CASRIP Newsletter - Winter 2006, Volume 13, Issue 1
Administrative Patent Invalidity Proceedings: Comparing Recent Reform Efforts in Japan and the United States
By Elizabeth A. Richardson
The central goal of patent systems worldwide is to promote progress and innovation by rewarding inventors with a limited-term monopoly. The functionality of the patent system therefore depends not only on balancing the interests of inventors, competitors, and society generally, but also on ensuring that patents are issued efficiently and accurately. One universal threat to patent systems is the issuance of invalid patents by national patent offices. Invalid patents generally undermine confidence in the patent system as they devalue the stringent requirements of patentability. Also, invalid patents create unnecessary and often grievous problems for legitimate patent holders or competitors trying to make their way in the marketplace, often manifesting in high litigation costs.
To combat the issuance of invalid patents, many nations have adopted some form of administrative review process to allow parties other than the applicable patent office to challenge the validity of a patent, either before or after the patent is granted (pre- and post-grant opposition systems respectively). Japan recently adopted a new review process, which it synthesized from two existing systems: post-grant oppositions and invalidation trials. This newly expanded "mukou shinpan," or invalidation trial system, adopted in the 2003 amendments to Japans Patent Law, fully replaces the post-grant opposition system that had been implemented in 1996 pursuant to the 1994 amendments to the Patent Law. As Japans updated invalidation trial system passes the two year anniversary of its implementation, the United States is considering major revisions to its own patent laws. The proposed changes would add a post-grant opposition system to the existing ex parte and inter partes reexamination systems.
This article will discuss Japans patent invalidation system, both before and after the adoption of the 2003 amendments to the Patent Law, as well as the current reexamination system and proposed post-grant opposition system in the United States. After exploring the statutory schemes and policy rationales for each system, this article will compare Japans updated invalidation trial system with the three-part system under consideration in the United States.
II. Japanese System
A. Two overlapping systems: post-grant oppositions and invalidation trials before the 2003 amendments
In the 1994 revisions to the Patent Law, Japan adopted a post-grant opposition system, jettisoning its old pre-grant review system in an effort to further harmonize its intellectual property regime with those of other nations. In particular, these changes were responsive to bilateral negotiations between the United States Patent and Trademark Office (USPTO) and the Japan Patent Office (JPO). This post-grant opposition system had several important characteristics. Initially, oppositions could be filed only within the first six months after the publication of the patent. Second, the opposition could be filed by anyone, regardless of interest. Once filed, however, the opposition proceeded only between the JPO and the patentee. This ex parte structure meant that the party filing the opposition had virtually no control beyond the act of filing itself. Upon filing, the JPO conducted reviews, and only required patentees to respond to those oppositions deemed meritorious. After consideration of the opposition, the final decision of the JPO could be appealed (to the Tokyo High Court) only if the patent was invalidated.
In addition to post-grant opposition, the validity of patents could also be challenged through invalidation trials. Also overseen by the JPO, invalidation trials differed in several ways from opposition proceedings. First, a trial could be demanded at any time, but only by an interested party involved in a dispute regarding the patent in question. Also, the trial was conducted inter partes, involving both the patentee and the requesting party. After final disposition, either party could appeal, regardless of the outcome.
B. The updated invalidation trial system
The post-grant opposition was formally removed and merged with the existing invalidation trial system in the 2003 amendments to the Patent Law, implemented on January 1, 2004. In large part, the 2003 changes were designed to eliminate problems stemming from the existence of the two previously co-existing systems, including unnecessary confusion, delay, and repeated challenges through multiple oppositions of the same patent. Also considered was the importance of better meeting the needs of various users of the system. The updated, singular system also provides more time and resources for members of the JPOs Board of Appeals and Trials, which considered the post-grant oppositions, to hear invalidation trials.
The updated invalidation trials incorporate some attributes of the post-grant opposition system, while retaining a substantial portion of their original structure. Like the old post-grant oppositions, invalidation trials may now be demanded by anyone, regardless of interest, except in certain cases such as disputes regarding inventorship, which may be filed only by interested parties. Also, the true party in interest can remain anonymous. Other aspects of the updated invalidation trial process are carried over from the previous invalidation trial system. Trials proceed inter partes and can be demanded at any time. Either party may appeal the decision of the Board. Furthermore, unlike the old post-grant opposition system, there is no merit-based pre-screening of invalidation trial filings by the JPO. The patentee must respond to every attack, regardless of merit or frivolity.
Once the challenger initiates an invalidity trial, the patentees response brief may include narrowing amendments to the patent claims, in which case the challenger can present new evidence challenging the narrowed claims. The patentee may also request correction of the patent specification or drawings, consistent with the narrowed claims. The trial proceeds to an oral hearing before a three-member panel of the Board of Patent Appeals and Trials. These panel members are former Japanese patent examiners with substantial experience as well as technical expertise. The JPO as well as the parties can request the consolidation of multiple invalidity trials to avoid redundancy when appropriate.
Prior to April 2005, appeals of the Boards decision in an invalidity trial by either party were heard in one of four specialized intellectual property sections of the Tokyo High Court, and are now heard by the newly-created Intellectual Property High Court. At this point, the patentee can further narrow the patent claims, but can only do so within 90 days of the Boards decision. Although both parties can introduce new evidence, including new prior art, no new issues can be raised on appeal. Notably, administrative and judicial paths for challenging patent validity intersect at this level.
Since the Supreme Court of Japans decision in Texas Instruments v. Fujitsu, also known as the Kilby case, a defense of patent invalidity can be raised by an alleged infringer during infringement litigation. If the invalidity of the patent is obvious, the trial court can refuse to grant injunctive relief and damages to the patentee. The assignment of appeals of both trial court infringement decisions and JPO invalidation trial decisions to the new Intellectual Property High Court allows parties to present very similar, if not identical, invalidity arguments to the same court, thus conserving judicial resources as well as resources of the parties by eliminating redundancies. This assignment system also preempts problems that could otherwise arise from disparate outcomes from different divisions of the same court with respect to the validity of a particular patent.
C. Assessment of Japans updated invalidation trial system
As previously noted, efficiency was a major force propelling the combination of the post-grant opposition and invalidation trial systems in the 2003 amendments to the Patent Law. In addition to these primarily logistical concerns, however, the updated invalidation trial system strikes a different balance between the interests of patentees and parties seeking to invalidate patents than the dual system operating prior to the implementation of the 2003 amendments.
First, the complete elimination of the six-month deadline for filing has obvious benefits for parties seeking to invalidate patents. Instead of rushing to meet the deadline, time for careful consideration and preparation is now available. This should eliminate the frequently-criticized inducement under the previous post-grant opposition system to file a flood of last-minute requests. On the other hand, a deadline for administrative challenges to patent validity arguably promotes stability and reliability, as there is at least some finality upon passage of the deadline. As such, a deadline-free system as now essentially exists in Japan arguably could undermine this aspect of stability, as challenges can be initiated throughout, and even beyond, the period of the patents enforceability. In choosing an effectively unlimited timeframe for the requests for invalidation trials, the Diet and the JPO are promoting thorough, unrushed filings while potentially eroding the stability of a patent from the perspective of the patentee, since the patent remains vulnerable to attack by any third party throughout and after the lifetime of the patent.
Second, the broad ability to file demands for invalidation trials anonymously, coupled with the patentees obligation to respond to every filing, may create a very hostile environment for patentees, particularly given the apparent lack of limitation on the number of filings made by any given party against any given patent. The system does not include any punitive provisions to check against abuse by the unsavory party attempting to sabotage the patents of a competitor. As the system develops, it may be valuable to consider mechanisms to encourage challengers to consolidate all of their claims in a single invalidation trial, and to prevent or limit repeated challenges based on different, but cumulative, prior art.
The possible swamping of legitimate, valid patents with innumerable invalidation trials could hamper Japanese patentees as well as foreign patentees, leading to possible unpleasant economic implications both at home and abroad. Some commentators suggest that this situation may spark new trade disputes between Japan and the United States, particularly given the concerns raised by the United States regarding Japans pre-1994 pre-grant opposition (kokoku) system. Under the kokoku system, like the current updated invalidation trial system, the patentee was obliged to respond to every filing, leading many American companies to report significant difficulties and delays in obtaining patent protection in Japan. A core difference between the kokoku system and the current invalidation trial system is timing. Kokoku oppositions were filed before the granting of a patent; thus the strategic filing of multiple oppositions could significantly delay the granting of an ultimately valid patent. In contrast, the current invalidation trials can be filed at any time. It remains to be seen whether this difference, and perhaps others, will save the updated invalidation trial system from this pitfall of the kokoku system, given the lack of pressure under the new system for challengers to file within any particular timeframe.
While empirical data are scant given the relatively recent nature of the changes, a brief comparison of invalidation trial and opposition filing data from 2003 (the last year during which filings were accepted for the two separate systems) and invalidation trial filing data from 2004 suggests that the newly reformed invalidation trial system may be on track to enhance efficiency and achieve other policy goals. Between 2003 and 2004, filings for appeals for patent invalidation trials increased by about forty percent, from 254 to 358, while opposition filings dropped to zero (with the abolition of the post-grant opposition system) from 3,896. Although significant, the increase in filings for invalidation trials is relatively minor given the merger of the two systems; there was no flood of invalidation trial requests due to the absence of the post-grant opposition option. While preliminary, these data indicate that Japans reforms of its patent invalidity system have been successful thus far in decreasing the incentives for the filing of excessive or unnecessary patent validity challenges.
III. American System
A. The current system: two forms of patent reexamination
The patent system in the United States currently offers two administrative options for challenging the validity of patent claims: ex parte reexamination and inter partes reexamination. Ex parte reexamination was adopted in 1980, in an effort to provide a lower-cost, quicker alternative to resolving questions of patent validity. The low usage rates by third parties of ex parte reexamination led Congress to add an inter partes system in 1999.
Ex parte reexamination can be requested by any person at any time on the basis of prior art bearing on the validity of the patent. The request is reviewed as to whether it presents a "substantial new question of patentability." The reexamination then proceeds ex parte, with no role for the party who originally requested the reexamination. The patentee can make amendments to its claims that do not enlarge the scope of the patent, and only the patentee may appeal the outcome of the reexamination.
Inter partes reexamination requests may be filed by any third party at any time, and, like ex parte reexaminations, are subject to review for "substantial new question[s] of patentability." Also similar to ex parte reexaminations, the patent owner can amend the claims, avoiding any enlarging amendments. However, the real party in interest must be identified in an inter partes reexamination request. As the name suggests, the reexamination proceeds inter partes, involving both the patent owner and the opposing party throughout the process. Both the patent owner and the opposing party can appeal the outcome of the reexamination. Once a final decision is rendered in an inter partes reexamination, the opposing party is estopped from asserting "the invalidity of any claim finally determined to be valid and patentable on any ground which the third-party requester raised or could have raised during the inter partes reexamination proceedings" before either the USPTO or a court of law.
B. Proposed post-grant review system in the Patent Reform Act
The proposed Patent Reform Act of 2005, H.R. 2795, would retain the ex parte and inter partes reexamination (35 U.S.C. §§ 301 307 and §§ 311 318 respectively) procedures of the current system, but would add to them a new post-grant opposition process.  The proposed post-grant opposition system has several commonalities, and some differences, with international and foreign post-grant opposition systems, and with the existing domestic reexamination systems.
First, an opposition could be filed by anyone, regardless of interest in the case, and the filing party could remain anonymous upon request, subject to certain restrictions. Oppositions would be required to be requested within nine months of the grant of a patent or six months after receiving notice of infringement, unless the patent holder were to consent to a longer timeframe. Filed oppositions would be reviewed for "substantial question[s] of patentability;" an opposition proceeding would be initiated only where substantial question of patentability exists. Patentees could amend their claims in response to the opposition request, but only insofar as the amendments would not enlarge the scope of the claims.
Oppositions would proceed inter partes, before a panel of three administrative judges, and multiple opposition requests could be consolidated. The decision of the panel could be appealed by any party. Once the opposition is complete, the party originally filing the opposition would be estopped from subsequently asserting that any claim of the patent involved in the opposition is invalid on the basis of an issue "actually decided" in the opposition, either before the USPTO or in court. However, the estoppel provision does not apply if the opposing party can demonstrate "additional factual evidence that is material to an issue of fact actually decided and necessary to the final determination in the opposition proceeding, that could not reasonably have been discovered by" the opposing party.
The proposed reforms also include a provision providing an interface between the existing ex parte and inter partes reexamination systems with the proposed post-grant opposition proceedings. If a post-grant opposition is instituted, the same party requesting the opposition (or a third party on behalf of the same) may not request reexamination of the same patent on the same issue of patentability. The bill would also separate the reexamination and opposition systems temporally. Requests for ex parte or inter partes reexaminations made during the period of time in which an opposition could be filed (except for ex parte reexamination requests by the patent owner) would be treated as opposition requests. Also, requests for ex parte or inter partes reexaminations made after the time when an opposition could be filed (as well as ex parte reexamination requests by the patent owner made at any time) would be stayed in the event of a pending opposition proceeding.
C. Three partially overlapping systems: implications of adding post-grant opposition to the two existing reexamination procedures
The proposed adoption of a post-grant opposition system in the United States is premised on several key concerns with the reexamination system. In general, the reexamination system is perceived to have failed to increase confidence in the validity of patents or to decrease patent litigation. The inter partes reexamination was added to the ex parte system in 1980 in response to the lack of use of the ex parte system by third parties, who found the ex parte system to be biased in favor of patentees given the minimal participation of third parties. Although the addition of the inter partes reexamination option corrected the participation problem, a new deterrent for third parties was included in the inter partes system. The estoppel provision dramatically limits the ability of the opposing party to subsequently attacking the validity of any claim deemed patentable and valid in the reexamination proceedings and creates a serious strategic question for potential challengers, who must assess whether trying out the new inter partes system is worth the risk of losing or severely constraining future litigation options. The failure of both the ex parte and inter partes reexamination systems to attract a sufficient number of third-party challengers likely means that more patent validity disputes are addressed in the more expensive and time-consuming fora of the federal district courts rather than within the USPTO administrative process. This failure also suggests that more potentially invalid patent claims could be slipping by unnoticed for lack of a meaningful administrative process for challenging patent validity, thus further undermining the value of patents and confidence in the patent system.
The proposed post-grant opposition system is the latest attempt to address the low usage issue plaguing both the ex parte and inter partes reexamination systems, and to expand the grounds under which the validity of a patent can be challenged without resort to litigation. Third party challengers participate throughout the process, and both parties can appeal. The estoppel provision also seems less draconian, limited to issues "actually decided" in the opposition rather than issues that were raised or could have been raised by the challenger in the inter partes opposition. These features of the proposed post-grant opposition system may create a workable system for both patent owners and those wishing to challenge patents.
IV. Comparative Analysis: Japan and the United States
Both Japan and the United States have been very active in reforming their patent invalidity proceedings in recent years. Japans experiment with its limited term post-grant opposition system lasted only a decade. The inter partes reexamination system in the United States has only been in operation for about half that time, and yet the push for reform is strong. This relatively rapid evolution in these two jurisdictions suggests that administrative efficiency, minimizing the granting of invalid patents, and balancing interests between patent owners and challengers are difficult goals to attain. Additionally, the willingness of both nations to change their patent invalidity processes relatively quickly rather than allowing for a longer testing period suggests the urgency and importance of establishing effective administrative patent invalidation systems.
In some respects, Japans invalidation trials and the reforms being considered in the United States bear some similarities to each other. Centrally, both nations systems would give third party challengers the opportunity to participate, and appeal, in inter partes proceedings. Also, patent owners could make narrowing or non-enlarging amendments to the claims. Third party challengers could remain anonymous, subject to certain conditions, in each system. The endorsement of these attributes by both jurisdictions may suggest that these particular policies promote common goals of the two nations in terms of accessibility to the system for third parties and flexibility for patent owners through amendment opportunities.
In contrast, timing is rather different for the two systems. At some level, both Japans updated invalidation trial system and the proposed United States three-part system including post-grant oppositions provide opportunities to challenge the validity of patents throughout the life of the patents. The unlimited timeframe of the Japanese invalidation trial system is much simpler than the multi-tiered approach in the proposed American reforms. While the American post-grant opposition would be available only for a limited period of time (six or nine months), ex parte and inter partes reexaminations would be available essentially at any point after the expiration of the post-grant opposition window. However, given the relatively low efficacy of both the ex parte and inter partes reexamination systems, it is questionable as to whether a prospective third party challenger under a reformed United States system would have any meaningful recourse beyond the time during which a post-grant opposition could be initiated.
The unitary nature of Japans invalidation trial system also provides a stark contrast to the three-part system that would be established under the proposed changes to by H.R. 2795 to the United States patent laws. The 2003 amendments to Japans Patent Law were motivated, in part, by efficiency, combining two overlapping systems (post-grant opposition and invalidity trials) into one updated invalidity trial system. Rather than striving for a unified system in the United States, H.R. 2795 would instead tag on a third procedure to two existing (and ineffective) systems. Although separated by time and different in scope, it seems questionable to retain the otherwise redundant, inferior systems. The intention of this tripartite system may be to capture the advantages of a limited term post-grant opposition system (certainty and stability) without the disadvantages (rushed filings, limited recourse) by providing weaker options to the prospective third party challenger after a certain period of time. While perhaps a worthwhile goal, it hardly seems that the best or most efficient way to accomplish it would be to add a functional, limited-term post grant opposition to two dysfunctional reexamination procedures.
Also different between the two systems are the perceived risks to patentees and third party challengers. In Japan, there is concern that the new reforms may usher in a hostile, anti-patentee environment through the lack of restraints or disincentives to stem multiple requests for invalidation trials regarding the same patent claims and issues by the same third party challengers. In contrast, H.R. 2795s post-grant opposition still retains a substantial estoppel provision. While less harsh than the existing estoppel rule for inter partes reexamination requests, the estoppel provision in H.R. 2795 still should make would-be challengers think twice before filing superfluous oppositions.
As technological innovation has grown to become vitally important to both Japan and the United States, so too has the need for a sophisticated and responsive intellectual property law system to bolster future advancements. Concerns about confidence in the patent system as well as efficiency have prompted many changes in recent decades to patent laws in both countries. Administrative patent invalidity proceedings are an important part of this legal evolution, and are at the center of a dynamic balance of the interests of patent owners, their competitors, and society generally. An eventual comparison of the effects of the statutory incentives and disincentives for requesting invalidity trials in Japan or filing post-grant oppositions in the United States (if H.R. 2795 or a similar provision is enacted) may shed additional light on the causal relationship between patent invalidity reforms and changes in behavior and strategies of patent owners and patent challengers. For now, however, comparing the two systems provides a more informed basis for observing the effects of the current statutes and for critically evaluating proposed changes in both jurisdictions.