February 16, 2016

Supreme Court To Review PTAB Policies And Practices

Arnold & Porter Advisory

On January 15, 2016, the Supreme Court granted certiorari in Cuozzo Speed Technologies, LLC v. Lee, No. 15-446, to review a decision by the Federal Circuit affirming the broadest reasonable interpretation standard of claim construction applied by the Patent Trial and Appeal Board (PTAB) in inter partes review (IPR) proceedings. The Supreme Court also granted certiorari  to consider the majority panel’s holding that it lacked subject matter jurisdiction to review the PTAB’s decision to institute an IPR proceeding – even in cases where the PTAB had exceeded its statutory authority in doing so. The Supreme Court’s resolution of these two important legal issues is very likely to shape the manner in which patentees and patent challengers approach IPR petitions in the future.

I. Background on IPRs

The Leahy–Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (AIA) of 2011 established new methods of contested proceedings before the PTAB through which a party (often, an accused infringer) could challenge the validity of a patent’s claims.1 The efficiency of adjudication, confined focus of the proceedings, and limited opportunity for claim amendments have made IPRs a particularly popular tool for patent challengers seeking to combat vexatious litigation. In the first three years of its implementation, IPR proceedings invalidated patent claims at rates far exceeding the historical trends in district court litigation or previous administrative patent challenges before the PTO.2 Mounting evidence of the potency of IPR challenges has increasingly led parties to shift the adjudication of validity disputes to the PTAB. This increased utilization, however, has also led some patent holders to question whether certain PTO policies and practices have artificially contributed to the high rates of invalidation before the PTAB. The Supreme Court’s grant of certiorari in Cuozzo addresses two particularly significant challenges to the PTAB’s adjudication of IPRs.

II. The Proceedings Before The PTAB And The Federal Circuit

The Cuozzo appeal centers on an IPR petition filed by Garmin International, Inc. and Garmin USA, Inc. (collectively, Garmin). Garmin’s petition led to a final written decision by the PTAB invalidating claims 10, 14 and 17 of US Patent No. 6,778,074 (the ’074 patent).3 On appeal, petitioner Cuozzo Speed Technologies, LLC (Cuozzo) challenged both the PTAB’s initial decision to institute an IPR4 and the PTAB’s interpretation of certain claim terms in the subsequent IPR proceeding.

With respect to the initial institution decision, Cuozzo challenged the PTAB’s authority to initiate an IPR proceeding on two of the claims (claim 10 and 14) because it relied on prior art that Garmin’s petition only identified in connection with its challenge to another claim (claim 17).5 Cuozzo argued that the PTO’s authorization of an IPR on grounds other than those particularly identified in the petition runs afoul of the AIA’s bar against the institution of inter partes reviews “unless the Director determines that the information presented in the petition . . . shows that there is a reasonable likelihood that the petitioner would prevail.”6 Cuozzo also pointed to the statutory requirement that any IPR petition “identif[y] . . . with particularity . . . the grounds on which the challenge to each claim is based . . . .”7

With respect to the claim construction issue, Cuozzo objected to the PTAB’s construction of the term “integrally attached” under the broadest reasonable interpretation (BRI) standard, as opposed to the “ordinary meaning” standard that a district court would normally apply in parallel litigation.8 According to Cuozzo, the PTO lacked the statutory authority to promulgate a rule (37 C.F.R. § 42.100(b)) mandating the use of the BRI. Cuozzo also argued that the standard is ill-suited to adjudicatory proceedings in which there is little practical opportunity to amend the disputed patent claims.9 Cuozzo argued that this broadened claim construction standard had the effect of widening the scope of the prior art and ratcheting up its impact.10

A divided panel of the Federal Circuit entered an original judgment denying both grounds of Cuozzo’s appeal on February 4, 2015, and issued an amended order and denied a request for rehearing en banc by a 6-5 vote on July 8, 2015.11 An examination of both opinions reveals clear divisions between the panel members on both questions. The majority (in an opinion by Judge Dyk) ruled that the court lacked jurisdiction even to consider Cuozzo’s appeal of the PTAB’s decision to institute an IPR proceeding. In support of this position, Judge Dyk relied on the language of Section 314(d) of the AIA, which provides that “[t]he determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.”12 In the majority’s view, this language not only precludes interlocutory review of decisions to institute an IPR, as it suggests the Federal Circuit previously held in St. Jude Medical, Cardiology Division, Inc. v. Volcano Corp., 749 F.3d 1373, 1375-76 (Fed. Cir. 2014),13 but also confines the consideration of a PTO institution decision to rare petitions for mandamus.14 In dissent, Judge Newman characterized the “final and nonappealable” provision of the AIA as merely serving to control “interlocutory delay and harassing filings.”15 Citing the longstanding presumption in favor of judicial review of final agency action, Judge Newman charged the majority with an abdication of its obligation to review the PTO’s allegedly extra-statutory institution of the IPR.16

The panel also split on the propriety of the PTAB’s BRI claim construction standard. The majority identified two bases for affirming the PTAB’s use of the BRI. First, noting the PTO’s century-long history of applying the BRI in a variety of proceedings (including initial examinations, interferences, reissues, and reexaminations), the majority reasoned that Congress impliedly approved the PTAB’s application of the existing BRI rule when it passed the AIA.17 Second, in the alternative, the majority concluded that the BRI standard established by 37 C.F.R. § 42.100(b) represented a valid exercise of the PTO’s rulemaking authority under Section 316(a)(2) and (a)(4).18 In the majority’s view, the reasonableness of the PTO’s interpretation was confirmed by the agency’s longstanding practices in similar proceedings that implicated similar policy considerations.19

In a dissent from the denial of rehearing, Chief Judge Prost and four other circuit justices disagreed, asserting that application of the BRI standard was antithetical to Congress’s goal of making IPR proceedings a “far-reaching surrogate for district court litigation” – proceedings in which claim terms are construed in accordance to their ordinary meaning (to one of skill in the art at the time of the invention).20 In addition, the dissenters took the position that the limited opportunity to amend in IPR proceedings ultimately undermined the majority panel’s analogy to past PTO practices.21 They also argued that the PTO’s regulation was not entitled to Chevron deference because it was both unreasonable, and beyond the PTO’s authority to prescribe “procedural regulations.”22

III. Implications Of Supreme Court’s Grant Of Certiorari in Cuozzo

In response to Cuozzo’s petition, the Supreme Court granted certiorari on both questions (i.e., (1) whether the PTAB’s decision to institute an IPR is reviewable even when it lacks statutory authority to do so and (2) the PTAB’s application of the BRI claim construction standard). With respect to the first issue, a Supreme Court decision overturning the Federal Circuit’s ruling on judicial review will inevitably invite other appeals involving challenges to the PTAB’s institution decisions. Their volume will turn on the breadth of the Supreme Court’s reasoning. For instance, if, as Judge Newman argued in dissent, Section 314(d) is found only to bar interlocutory appeals of institution decisions, then patent challengers will have great freedom to challenge any material aspect of the PTO’s institution decisions. By contrast, if the Supreme Court limits appellate review to ultra vires actions on the part of the PTAB, fewer cases will be implicated. An affirmance, on the other hand, may well trigger challenge to appeals of PTAB decisions to institute covered business method (CBM) and post-grant review proceedings. Despite both proceedings sharing common “final and nonappealable” restrictions on certain issues addressed in institution decisions,23 a divided Federal Circuit panel in Versata Development Group, Inc. v. SAP America, Inc.,793 F.3d 1306, 1314-23 (Fed. Cir. 2015) authorized appellate review of institution decisions.24

The Supreme Court’s response to the second question (the PTAB’s application of the BRI claim construction standard in IPR proceedings) is likely to have even more impact. As numerous patent holders and intellectual property organizations argued to the Supreme Court in amicus briefs supporting Cuozzo’s petition for certiorari,25 the PTO’s use of the BRI standard in IPR proceedings has arguably created several strategic advantages for defendants in patent litigation seeking to challenge the validity of an asserted patent. In contrast to district court litigation, for example, the PTO’s use of the BRI standard necessarily broadens the scope of asserted patent claims and, thereby, makes the claims susceptible to invalidation by a broader array of prior art and prior art combinations. Indeed, available statistics suggest that the new IPR proceedings have most noticeably affected obviousness challenges, which the PTAB has granted at nearly double the rates seen in district court litigation.26

In addition, the distinct claim construction standards used in parallel trial court and PTAB proceedings arguably creates a dilemma for patent holders. For instance, while patent holders in IPR proceedings may attempt to avoid the BRI by narrowing the scope of the claim terms, those statements may often provide powerful ammunition to a litigant seeking to defeat infringement allegations by pursuing narrower claim constructions in the trial court. Further, the distinct standards for claim construction creates a pathway towards the inconsistent treatment of patents in the two kinds of proceedings. Conversely, defenders of the current framework have argued that the concerns of patent holders are overstated in view of the opportunity to amend patent claims in IPR proceedings (albeit on only a single occasion) and the PTO’s longstanding history of using the BRI standard in other post-issuance proceedings.

The Supreme Court’s analysis of both questions may also help to clarify the role of Article III courts in reviewing the quasi-adjudicative proceedings established by the AIA. A strong opinion in support of the majority panel of the Federal Circuit, for instance, may foreshadow a more modest judicial role under which the PTO is given significant autonomy to independently shape and adjudicate its own IPR proceedings. In contrast, a reversal (even in part) may signal a trend toward a judiciary that actively oversees the PTAB’s proceedings.
  1. See, e.g., Aashish Kapadia, Inter Partes Review: A New Paradigm in Patent Litigation, 23 Tex. Intell. Prop. L. J. 113, 115 (2015) (“{T}he IPR proceeding has rapidly grown into a necessary option for patent owners and challengers alike. The {PTAB} is the premier tribunal for patent issues.”).

  2. Compare U.S. Patent and Trademark Office, Patent Trial and Appeal Board Statistics 8/31/2015 (PTO Statistics for IPRs), with John R. Allison, Mark A. Lemley, & David L. Schwartz, Understanding the Realities of Modern Patent Litigation, 92 Texas L. Rev. 1769, Fig. 4 (2014) (district court invalidity statistics).

  3. Garmin Int’l Inc. and Garmin USA, Inc. v. Cuozzo Speed Techs., LLC, 108 U.S.P.Q.2d 1852, 2013 WL 6355081 (Pat. Tr. & App. Bd. 2013).

  4. The Director of the PTO has delegated its authority to institute IPRs to the PTAB. See 37 C.F.R. § 42.108.

  5. Petition for Writ of Certiorari, Cuozzo Speed Techs., LLC v. Lee, No. 15-446, 2015 WL 5895939, at *28-32 (U.S. 2015).

  6. Id. (discussing 35 U.S.C. § 314(a)).

  7. Id. (discussing 35 U.S.C. § 312(a)(3)).

  8. Id. at *6, 14-28.

  9. Id.

  10. Id.

  11. In re Cuozzo Speed Techs., LLC, 778 F.3d 1271 (Fed. Cir. 2015) (original Feb. 4, 2015 order) (Cuozzo I); 793 F.3d 1268 (Fed. Cir. 2015) (amended July 8, 2015 order) (Cuozzo II); 793 F.3d 1297 (Fed. Cir. 2015) (order denying rehearing en banc) (Cuozzo III).

  12. See Cuozzo II, 793 F.2d at 1272-75 (analyzing 35 U.S.C. § 314(d)); see also 35 U.S.C. §§ 141(c), 319 (imposing certain limits on appeals of final decisions).

  13. Although the majority characterizes St. Jude as establishing a wholesale bar on the interlocutory review of institution decisions, it may be argued that the Federal Circuit ruling on section 314(d) bars only appeals of PTAB decisions to not institute IPR proceedings on identified grounds.  See St. Jude Med., 749 F.3d at 1375-76.

  14. See Cuozzo II, 793 F.2d at 1272-75.

  15. Id. at 1291 (Newman, J., dissenting).

  16. Id.

  17. Id. at 1276-78.

  18. Id. at 1278-79.

  19. Id.

  20. Cuozzo III, 793 F.2d at 1299-1303 (Prost, J., dissenting).

  21. Id.

  22. Id.

  23. See 35 U.S.C. § 324(e) (limiting appeals of “post-grant review”).

  24. But see SightSound Techs., LLC v. Apple Inc., 809 F.3d 1307, 1313-14 (Fed. Cir. 2015) (finding that Section 324(e) governing CBM proceeding “bars review of any institution decision”).

  25. See, e.g., Brief of Amicus Curiae American Intellectual Property Law Association in Support of Petitioner, No. 15-446, 2015 WL 6942518 (U.S. 2015).

  26. See supra n. 2.

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