1) Status Quo at the PTAB for Now:
Supreme Court Makes No Change
to IPR; Judicial Review and Claim
Construction Standard Remain the
Same
CLIENT ALERT | June 30, 2016
Maia H. Harris | harrism@pepperlaw.com
Frank D. Liu | liuf@pepperlaw.com
THE SUPREME COURT’S DECISION WILL NOT LIKELY CHANGE MUCH IN THE NEAR TERM
— ESPECIALLY IN LIGHT OF THE FACT THAT IT MADE NO EXPRESS CHANGES TO PTO
PROCEDURE FOR AND REGULATIONS GOVERNING IPR.
Last week, the U.S. Supreme Court declined to make any changes to inter partes review
(IPR) procedure in its opinion in Cuozzo Speed Technologies, LLC v. Lee, 579 U.S.
___ (2016). Relying primarily on statutory language and concepts of agency rulemaking
authority, the Court found no reason to alter the Federal Circuit’s interpretation of the “no
appeal” provision of the patent act covering IPRs or the patent office rule that the agency
shall construe a claim according to its “broadest reasonable construction” during IPR. In
doing so, the Court did not foreclose the possibility of other challenges to actions by the
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2) Patent Trial and Appeal Board (PTAB), whether constitutional or based on the manner in
which the PTAB exercised its authority. For now, however, it is largely business as usual
at the PTAB.
Background
The case arose out of an IPR instituted on certain claims of a patent owned by Cuozzo
(Cuozzo Patent). The original petitioner sought IPR on all 20 claims of the Cuozzo
Patent. One of the grounds for review set forth in the petition was that dependent claim
17 was obvious under § 103. The PTAB instituted review of claim 17 on the § 103
ground articulated in the petition, but also decided to include claims 10 and 14 in its
review on the same obviousness ground as claim 17. As noted by the PTAB, claim 17
depended from claims 14 and 10, and a challenge to claim 17 implicitly raised the same
challenge to claims 14 and 10. Thus, the PTAB decided to institute IPR on claims 10, 14
and 17, despite the fact that the petitioner only specifically challenged claim 17 on the
obviousness ground that ultimately was the basis of instituting the IPR.
During the course of IPR, the PTAB issued a final decision, in which it construed the
claim terms at issue with the “broadest reasonable” construction. Cuozzo also sought to
amend the claims, which the PTAB rejected, finding that the proposed amendments failed
to satisfy 35 U.S.C. § 112 and would have impermissibly broadened the scope of the
claim language.
Cuozzo appealed the PTAB’s decision to institute review of claims 10 and 14 on the
grounds that the petitioner failed to identify those claims with particularity as required by
35 U.S.C. § 312(a)(3). Cuozzo also appealed the PTAB’s use of the “broadest reasonable
interpretation” standard to construe claims in IPR, arguing that the congressional intent of
establishing IPR as a surrogate for litigation suggests that the claim construction standard
employed during IPR should be consistent with the standard used in district court cases.
The Federal Circuit affirmed the decision to institute review of claims 10 and 14 of the
Cuozzo Patent, noting that the “no appeal” provision of 35 U.S.C. § 314(d) explicitly
states that the decision whether to institute an IPR “shall be final and nonappealable.”
The Federal Circuit reasoned that § 314(d) precludes not only interlocutory appeal of the
Patent and Trademark Office’s (PTO’s) decision to institute an IPR, but also appeal of
the PTO’s decision to institute an IPR after a final decision from the PTAB. In re Cuozzo
Speed Techs., LLC, 793 F.3d 1268, 1273 (Fed. Cir. 2015).
3) The Federal Circuit also held that the PTO reasonably required the PTAB in an IPR
to construe claims according to their “broadest reasonable construction.” While noting
that there is no express requirement in the patent statute about which specific claim
construction standard should be used, the Federal Circuit reviewed the judicially
approved history of using this standard in other PTO proceedings involving unexpired
patents and concluded that the PTO’s approach was a valid exercise of agency
rulemaking authority.
The Supreme Court granted certiorari on both issues.
“No Appeal” Means “No Appeal” — Absent Shenanigans, That Is
Justice Breyer, writing for the majority, affirmed the Federal Circuit’s determination and
held that § 314(d)’s “no appeal” provision precluded appellate review of a decision
to institute an IPR. The majority held that the plain language of § 314(d) clearly set
forth Congress’ intent to preclude such judicial review of a decision to institute. Any
other interpretation of § 314(d), the majority reasoned, “would undercut one important
congressional objective, namely, giving the Patent Office significant power to revisit and
revise earlier patent grants.” Cuozzo, 579 U.S. at ___ (slip op., at 8).
In making its holding, the majority “emphasize[d] that our interpretation applies where
the grounds for attacking the decision to institute inter partes review consist of questions
that are closely tied to the application and interpretation of statutes related to the
Patent Office’s decision to initiate inter partes review.” Id. (slip op., at 11). Applying this
interpretation, the majority held that Cuozzo’s challenge of the PTAB’s determination was
closely tied to its determination that the information presented in the petition warranted
review under § 314(a).
The majority, however, did not interpret § 314(d)’s “no appeal” provision to completely
foreclose all judicial review of decisions to institute an IPR. In particular, the majority
noted that judicial review of PTO decisions to institute an IPR would be warranted where
the PTO’s decisions “implicate constitutional questions, [] depend on other less closely
related statutes, or [] present other questions of interpretation that reach, in terms of
scope and impact, well beyond ‘this section.’” Id. (slip op., at 11). Such questions could
be reviewed under the Administrative Procedure Act (APA), which allows courts to
“set aside agency action that is contrary to constitutional right, in excess of statutory
jurisdiction, or arbitrary and capricious.” Id. (slip op., at 12).
4) Justice Alito, along with Justice Sotomayor, dissented from the majority’s holding, arguing
that the “strong presumption favoring judicial review of administrative action” precluded
the majority’s broad reading of § 314(d)’s “no appeal” provision. Id. (slip op., at 3, Alito,
J., dissenting). Noting that Congress could have employed “far more unambiguous
and comprehensive” language precluding judicial review in § 314(d), Justice Alito
concluded that § 314(d) should be read to only preclude interlocutory appeal of the
PTO’s determination to institute an IPR. Id. (slip op., at 5, Alito, J., dissenting). While this
interpretation would allow for judicial review of the PTO’s determination to institute an IPR
after a final determination, Justice Alito confirmed that “normal limits on judicial review
still apply” — noting that “errors that do not cause a patent owner prejudice” or errors that
are “superseded by later developments” may not warrant relief and thus do not warrant
disposal of the PTO’s determination. Id. (slip op., at 9-10, Alito, J., dissenting).
The majority rejected the arguments in Justice Alito’s dissent, finding the plain language
of § 314(d) to be consistent with preserving “the agency’s primacy over its core statutory
function in accord with Congress’ intent.” Id. (slip op., at 10). The majority noted that the
APA still provided an avenue to seek judicial review of the PTO’s determination.
Despite the differences in interpretation between the majority and the dissent, both
opinions recognize that judicial review is appropriate where the PTO engages in
“shenanigans” — such as exceeding its statutory authority by canceling a patent claim
for indefiniteness under § 112 in IPR. Id. (slip op., at 11; slip op., at 12-13, Alito., J.,
dissenting). Under the majority opinion, however, it is questionable whether anything
short of “shenanigans” by the PTAB in a decision to institute could be subject to judicial
review, nor is it entirely clear what might be considered appealable shenanigans.
“Broadest Reasonable” Is Reasonable
While noting that the patent statute does not unambiguously direct the PTO to use one
claim construction standard or another, the majority also noted that the statute does
expressly authorize the PTO to issue rules governing IPR. Id. (slip op., at 13). The
“broadest reasonable construction” regulation is one such rule. Id.
Cuozzo and many amici argued that IPR, either as a matter of congressional intent or
as a practical matter, is a surrogate for court proceedings, including opportunities for
discovery and the ultimate presentation of factual evidence and expert opinion. As such,
Cuozzo argued that that claim construction standards in both district court proceedings
and the PTO should be — and were intended to be — consistent. Id. (slip op., at 13-15).
5) The Court rejected this argument, finding that the language, context and history of the
patent statute indicate an intent to create a proceeding for review of an earlier agency
decision that is separate and distinct from district court litigation. As such, and in light
of the fact that the statute was silent on the issue of the appropriate claim construction
standard, the Court turned to whether the “broadest reasonable construction” regulation
was a reasonable exercise of the PTO’s rulemaking authority. Id. (slip op., at 16-17).
Here, Cuozzo argued it was not a reasonable exercise of rulemaking authority. Cuozzo
first claimed that, unlike patent examination and other PTO procedures that employed
the “broadest reasonable interpretation” standard in the past, there is no absolute right
to amend challenged patent claims, a fact potentially supported by the low number of
motions to amend that the PTAB has granted during IPRs to date. Second, Cuozzo
argued that the use of different standards of construction by the PTAB and by district
courts could produce inconsistent results. Id. (slip op., at 18-19).
Again, the Court rejected these arguments. The Court noted that the patent holder in IPR
may, in fact, make a motion to amend. That few such motions have been allowed so far
was of no consequence to the question of whether the IPR claim construction standard
is reasonable, and the question of whether the PTO properly exercised its authority
in denying such motions was not before the Court. That there may be inconsistency
between the PTAB and district courts in terms of claim construction was similarly of no
concern:
We recognize that that is so. This possibility, however, has long been present in
our patent system, which provides different tracks – one in the Patent Office and
one in the courts – for review and adjudication of patent claims.
Id. (slip op., at 19).
Again, the Court left the door open for appeal of several issues raised by Cuozzo and
many amici, namely the low rate of allowed amendments during IPR and whether any
particular decision not to allow an amendment is “arbitrary” or “capricious.” Id. (slip op., at
19). And at no point was there any discussion of the manner in which the PTAB actually
construed the claim terms at issue — or how and whether that construction may have
differed from a construction that a district court would have made using a standard of
“plain and ordinary meaning.”
6) What Next?
The Supreme Court’s decision will not likely change much in the near term — especially
in light of the fact that it made no express changes to PTO procedure for and regulations
governing IPR. That said, the opinion itself is limited to concepts of statutory construction
and administrative rulemaking authority. And, while the policy arguments raised by
Cuozzo and various amici did not ultimately prove persuasive based on the specific
issues on appeal, the opinion expressly carved out bases for several possible future
challenges based on the manner in which the PTAB proceeds during IPR.
In the meantime, there are still several takeaways from the opinion to consider going
forward for any party engaged in IPR, for example:
•
Under a different set of facts, would a patent holder have been able to present an
argument based on alleged “shenanigans” or “arbitrary and capricious” decisions?
•
What is “reasonable” under the broadest reasonable construction standard, and how
is that different from the construction a district court might assign to the same claim
term?
•
Is the PTAB likely to increase its allowance rate for amendments?
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