The U.S. Patent and Trademark Office's recent advance notice of proposed rulemaking for potential reforms to the rules and guidelines for America Invents Act trials was not short on ideas for potential modifications to the way in which the PTAB conducts AIA trials.1

The notice's extensive list of proposals, now open to comment by USPTO stakeholders, was described by some members of the U.S. House of Representatives' Subcommittee on Courts, Intellectual Property and the Internet — at a recent oversight hearing on April 27 — as crossing over into the purview of Congress.

Specifically, Rep. Zoe Lofgren, D-Calif., told USPTO Director Kathi Vidal that Congress can revisit the statute to consider changes but "the PTO is not a lawmaking body."2 Vidal responded by noting that this advanced notice "was a way to give stakeholders a chance to shape the rules."3

Lofgren replied that if "stakeholders think they have a good idea, they ought to come to [Congress], we are the ones that write the statute not the PTO."4

Below we analyze some of the key proposals in what Vidal describes as the "myriad of options" contained in the notice. Further, we analyze whether these options appear to be safely within the rulemaking authority of the USPTO or might draw ire from the House subcommittee.

Separate Briefing for Discretionary Denials

Perhaps one of the least controversial proposals, among the myriad of options, is the idea of allowing separate briefing on discretionary denial issues. The 14,000 words of an inter partes review, or IPR, petition, and similarly the patent owner preliminary response, have become precious real estate to address issues of merit and substance regarding a validity challenge.

Thus, many have suggested that issues relating to discretionary denial should be addressed in separate briefs, and numerous PTAB panels have permitted such briefing.

The notice states that the USPTO is considering amending the rules to provide a procedure for separate briefing on discretionary denial under Sections 314(a), 324(a) or 325(d) of Title 35 of the U.S. Code.5

Under this procedure, the patent owner would file a 10-page request prior to its preliminary response, the petitioner would have an opportunity to respond with 10 pages, and the patent owner would have an opportunity to reply in five pages.6 The Patent Trial and Appeal Board could also raise discretionary denial sua sponte.7

This proposal would appear to have a roughly equivalent impact on both parties. Further, many of the discretionary denial factors are dependent on timing considerations, and, thus, are often better addressed as close in time to the board's decision on institution as possible.

Additionally, such a modification to the board's briefing procedures would seem to be well within the statutorily provided discretion given to the agency to dictate the procedures of an AIA trial.

Under-Resourced Inventors and Petitioners

In a potentially controversial proposal, the notice suggests limiting the impact of AIA trials on certain entities, such as startups, small businesses and independent inventors. Specifically, petitions would be subject to discretionary denial, absent compelling merits, when the following conditions are met:

  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.8

The notice also recognizes that the USPTO could 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.9

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.10

Although this proposal might be welcomed by those looking to remove the burden of potential PTAB review from independent inventors, many stakeholders may raise concerns about creating special exemptions for patent validity challenges that would otherwise be possible under the statute.

In her comments to the subcommittee, Vidal stated that she does not "think the law should cater to any one entity."11 Accordingly, this type of catering to certain entities may not survive the comment process.

Limitations on Nonmarket Competitors

The notice further proposes a limitation on who may file petitions, specifically that the board "would discretionarily deny" any IPR or post-grant review petition filed by a for-profit nonmarket competitor that has not been sued on or threatened with infringement of the challenged patent.12

According to the notice, the USPTO is concerned that such entities may use AIA proceedings to advance interests inconsistent with the "mission and vision of the Office."13

But many stakeholders may consider the proposal tantamount to a standing requirement, not present in the AIA, stating that any person who is not the owner of a patent may file with the USPTO a petition — unless the person is time-barred, estopped or has filed a civil action on a claim of the challenged patent.14

The proposed for-profit nonmarket competitors test may also be viewed as raising more questions than providing answers.

Regarding the second element of the proposed test, the notice is silent regarding how the board would clearly and consistently determine whether an entity has been "threatened with infringement of the challenged patent in a manner sufficient to give rise to declaratory judgment standing,"15 particularly considering the varying thresholds applied by district courts.

The notice further contemplates a broader scenario where a petitioner lacks declaratory judgment but has "a reasonable apprehension of suit based on the prior litigation conduct of the patentee asserting the patent or related patents against similarly situated companies."16

But it is unclear from the proposed rulemaking how the board will determine whether an entity is a similarly situated company, and when the prior litigation conduct of the patentee is sufficient to cause the petitioner a reasonable apprehension of suit.17

Regarding the third, nonmarket element of the USPTO's proposed test, the scope of any financial and/or developmental thresholds needed to demonstrate when an entity has invested to bring a given product or service on the market is uncertain.18

And this element may unnecessarily lead to reduced petition filings stemming from concerns that a petitioner's representations about whether it practices or invests in the field of the challenged patent with a product or service on the market could be used by a patent owner to subsequently bring a patent infringement case against said petitioner.

The notice states that for-profit nonmarket competitors may still achieve institution if a petition satisfies a heightened standard of demonstrating compelling merits.19

Considering the proposed standard for the compelling merits test is higher than the standards applying to final determinations of patentability, compelling merits would be unlikely to provide a viable exception for nonmarket competitors.20

For parallel petitions, the office is considering codifying the option — set forth in the board's 2019 Consolidated Trial Practice Guide — that the petitioner, in a separate five-page paper filed with parallel petitions, demonstrate good cause as to why the parallel petitions are necessary.21

The notice further seeks to codify factors the board will consider when evaluating the petitioner's good cause:

  • The presence of a large number of claims asserted in related litigation;
  • Alternative claim constructions;
  • A priority date dispute;
  • The complexity of the technology;
  • Insufficient information at the time of filing the petition — relating to, e.g., claim construction or the allegedly infringed claims;
  • A large number of different claimed embodiments; and
  • The strength of the merits of the petition.22

As an additional option targeted at preventing parallel petitions, the USPTO is proposing a change allowing the petitioner to pay additional fees for a higher word-count limit in a single petition.23

In many cases, the petitioner does not need an additional 14,000 words. Further, the proposal provides proportionally higher word-count limits for the parties' responsive briefs at no additional charge to either party.24

Discretionary Denial Based on Parallel Litigation

The notice proposes rules to guide the board's discretionary denial based on parallel litigation.25 Of note, the notice proposes eliminating all discretionary denial based on a parallel U.S. International Trade Commission litigation and all discretionary denial of post-grant reviews.26 This would limit discretionary denial to IPRs where there is a parallel district court litigation.

Where discretionary denial would be available, the USPTO proposes several analyses. First, the notice proposes an analysis governed solely by a "clear, predictable rule" to provide "certainty for the parties."27 Second, the notice proposes considering, alongside such a rule, a streamlined version of the Fintiv factors.28 Finally, the notice proposes that, under either analysis, safe harbors should exist.29

Clear, Predictable Rule

Two clear, predictable rules are proposed, both of which aim to address "concerns regarding overlapping issues and duplicative efforts."30

The first is a time-to-trial rule: In the IPR, the board would

deny institution of an IPR in view of pending 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.31

In analyzing time to trial, the notice states, the board may consider evidence including "statistics on median time-to-trial," "the number of cases before the judge," and "the speed and availability of other case dispositions" in the district court.

Alternatively, the notice proposes a clear, predictable rule that incentivizes early filing: So long as the petitioner — or its real party in interest or privy — did not earlier seek declaratory judgment of noninfringement, the board would

not invoke its discretion to deny an IPR petition based on a parallel district court proceeding if the IPR petition is filed within 6 months after the date on which the petitioner [or its real party in interest or privy] is served with a complaint.32

Streamlined Fintiv Factors

Recognizing that a clear, predictable rule may at times "effect an unduly harsh outcome," the notice proposes "additionally provid[ing] for a streamlined version" of the Fintiv factors.33

These would include: past and future expected investment in the parallel litigation by the district court and the parties; the degree of overlap between the issues in the district court and the IPR; and any other relevant circumstances, such as use of the IPR "in a way that does not comport with the legitimate goals of the AIA" or issues surrounding joinder.34

According to the office, the clear, predictable rule would still "control the vast majority of discretionary issues," making these factors unnecessary in most cases.35

Safe Harbors

Recognizing "that there are certain situations in which it may be inappropriate for the Board to deny institution in view of parallel district court litigation," the USPTO proposes three safe harbors that would preclude discretionary denial, even where the clear, predictable rule and/or streamlined Fintiv factors supported it.36

First, the notice proposes a stipulation safe harbor: The board would not deny institution based on a parallel district court litigation when the petitioner stipulates to not pursue potentially overlapping grounds in the district court.37 The USPTO invites comments on what scope of stipulation should be required.38

While the USPTO currently believes that a Sotera stipulation should be required to avoid denial, the office is also considering "narrower types of stipulations," such as "a Sotera stipulation that is limited to" the claims challenged in the IPR or "a Sand Revolution stipulation."39

The notice also proposes that, rather than acting as a safe harbor, a Sotera stipulation requirement could replace the streamlined Fintiv factors.40

Second, the notice proposes a stay safe harbor: The board would not deny institution based on a parallel district court litigation that "has been stayed and is reasonably expected to remain stayed at least until the deadline for the Board's" institution decision.41

Third, the notice proposes a compelling merits safe harbor. Under this approach, "if the circumstances favor a discretionary denial of institution, the Board will analyze the merits of the petition, and will not discretionarily deny institution if the petition presents compelling merits."42

Conclusion

The notice is simply the first step in a very long rulemaking process by the agency. Given the sheer number of proposals contained in the notice, it is likely that many of the proposals will not find their way into rules.

Regardless, it will be interesting to follow the commentary from the USPTO stakeholders to ascertain which issues garner the most attention.

Footnotes

1. April 21, 2023 Advance Notice of Proposed Rulemaking for potential reforms to the rules and guidelines for AIA trials before the PTAB ("Notice") at 3.

2. See April 27, 2023 Hearing, "Oversight of the U.S. Patent and Trademark Office," House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet, ("Hearing") at 59:43.

3. Id.

4. Id. at 1:01:20.

5. Notice at 50-51.

6. Id.

7. Id. at 51-52.

8. Id. at 22.

9. Id. at 23.

10. Id.

11. Hearing at 54:58.

12. Notice at 19.

13. Id. at 19.

14. See U.S. Code §§ 311(a), 315 (a)(1), (b), (e), 321(a), 325(a)(1), (e); 37 CFR §§ 42.101, 42.201.

15. Notice at 19.

16. Id. at 20.

17. Id.

18. Id. at 19.

19. Id. at 17, 21.

20. Id. at 17.

21. Id. at 36; PTAB Consolidated Trial Practice Guide (Nov. 2019) (Practice Guide) at 59-60.

22. Notice at 36-37; Practice Guide at 59.

23. Notice at 35-36.

24. Id.

25. Id. at 37-38.

26. Id. at 40-42.

27. Id. at 42-44, 48.

28. Id. at 42.

29. Id.

30. Id. at 42.

31. Id. at 43.

32. Id. at 43-44.

33. Id. at 48.

34. Id. at 49-50.

35. Id. at 48-49.

36. Id. at 44-48.

37. Id. at 44.

38. Id. at 46-47.

39. Id.

40. Id. at 47.

41. Id.

42. Id. at 48.

Originally Published by Law360

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