United States: ITC Not Treating PTAB Decisions Like Other Agency Rulings

Congress created the quasi-judicial, fast-track inter partes review procedure to allow parties to challenge patent validity in a streamlined fashion. The stated goal was to provide "quick and cost effective alternatives to litigation."1 But from its inception, the IPR procedure has been on a collision course with another quasi-judicial, fast-track procedure created by Congress—namely, Section 337 investigations. As expected, a head-on collision finally occurred in July 2017, between a U.S. International Trade Commission investigation brought by Cisco against Arista Networks Inc. (Inv. No. 337-TA-945) and two concurrent IPRs in which Arista challenged the validity of Cisco Systems Inc.'s patents.2

In the 945 investigation, the ITC found two of Cisco's patents infringed and not invalid, and it issued an exclusion order preventing Arista from importing or selling certain networking devices into the United States. During the 60-day presidential review period (before the exclusion order became effective), the Patent Trial and Appeal Board issued final written decisions in two IPRs, finding the asserted claims of those same patents unpatentable. Arista immediately moved the ITC to suspend or rescind the exclusion order in light of the PTAB's invalidity rulings, but the ITC refused to do so.3 Arista then filed a motion with the Federal Circuit seeking to stay enforcement of the exclusion order pending the outcome of the parties' appeals, but that motion was also denied.

The primary basis for the ITC's refusal to suspend or rescind its exclusion order was its view that "a patent claim that has been subject to IPR or reexamination is valid until the PTO issues a certificate of cancellation as to that claim following the exhaustion of all possible appeals."4 Because the PTAB's decisions were still on appeal and cancellation certificates had not yet issued, the ITC concluded that the PTAB's final written decisions of unpatentability did not constitute "changed circumstances" warranting modification or rescission of the ITC's exclusion order.5 Put differently, the ITC treated the PTAB's final written decisions of unpatentability as having no impact on the status quo, i.e., no legal effect.

But is it really true that a final written decision of the PTAB has no legal effect until a cancellation certificate issues following exhaustion of all appeals? If so, that would mean PTAB final written decisions are treated differently than those of other agencies. And it would mean the IPR statute itself is internally inconsistent.

First, let's explore whether a PTAB final written decision of unpatentability should be accorded legal effect during the pendency of an appeal. Note that the question here is not whether a PTAB final written decision should have preclusive effect on the question of invalidity but, rather, whether it should be given due weight and recognition as the U.S. Patent and Trademark Office's final, legally operative judgment on the issue. Commission Rule 210.76(a) requires the ITC to determine if there are "changed conditions of fact or law" that warrant temporarily rescinding a remedial order. If a PTAB final written decision of unpatentability is given legal recognition as the USPTO's final judgment on the issue, then it could properly be considered a "changed circumstance," even if not binding on other agencies.

As with district court judgments, final decisions of an administrative agency normally become effective once promulgated, absent some statutory or regulatory provision to the contrary such as an automatic stay provision. As stated in Rule 8(a)(1) of the Federal Rules of Appellate Procedure, "[a] petitioner must ordinarily move first before the agency for a stay pending review of its decision or order." Otherwise, the agency's decision or order takes effect immediately, notwithstanding any appeal that is filed. Indeed, this is how the ITC is able to issue and enforce exclusion orders while its underlying judgments are being challenged on appeal.

If this same principle is applied to PTAB final written decisions, then a decision of the PTAB finding patent claims unpatentable should have its full legal effect once promulgated, regardless of any appeal taken by the patent owner. Yet that is not how the ITC interpreted the IPR statute in its Arista order.

In Arista, the ITC relied on Section 318(b) of the IPR statute, which states: "If the [PTAB] issues a final written decision under subsection (a) and the time for appeal has expired or any appeal has terminated, the Director shall issue and publish a certificate canceling any claim of the patent finally determined to be unpatentable."6 The ITC interpreted this provision to mean that the PTAB's final written decision is not legally operative until the director issues a certificate following the exhaustion of all appeals. In other words, under the ITC's interpretation, the issuance of a cancellation certificate by the director is the only legally operative action the USPTO can take to declare a patent claim invalid under Title 35. That, however, is questionable.

In the IPR statute, there is a direct link between the PTAB's final written decision of unpatentability and the director's issuance of a cancellation certificate. The statute says the director "shall" issue such a certificate once all appeals are exhausted. Indeed, that must be the case because, otherwise, the PTAB's final written decision would not be sufficiently final to confer standing on the patent owner to appeal to a federal appellate court. Under the Administrative Procedure Act, an agency action is considered "final" (for purposes of conferring standing to appeal) only when two conditions are met. "First, the action must mark the consummation of the agency's decision making process—it must not be of a merely tentative or interlocutory nature. And second, the action must be one by which rights or obligations have been determined, or from which legal consequences will flow."7 Accordingly, to confer standing to appeal, a PTAB final written decision must be sufficiently final such that "legal consequences will flow." This means the director's subsequent issuance of a certificate is merely a formality—i.e., an official recordation of what the PTAB has already decided.

That the formality of issuing a cancellation certificate is postponed until after all appeals are exhausted does not mean the PTAB's final written decision is devoid of legal effect during the appeal process. Nor is there any reason to interpret Section 318(b) as a de facto stay of the PTAB's final written decision pending the outcome of any appeals. Elsewhere in the IPR statute, Congress expressly used the term "automatic stay" when it intended to impose one.8 Yet there is no such language in Section 318(a) concerning the PTAB's final written decision, nor in Section 319 concerning appeals.

Moreover, the IPR statute suggests that Congress intended the PTAB's final written decisions to have immediate legal effect, regardless of any appeals that may be filed. For instance, the estoppel provisions in the IPR statute are expressly triggered by the issuance of a "final written decision" by the PTAB, not by the outcome of any appeals taken to the Federal Circuit or the subsequent issuance of a certificate by the director. The estoppel provisions state:

  1. The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.
  2. The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not assert either in a civil action ... or in a proceeding before the International Trade Commission ... that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.9

Several district courts have interpreted these provisions to mean that "IPR estoppel attaches once the PTAB issues a final written decision."10 It would be an odd result if the PTAB's final written decisions were sufficiently legally effective to create IPR estoppel on petitioners (even during the pendency of an appeal), but not legally effective to render claims invalid for purposes of enforcement proceedings.

It is unclear whether the Federal Circuit will have an opportunity to directly address these issues in the Arista appeal now that it has denied Arista's motion to stay the ITC's exclusion order. Hopefully, though, these issues will be resolved sooner rather than later, given the likelihood that many more collisions between PTAB decisions and ITC exclusion orders will be occurring in the future.

Footnotes

1 H.R. Rep. No. 112-98, pt. 1, at 48 (2011).

2 Certain Network Devices, Related Software and Components Thereof (II), Inv. No. 337-TA-945 (U.S.I.T.C.). The IPRs are IPR2016-00303 and IPR2016-00309.

3 Inv. No. 337-TA-945, Commission Opinion (U.S.I.T.C. Aug. 16, 2017).

4 Id. at 11.

5 Id. at 12.

6 35 U.S.C. § 318(b).

7 Bennett v. Spear, 520 U.S. 154, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (internal quotation marks and citation omitted).

8 See 35 U.S.C. § 315(a)(2).

9 35 U.S.C. § 315(e)(1), (2).

10 Star Environtech, Inc. v. Redline Detection, LLC, No. 12-08161, 2015 WL 4744394, at *3 (C.D. Cal. Jan 29, 2015); see also VirnetX, Inc. v. Apple Inc., No. 14-MC-80013 RS (NC), 2014 WL 6979427, at *2 (N.D. Cal. Mar. 21, 2014) ("The plain language of an IPR 'that results in a final written decision' within § 315(e)(2) suggests that estoppel applies once there is a final written decision . . .").

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