United States: Litigation Alert: Supreme Court Leaves Intact PTAB Authority To Institute And Regulate Inter Partes Review Proceedings

This week in Cuozzo Speed Technologies, LLC v. Lee, the United States Supreme Court decided two important questions related to the power of the Patent Trial and Appeal Board (PTAB) over inter partes review proceedings. First, the Supreme Court held that decisions to institute inter partes review are generally not subject to judicial oversight, except in limited circumstances. Next, the Court found reasonable the PTAB's application of the broadest reasonable construction (BRC) standard to the interpretation of patent claims in inter partes review, even though federal courts apply a narrower standard in civil litigation. The Supreme Court in Cuozzo thus maintained its trend in recent cases—such as Bilski v. Kappos, Mayo v. Prometheus, and Alice v. CLS Bank—of making it easier to succeed in challenging patent validity.

The America Invents Act and Inter Partes Review

Congress created inter partes review as an alternative forum at the Patent Office in which anyone may challenge the validity of issued patent claims. 35 U.S.C. §§ 311–319. Based on a limited evidentiary record, the PTAB is tasked in inter partes review with determining whether patent claims are anticipated or rendered obvious by prior art. Following the filing of a "petition" specifying grounds for such invalidation, the PTAB decides whether to institute inter partes review. If instituted, review must be completed within one year. Inter partes review has proven popular and effective; the Patent Office reports that since the inception of inter partes review in September 2012, more than 4,500 petitions have been filed, resulting in the invalidation of about half of the claims for which review is instituted.

Congress granted the Patent Office considerable power in conducting these proceedings. For example, Congress declared the PTAB's institution decisions to be "final and nonappealable."  35 U.S.C. § 314(d). Congress also granted the Patent Office authority to issue "regulations... establishing and governing inter partes review."  35 U.S.C. §316(a)(4). The resulting regulations issued by the Patent Office require the PTAB to give a patent claim "its broadest reasonable construction in light of the specification of the patent in which it appears." 37 C.F.R. § 42.100(b).

The BRC standard is used by the Patent Office not only for inter partes review, but also in other proceedings such as examination of patent applications, ex parte reexaminations, and interference proceedings. This standard has been justified on the basis that applicants and patentees are afforded the opportunity in these proceedings to amend or narrow their claims to avoid the prior art. That is somewhat true for inter partes review in that a patent owner may file one motion to amend the patent, although the PTAB rarely grants such a motion. The BRC standard stands in contrast, however, to the narrower Phillips standard used in federal court proceedings. Under Phillips, claim language is generally accorded its ordinary meaning as understood by a person of skill in the art at the time of the invention, in light of the patent's specification and prosecution history.

Procedural History of Cuozzo

In 2004, the Patent Office issued a patent to Giuseppe Cuozzo, which he then assigned to his company Cuozzo Speed Technologies ("Cuozzo"), covering a speedometer that indicates when the car is driving over the speed limit. In 2012, Cuozzo filed patent infringement lawsuits in federal district court against several auto makers and their navigation device partners. One of those companies, Garmin, then filed an inter partes review petition asserting, among other grounds, that claim 17 of Cuozzo's patent is invalid as obvious. The PTAB instituted review not only as to claim 17, but also as to claims 10 and 14, from which claim 17 depended, notwithstanding the fact that Garmin had not expressly challenged claims 10 and 14 on the same obviousness ground as claim 17. The Board then construed under the BRC standard the term "integrally attached" and determined that all three claims were obvious under its construction. The Board also denied Cuozzo's motion to amend the three claims.

Cuozzo appealed the decision to the Federal Circuit, challenging both the institution decision and the application of the BRC standard as unlawful. A divided panel affirmed the PTAB's decision, and the Federal Circuit denied en banc review by a 6 to 5 vote.  The Supreme Court granted certiorari, and industry groups lined up on both sides of the issue. Advocates for strong patent protection, including organizations representing intellectual property owners and pharmaceutical and biotechnology research companies, filed amicus briefs in support of Cuozzo's position. Frequent targets of patent infringement suits, including computer technology companies and generic drug makers, filed amicus briefs supporting the Patent Office's position. The Supreme Court heard oral argument on April 25, 2016 and issued its opinion, authored by Justice Breyer, on June 20, 2016.

Institution Decisions Are Not Appealable—Usually

A majority of the Court affirmed that Cuozzo could not appeal from the PTAB's institution decision. The Court first noted that 35 U.S.C. § 314(d) expressly states that the determination whether to institute inter partes review is "final and nonappealable." The Court also observed that a contrary holding would undercut the legislative objective of granting the Patent Office "significant power to revisit and revise earlier patent grants," as otherwise its validity determinations could be "unwound under some minor statutory technicality related to its preliminary [institution] decision."

But in light of the presumption favoring judicial review, the Court effectively limited its holding to the facts of the case, and did not "decide the precise effect of § 314(d) on appeals that implicate constitutional questions, that depend on other less closely related statutes, or that present other questions of interpretation that reach, in terms of scope and impact, well beyond 'this section.'" The Court thus left open the possibility that review might be available under the Administrative Procedure Act for an extra-statutory institution decision, such as where a patent claim is canceled in inter partes review as indefinite, and other unspecified "shenanigans." But where the patent holder merely challenges the PTAB's determination that the petition establishes a reasonable likelihood of success of invalidating a challenged patent claim, the Court held that § 314(d) precludes review.

Justice Alito, joined by Justice Sotomayor, dissented from this part of the opinion, arguing that § 314(d) should be interpreted to prohibit only interlocutory review of the PTAB's institution decisions. The majority deemed such a reading superfluous, as the Administrative Procedure Act already limits review to final agency decisions.

The Broadest Reasonable Construction Standard Applies in Inter Partes Review

The Court also unanimously held that pursuant to 35 U.S.C. § 316(a)(4), the Patent Office may continue to use the BRC standard in construing claims during inter partes review. Seven of the justices held that under the Court's decision in Chevron v. Natural Resources Defense Council, the Patent Office reasonably exercised its rulemaking authority in requiring application of the BRC standard to claim construction in inter partes review.  Justice Thomas concurred on the basis that § 316(a)(4) expressly confers such rulemaking authority to the Patent Office, without any need to invoke Chevron.

First, the Court concluded that no statutory provision mandates what claim construction standard should be used by the Patent Office in inter partes review, thus giving the agency leeway to enact its own regulation. The Court soundly rejected Cuozzo's position that Congress intended inter partes review to serve as a "surrogate for court proceedings," and that the Patent Office must therefore employ the Phillips claim construction standard. The Court noted that inter partes proceedings are, in fact, "less like a judicial proceeding and more like a specialized agency proceeding." For example, a petitioner need not meet Constitutional standing requirements required in district courts; the Patent Office can continue inter partes review following settlement, and can intervene in later judicial proceedings even if the petitioner withdraws; and invalidity must be proven merely by a preponderance of the evidence in inter partes review, as contrasted with clear and convincing evidence in civil litigation. Indeed, the Court observed that the purpose of inter partes review differs from that of civil litigation, serving as a "second look at an earlier administrative grant of a patent." Since Congress designed inter partes review to be a "hybrid proceeding" and there was no clear intent by Congress to require the same claim construction standard as used in district courts, the Patent Office was thus authorized to fill the statutory "gap."

The Court then concluded that the BRC regulation, 37 C.F.R. § 42.100(b), "represents a reasonable exercise of rulemaking authority that Congress delegated to the Patent Office." The Court stated that the PTAB's use of the BRC standard "helps ensure precision while avoiding overly broad claims, and thereby helps prevent a patent from tying up too much knowledge, while helping members of the public draw useful information from the disclosed invention and better understand the lawful limits of the claim." The Court also noted that the Patent Office had used the BRC standard for more than 100 years, including more recently in reexamination proceedings.

Finally, the Court rejected Cuozzo's arguments that the BRC standard as applied to inter partes review proceedings was fundamentally unfair and produced inconsistent results. Cuozzo argued that use of the BRC standard is tempered in other Patent Office proceedings by the patent holder's ability to amend its claims. The Court noted, however, that a patent holder may make a motion to amend its claims during inter partes review, and was unsympathetic to statistics showing that the PTAB grants very few such motions. As for Cuozzo's argument that the BRC standard produces inconsistent results with civil litigation, the Court observed that such inconsistency "has long been present in our patent system," and that it was not unreasonable for the Patent Office to instead choose to use one claim construction standard in all of its agency proceedings. The Court concluded that any policy arguments were for the Patent Office to weigh.

Takeaways

The Supreme Court's Cuozzo opinion at least opens the door to judicial oversight of PTAB institution decisions in limited cases, such as where due process is denied, or the PTAB exceeds its statutory authority. That decision thus calls into question the Federal Circuit's previous refusals to consider arguments that the PTAB acted beyond its authority in instituting inter partes review, such as where the petition was not filed within one year of patent infringement litigation, as required by statute. See, e.g., Shaw Indus. Grp., Inc. v. Automated Creel Sys., Inc., 817 F.3d 1293, 1301 (Fed. Cir. 2016); Achates Reference Publ., Inc. v. Apple Inc., 803 F.3d 652, 657–58 (Fed. Cir. 2015). On the other hand, the Supreme Court's vague direction that review is not available "where a patent holder grounds its claim in a statute closely related to th[e] decision to institute inter partes review" could be viewed as supporting the Federal Circuit's position.

As for the Supreme Court's affirmance of the PTAB's use of the BRC standard in inter partes review, whether that decision results in inconsistency with district court litigation remains to be seen. Recent Federal Circuit decisions emphasize that, like the Phillips "ordinary meaning standard," the BRC standard still must have support in the specification and record evidence, and must be consistent with an interpretation that those skilled in the art would reach. See Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292, 1298 (Fed. Cir. 2015); see also, e.g., SAS Inst., Inc. v. ComplementSoft, LLC, __ F.3d __, 2016 WL 3213103, at *10-12 (Fed. Cir. June 10, 2016); TriVascular, Inc. v. Samuels, 812 F.3d 1056, 1062–63 (Fed. Cir. 2016). Nonetheless, application of the BRC standard likely will make a difference in those cases where claim terms are subject to multiple reasonable interpretations, placing the petitioner in a stronger position than if it were asserting patent invalidity in district court.   ​​​​​​

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