1. What exactly happened in the re-exam on Friday?
When patents are re-examined, the patentee has two chances to convince the USPTO that the novelty of the claims should be confirmed. In September, the Vringo's (VRNG) '420 patent missed its first chance -- it received a NON-FINAL rejection. On Friday, the '420 patent missed its second chance -- it received a FINAL rejection.
2. Vringo's press release didn't say "final" rejection. It just said the rejection was "maintained."
The terminology used by the patent office is "final rejection." The rejection is final because there are no more chances to appeal to the first examiner. Instead, Vringo's only recourse is to appeal that examiner's rejection to the Patent Trial and Appeal Board. To the extent the examiner issued a "final" rejection after a "non-final" rejection, then the rejection was "maintained." But that is not terminology used by the patent office.
3. So, is that it?
No. Vringo has the opportunity to appeal. It will have two opportunities to appeal. The first appeal will be to the Paten Trial and Appeal Board at the USPTO. The Board reviews the particular finding(s) contested by an appellant anew in light of all the evidence and argument on that issue. This means that the Board does not give deference to positions taken by the examiner when considering an appellant's argument. If the board agrees with the examiner, and the claims remain unpatentable, then Vringo's next recourse is to appeal to the Federal Circuit. The Federal Circuit, however, will use a "substantial evidence" standard which is quite low. That means the Federal Circuit does not review the re-examination anew, but gives deference to the findings of the USPTO.
4. What are the chances of surviving the appeal to the patent office?
Without assessing the substance of arguments in the re-examination, we cannot say. However, it is important to bear in mind that Vringo has missed its first two chances to convince the patent office that the '420 patent should survive re-examination. While the Board will review the findings "anew," Vringo faces an uphill battle and more uncertainty.
5. But what about the jury verdict? I thought the jury said the patents were valid?
No. The jury was asked a very specific question -- did Google show, by clear and convincing evidence, that the patents are not valid? That is a high bar. The jury's answer was no. But that does not mean that the patents cannot still be invalidated by the PTO. The Federal Circuit (which is the authoritative appeals court on patent issues) held that, even if a patent survives a patent trial, like Vringo's patents, they can still be examined on re-examination. The bottom line is the jury trial does not bar the patent office from holding these patents are invalid. It is this uncertainty that the market has not priced at this point.
6. Are you sure about that? That doesn't sound right to me.
This is one of the reasons that Google would spend the resources to re-exam the '664 patent after the trial. It is seeking a second bite at the apple, one that is perfectly legal. As of now, the USPTO has determined that a substantial new question of patentability for the '664 exists. In addition, much of the prior art cited against the '664 patent is the same as the art cited against the '420 patent, which was the basis for the examiner's rejection of that patent on Friday.
Another possibility for Vringo with respect to the '664 patent is to amend the claims to overcome the prior art cited by the examiner. This introduces the doctrine of intervening rights, which protects an accused infringer's (Google) right to continue using, selling, or offering to sell specific products covered by reissued or reexamined claims when the particular accused product had been made before the date of the reissue or reexamination and the scope of the claims is substantively changed. 35 U.S.C. § 252. In other words, the statute provides an accused infringer with the absolute right to use or sell a specific product that it made, used, or purchased before the grant of the reexamined patent. Clearly, this should not be Vringo's approach.
7. So, can Google use the final rejection in some way now?
Yes. In fact, we believe that Google's lawyers will use the final rejection to avoid paying any future royalties.
8. What can Google do?
Google will likely file a motion to either: (NYSE:I) stay the case entirely, or (ii) stay its obligation to pay any future royalties. Google will argue that the patent office has twice rejected the '420 patent. Given this, Google will also argue that the '664 is likely to be rejected because the patents are similar and much of the same prior art is cited against the '664 patent that was cited against the '420 patent. Google will then likely argue that because neither patent will not survive the re-exam, they will eventually be invalid. Given this likelihood, Google will argue that it should not have to pay any future royalties.
9. But I thought Google is obligated to respond to Vringo's motion for future royalties by May 13?
Yes. But nothing stops Google from moving to stay the case pending the re-examination in light of the final rejection of the '420 patent on Friday.
10. But the Judge can't do that? Can he stay the case now? What about the jury verdict?
The important point is that Judge Jackson has discretion to stay the case now. Whether or not he agrees with Google, it is in his power to stay Google's obligation to pay any future royalties until the re-examinations are complete. And if the re-examinations both invalidate the patents, it is within Judge Jackson's power to hold that Google has no future liability. And in that case, Vringo is not entitled to any future royalties. Courts typically stay litigations when re-examinations of the patent-at-issue are filed right away after the case started. Here, they were not filed right away. In fact, the '664 patent's re-exam was filed after the trial. And the '420 patent's re-exam has yet to work its way through the appeal. Judge Jackson may consider these facts weigh against Google's argument that payment of any future royalties should be stayed. Nevertheless, there is risk here.
11. What about the Microsoft case?
The final-rejection of the '420 patent has strengthened Microsoft's position. This is because there is a likelihood that the patent will be invalidated before the case against Microsoft matures significantly. Microsoft will undoubtedly wait out the Board proceedings. In addition, Microsoft can also move to stay the case pending the reexamination finality.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in VRNG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: We were long Vringo prior to Friday, but closed our position based on the re-examination news which we shared with members of SA immediately, well before Vringo's press release.