Companies producing generics are using IPR to knock out key patents to expand into new markets.
Do you have a business opportunity that is being held up because of a competitor’s patent? Opportunistic companies are taking advantage of a Patent Office procedure, inter partes review (IPR), that is being used as a valuable cudgel to destroy key patents that are otherwise blocking markets.
For branded pharmaceutical companies, fundamental patents have been rendered worthless by the United States Patent Office (PTO). Initially, branded pharma was a big supporter of the law that created IPR—the America Invents Act—when it was championed by tech companies hoping to derail non-practicing entities (or “patent trolls”). However, branded pharma companies have quickly learned that this law has had consequences far beyond those limited, initial goals—as they now realize the new paradigm is affecting their own patents. On the flip side, IPR has created a valuable opportunity for companies who take advantage of this new tool to open up markets that would otherwise have been foreclosed by patent protection.
What is an IPR?
For the uninitiated, inter partes review is a procedure that was implemented in 2013 inside the PTO and is conducted before a tribunal known as the Patent Trial and Appeal Board (PTAB).
As compared to patent infringement litigation in federal court, IPR carries numerous key advantages.
- The cost to challenge a patent is far less than what it would otherwise cost to litigate the validity of a patent in federal court (as much as 1/10th of the cost, and sometimes even less).
- IPR regulations make it easier to invalidate patents because the burden of proof is lower before the PTAB than it is before a federal court.
- The PTAB operates using a “broadest reasonable construction” standard when defining the terms of a patent. As a result, a patent can be viewed as broader than it would otherwise be in the courts (thereby making it easier to invalidate).
- The PTAB is comprised of technically and legally skilled patent practitioners who have a firmer grasp on patent issues than most federal court judges.
- IPR has been so popular because of how successful it has been in eliminating patents that had previously been issued by the PTO. In the chemical/pharma/biotech space alone, well over 50 percent of the patent rights brought before the PTAB have been cancelled.
How Are Companies Using This Valuable, New Tool?
IPR was initially viewed as a replacement for a subset of invalidity issues in the federal courts. For that subset—invalidity challenges based on patents and printed publications—IPR presents an efficient and inexpensive substitute for federal court litigation.
It is not surprising, then, that there is concurrent, pending litigation in over 80 percent of the IPR petitions that are brought to the PTAB. That strategy is well-known and well-used. The focus here, however, is to a lesser-known, but very successful use of IPR to blow a hole in a competitor’s patent portfolio to enable expansion into previously-prohibited markets. For business opportunities that warrant an approximately $300,000 legal challenge, companies can proactively attack that blocking patent, potentially opening up the market and creating the certainty that comes from not having to worry about a potential patent challenge down the road.
A case study in this technique—albeit in a chemical, not a pharmaceutical, context—is the recent Federal Circuit decision in GrafTech Int’l Holdings v. Laird Technologies, Inc., where the appellate court affirmed the PTAB’s decision that three GrafTech patents were unpatentable. The technology at issue in the GrafTech cases was a graphite-based heat spreader/shield for use in managing heat in small electronic devices (like smartphones, laptop computers, etc.). GrafTech, a successor to Union Carbide, had developed an expansive portfolio of patents covering the use of its graphite product in electronic devices, generally, and also in more specific implementations. Before entering the marketplace for these types of products, competitor Laird used the IPR process to take aim at three of the broadest of the GrafTech patents.
The strategy worked like a charm. In March 2014, the PTAB instituted IPR “trials” on the three patents, which sets off a series of deadlines in an IPR proceeding by which the parties must submit their full arguments to the PTAB. Then, on March 25, 2015, the PTAB issued its final written decisions, determining that all of the challenged patent claims were unpatentable. GrafTech promptly appealed to the Federal Circuit and, in June 2016, the Federal Circuit affirmed the PTAB’s decision upholding Laird’s victory. Laird found itself freed of the biggest obstacles to the graphite heat management market. Laird no longer faces the uncertainty of if and when they might get sued by GrafTech on these patents.
When Does It Make the Most Sense to Use IPR?
Of course, IPR is not viable for every business situation. At threshold, despite its relatively low cost, as compared to litigation, in this suggested, non-litigation use of IPR, not every business opportunity is going to present sufficient financial upside to be amenable to the investment of $300,000+ in legal fees. For the right opportunity, however, including the huge markets that typically are at stake in the pharmaceutical industry, IPR is a powerful tool to eliminate blocking patents.
If you believe the blocking patent is invalid, by proactively using IPR and avoiding litigation before it starts will result in tremendous cost savings. Further, the certainty that comes from disposing of a threatening patent can be liberating for a business, including in those instances where a company flaunts its patent portfolio to the detriment of its competitors.
The stakes have also been raised in the last year in view of two Supreme Court decisions that have significantly increased a potential defendant’s exposure to damages in patent cases.
In Commil USA, LLC v. Cisco Sys., Inc., the court held that a good faith belief that a patent is invalid is not a defense for induced patent infringement. Thus, the typical practice of obtaining an opinion of counsel of invalidity, in the hopes that such opinion will shield an induced infringement finding, has been undermined. Instead, the court specifically instructed that accused inducers who believe a patent is invalid should use existing ways of obtaining a ruling to that effect, including via PTO proceedings.
In Halo Elect., Inc. v. Pulse Elect., Inc., the court lowered the burden of proving willful infringement, making it easier for a patent holder to prove that a defendant is liable for enhanced damages in patent litigation. Thus, it may no longer make good business sense to enter a market that is protected by a patent with only an opinion of counsel that the patent is invalid.
In view of these Supreme Court decisions, the price tag for an IPR has become more justifiable. To avoid the new potential exposure that these decisions create, the new, powerful, and relatively inexpensive IPR tool can act as a type of insurance policy, protecting against potential patent liability.
To learn more about Harness Dickey & Pierce, PLC, click here.