United States: PTAB Rule Changes Bring Few But Important Changes To The Proceedings

In its eagerly awaited final rules1, the Patent Trial and Appeal Board (PTAB) largely rebuffed calls for change and clarity, in favor of a flexible common law approach. Over the past twenty-one months, the public provided many suggestions in answer to the Patent and Trademark Office's (PTO) five requests for comments concerning AIA trials, including inter partes review, post-grant review, and the transitional program for covered business methods.2 Two of the more significant changes made include establishing a procedure for applying a Phillips claim construction to soon-to-expire patents, and the ability to submit new testimonial evidence with the patent owner's preliminary response.

The final rules track the same format as the October 2015 proposed rules3 and address several areas:

  1. Claim construction standard
  2. Patent owner's preliminary response
  3. Rule 11-type certification
  4. General topics — from page limits to word counts
  5. Discovery

    • Additional discovery
    • Additional discovery on evidence relating to obviousness
    • Real party-in-interest
  6. Multiple proceedings
  7. Extension of one-year period to issue a final determination
  8. Live testimony in an oral hearing
  9. Patent owner's motions to amend
  10. Recognizing privilege for communications with domestic patent agents and foreign patent practitioners

In the future, the PTO will also amend its Office Patent Trial Practice Guide to comport with these rules changes and to reflect how the PTAB handles additional discovery, live testimony, and confidential information. Deputy Director Slifer also recently stated that the PTO will "continue to refine the rules governing AIA trials going forward to ensure fairness and efficiency while meeting all congressional mandates." So expect more changes in the future.4

The significant changes:

1. Claim construction

On the hot-button issue of claim construction, the PTO held firm in its position that the broadest reasonable interpretation is the appropriate standard to apply to proceedings in which the patent owner may amend the claims. The PTO did, however, provide some clarity as to when the PTAB should apply the Phillips claim construction standard. Previously, the rules allowed using the Phillips standard for expired patents, but left open the issue for patents that might expire during a proceeding. To clarify that issue, the PTAB will allow either party to move to use the Phillips standard, if the party certifies that the patent will expire within eighteen months after filing the petition. The PTAB leaves open the possibility that if the PTAB grants the motion, the petitioner may get a chance to file a paper concerning how the changed standard affects the analysis.

2. Patent owner's preliminary response

The most significant change proposed last October was to give the patent owner the opportunity to submit new testimonial evidence with its preliminary response. The final rules did not modify the proposed rule, so patent owners will now have this ability. The usefulness of this opportunity is unclear, however, because "if a genuine issue of material fact is created by testimonial evidence, the issue will be resolved in favor of petitioner solely for institution purposes, so that petitioner will have an opportunity to cross-examine the declarant during the trial." Final rules at 18755. This statement is contentious because some feel that patent owners are already at a severe disadvantage before the PTAB, so giving the petitioner a benefit of the doubt fails to address the perceived disadvantage. The PTO and others rationalize siding with the petitioner at institution because the patent owner's new testimonial evidence is uncontested.

Another interesting aspect is that the PTO codified the petitioner's ability to request a reply to the preliminary response. This option was already available, but the PTAB usually denied such requests. By codifying that ability, perhaps the PTAB will now authorize replies more frequently, especially when patent owners submit new testimonial evidence. Patent owners should carefully consider this possibility before submitting new testimonial evidence – the harm of providing evidence early and giving the petitioner another brief might outweigh the benefits of filing new testimonial evidence with the preliminary response.

3. Rule 11-type certification

The new certification rule requires parties to agree that they are not presenting papers for an "improper purpose, such as to harass someone or to cause unnecessary delay or needless increase in the cost of any proceeding before the Office," and that their arguments are not frivolous.5 This should not affect most parties, but it might affect petitioners motivated to manipulate stock prices or extort patent owners who succeeded at trial. For instance, a consortium, famously including hedge-fund manager Kyle Bass, has achieved limited success by challenging patents owned by pharmaceutical companies, while holding investments that would appreciate due to their challenges. Other petitioners have challenged patents related to significant damages awards, apparently hoping to seek some compensation due to the desire to settle, a so-called "reverse troll" situation. Only time will tell whether this new requirement will curb that behavior.

4. General topics — from page limits to word counts

Page limits generally have been removed, and now the petition, responses and replies are subject to word counts:

  • Petition requesting inter partes review: 14,000 words
  • Petition requesting post-grant review: 18,700 words
  • Petition requesting covered business method patent review: 18,700 words
  • Petition requesting derivation proceedings: 14,000 words
  • Motions (excluding motions to amend): 15 pages
  • Motions to Amend: 25 pages

These limits do not include a table of contents, a table of authorities, a certificate of service or word count, exhibits, appendices, mandatory notices, or claim listings.

Some comments received by the PTO in response to the proposed rules argued that these word counts were too low. The PTO provided no rationale for the low word counts, which a small sample of petitions demonstrates are likely lower than today's average word counts. The limited word count will further constrict petitioners and patent owners when presenting their arguments, likely leading to more petitions being filed to include more arguments, as the PTAB nearly always denies motions for additional pages.

Discussion and clarification, but no changes:

1. Discovery — continued reliance on Garmin factors

The PTO maintains that the Garmin factors6 provide "a flexible approach to address each motion's unique set of facts." Final rules at 18757. Therefore, the PTO made no change.

2. Multiple proceedings dealt with on a case-by-case basis

Similarly, the PTO believes "the current rules provide sufficient flexibility to address the unique factual scenarios presented" with multiple proceedings. To date, the PTAB has denied requests to merge reexaminations and AIA trials, and takes a case-by-case approach when determining whether to stay parallel proceedings. This leaves parties with little certainty as to how the PTAB will treat individual cases. Parties must therefore understand how to present their positions in a way that the PTAB will find persuasive.

Despite the lack of clarity provided in the final rules on these issues, the PTO stated that it will release a revised Office Patent Trial Practice Guide that might address both of these issues. Hopefully, that guidance will reduce uncertainty and provide more consistency between panels on how they treat discovery requests and the relationship between multiple proceedings, e.g., whether to stay, transfer, consolidate, or terminate a parallel proceeding.

3. Extension of one-year period to issue a final determination only where good and sufficient cause has been demonstrated

Impressively, the PTAB has not missed its one-year deadline in the three-and-a-half years it has been handling AIA trials. Some urged the PTAB to consider extending the deadline, as it is allowed to do, in some circumstances, such as when parties might settle, when there is a parallel proceeding, or when the one-year schedule is overly burdensome on a party. The PTO stated that it would consider the suggestions and possibly provide updates to the "Office Patent Trial Practice Guide to provide examples where good cause may be shown for extension of the one-year period to issue a final determination." Final rules at 18760.

Interestingly, while most AIA trials take roughly eighteen months from filing to completion (six months before institution and one year after), the PTAB sometimes takes longer to complete trials. The PTAB is able to do this by extending the deadline for patent owner preliminary responses beyond the typical three-month deadline. In doing so, the PTAB provides the patent owner more time and gives itself more time to issue a decision on institution. This happens sometimes when petitioners file many petitions against many patents owned by the same patent owner. This is one way the PTAB is able to manage its docket without moving its statutory deadlines.

4. Live testimony in an oral hearing, no change

Currently the PTAB routinely denies requests for live testimony at the oral hearing. This practice will not change.

5. Patent owner's motions to amend remains the same

The controversy over the PTAB's habit for denying motions to amend is second only to the BRI v. Phillips debate. Here, too, the PTO decided to make no changes, but referred the public to its representative decision in MasterImage 3D, Inc. v. RealD Inc., in which the PTAB clarified that patent owners must only demonstrate patentability over the prior art that they know of—excluding prior art that they do not know of.7

6. Recognizing privilege for communications with domestic patent agents and foreign patent practitioners

While not taking a position on the issue of privileged communications with non-lawyer patent agents, the PTO seemed to agree that communications with patent agents in the context of AIA trials should be privileged. This is supported by the decision In Re Queen's University at Kingston; the majority opinion was authored by Judge O'Malley and joined by Judge Lourie. The majority turned to Rule 501 of the Federal Rules of Evidence, which sets forth in general terms what is privileged. The common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege unless any of the following provides otherwise: the United States Constitution; a federal statute; or rules prescribed by the Supreme Court. But in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision. The majority recognized that "there is a presumption against the recognition of new privileges," but found enough support in the Patent Act (e.g., 35 USC § 2(b)(2)(D)) and Sperry v. State of Florida ex rel. Florida Bar, 373 U.S. 379 (1963), to warrant recognition of a limited patent agent privilege.

Conclusion

The final rules basically tweak the proposed rules and, except for the new testimonial evidence with the preliminary response, will have little effect on most AIA trials. Parties should be cognizant of the new word-count limits, but current practice before the PTAB will not change much as a result of these amendments.

Footnotes

1 Amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board, 81 FR 18750 (April 1, 2016) ( https://www.gpo.gov/fdsys/pkg/FR-2016-04-01/pdf/2016-07381.pdf) ("final rules").

2 Request for Comments on Trial Proceedings Under the America Invents Act Before the Patent Trial and Appeal Board, 79 FR 36474 ( https://www.federalregister.gov/articles/2014/06/27/2014-15171/request-for-comments-on-trial-proceedings-under-the-america-invents-act-before-the-patent-trial-and);

Amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board 80 FR 28561–28566, May 19, 2015 ( http://www.uspto.gov/sites/default/files/documents/80fr28561.pdf);

Request for Comments on a Proposed Pilot Program Exploring an Alternative Approach to Institution Decisions in Post Grant Administrative Reviews, 80 FR 51540–51542 ( https://www.federalregister.gov/articles/2015/08/25/2015-21052/request-for-comments-on-a-proposed-pilot-program-exploring-an-alternative-approach-to-institution); and

Amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board, 80 FR 50719– 50747, October 19, 2015 ( https://www.federalregister.gov/articles/2015/08/20/2015-20227/amendments-to-the-rules-of-practice-for-trials-before-the-patent-trial-and-appeal-board).

3 See, US Patent Trial and Appeal Board proposes rule changes to AIA trials ( http://www.dentons.com/en/insights/alerts/2015/august/21/us-patent-trial-and-appeal-board-proposes-rule-changes-to-aia-trials).

4 http://www.uspto.gov/blog/director/entry/ptab_issues_final_rules_for\.

5 37 C.F.R. § 11.18(a) (invoked by 37 C.F.R. § 42.11).

6 Garmin Int'l, Inc. v. Cuozzo Speed Techs. LLC, Case IPR2012-00001, slip op. at 6–7 (PTAB Mar. 5, 2013) (Paper 26) (informative).

7 IPR2015-00040, Paper 42, July 15, 2015 ( http://www.uspto.gov/sites/default/files/documents/ipr2015-00040%20paper%2047%2020150715.pdf).

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