It's Monday morning after the Thanksgiving holiday. Easing back into the workweek with the lingering effects of turkey, stuffing and a miraculous Ohio State victory still sapping my brain, I open the court docket report. Ordinarily, there is not much in these reports to catch my eye under these conditions, but today I saw a series of strange entries. Reich & Tang Deposit Solutions sued Island Intellectual Property to declare 60 patents invalid.
The first paragraph of the complaint says it all. Reich & Tang contends that, despite its prior license and the fact that it has paid millions of dollars in royalties, these patents are now invalid under the Supreme Court's Alice decision. While Alice sets forth the most recent standard for patent-eligible subject matter, the complaint also asserts that the patents are invalid because they lack novelty when considering pre-existing accounting methods. Apart from allegations that Island's owners are responsible for the economic crisis of 2008, R&T's district court action is interesting in that it flies in the face of the new procedures available at the Patent Office for declaring patents invalid. The American Invents Act (AIA) created inter partes review (IPR), post-grant review (PGR) and covered business method (CBM) procedures as a more efficient and cost-effective alternative to litigation. Right?
Given the fee structure at the Patent Office, page limits and other considerations, perhaps not. One consideration is the grounds that each procedure covers. Patent eligibility (Section 101) can only be brought in a PGR or CBM. Timing-wise, a PGR proceeding must be brought within nine months of a patent's issue date. With patent eligibility at the core of R&T's case, and the fact that many of the patents are beyond the nine-month window for PGR, CBM is the more likely option. But the fact that a CBM review cannot be brought until after the petitioner has been sued for infringement would force R&T to wait until it got sued to exercise this option. To go on the offensive, it could file for inter partes review on prior art grounds (Sections 102 and 103), but with the number of patents involved, the filing fees alone would be prohibitive when compared with district court action.
The filing fee for an IPR is $9,000, with another $14,000 due if the petition is granted. Assuming only one patent could be adequately covered in one petition, the filing fees for seeking review of all 60 patents in the R&T suit would be $540,000. In contrast, the filing fee for most district court actions is around $350. If cost were the only consideration, district courts would be the preferred venue, but AIA proceedings still offer more predictability in the time to a decision and the reassurance of technically trained patent judges evaluating the patents. While the Patent Office proceedings have received deserved praise for their efficiency and their effectiveness compared with district court action, this case highlights some areas that could be improved to make them even more useful.
From a practical standpoint, this case demonstrates the complex legal and cost considerations involved in determining whether to continue to pay license fees when the validity of the licensed portfolio is in question or when evaluating the ability to operate in a densely patented space.
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