Generally, accused infringers prepare and file petitions for inter partes review hoping to benefit from the lower evidentiary burden, review by specialized administrative patent judges, and lower overall cost than litigation. However, not all petitions are filed. So-called “dark” IPRs are petitions drafted but never filed. Unlike a filed petition, which is a public document and available for inspection by anyone with an internet connection, these petitions remain private and never see the light of day — hence the “dark” moniker.[1] This article analyzes the strategic and ethical considerations for both petitioners and patent owners when considering or facing a dark IPR.
How and Why Are Dark IPRs Used?
Instead of filing a petition, it is presented to the patent owner, along with an ultimatum threatening to publicly file unless the patent owner meets some demand. While this might be in the context of ongoing litigation over the patent, it may also be related to other disputes or strategic competition between the parties.
One example of a situation where such a strategy has been employed includes a third party sending a patent owner a demand for transferable licenses (with the intention to license accused infringers) along with an unfiled petition, which will of course be filed unless the demand is met.[2] Such third parties may be so-called “invalidity assertion entities,” or IAEs, that have built an entire business model around this strategy.[3] In addition to the threat posed by the original third party’s petition, this scenario also raises the potential for any current defendants to escape Section 315(b)’s one year bar by filing their own petitions along with a request for joinder.[4] Although these types of entities certainly exist and use dark IPRs, the available data indicates that they probably are involved in only a small percentage of the dark IPRs that have been prepared.[5]
In our experience, dark IPRs are often prepared by accused infringers, who may or may not have already been served with a complaint. The accused party may have other related disputes with the patent owner, such as foreign or domestic litigation on related patents. The dark IPR is thus used to create settlement leverage, in disputes involving either the patent targeted by the petition or related patents.
A great deal more leverage exists for a putative petitioner before a petition is filed than after because, once made public, the petition can serve as an invalidity road map to other accused infringers or competitors. Thus, after filing, even if the patent owner settles with the petitioner and the petition is withdrawn, the damage is done. Future challengers can use the petition as a reference to drastically reduce the cost of preparing a subsequent petition. This means that the value of the petition to induce settlement may actually drop once filed. Making the petition public may therefore actually lower settlement chances, as the patent owner now has an incentive to mount a vigorous defense in the hope of saving the challenged claims, and to foreclose future attacks based on the same or similar art. Thus, a petitioner considering this strategy should understand all of the potential ramifications before proceeding.
Considerations in Pursuing a Dark Strategy
Selecting the Right Patent
Obviously, in order for the dark IPR strategy to succeed, the patent must be one of strategic importance to the patent owner. Thus, the strategy will likely be effective only where the patent owner’s business relies on the patented invention or related technology, or in other situations where the patent owner assigns the patent a high value. A patent owner presented with a petition challenging a patent ancillary to its business, or that represents only a slice of the patent owner’s total portfolio directed to the technology at issue, will not feel threatened but may instead be quite pleased that its adversary has spent time and resources preparing a challenge to property rights to which the patent owner assigns little value.
The Petition Must Present a Credible Threat
In order to be effective in achieving its intended purpose, the dark petition must present a credible threat to the patent. First and foremost, the petition must be a substantive threat, presenting prior art which has a reasonable chance of invalidating the patent claims. Second, the petitioner should not simply commission a “light” draft petition, such as one containing only certain portions of the petition, or mere attorney argument and analysis. To present a credible threat, the petition should be almost or completely ready to file with the Patent Trial and Appeal Board. Preferably, the petition would be complete with all exhibits ready for filing. At the least, any supporting declaration from an expert witness should be completed and ready. The more complete the petition, the stronger the signal to the patent owner that the petitioner is not bluffing and is prepared to see the IPR process through, unless the parties come to a resolution.
The Patent Owner’s Duty to Disclose and Discovery Obligations
Attorneys admitted to practice before the U.S. Patent and Trademark Office are well aware of the duty to disclose imposed by 37 C.F.R. § 1.56. Pursuant to that regulation, during the time when an application is being examined and before the patent is granted, those persons substantively involved with the prosecution of a patent application have “a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability as defined in this section.”[6]
The Manual of Patent Examining Procedure, in discussing the source of such information, explicitly references information from related litigation and America Invents Act trial proceedings. Specifically, Section 2001.06(c) provides that “[w]here the subject matter for which a patent is being sought is or has been involved in litigation and/or a trial proceeding, or the litigation and/or trial proceeding yields information material to currently pending applications, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the examiner or other appropriate official at the U.S. Patent and Trademark Office.”[7]
Thus, before providing the patent owner with the petition, the petitioner should consider — and even discuss with the patent owner — whether review of the petition will trigger the patent owner’s duty to disclose. Of course, if there are no pending applications related to the subject patent, there is no concern. However, often the patent may be one of a family, including applications which are still pending. The prior art in the petition will likely be material information related to the subject matter of the pending application. If the petition is provided to the patent owner, prosecution counsel, or other “substantively involved” individuals, the duty to disclose will be triggered. If so, it may lessen the value of the petition as settlement leverage. This is because the maximum leverage presented by the unfiled petition lies in its secrecy — its “dark” nature.
A related issue is whether the dark IPR will be subject to later civil discovery. Obviously, if later defendants can discover the dark IPR, it will cease to be “dark” and will have a value equivalent to a publicly filed petition, at least to that defendant, once produced. Thus, a defendant that obtains the dark IPR in discovery may potentially exploit it (subject to potential confidentiality obligations) and use it as a road map for their own IPR, regardless of whether it was ever filed. Thus, the petitioner and patent owner should consider whether it may be preferable to disclose the petition in a way that avoids this problem, such as providing a copy for review only in person, and not allowing the patent owner to make or take a copy. However, this strategy could also lessen the value of the dark IPR, in that the patent owner and its counsel may not be able to adequately assess the threat posed by the petition.
As a corollary to this point, when a patent owner has previously asserted the patent, accused infringers should consider requesting production of any dark IPR petitions and similar materials, and may want to use an interrogatory directed to the patent owner’s knowledge of such materials (regardless of whether they retained a copy). Similar third-party requests may be directed to the patent owner’s prior targets as well.
Scenarios for Analysis
We present two different scenarios to compare and contrast the strategic considerations discussed above. Of course, the weight of the various factors and the ultimate decisions regarding whether to employ a dark IPR strategy will vary based on the fact pattern.
1. Dark IPR Against Key Patent for Use in Foreign Mediation
The patent owner and the petitioner are embroiled in foreign patent litigation. The petitioner desires to begin importing its products for sale into the United States, but the patent owner also owns a single key U.S. blocking patent, which also protects the patent owner’s core product. The patent owner will undoubtedly assert the patent should the petitioner begin selling in the U.S.
The petitioner commissions the preparation of a complete IPR petition to invalidate the critical patent. During mediation of the foreign litigation, the petitioner notifies the patent owner that it has a complete, ready-to-file petition, which it will be filing immediately after the mediation, assuming it is unsuccessful. The petitioner is prepared to allow review of the petition, but warns that by doing so will trigger the patent owner’s disclosure and discovery obligations.
The decision to use a dark petition in this type of situation is obviously a good choice. The patent owner has a limited portfolio, with a single patent protecting their core product. The cost of preparing a single petition, even if never filed, is far out-weighed by the potential spend in an infringement suit. A patent owner presented with such a petition, or even with the knowledge that such a petition will be filed immediately following an unsuccessful mediation, would understand that refusing to settle exposes its most valuable intellectual property to potentially significant risk. Thus, the petition creates a great deal of leverage for the petitioner and incentive for the patent owner to keep it “dark.”
2. Multiple Petitions Against Portion of NPE Portfolio
The patent owner, a nonpracticing entity, asserts several related patents against the petitioner. Due to cost considerations, the petitioner prepares petitions against only the two most likely to read on the petitioner’s products. The petitioner presents the completed petitions to the patent owner’s litigation counsel for review during settlement discussions. The petitioner warns that it will invest in additional petitions, but the patent owner owns a broader portfolio of related patents that were not asserted against the petitioner.
The value proposition here is not as straightforward. Because the patent owner is an NPE, it has no core product to protect. Further, it has several patents, including those not asserted against the petitioner, and IPR proceedings against all of them will be very expensive. The petitioner properly focuses, at least initially, on those patents that threaten its business the most — but even if those patents are canceled, the patent owner will be able to continue its licensing campaign. However, given that the patents are related, the patent owner should consider that other, future defendants could easily modify any filed petitions to focus on patents not challenged by the petitioner. Finally, given that only the patent owner’s litigation counsel is privy to the petitions and does not retain a copy, it is arguable that no duty of disclosure will be created, although the patent owner or its counsel’s knowledge of the petitions may be subject to discovery in future actions.
Conclusion
Based on our experience, counsel considering or presented with a dark IPR should carefully consider the various factors discussed above, as well as any considerations peculiar to their particular situation. In the right case, a dark IPR can help a petitioner resolve a dispute at fairly low cost, and actually save a patent owner from losing valuable patent rights. However, if not executed properly or in the wrong case, a dark IPR will only add to both parties’ expenses and may lower the likelihood of an agreed resolution.
“Shining Some Light On 'Dark IPR' Strategy,” by James H. Hall was published in Law360 on January 24, 2019. Reprinted with permission.
[1] See www.law360.com/articles/1087498/dark-ipr-hot-tubbing-and-other-terms-ip-attys-should-know.
[2] See Chinook Licensing DE LLC v. RozMed LLC, C.A. No. 1:14-cv-00598, Doc. 11 (D. Del. Jun. 25, 2014).
[3] See W. M. Schuster, Rent-Seeking and Inter Partes Review: An Analysis of Invalidity Assertion Entities in Patent Law, 22 Mich. Telecomm.& Tech. L. Rev. 271 (2016).
[4] 35 U.S.C. § 315(b),(c)
[5] See id. at 277 (explaining that IAEs appear to represent less than 2.5% of all filed IPR petitions).
[6] 37 C.F.R § 1.56(a); see also MPEP § 2001.04 (duty extends through patent grant).
[7] MPEP § 2001.06(c).
