Are negotiation-grade patents still valuable?

Before the America Invents Act, which was signed into law on September 16, 2011, the ultimate venue for determining patent validity was a district court.

Getting to a validity determination was expensive, and the thinking was that there were ‘negotiation-grade’ patents and ‘licensing-grade’ patents. In the former case solid evidence of use (EoU) would allow the patents to be deployed in boardroom licensing discussions, while in the latter the patents may have also been successfully litigated in the past, so were more valuable because they could not be set aside for validity concerns should the parties head to court.

On September 16, 2012, the US Patent and Trademark Office began accepting petitions for inter partes review (IPR) trials, aimed specifically at reconsidering the patentability of patents for which such trials were instituted. In the nearly four years since, it has been widely reported that defendants have increasingly filed IPRs in patent infringement cases.

Initially their use was sporadic as litigators learned how best to leverage IPRs. Now, litigators have become familiar with these proceedings, using the body of precedent that has evolved to guide them in new approaches for their use. Accordingly, the Patent Trial and Appeal Board (PTAB) has become the leading venue for patent litigation in terms of the number of cases filed.

EoU has been, and continues to be, the foundational line of attack by plaintiffs in patent infringement cases, but since IPRs are inexpensive, validity has become the first avenue of counterattack by defendants instead of responding directly to asserted EoU.

Defendants used to lead by challenging the submitted EoU in court before juries, who easily became confused over technical detail. Today the first reaction of defendants is to challenge validity through an IPR, which must be completed in a year (with one additional six-month extension allowed), and the triers of fact in such cases are experts—administrative patent judges who know the patent law well.

As shown in Figure 1, only the green region contains licensing-grade patents that can be deployed successfully in licensing and defensive countermeasures. The grey region contains negotiation-grade patents that in the past may have been sufficient for boardroom discussions. Two-thirds of the chart (in red) comprise regions for patents that have no value for the reasons stated.

The grey region has become a danger area even in the boardroom because there is now an inexpensive mechanism outside of district courts that can and will be used by defendants to test the validity of patents asserted against them. This leads to patent owners, plaintiffs and counterplaintiffs having to be much more careful about the patents they assert in order to be sure there is both solid EoU and that they will not succumb to the many precedents that are accumulating as a result of IPR case law.

There are a number of implications for IP managers: