On April 20, 2023, the USPTO released an Advance Notice of Proposed Rulemaking for potential reforms to the rules and guidelines for AIA trials before the PTAB ("Notice"). The Notice covers many topics and considerations relating to the procedures for AIA trials, and much attention is given to the PTAB's discretionary denial practice. With respect to discretionary denials, the Notice states preference is given to "clear, predicable rules where possible, as opposed to balancing tests that decrease certainty." Notice at 11.

Highlights from the Notice include consideration of the following possible changes to the rules:

  1. Allowing petitioners to pay fees for a higher word-count
  2. Modifying the discretionary denial analysis for petitioners engaging in certain commercial activities
  3. Providing for discretionary denials of petitions by nonmarket competitors
  4. Providing for discretionary denials against micro- or small-entities meeting certain criteria
  5. Modifying the discretionary denial analysis for serial petitions
  6. Modifying the discretionary denial analysis for petitions with parallel litigation
  7. Permitting separate briefing on discretionary denials
  8. Broadening RPI to a "Substantial Relationship" test

Substantial Relationship Test to Possibly Broaden Real Part in Interest

The Notice states that the "current party relationship concepts applied in the discretionary denial context are arguably too limited." Id. at 14. Accordingly, the Office shall consider adopting a "substantial relationship" test to evaluate whether certain entities are related to a party in an AIA proceeding such that discretionary denial is warranted. Id.

The Valve I and Valve II cases are cited in the Notice as possible guidance as to a proper broadening of real parties in interest or privies of a party to an AIA proceeding. In Valve I and Valve II, the Board considered the IPR matters of Valve's co-defendant in litigation and a joinder petitioner party in assessing whether a discretionary denial was appropriate.

The Notice also provides that the Office will consider requiring a patent owner and petitioner to disclose the following relationships: (1) anyone with an ownership interest in the patent owner or petition, (2) any government funding to the patent, (3) any third-party litigation funding support, and (4) any stake any party has in the outcome of the AIA proceeding or any parallel proceeding on the challenged claims. Id. at 15. The Office indicates that such disclosures may be similar to those required by the SEC.

Substantial Overlap With Claims Previously Upheld as Valid

The Notice indicates that consideration will be given to denying institution when challenged claims are substantially similar to previously upheld claims. Id. at 24. Specifically, the Office may provide that prior final adjudications by a district court or by the Office in AIA post-grant proceedings upholding the validity of claims that substantially overlap the challenged claims will result in discretionary denial. Id. An exception to this rule may be considered when a challenger engages in certain commercial activity. Id. at 24-25. Specifically, an exception may apply when,

  1. the petitioner has standing to challenge the validity of the claims in district court; or
  2. the petitioner intends to pursue commercialization of a product or service in the field of the invention of a challenged claim and was not a real party in interest or privy to a previous challenger; and
  3. Meets a heightened burden of compelling merits. Id.

The Notice provides that consideration will be given to possible tests for determining when claim sets overlap. Id. at 15. Claims may be deemed "substantially the same" when any difference between the claims is not material to patentability. Id.

Effect of Compelling Merits

In previous guidance and case law, the Office has established that when a challenge presents compelling merits, the proceeding may be instituted even if all of the factors favor a discretionary denial. Id. at 16. The Notice states that the compelling merits standard is a higher standard than the preponderance of evidence standard that applies to the PTAB's final written decisions. Id. at 17. Furthermore, the Office shall consider whether, in assessing compelling merits, the Office should adopt a test whereby (1) the record will be viewed in the light most favorable to the patent owner and (2) the Board will draw all reasonable inferences in favor of patent owner. Id. at 17-18.

Limitations on Nonmarket Competitors

The Notice states that the USPTO is concerned that certain for-profit entities may use the IPR and PGR processes not to advance the mission and vision of the Office to promote innovation or the intent behind the AIA to provide a less-expensive alternative to district court litigation, but instead to advance other interests. Id. at 19. As a result, the USPTO is considering changes that would make clear that the Board would discretionarily deny any petition for IPR or PGR filed by an entity that:

  1. is a for-profit entity;
  2. has not been sued on the challenged patent or has not been threatened with infringement of the challenged patent in a manner sufficient to give rise to declaratory judgment standing;
  3. is not otherwise an entity that is practicing, or could be alleged to practice, in the field of the challenged patent with a product or service on the market or with a product or service in which the party has invested to bring to market; and
  4. does not have a substantial relationship with an entity that falls outside the scope of elements (1)-(3).

Id. The USPTO is seeking feedback on various aspects of these four elements and is open to considering various modifications to them. Id. at 19-21.

The USPTO is also considering whether, even if the petitioner is an entity satisfying the four elements, the Office should institute petitions satisfying a heightened standard of demonstrating compelling merits.

Under-Resourced Inventors and Petitioners

According to the Notice, the Office proposes to limit the impact of AIA post-grant proceedings on startups, small businesses, and independent inventors by discretionarily denying petitions for an IPR or PGR when certain conditions are met. Id. at 21. In particular, under one proposal, absent compelling merits, the status of the patent owner would lead to a denial of institution when:

  1. the patent owner had claimed micro entity or small entity status at issuance of the challenged patent and timely requested discretionary denial when presented with the opportunity;
  2. during the calendar year preceding the filing of the petition, the patent owner did not exceed eight times the micro entity gross income level under 37 CFR 1.29(a)(3); and
  3. at the time the petition was filed, the patent owner (or a licensee of the patent that started practicing the patent after becoming a licensee) was commercializing the subject matter of a challenged claim.

Id. at 22. The USPTO welcomes other proposals and specifically calls out that it is considering whether the multiplier of eight times, or some other multiplier, would be appropriate. Id.

The Notice also recognizes that the Office could also consider third-party litigation funding support or the resources of anyone with an ownership interest in the patent owner and anyone with any stake in the outcome of the AIA proceeding or any parallel proceedings on the challenged claims. Id. at 23. For example, a small or micro entity requesting denial of institution based on limited resources could be required to disclose the identity of any third-party funders, including U.S. or foreign government funding; provide a brief description of the financial interest of the third-party funder; and state whether the funder's approval is required for settlement or any positions taken before the PTAB. Id.

Finally, the Notice indicates that the Office welcomes comments on whether the resource status of a petitioner should be considered when analyzing discretionary denial. Id. at 24.

Serial Petitions

For serial petitions, the Notice states that the USPTO is considering replacing factors 1-7 of the precedential General Plastics test with a new test incorporating USPTO case law on factor 1 of General Plastics. Id. at 27.

Specifically, under the USPTO's proposal, subject to two exceptions, the Board will discretionarily deny, any serial IPR or PGR petition (that challenges at least one of the same claims challenged in a previously filed IPR, PGR, or CBM petition) filed by one of: the same petitioner, a RPI or privy to that petitioner, a party with a significant relationship to that petition (as discussed in Valve I), or a party who previously joined an instituted IPR or PGR filed by that petitioner (as also discussed in Valve II). Id. at 27-28.

The two exceptions in which the Board will not discretionarily deny such a petition are when:

(1) the earlier petition was resolved for reasons not materially related to the merits of the petition (e.g., was discretionarily denied or otherwise was not evaluated on the merits); or

(2) exceptional circumstances are shown. Exceptional circumstances may, for example, include

(a) situations in which a patentee changes the scope of the claims, for example, through amendment or a proposed claim construction;

(b) situations where, at the time of filing of the first petition, the petitioner reasonably could not have known of or found the prior art asserted in the serial petition; or

(c) situations in which the petitioner raises a new statutory challenge (35 U.S.C. 101, 112, or 102/103) that was not in the prior petition and has a justifiable explanation for why they did not raise the statutory challenge in the earlier petition.

Id. at 28.

325(d) Framework

In the Notice, the USPTO proposes to promulgate rules directed at how the Board will conduct an analysis under 35 U.S.C. 325(d) based on the framework set forth in Advanced Bionics and Becton, Dickinson. Id. at 30.

First, the USPTO is considering limiting the application of 35 U.S.C. 325(d) to situations in which the Office previously addressed the prior art or arguments during prosecution, reissue, ex parte reexamination, inter partes reexamination, and AIA post-grant proceedings, and appeals of the same, involving the challenged patent or a related patent or application. Id. at 31, 33.

Art or arguments would be deemed to have been "previously addressed" where the Office evaluated the art or arguments and articulated its consideration of the art or arguments in the record, e.g., "the claims must have been distinguished over the art in the record where the art was the basis of a rejection where the rejection was withdrawn or overcome by an amendment, was distinguished in a notice of allowance, or was discussed during an examiner interview." Id. at 31. On the other hand, the mere citation of a reference on an Information Disclosure Statement during prosecution of the challenged patent, or in search results would be insufficient to be deemed "previously addressed." Id.

Further, according to the Notice, 35 U.S.C. 325(d) will apply to art or arguments that were previously addressed during proceedings pertaining to: (1) the challenged patent; or (2) any parent application or other family member application of a challenged patent, but only if the claims of the parent application or other family member application contain or contained substantially the same limitations as those at issue in the challenged claims. Id. at 31.

Finally, under the proposal, prior art will be considered to be "substantially the same" under 35 U.S.C. 325(d) only if the disclosure in the prior art previously addressed contains the same teaching relied upon in the petition and that teaching was addressed by the Office, whether it be a patent or a printed publication in an IPR or another type of prior art available in a PGR Id. at 32. See also id. (Discussing examples of national stage applications and PCT applications having the same disclosure, and two non-patent references both teaching the same claim limitation in the same way as the challenged claim).

Parallel Petitions

For parallel petitions, the USPTO is proposing a change providing that, in lieu of filing multiple petitions, a petitioner may consider paying additional fees for a higher word-count limit, effectively turning the process of filing multiple petitions into one long petition. Id. at 35-36. According to the Notice, the Office could allow for additional fees (e.g., an additional 50% or 100%) and higher word-count limits (e.g., an additional 50% or 100%) for the petition. Id. at 35. Under this proposal, if a petitioner pays the fees for filing a petition with a higher word-count limit (e.g., an additional 50%), the parties responsive briefs in the proceeding may be filed with proportionally higher word-count limits (e.g., an additional 50%) at no additional charge to either party. Id. at 35-36.

The Office is considering an additional option providing that the Board will not institute parallel petitions unless the petitioner, in a separate five-page paper filed with the petitions, has made a showing of good cause as to why parallel petitions are necessary, identifying:

  1. a ranking of the petitions in the order in which it wishes the Board to consider the merits, if the Board uses its discretion to institute any of the petitions; and
  2. a succinct explanation of the differences between the petitions, why the issues addressed by the differences in the petitions are material, and why the Board should exercise its discretion to institute additional petitions if it identifies one petition that satisfies the petitioner's burden under 35 U.S.C. 314(a) or 324(a).

Id. at 36. The Notice further states that the Board, when evaluating the petitioner's good cause as to why parallel petitions are necessary, will consider the following factors:

  1. whether the patent owner has asserted a large number of claims in the parallel litigation;
  2. whether the petitioner is challenging a large number of claims;
  3. whether there is a dispute about a priority date requiring arguments under multiple prior art references;
  4. whether there are alternative claim constructions that require different prior art references or mutually exclusive grounds;
  5. whether the petitioner lacks sufficient information at the time of filing the petition, e.g., the patent owner has not construed the claims or provided specific information as to the allegedly infringed claims;
  6. whether there are a large number of claimed embodiments challenged, e.g., composition claims, method of making claims, and method of use claims;
  7. the complexity of the technology in the case; and
  8. the strength of the merits of the petition.

Id. at 36-37.

Finally, under consideration in the proposed rulemaking are changes to provide that "parallel petitions" means two or more petitions that:

  1. challenge the same patent by the petitioner or by a petitioner who has a substantial relationship with another petitioner challenging the same patent; and
  2. are filed on or before (a) the filing date of a preliminary response to the first of two or more petitions, or (b) the due date set forth in 42.107(b) for filing a preliminary response to the first petition, if no preliminary response to the first petition is filed.

Id. at 37.

Discretionary Denial Based on Parallel Litigation

The Notice proposes possible rules to guide discretionary denial where parallel litigation is ongoing at the time of an IPR or PGR institution decision. Id. at 37-38. Under the proposed possible rules:

  1. Discretionary denial is not available to deny institution of an IPR or PGR based on a parallel ITC proceeding, id. at 40-41;
  2. Discretionary denial is not available to deny institution of a PGR based on parallel district court litigation, id. at 41-42;
  3. Discretionary denial is available to deny institution of an IPR based on a parallel district court action, id. at 42.

Where discretionary denial is available, the Office is considering two alternatives for applying that discretion, as explained below. Id. at 42. Under the first alternative, discretionary denial is governed solely by a clear, predictable rule. Id. Under the second alternative, discretionary denial determinations will additionally consider a streamlined version of the Fintiv factors. Id. Under either, the safe harbor exceptions discussed below would exist. Id.

First Alternative

The Board is considering two alternative rules:

  1. Time-to-Trial Rule. A rule providing that the Board will deny institution of an IPR in view of a parallel district court litigation involving at least one of the challenged claims if the Board determines a trial in the district court action is likely to occur before the projected statutory deadline for a final written decision in the IPR. Id. at 43. (As in the Guidance Memorandum, statistics like median time-to-trial will be considered. )
  2. Early Filing Rule. A rule providing that the Board will not deny institution of an IPR based on a parallel district court litigation if the IPR is filed within 6 months after the date on which the petitioner, an RPI, or a privy thereof is served with a complaint alleging infringement (provided the petitioner, RPI, or privy did not previously file a civil action seeking declaratory judgment of noninfringement of any claim of the patent). at 43-44.

Second Alternative

Under the second alternative, the Board would consider—in addition to the rule(s) of the first alternative—a streamlined version of the Fintiv factors. Id. at 48. The safe harbor exceptions discussed below would still exist. Id.

The Office proposes streamlining the Fintiv factors by omitting Factor 1 (likelihood of a stay) and Factor 5 (whether the petitioner and the defendant in the parallel district court litigation are the same party). Id. at 49. The remaining Fintiv factors would be repackaged as the three factors below:

  1. Past and future expected investment in the parallel proceeding by the district court and the parties;
  2. The degree of overlap between the issues in the petition and the parallel district court proceeding; and
  3. Any other circumstances that the parties contend are relevant to the Board's exercise of discretion. The Office envisions these including, among other things, abuse of the PTAB process (as was found in OpenSky v. VLSI) and joinder petitions from time-barred parties (though the Office is also considering a rule that would limit the discretionary denial analysis to the litigation involving the petitioner of the first-filed petition). at 49-50.

Safe Harbor Exceptions

Finally, the Office is considering rules creating safe harbor exceptions to discretionary denial:

1. Stipulation Safe Harbor. The Office is considering a rule providing that the Board will not discretionarily deny institution of an IPR based on a parallel district court litigation when the petitioner files a stipulation agreeing not to pursue potentially overlapping grounds in the district court. at 44. The Office requests comments on the scope of this safe harbor, including:

a. Whether the petitioner must show that the stipulation has been filed in the district court litigation as well, id. at 44;
b. Whether, if the party to the district court litigation is not the petitioner but rather an RPI or privy of the petitioner, a stipulation filed by the RPI or privy would suffice, id. at 44-45;
c. Whether the stipulation must be a Sotera stipulation (or if other, narrower stipulations should suffice), id. at 46-47;
d. Whether, instead of providing a safe harbor, a Sotera stipulation should be a necessary (but not sufficient) basis for institution. at 47. Under such a rule, to survive a Fintiv challenge, the Petitioner must file a Sotera stipulation. Id.
e. Whether, instead of providing a safe harbor or being necessary to survive a Fintiv challenge, a Sotera stipulation should entirely replace the Fintiv Id. at 47. Under such a rule, the Office would not deny institution if a Sotera stipulation is filed but would otherwise discretionarily deny institution without consideration of the Fintiv factors. Id.

2. District Court Stay Safe Harbor. The Office is considering a rule providing that the Board will not deny institution of an IPR based on a parallel district court litigation if the district court litigation has been stayed (and is reasonably expected to remain stayed at least until the deadline for the Board's institution decision).

3. Compelling Merits Safe Harbor. The Office is considering a rule under which, if the circumstances favor discretionary denial of institution, the Board will analyze the merits of the petition and will not deny institution if the petition presents compelling merits. at 48.

Stipulation of No Multiple Challenges

The Office is also considering, as a condition to not discretionarily denying institution under 314(a), requiring petitioners to file a stipulation that they have not and will not seek multiple post-grant challenges. Id. at 50-51. In particular, petitioners may be required to stipulate that (a) neither they nor their privy or real parties have filed prior post-grant proceedings as to any of the challenged claims; and (b) that if their post-grant proceeding is instituted, neither they nor their privy or real parties will challenge any of the challenged claims in a subsequent post-grant proceeding. Id. An exception may exist for exceptional circumstances. Id.

Separate Briefing for Discretionary Denial

The Office is considering amending the rules to provide a procedure for separate briefing on discretionary denial under any of 35 U.S.C. 314(a), 324(a), and 325(d). Id. Under this procedure, the patent owner would file a request (10 pages) prior to its preliminary response, the petitioner would have an opportunity to respond (10 pages), and the patent owner would have an opportunity to reply (5 pages). Id. The Board could also raise discretionary denial sua sponte. Id. at 51-52.

Finally, the Office is considering whether, as a precondition to discretionary denial, patent owners should be required to disclose additional information relating to entities having a substantial relationship with the patent owner. Id. at 52.

Settlement Agreements

The rules have long provided that parties in an AIA trial must submit copies of settlement agreements. The Notice states that the Office shall consider clarifying that the parties must file true copies of all settlement agreements, including pre-institution settlement agreements. Id. at 52. Further, the Office may clarify that although termination may be granted based on a binding term sheet, parties could be required to file copies of subsequent settlement agreements. Id. The Notice provides that having a depository of all settlement agreements at the USPTO "would assist the Federal Trade Commission (FTC) and the Department of Justice in determining whether antitrust laws were being violated." Id. at 53.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.