advice in support of validity, infringement, and patentability analyses, patent application preparation and prosecution, and litigation matters in the computing field.