1. 1 The Promise of Reexamination: Fulfilled or Fizzled? 2011 AIPLA Annual Meeting Washington, D.C. September 22, 2011 Marc Hubbard Gardere Wynne Sewell, LLP Try, try again - will we finally succeed with inter partes review?

2. 2 Friends, patent lawyers, countrymen, lend me your ears; I come to bury inter partes reexamination, not to praise it.

3. 3 Reexamination policy Reexamination not sufficiently used, and fails to meet basic policy goals Inter partes review how does it work? does it address the problems with reexamination, particularly inter partes reexam what issues remains? Overview

4. 4 According to House report in 1980 ex parte reexamination was to be an alternative to litigation for both patent owners and challengers Better -- validity determined by experts Be far more efficient; resolved in a fraction of the time At greatly reduced cost Resulting in certainty about validity of patents, and stronger patents, which will promote investment Policy circa 1980: better, faster, cheaper

5. 5 Initial interest fades

6. 6 1999/2003 fix in response to waning interest Inter partes added in 1999, and right to appeal for inter partes requester added in 2003, due toinfrequent use Inter partes reexamination touted as an inexpensive way, as compared to litigation, for a third party who discovers new prior art to challenge the patent, and then participate in both the examination and appeal stages of proceeding

7. 7 IP reexam was a dud as of 2005 PTOs 2005 Report to Congress: PTO projected 400 inter partes requests in 2000 and 600 per year by 2004 Reality: None as of 2000 Only 27 such requests had been filed by 2004 Over the 5-year period studied by the USPTO, it issued 900,000 patents and received only 53 requests for inter partes reexamination

8. 8 Like fine wine... IP reexam better with age?

9. 9 What happened? Realization that it actually offered a lot of advantages for third party Less costly than district court litigation Broadest reasonable interpretation given No presumption of validity Intervening rights in case of amendments, which are frequent

10. 10 Kill/Wound Rates Ex Parte (3rd party) Ex parte (patent owner) Inter Partes* All claims confirmed 24%21%13% All cancelled 13%9%44% Amended63%70%43% * Based on only 278 certificates out of 1097 requests granted

11. 11 Reexam clearly not an alternative to litigation

12. 12 Not a policy success from a system point of view Inter partes reexamination is frequently not being used to resolve validity issues outside of litigation (71% with patents in litigation) Concurrent litigation stayed only 50-60% cases; courts expressing concern about delay at PTO Reexams are not, compared to district court litigation, fast (averaging about 3 years for inter partes; only 278/1097 completed; pendency increasing). The examination model and current rules not working. Thus, from system perspective, inefficient; waste of resources, higher costs for everyone; possibly inconsistent results Why have 2 procedures when one should do?

13. 13 Litigation tactic, not litigation substitute A gambit to stay litigation and/or to drive up costs for plaintiff PTO more receptive forum for certain invalidity arguments Second bite at the apple (ex parte only) Defendant might be able to force narrowing of claims and create intervening rights if cancellation effort not successful

14. 14 Why is reexamination not being used more? Procedural limitations (no discovery or cross-examination) Vitality of other defenses (narrow claim construction, written description, etc.) Defendants often succeed in litigation Win rates for patentees in contested actions average only 25%

15. 15 Third time the charm? Inter partes review House report on AIA sounds a familiar refrain: Inter partes review will remove disincentives to the current administrative process by providing quick and cost effective alternative to litigation Reexamination proceedings are also often costly, taking several years to complete, and are first conducted by examiners and, if the patent is rejected, then by Patent Board judges. Thus, many patents must go through two rounds of administrative review (one by the examiner, and a second by the Patent Board) adding to the length of the proceeding.

16. 16 Key points All patents subject to review, starting September 16, 2012 Grounds for seeking cancellation limited to 102/103 based on patents and printed publications Adjudicative proceeding; not an examination Burden on petitioner to demonstrate claim should be cancelled by preponderance of evidence Speed: Must be concluded within 1 year of grant of petition of petition for review; but may be extended by 6 months for good cause. Time periods may be adjusted in case other parties are joined. Decision on petition likely 4 to 6 months from filing, depending on time given to patent owners to respond to petition

17. 17 Basic procedure Conducted before3 APJs at PTAB; no internal appeal Limited discovery of experts submitting declarations, and as otherwise necessary in the interest of justice Substantial amount of discretion given to the Director on formulating regulations for conduct of proceeding

18. 18 The petition Petition for review must Identify all real parties in interest Particularly identify each claim sought to be cancelled and grounds relied upon; Include evidence relied upon, including declarations and supporting evidence from experts Can only be filed after 1 year from the date of grant or after termination of any post-grant review

19. 19 Patent owners preliminary statement Patentees preliminary statement Optional Must be made within time limit set by Director Must explain why petition does not comply with any requirement of the chapter No statutory requirement for submitting evidence

20. 20 Institution May only authorize review if petition and the evidence submitted with it, and the preliminary statement of owner, if any,shows a reasonable likelihood that the petitioner will prevail on canceling at least 1 of the claims challenged in the petition. Must be decided within 3 months of patent owners preliminary statement or, if not filed, the last date on on which it was due

21. 21 Less likelihood of concurrent litigation 3rd party cannot petition if it has already filed suit Must file petition first, and then may file DJ 3rd party must petition for review within 1year of being sued for infringement DJ actions automatically stayed unless patent owners files counterclaim for infringement or requests lift Although courts still have unfettered discretion to proceed with action once stay lifted, likely would stay with assurance that review must be completed within 2 years

22. 22 What we know about conduct of review (details await rules) Patent owner will be required to file a response after review instituted, with evidence and declarations to be relied upon Petitioner will have at least 1 opportunity to file written comments Supplemental information may be permitted after institution Discovery must be limited to deposition of declarants/affiants and as otherwise necessary in the interests of justice Protective orders available for confidential information Either party has right to oral hearing

23. 23 Amendments Patentees must be given at least one opportunity to move to amend by proposing a reasonable number of substitute claims or canceling claims Additional motions to amend permitted upon joint request of parties that would materially advance the proceeding No standards given on granting motion Cannot broaden claim or introduce new matter No indication as to when patentee may exercise right Amendments subject to §252 intervening rights

24. 24 Settlements Review will be terminated with respect to a petitioner if (i) patent owner and petitioner so request and (ii) no determination on merits has been made No estoppel as to that petitioner If no petitioners left, Board may, at its option, terminate or continue to final decision Written settlement agreement must be filed, but will be treated as confidential upon request (but remains available to governmental agencies)

25. 25 Successful implementation should address systemic problems If implementation and execution are effective Courts more likely to stay due to guaranteed time periods for review and requirements for early institution Means that more parties likely to use review and reduces dual tracks and litigation abuse Will likely provide a reasonably effective, though limited, alternative to litigation

26. 26 Does it address 3rd party concerns? On balance, should be more appealing to 3rd parties But, estoppel remains, and has been extended, which may dampen interest All PTO proceedings (including ex parte) Any civil action under 28 USC §1338 and ITC But, attaches only upon final determination by the board Will higher threshold mean lower grant rate? Congress expects lower than current 95% in IP reexams Limited to paper prior art Limited scope of discovery

27. 27 Concerns for patent owners Being forced to defend a review when there is no intention of enforcing or licensing High cost of defending in a highly compressed time frame Discovery (higher costs) Use as a tool for harassment and means to prevent market entry through repeated litigation and administrative attack

28. 28 Success depends in large part on PTO implementation and execution Rules need to limit motions, petitions, amendments, ability to supplement information, etc., to meet deadlines, without exorbitant burdens and costs, or sacrificing fairness PTAB needs to be given discretion to move cases along quickly Carefully managed discovery Effective and fair consolidation of multiple proceedings Grant rates on petitions need to reflect higher threshold; must guard against harassment of small entities Need predictable, consistent and fair results

29. 29 Let the PTO know your thoughts before it publishes proposed rules (targeted for late December)

30. 30 Offices Austin One American Center, Suite 3000 600 Congress Avenue Austin, Texas 78701-2978 512.542.7000 512.542.7100 fax Dallas 3000 Thanksgiving Tower 1601 Elm Street Dallas, Texas 75201-4761 214.999.3000 214.999.4667 fax Houston 1000 Louisiana, Suite 3400 Houston, Texas 77002-5011 713.277.5500 713.277.5555 fax Mexico City Gardere, Arena y Asociados, S.C. Torre Esmeralda II Blvd. Manuel A. Camacho No. 36-1802 Lomas de Chapultepec 11000 Mexico, D.F. Mexico 011 (52) 55 5.284.8540 011 (52) 55 5,284,8569 fax Marc A. Hubbard 1601 Elm St, Suite 3000 Dallas, Texas 75201 (214) 999-4880 mhubbard@gardere.com Marc Hubbard | Partner Gardere Wynne Sewell LLP 1601 Elm Street, Suite 3000 | Dallas, TX 75201 214.999.4880 direct 214.208.2601 cell 214.999.3880 fax mhubbard@gardere.com www.gardere.com