December, 15th, 2016

By Paul L. Fraulo

An Inter Partes Review (IPR) is a trial proceeding before the United States Patent and Trademark Office (USPTO) that serves as a powerful tool to challenge the validity of a U.S. Patent under a much less stringent standard than before a district court. A company sued for patent infringement will often file an IPR to take advantage of this quicker and more cost-efficient proceeding, and then move to stay the federal case while the IPR is pending. While filing a post-suit IPR is a sound strategy, there are numerous scenarios where a company should file an IPR before being sued. Over the past few years, companies have been slowly adopting this pre-suit strategy as shown by the increasing percentage of IPR petitions that do not reference pre-existing litigation: 6.5% in 2014; 10.9% in 2015; and 11.4% in 2016. (Data obtained from Docket Navigator). Although the data does not provide a complete picture as to why companies are filing IPRs before getting sued, this article explores two situations where filing a pre-suit IPR would be advantageous.

1) Addressing an Investor’s Concern

The fundraising process for startups is riddled with obstacles that CEOs must carefully navigate. One such obstacle is an investor concerned about a cease and desist letter from a competitor claiming that the startup’s product infringes their patent. It may be possible to alleviate the investor’s concern by obtaining a non-infringement or invalidity opinion on the competitor’s patent. However, filing an IPR provides a more definitive means of allaying the investor’s concerns because it weaponizes the opinion and can invalidate the patent in a relatively short period of time.

If successful, this strategy can clear the air of uncertainty and mollify even the most prudent of investors. Even if unsuccessful, the startup (and its competitor) will gain a better understanding of the validity and scope of the patent claims. With this knowledge, the startup can pursue a secondary solution such as a targeted modification of their product’s design. For example, a company receives a letter from a competitor stating that its widget infringes claims 1 and 4 of the competitor’s patent. The company files an IPR challenging claims 1 and 4 of the asserted patent, and as a result claim 1 is invalidated, and claim 4 is upheld but under a narrow interpretation. The company can now more definitively assess whether their widget infringes claim 4 as interpreted by the court, and if necessary, avoid infringement by modifying the widget’s design. In many cases, the value of the knowledge obtained from litigating an IPR far outweighs the costs.

2) Protect or Expand Product Space

After completing the product development and fundraising stages, it is time to start thinking long-term. A competitor that has acquired one or more broad patents as part of an aggressive IP strategy poses a real threat to a startup that should not be ignored. As a proactive measure, attacking the competitor’s patent portfolio by filing one or more IPR petitions might curtail the competitor’s future strength and help the startup protect or expand its product space.

The first step in this process is primarily a legal analysis, assessing both the scope and strength of the competitor’s intellectual property. This requires knowledge of their key patents, the products those patents cover, and the relevant prior art. The second step is primarily a business analysis to assess the startup’s products, including their current and planned features. The final step is to compare the results of the first two steps to determine whether and to what extent the competitor’s IP is blocking the startup’s current and future products. This cost-benefit analysis provides a framework for a startup to decide whether to file an IPR.

Takeaway: An IPR is an efficient tool for invalidating a troublesome patent, and companies should carefully consider initiating an IPR even if they have not yet been sued.

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