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USPTO Post-Grant Opposition Costs – A Forum Conveniens for Invalidity Disputes

May 20, 2012

The USPTO comments on proposed rules for post-grant proceedings under the America Invents Act include estimates of the comparative costs of inter partes review, post-grant review, and district court patent litigation. Not surprisingly, the costs of challenging patent validity in the USPTO are expected to be a fraction of the expenses of a comparable district court defense, due to the very limited discovery available in oppositions, and the statutory requirement that the USPTO generally must issue a final decision within a year of instituting an inter-partes proceeding.

Reduced costs will be a major factor driving validity disputes from district court to the more favorable administrative forum for patent challengers. The USPTO expects that the current high level of duplication between litigation and reexamination will be reduced by inter partes review, which will limit what it terms “unnecessary and counterproductive litigation costs.”

The average costs of oppositions, including substantial petition fees, are projected by the USPTO as follows for the petitioner and patent owner (PO):
These USPTO estimates are at best general approximations of average costs, but they have the advantage of a direct if blunt comparison of the three patent challenge avenues.

The USPTO projections of trial costs are based on the costs of the preliminary motions period in interferences, which provide the only model for comparable administrative litigation in the USPTO. Interference costs have been limited by the effective absence of district court fact and document discovery, and a compact schedule that has generally resulted in a decision on preliminary motions within one year. The survey data on which the USPTO estimates are based demonstrate that the typical costs of interferences through the preliminary motions period vary widely (from $50K to $450K). The expense of a post-grant opposition can similarly be tailored to the petitioner’s specific goals, strategy and budget.

As in district court litigation, the costs of interferences vary with the amount in controversy. Simple interferences can be concluded for less than $100K, providing an effective tool in licensing negotiations where a settlement is possible. In my experience, in disputes in complex technologies where the value of the subject matter is more than $20M, the costs of an interference preliminary motions period may approach comparable district court litigation expenses. Complex and multiparty interferences involve extensive motions practice and expert discovery, when several fact and expert witnesses testify on diverse patentability issues, as may be common in post-grant review and consolidated inter-partes review proceedings.

An appeal to the Federal Circuit could double the costs of a post-grant proceeding, while settlement could reduce the costs by half. About 33% of inter partes reexamination decisions are appealed to the Board, and the USPTO estimates that 16% of final decisions in post-grant proceedings will be appealed. The Office expects that 20% of post-grant proceedings will be settled, reducing the trial costs by 50%. These estimates seem very conservative, because the estoppel consequences of inter partes review and post-grant review will strongly favor both appeals and settlements.

Motions Practice

Motions practice will be a fundamental aspect of post-grant oppositions, involving essentially every proposed action of both parties. The proposed rules contemplate routine motions for amendment of claims, supplemental evidence, additional discovery, consolidation of proceedings, and sanctions, as well as substantive motions relating, for example, to issues of patentability and benefit.

It is evident that the costs of preparing a substantive response to the petitioner’s arguments or a motion to amend claims, supported by expert testimony, will involve substantial costs, similar to those for preparing the original petition. A motion to amend will likely result in a renewed attack on any proposed substitute claims, including a contested motion to respond and motions to submit additional documentary or fact evidence and supporting expert testimony.

The major variable in post-grant trial costs will be the number of motions filed by the parties, and the evidence required to support and oppose the motions. The USPTO estimates that an inter partes review trial will involve an average of 6.92 motions, oppositions, and replies at a cost of $48K per motion, including expert expenses. It estimates an average of 8.89 motions after institution of a post-grant review trial, at a cost of $44.2K per motion.

Expert and Fact Witness Testimony

Because the initial petition is required to present all of the arguments and evidence required to show that it is reasonably likely that at least one challenged claim is unpatentable, in many cases it will be necessary to prepare expert declarations to support the petitioner’s arguments. In interferences it is common for each party to present separate expert declarations relating to different aspects of validity. The costs of retaining experts, preparing their declarations, and depositions are comparable in interferences and district court litigation.

In a post-grant review, where patentability can be challenged on issues such as public use, prior sale or public availability of information anywhere in the world, the testimony of fact witnesses will also be critical. Where the patent owner relies on tests or data described in the patent, on declarations submitted during prosecution, or on unexpected results or commercial success, it will also be required to present a declaration of a fact or expert witness with personal knowledge of the relevant facts.

Experience of Inter-Partes Counsel

One factor that will significantly affect costs is the experience of counsel in inter partes trials. The USPTO considers that the skills necessary to conduct post-grant trials are similar to those needed to represent a party in an inter partes reexamination, and to represent a party in an interference proceeding. Unlike leisurely re-examination of patents by an examiner, oppositions in the USPTO will be administrative litigation conducted on a strict schedule, governed by general trial rules and separate inter partes, post-grant review, and derivation rules based on current interference procedure.

The costs of post-grant oppositions will be reduced by careful initial preparation of a complete litigation strategy, and the efficient management of a party’s case, which requires mastery of the rules and knowledge of extensive Board precedent relating to motions practice, discovery, the USPTO rules of evidence, sanctions, and estoppel issues, among others. The steep learning curve makes post-grant litigation an expensive forum for studying inter-partes procedure.

Basis of the USPTO Estimates

The USPTO’s estimates are based on the AIPLA Report of the Economic Survey 2011. Based on the AIPLA data, the Office estimates that the average cost for preparing a petition for inter partes review will be $46K, based on 135 hours of attorney time at $340/hour, in addition to the proposed petition fee starting at $27,200. The Office estimates that the patent owner’s costs of preparing a preliminary response for inter partes review will be $34K, based on 100 hours billed at $340. The cost of an inter partes review trial to each party is estimated to be 60% of the cost of the average cost of an interference preliminary motions period, which is $322K.

The higher estimated cost of post-grant review is based on the petitioner’s ability to allege unpatentability on any statutory basis, not limited to obviousness or lack of novelty based on prior art publications. The USPTO estimates that the average cost for preparing a petition for post-grant review will be $61K, based on 180 hours of attorney time at $340/hour, in addition to the proposed petition fee starting at $35,800. The Office estimates that the patent owner’s costs of preparing a preliminary response to a petition for post-grant review will be $34K, based on 100 hours billed at $340. The cost of a post-grant review trial to each party is estimated to be 75% of the cost of the average cost of an interference preliminary motions period, which is $322K.

These trial cost estimates do not correlate with the projected number and cost of motions in inter partes review (6.92 motions, oppositions, and replies at $48K per motion), and post-grant review (8.89 motions at $44.2K per motion), but are consistent with the broad and variable range of expected opposition costs.

The USPTO projects an average of 23.4 motions in a derivation trial, at a cost of $34K per motion. These estimates are not realistic, based on interference practice. The cost of a derivation proceeding should be similar to the cost of an interference priority phase raising derivation issues, because similar issues of prior invention, communication, and corroboration are involved. The average cost of an interference priority phase is about $300K.

The USPTO’s estimate of district court litigation costs is based on the average cost of district court litigation where the amount in controversy is $1M-25M.