Intellectual Asset Management | March/April 2016

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How PTAB proceedings are driving

district court settlements
Analysis shows how institution decisions made by the Patent Trial and Appeal Board of the US
Patent and Trademark Office are a critical point in post-America Invests Act patent disputes
By Sam Jaffna, Shawn Ambwani, Jonathan Stroud and Robert Jain

n the initial months after the enactment of the

America Invents Act, little was known about how
the newly crafted post-grant procedures would
affect patent litigation in federal district court. As the
clouds parted and the Patent Trial and Appeal Board
(PTAB) issued its first decisions, new beacons have
emerged which are altering the way that parties navigate
patent litigation. In particular, the decision to institute
review has become a rising star of the PTAB, with its
gravitational pull reaching beyond just real parties
in interest but also warping the litigation fabric for
surrounding related matters.
Previous commentators have addressed a variety of
statistics and trends at the PTAB, including institution,
invalidity, settlement rates and district court stays. This
study explores the PTABs ripple effects in district court
and shows that there is a correlation between litigation
settlement timings and PTAB institution decisions,
even for defendants which are not real parties to the
PTAB proceedings.
Our analysis focuses on district court litigation:
filed between January 1 2012 and December 31 2014;
that would have been identified as pending related
matters in at least one inter partes review petition; and
that was likely settled as of November 1 2015.

Further, this analysis focuses only on inter partes

reviews, which comprise more than 90% of all petitions
filed at the PTAB. We show that, for the approximately
1,100 cases which fit this profile, the majority had settled
within 180 days of the inter partes review petition filing
date. We also explore plausible explanations for this
trend and discuss its consequences.

Understanding institution decisions as

perceived in 2012

Before September 16 2012 there was little information

available to forecast the implications of the America
Invents Acts new post-grant proceedings or the
significance of the PTABs institution decision. US
Patent and Trademark Office (USPTO) Director
Michelle Lee acknowledged that even the USPTO did
not accurately predict the implications of the new law as:
the total number of petitions filed [before August 2015]
reflect around three times more than what [the PTO]
initially expected.
From a statutory perspective, the decision whether to
institute proceedings involves a threshold inquiry into

whether the petitioner, as a matter of law, has satisfied

the requirements for review. The legal standard varies by
the type of review sought. For inter partes reviews, the
petitioner must show a reasonable likelihood that he or
she should prevail on at least one challenged claim.
Similar to the reasonableness standard that appears in
other areas of law, reasonable likelihood as defined by the
USPTO, is a somewhat flexible standard that allows the
Board room to exercise judgment. Although this appears
to establish a relatively minimal burden of proof, it was
clear from the outset that institution is not guaranteed.
The USPTO emphasised this point when it explained
that the PTAB retains discretion to deny institution
in certain circumstances even if the legal requirements
are satisfied. As the first institution decisions began to
trickle out of the PTAB, the grant rates hovered slightly
above 90%. However, by September 30 2015, institution
rates had fallen to slightly over 70% as petitions rapidly
accumulated on the PTABs docket.
Aside from legal standards, the inter partes review
process offers only limited grounds for review and
follows a strict timeline in order to expedite proceedings.
The institution decision serves as the first major hurdle
and is due no later than three months after the filing date
of the rights holders response or six months after filing
the petition (whichever is earlier). If review is instituted,
the PTAB must produce a final written decision no later
than 12 months from the date of institution, unless the
parties otherwise terminate the proceedings.
Before enactment, observers understood that inter
partes review proceedings would provide a faster venue
for resolving patent validity than district court. However,
few could have anticipated the frequency with which the
PTAB would institute proceedings or invalidate claims, or
how the institution decision might affect overall litigation
strategies. Three years later, it is now possible to accurately
evaluate the impact of the PTABs institution decision.

Review of patent disputes between 2012 and 2014

The data from the first three years shows that the
USPTO has received 4,239 new petitions (including
3,817 inter partes reviews). These disputes settled
approximately 36% of the time, with approximately
795 total settlements since 2012; the majority of these
occurred before institution.
Looking beyond USPTO proceedings, it appears that
the PTABs institution decision also substantially affects
the timing of district court settlements.

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FIGURE 1. PTAB reviews and related matters

FIGURE 2. Overall duration of cases

Related matters
Overall duration

Adjusted duration

District court

Earliest PTAB
filing

District court
filing

PTAB

matters to at least one inter partes review proceeding, the

median overall duration was 420 days.
At first glance, this result seems counter-intuitive and
contrary to the America Invents Acts efficiency and
cost-saving goals. However, a closer look at this subset
of 1,100 related matters reveals most settled within
180 days of the earliest inter partes review filing date.
Specifically, the median adjusted duration for these cases
was 163 days as of the end of 2015.
The distribution of adjusted durations shows a sharp
concentration of cases being settled within 180 days of

Between 2012 and 2014 around 23,000 patent actions

were filed in federal district court. By 2015, nearly
70% of those cases had settled while the rest were still
pending or had been terminated. About 1,100 of settled
cases involved one or more patent claims that were the
subject of an inter partes review petition. These 1,100
settled cases are the subject of this analysis.
For the 15,000 cases filed between 2012 and 2014
that settled before the end of 2015, the median duration
was around 211 days. By contrast, for the much smaller
subset of 1,100 cases which were identified as related
FIGURE 3. Pending cases versus new filings
2,000

250

Pending cases
New filings

1,600

200
150

800

100

400

50

10/1/12
11/1/12
12/1/12
1/1/13
2/1/13
3/1/13
4/1/13
5/1/13
6/1/13
7/1/13
8/1/13
9/1/13
10/1/13
11/1/13
12/1/13
1/1/14
2/1/14
3/1/14
4/1/14
5/1/14
6/1/14
7/1/14
8/1/14
9/1/14
10/1/14
11/1/14
12/1/14
1/1/15
2/1/15
3/1/15
4/1/15
5/1/15
6/1/15
7/1/15
8/1/15
9/1/15

1,200

FIGURE 4. Pending cases versus institution rates and invalidity rates

2,000

Pending cases

Invalidity rate

100%

Institution rate

9/1/15

8/1/15

7/1/15

6/1/15

5/1/15

4/1/15

3/1/15

2/1/15

1/1/15

12/1/14

11/1/14

10/1/14

9/1/14

8/1/14

7/1/14

6/1/14

5/1/14

4/1/14

50%

3/1/14

2/1/14

60%

1/1/14

400

12/1/13

70%

11/1/13

800

9/1/13

80%

10/1/13

1,200

8/1/13

90%

7/1/13

1,600

District court
termination

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the earliest inter partes review filing, which is typically

when the PTAB delivers (or would have delivered)
an institution decision. Further, the evolution of this
distribution reveals a trend over time. In 2012 the
number of related matters was 286 and the median
adjusted duration was 281 days. By the end of both
2013 and 2014, the sample size of cases grew to 828 and
1,100 respectively, while the median dropped to 197 and
163 days.
FIGURE 5. Pending cases and methods of settlement

Pending 46%

Not instituted 33%

Final written decision 26%
Adverse judgment 5%
Settlement 36%

FIGURE 6. Resolution of district court cases for cases filed in 2012-2014

Of the settled cases in district court, roughly 7% or

1,100 were identified as a pending related matter
in at least one inter partes review proceeding.
23,000
Total cases

Settled 68%
Otherwise terminated 22%
Pending 10%

FIGURE 7. Distribution of overall durations for litigations filed in 2012-2014

Settlements in all litigation
Settlements in related matters
Settlements in all litigation
Area = 15,000 cases
Median = 211 days
Settlements in related matter
Area = 1,000 cases
Median = 420 days

90

180

270

360

450
540
630
Duration (in days)

720

810

900

990

Significance of institution decisions in

prompting settlements

41

There are several plausible explanations for why the

institution decision has become the centre of gravity
in inter partes review proceedings. One explanation
for the increase in pre-institution settlements may be
that settling the dispute earlier allows patent owners to
eliminate the risk that an adverse decision could be used
as grounds for institution in a later case. Although the
PTAB is not necessarily bound by its earlier decision,
the patent owners incentive is rooted in the inherently
precedential effect of a prior determination on institution.
A second explanation may be that defendant
petitioners have an increased incentive to settle claims
before institution due to the low rate of institution
although this seems less likely. Similar to the risk faced
by rights holders, an adverse institution decision may
estop defendants from making certain arguments or,
at the very least, confer some degree of legitimacy to
the patent. However, unlike the dilemma facing rights
holders, district courts thus far have largely taken the
position that a decision denying institution of an inter
partes review does not support an inference of validity
in a related civil matter. Some courts have gone so far as
to prohibit the presentation of such evidence to the jury
at trial.
As a result, it seems unlikely that the risk of an adverse
institution decision would encourage defendants to
settle in the same way that it may incentivise rights
holders. Even if it could be demonstrated that parties
preference for settling before institution is attributable
to some other incentive for defendants, the fact remains
that in most cases defendants will benefit from faster
settlements. Accordingly, because parties to an inter
partes review petition are more likely to settle within six
months, simply filing an inter partes review may provide
some benefit to defendants in patent disputes.
A third explanation is that the high probability that
an inter partes review, if instituted, will result in a final
written decision that invalidates one or more claims of
the challenged patent encourages rights holders to settle
before an institution decision.
From 2012 through 2014, the probability that
the PTAB would institute an inter partes review was
relatively low; approximately two-thirds of all petitions
were instituted. However, of the instituted petitions,
there was a high probability about an 89% chance
that the PTAB would invalidate one or more claims in
a final written decision. As this trend emerged, rights
holders likely recognised that their chances of escaping
an inter partes review with all patent claims intact
would decrease significantly if institution was granted.
Accordingly, rights holders may have an increased
incentive to limit this risk by negotiating a settlement
before any institution decision.
This is only one of several possible outcomes that
could have resulted from the new post-grant procedures.
One could readily imagine a scenario where the
institution decision was little more than a formality or
rubber stamp and did not affect incentives to settle. For
example, imagine that, rather than a 66% institution
rate, the PTAB instituted 99% of all inter partes review
petitions. Further, imagine that only 50% of instituted
claims were later invalidated in a final written decision.
In this scenario, the institution decision would retain

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little significance and parties would be unlikely to

consider settlement until around 18 months, right
before the PTABs final written decision. Under such
circumstances, petitioners and other defendants in
district court would likely not receive the same degree
of benefit from inter partes review petitions in resolving
their civil litigation.
Setting aside the potential explanations for the
moment, the apparent consequence of this trend is that
regardless of whether the PTAB institutes an inter partes
review, filing an inter partes review petition increases the
likelihood that parties will reach a settlement before any
institution decision is made. If, as suggested above, this
trend is attributable to the rights holders desire to avoid
certain risks associated with institution, this may be to
the defendants benefit.
In particular, filing an inter partes review increases
the likelihood that parties will settle more quickly
thereby reducing the costs associated with civil
litigation independent of their belief in the likelihood
of institution. It is no surprise that patent litigation in
district court can drag on for years before reaching any
definitive resolution and that the resulting court costs
and attorneys fees can be crippling. Because the America
Invents Act requires the PTAB to issue an institution
decision within six months from the date the petition is
filed, this strategy can significantly reduce the litigation
costs to defendants.
That said, filing an inter partes review also poses
certain risks for defendants for example, the possibility
that arguments rejected in the inter partes review
proceeding may estop the defendant petitioner from
raising those arguments in the district court. Estoppel
may not foreclose other defendants facing similar
infringement contentions from raising in district court
those arguments previously rejected by the PTAB. This
may create a free-rider problem, especially in situations
where the other defendants are competitors of the
defendant-petitioner.

Small procedures, big impact

There are certainly other explanations which may

provide useful insight into the significance of the
PTABs institution decision and its impact on the
timing of settlement agreements. However, these
should not displace the importance of the observation
itself. Put another way, the effect that the PTABs
institution decision has in driving parties towards earlier
settlements remains significant, independent of any
potential explanation.
As a result, the institution decision is important
for both defendants and rights holders to consider in
devising their litigation strategies. For defendants in
particular, it is worth reexamining the value of filing an
inter partes review petition. Even though the likelihood
that a particular claim may be instituted is relatively low,
the data suggests that defendants may be able to induce
an earlier settlement by simply filing a petition.
Once again, the current situation is just one of many
possibilities that parties could have predicted in 2012.
Perhaps if the PTAB had received only 35 petitions per
month, as originally estimated, the USPTO would have
more resources to address each petition on the merits
and the resulting institution rates would be higher. In
that case, the PTABs institution decision would exert

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FIGURE 8. Overall durations versus adjusted durations for related matters filed in 2012-2014
Institution decision
six-month deadline

Adjusted Durations
Overall Durations

Adjusted duration
Area = 1,100 cases
Median = 163 days

90

180

270

360

Overall duration
Area = 1,000 cases
Median = 420 days

450
540
630
Duration (in days)

720

810

900

990

FIGURE 9. Evolution for adjusted durations for related matters filed in 2012-2014
Institution decision
six-month deadline

January 2012 to December 2014

Area = 1,100 cases
Median = 163 days
January 2012 to December 2013
Area = 828 cases
Median = 197 days
January 2012 to December 2012
Area = 286 cases
Median = 197 days

90

180

270

360

450
540
630
Duration (in days)

720

810

900

990

Action plan
How can companies IP divisions adjust their strategy to account for the significance of
PTAB institution decisions?
Law makers and policy makers should consider the system-wide implications for
proposed amendments or revisions to the current patent law framework.
All litigants should carefully evaluate the impact an inter partes review or potential
inter partes review can have on your patent licensing strategy.
To other stakeholders, explore potential avenues to expose those areas where the
PTAB influences the nature of patent litigation.

less pressure on parties incentives to settle.

Beyond the effect on the timing of settlements, the
analysis demonstrates the larger effect that seemingly
small procedures at the PTAB may have on the patent
system as a whole. Similarly, it is natural to infer that
even modest changes to the existing framework have the
potential to for better or worse distort distant corners
of the patent universe.
Sam Jaffna is director of analytics, Shawn Ambwani is
chief operating officer, Jonathan Stroud is chief patent
counsel and Robert Jain is an IP analyst at Unified Patents,
San Francisco, California, United States