Considering Patent Arbitration? Be Aware of the PTO Notice Requirement

The COVID-19 pandemic has delayed civil trials across the country.  This includes patent cases, which are often complex and must be filed in federal court.  Arbitration offers a possible alternative venue.  While arbitration is private and generally confidential, anyone considering this option should be aware of its special notice requirement. 

Arbitration of a “patent validity or infringement dispute” has been an option since 1982, when Congress enacted 35 U.S.C. § 294.  Section 294(c) provides that the “award by an arbitrator shall be final and binding between the parties to the arbitration” but no one else.  Subsection (d) requires that notice of an arbitration award must be provided to the U.S. Patent and Trademark Office (PTO) for the award to be enforceable. 

The obligation to provide notice to the PTO lies with the patent owner or assignee/licensee (37 CFR 1.335(a)).  The notice must include “the patent number, the names of the inventor and patent owner, and the names and addresses of the parties to the arbitration (Id.).  Significantly, it “must also include a copy of the award” (Id.). 

The notice, when provided to the PTO, will necessarily reduce the privacy and confidentiality advantages of patent arbitration.  Even only if a bare, win/lose award is filed, the fact that there was an arbitration, and the identity of the parties will be public information recorded in the patent file.  Perhaps for these reasons, the notice requirement appears to be more honored in the breach.  Indeed, it has been reported that the PTO has rarely received such notices. (See “Arbitrating a Patent Issue? You Must Comply With the Notice Requirement!” by Kevin Casey in The ADR Advisor. The PTO received only two such notices in 2017 and 2018, and four in 2015.)   

What happens if the notice is not provided as required?  The statute and applicable regulation are explicit that an award cannot be enforced without filing the notice.  But there is rarely a need to bring an enforcement action.  A victorious accused infringer would have no need to file suit to enforce the award (except perhaps to recover an award of fees and costs) and has no statutory obligation to provide notice to the PTO should the patentee fail to do so.   A winning patentee/assignee/licensee may be hesitant to bring an enforcement action in order to avoid publicity.  Even though the award does not bind non-parties, litigants in future court proceedings on the same patent who learn of the arbitration could seek more detailed information about the arbitration record in discovery.  Although the number of patent arbitrations is not known, it is reasonable to assume that many, if not most, patent arbitrations awards are never enforced in court.  The greatest incentive for compliance with the notice requirement—enforceability—thus may rarely come in to play.  There apparently has been no judicial precedent on what other consequences, if any, might result from noncompliance.

All of this has caused some contract or license drafters to tailor the arbitration clause anticipating that the award could end up in the PTO’s patent file and thus be publicly available.  Some contracts, for example, have provided that the arbitrator(s) will issue a draft award to the parties, who may choose to settle or opt for only a bare award as the final award.  If there is no pre-dispute arbitration clause, or it is silent on the issue, the parties may address the issue in the submission agreement.  In all events, anyone considering patent arbitration should be aware of the potential impact of Section 294(d).     

Roderick “Rod” M. Thompson is a JAMS arbitrator, mediator and neutral evaluator based in the JAMS San Francisco Resolution Center.