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Legal finance trends: IP & patent litigation

October 12, 2019

In the wake of recent legal changes, affirmative patent litigation has become one of the highest-risk areas in US practice. The events of 2018 suggest some relief may be on the horizon. But at least in the near term, we’re likely to see increased uncertainty in this field, and thus, continued high demand for legal finance from those brave enough to navigate it.

US executive agencies, including the USPTO, will begin to face greater judicial scrutiny

In twin patent decisions in Oil States [1] and SAS Institute [2], the US Supreme Court upheld the constitutionality of the inter partes review process for challenging issued patents administratively. But simultaneously, the Court expressed concern over the Patent Office’s power to revoke longstanding property rights under relatively limited scrutiny.

Justice Neil Gorsuch, in his Oil States dissent, cast post-grant review proceedings as an encroachment on the judiciary’s Article III independence. Even more ominously, his majority opinion in SAS Institute declined to give the oft-used Chevron[3] deference to the USPTO’s interpretation of the enabling statute for post-grant review.

Together, these decisions serve as early evidence of a potentially macroscopic shift in jurisprudence on the power executive agencies should enjoy. This to some degree will eventually check the USPTO, among other agencies. Post-grant review as a litigation-adjacent proceeding is at particular risk—which is significant, since post-grant review arguably is one of the most influential changes to patent litigation dynamics in the last ten years.

To be sure, Justice Gorsuch’s view is not specific to patent law, nor is his the first such voice on the Court. But the appointments of Justice Gorsuch and now Justice Brett Kavanaugh together may further tip the scales in this direction.

Some decisions may provide relief from patent challenges in the long term, but at least for now, will increase litigants’ uncertainty

Several judicial decisions in 2018 ostensibly diminished the potency of patent challenges that have otherwise been difficult for patent owners to counter. On the other hand, in the short term, the same decisions might very well have made patent litigation even more uncertain than it already is.

In SAS Institute, for instance, the Supreme Court held that the Patent Trial and Appeal Board cannot grant partial institution of an inter partes review petitioner’s challenge; now, it must be an all-or-nothing result. Some observers suggest this will expand the scope of estoppel against petitioners. Others suggest the PTO will be more inclined, on average, to deny a petition outright where it might otherwise have granted institution only in part.

However these things evolve, it is undeniable that SAS Institute’s immediate effect is to reduce the amount of information one can learn from an institution decision. If denied, the result is the same; if granted, though, one can no longer be sure which arguments were doomed at the start. This is problematic, because parties with less information about the strength of a case will be less likely to settle it—meaning more litigation will be required to reach an informative result.

Similarly, the Federal Circuit’s twin section 101 decisions in Aatrix [4] and Berkheimer [5] kicked the can of patent eligibility farther down the road of litigation: At least some of the eligibility determinations that might have been made in very early stages of litigation are now delayed until summary judgment or trial.

The long-term effect of these decisions is still unclear. Maybe they’ll ultimately increase the overall rate at which patents survive such challenges—a shift that would feed information back into early negotiations in new cases, in turn affecting future outcomes. But at least in the short term, these changes likely will increase the uncertainty inherent in patent licensing and litigation—potentially for both sides—and accordingly, increase the level of monetary investment needed to resolve the uncertainty.

IP strategies accordingly will continue to explore more promising frontiers

Given the challenges in US patent litigation, industry observers in recent years have pointed increasingly to Europe and China as attractive alternatives. As a result, IP enforcement strategies increasingly depend at least in part on international tactics.

It’s hard to separate reality from hype. Interest in international IP strategies has waxed and waned for many years without eclipsing US-centric interest. Perhaps the latest wave of changes—Qualcomm’s injunction against Apple in China, China’s announcement of a centralized appeals court for IP cases—could finally move the needle noticeably. But for now, especially in view of the continuing cloud of uncertainty around US-China relations generally, it is not clear that IP investors are doing much more than dipping their toes into this market.

In the interim, investments in the US patent market likely will continue to shift away from technologies most threatened by recent legal changes—namely, software patents.

In this respect, the Alice [6] decision was a major catalyst. In 2014, Alice kicked off an avalanche of uncertainty about the level of abstraction at which an invention should be eligible for patenting. This is particularly problematic for software patents since, by design, all software creates some level of abstraction from the physical world. In response, the market has priced software patents as relatively higher-risk investments, and leaned instead toward technologies more likely to be immune to this problem (e.g., aerospace, automotive, energy, high-tech manufacturing).

As we move forward, the last few years’ worth of investment strategies in these more “tangible” technical fields will begin to bear noticeable fruit, which likely will drive follow-on interest and investment.

Legal finance can help

Thus, as always, we anticipate significant demand for legal finance in the perpetually high-risk world of patent litigation.  It is crucial that parties work with a provider with the scale and endurance to ensure that capital will be available for the entirety of this arduous process. With a ten-year track record and more capital than any other legal finance provider, Burford is prepared to go the distance.

[1] Oil States Energy Services, LLC v. Greene's Energy Group, LLC, 584 U.S. (2018).

[2] SAS Institute Inc. v. Iancu, 584 U.S. (2018).

[3] Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984).

[4] Aatrix Software, Inc v. Green Shades Software, Inc , No. 17-1452 (Fed. Cir. 2018).

[5] Berkheimer v. HP Inc., (Fed. Cir. Feb. 8, 2018).

[6] Alice Corp. v. CLS Bank International, 573 U.S. 208, 134 S. Ct. 2347 (2014).