More than a decade after the enactment of the America Invents Act, it’s safe to say that PTAB and its inter partes review process have not played out exactly as anticipated, even by their creators. Sen. Patrick Leahy (D-VT), a co-sponsor of the AIA, along with Sen. Thom Tillis (R-NC) announced a reform bill in April to address PTAB’s shortcomings.
“While we both support the proper role of the PTAB, we also recognize that in the past, it has been abused by bad actors and has operated in a way that had disadvantaged patent holders and independent inventors alike,” wrote Leahy and Tillis in an opinion piece for The Hill. “We know that reforms are needed to ensure that the PTAB is a truly fair and impartial forum and isn’t simply a place where patent rights go to die.”
Intended to make challenging validity faster and cheaper, IPR often does the opposite, stalling the process and making it more expensive. It has introduced new tactical options for defendants, fundamentally reshaped the patent licensing business, and winnowed the parties it serves.
“After AIA was enacted, a lot of the smaller portfolios that we had helped individuals and small companies license just weren’t strong enough to withstand PTAB,” says Marc Booth, Chief IP Officer of Acacia Research Corp. “The IPR process was just too costly and deadly.”
As a result, Acacia, like other licensing businesses, gravitated toward larger, more pedigreed portfolios from bigger companies to amass the arsenal required to go toe-to-toe in negotiations with well-heeled opponents. They’ve also placed a premium on expediting a fair deal before the expensive cogs of the litigation process start turning.
“After AIA was enacted, a lot of the smaller portfolios that we had helped individuals and small companies license just weren’t strong enough to withstand PTAB. The IPR process was just too costly and deadly.”
Chief IP Officer
Time and Money
“When it comes right down to it, we would much prefer to do all of our licensing without litigation,” Booth says.
That’s easier said than done, but having a prior relationship with the infringing company helps. It may not bring the parties to the table right away, but it does facilitate a conversation.
“There are companies we’ve built relationships with throughout the years, even some that we’ve litigated against, who understand that it’s a business at the heart of it all,” Booth says.
A degree of familiarity and trust helps set the stage in a way that’s not usually possible when dealing with a new party. In any case, it’s essential to demonstrate the strength of the patents in question and the scale of the portfolio being asserted — and to highlight the value of a timely deal.
Acacia will typically allow the negotiation to last from three to 12 months before it opts to file an infringement suit. The faster the process goes, the better the deal.
“If we can engage in a negotiated license agreement, we can provide much more favorable rates and neither side will have to pay for attorneys, except for the transaction itself,” Booth says. “It depends on the portfolio and other factors, but we’re talking about a very steep discount compared to what we would have to ask for in litigation.”
Those other factors include prelitigation licensing, a lump-sum upfront payment, or an early-adopter discount for the first party to take a license in a specific industry — all incentives to take a license with as little conflict as possible. This approach, he says, has been reasonably successful, including in reaching a recent license agreement with one of the biggest handset manufacturers in the world.
“They realized that negotiating with us made more sense than fighting all the way,” Booth says.
Of course, not everyone wants to play ball. When a company doesn’t want to engage in negotiation, IPR can be a useful stalling tactic. Rather than speed the process it can draw it out, as compared with litigation in a faster IP docket. With increasing frequency, defendants don’t file for almost a year after a suit is brought.
“The defendants all try to figure out when should I file an IPR?” Booth says. “They don’t typically do it right out of the gate, they wait until later in the litigation. So it’s not uncommon to be halfway through and then an IPR is filed and they want the case stayed.”
This delay can prove prohibitively expensive for smaller patent owners without resources for a prolonged battle. IPR proceedings, intended to cost $100,000 or less, are often three to six times that, and more when multiple petitions are filed. Without the backing of a licensing partner, smaller entities are often left to fend for themselves.
As for the larger patent owners, they have to be ready to match the massive portfolios tech giants can bring to bear. This arms race is what has driven firms like Acacia upmarket. Despite a desire to settle efficiently, they must borrow a page from Theodore Roosevelt: Speak softly and carry a big stick.
“When you come to the table you need a bigger weapon than you used to,” Booth says. “If I approach them with three patents, they’re just going to laugh at me and walk away. If I come to them with a portfolio of 2,500 patents, quite a few of which I can chart against their products and sue them with, well then, they’ll sit up and take notice.”
The bigger the threat, the more seriously the infringer will take the negotiation and the quicker they’ll come to the table. This type of gamesmanship is nothing new, of course, but it has intensified in the AIA era.
IPR often stalls the process and makes it more expensive.
The Road Ahead
As to the outlook for changes at PTAB, Booth is circumspect, but hopes that any tweaks work to level the playing field. One of the topics in the legislation that Leahy and Tillis are considering is the transparency of parties of interest. Booth says that would be a welcome change, so long as it goes in both directions.
“Certainly there’s a big push for the plaintiffs to be transparent with regard to the parties of interest,” he says. “There ought to be a balance. If one party is going to reveal all their backers and funders and everybody who has a financial interest, well, then so should the other side.”
Regardless of how reform efforts play out, the patent licensing landscape will continue to evolve, and all parties must adapt.
“Licensing has certainly become more difficult post-AIA, and enforcement more costly,” Booth says, “but I hope the system will eventually end up providing a less litigious environment which will facilitate more frictionless transactions.”