How could the passing of Scalia affect patent owners?

The question many in the patent field are asking is how the recent passing of Justice Antonin Scalia may change the patent landscape. The short term answer is probably not a lot. The long term answer depends on who is eventually appointed to the Court.

During his thirty year tenure on the court since his appointment by Ronald Reagan, Scalia was known as an originalist and textualist. His opinions earned him varying degrees of praise and notoriety. Often seen as pro-business and a protector of property rights, Scalia admitted to not completely understanding patent law and, surprisingly, often turned to the liberal Justice Ginsberg for guidance on patent matters. 

While President Obama has nominated Merrick Garland (a move that patent owners should be skeptical of), it is unlikely that the Senate will confirm before the presidential election. This means that at least three patent cases (discussed below) will be decided by a Court that is ideologically split down the middle (4 conservatives and 4 liberals). While for many matters this would lead to 4-4 splits (and the decisions in the lower courts being affirmed), patent law is traditionally not an area decided along ideological lines (as indicated above Scalia often turned to Ginsberg for advice on patent matters).

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It’s hopeful the Court (and Scalia’s replacement) will eventually see Scalia’s wisdom and help clarify the now uncertain patent landscape.

The three patent cases the Supreme Court has agreed to hear the session include Halo Electronics v. Pulse Electronics, Stryker Corporation v. Zimmer Inc, and Cuozzo Speed Technologies v. Michael K. Lee. The rulings on these cases will have impacts on damages and claim construction evaluation in inter partes reviews (IPR). Most legal scholars do not see the outcome of these cases changing with the passing of Scalia. However, in the unlikely event that Halo, Stryker, and/or Cuozzo ends in a 4-4 tie in, the Federal Circuit decision(s) will stand.

Despite openly admitting patent law was not his strong suit (Scalia said the hardest case he ever decided was a patent case) his legacy in patent law is likely to outlive his own expectations. Scalia was the first justice to use the term “patent troll” in an opinion. He also offered biting criticism of the tests that courts have adopted to try and make sense out of a highly abstract field (Scalia once referred to the court’s proposed test for non-obviousness as “gobbledygook”). Scalia also openly criticized the need to go beyond Bilski in Alice saying “Why isn’t doing it through a computer not enough? I mean, was the cotton gin not an invention because it just means you’re doing through a machine what people used to do by hand?”

It’s hopeful the Court (and Scalia’s replacement) will eventually see Scalia’s wisdom and help clarify the now uncertain patent landscape. Patent owners everywhere should hope for another justice who shares Scalia’s respect for property rights and recognizes that intellectual property should be provided that same respect.


Photo credit: Steve Petteway, photographer, Supreme Court of the United States - Collection of the Supreme Court of the United States (Public Domain)
 
 

Inter Partes Review: Bane for Patent Owners, Boon for Investment Firms

The Inter Partes Review can be a bane for patent owners and a boon for investment firms.

Can an investment fund file a challenge to a patent and bet on the outcome? This appears to the case ever since the America Invents Act gave birth to Inter Partes Review proceedings before the U.S. Patent and Trademark Office.

An Inter Partes Review is a route to invalidate a patent before the USPTO’s Patent Trial and Appeal Board, as opposed to bringing the case before a district court. In an IPR, a patent can be challenged on the grounds of anticipation by or obviousness in view of prior art. Only prior art in the form of patents or printed publication can be asserted in an IPR, but IPRs nonetheless have some notable advantages over district court proceedings. First, IPRs are relatively inexpensive to file as compared to district court cases. IPRs also adhere to different standards than district courts to invalidate a patent. While a district court is bound to interpret the words of a claim according to their ordinary and customary meaning, the PTAB examines claims under the broadest reasonable interpretation standard. This means that claims a district court may find patentable over the prior art could be found patentable in an IPR. Another notable advantage is that anyone can file an IPR to invalidate a patent, which brings us to investment mogul Kyle Bass. (continued below...)
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Bass is the president of Hayman Capital, a Texas based hedge fund. He is noted for two particularly interesting investment strategies, the first being his prediction of and profit from the recent mortgage crisis. The second, his latest strategy, involves filing IPR petitions against pharmaceutical companies and then shorting their stock or investing in their competitors. The obvious question here is “Does it work?” The answer is sometimes, but Bass and company don’t appear to be waging bad bets, considering that over 75% of patents in IPR proceedings have had at least one claim struck. In the wake of Bass’s first IPR filing against Acorda Therapeutics involving the drug Ampyra, Acorda’s stock price dropped approximately 10%, although his more recent filings against other companies have been met with a mix of changes in stock prices.

Upon hearing about this investment strategy, people’s first reaction is “That’s legal?” The answer is yes. What Bass is doing is legal. These are not frivolous lawsuits. The PTAB will only initiate an IPR if the prior art being asserted could reasonably be interpreted as anticipating the claims of the patent or rendering them invalid as being obvious variations of the asserted prior art. This is a classic example of the letter versus the spirit of the law giving rise to (presumably) unintended consequences. IPRs were designed to be a low-cost alternative to litigation in the courts, aimed at allowing parties to settle disputes over claims without spending millions. Bass’s strategy is certainly well outside of the intentions of IPR proceedings, but the PTAB has initiated IPRs in 7 of the 13 petitions filed by Bass and his associates, and there are at least 20 cases pending before the PTAB. The PTAB has also stated that “profit is at the heart of nearly every patent and nearly every inter partes review” when they ruled in September that Bass’s practice did not constitute an abuse of the IPR process.

An Inter Partes Review is a route to invalidate a patent before the USPTO’s Patent Trial and Appeal Board, as opposed to bringing the case before a district court....anyone can file an IPR to invalidate a patent.

In response to allegations that he is abusing the system, Bass and others in his investment fund and legal team have pointed out that a small number of pharmaceutical companies rely heavily on a few weak patents, and use them to artificially inflate drug prices. If this is truly the case, then the outcome of the Bass-initiated IPRs will result in a number of unhappy patent owners but some very happy investors.

There is hope for Bass’s besieged patent owners in the form of the Protecting American Talent and Entrepreneurship Act, or PATENT Act for short. While the Act currently proposes only minimal changes to IPR proceedings, there is a considerable amount of lobbying to change both the standards of review and who can file an IPR, primarily to thwart strategies like Bass’s. Similarly, the Innovation Act (discussed in one of our previous blog posts) would amend post-grant proceedings such that the PTAB would have to interpret claims under the same doctrine of ordinary and customary meaning that district courts use. But since the PTAB has determined there is nothing wrong with investment firms filing IPR petitions, it will be up to Congress to decide whether this unintended consequence of the America Invents Act should be squelched.