On April 24, the U.S. Supreme Court, in a 7-2 decision, held that inter partes review (IPR) proceedings conducted by the Patent Trial and Appeal Board (PTAB) do not violate Article III or implicate the Seventh Amendment.
This decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712, validates administrative proceedings that were put into place by Congress in the Leahy-Smith American Invents Act (AIA) of 2011. The Court, however, made sure to emphasize the “narrowness of [the] ruling,” stating that it was not ruling on the constitutionality of particular PTAB practices but just that the IPR process in general was constitutional.
The U.S. Patent Office no doubt breathed a sigh of relief when the Oil States decision came down since the PTAB had already completed nearly 2,000 IPR trials so far — with more than 800 additional trials in progress and roughly 1,000 more petitions awaiting an initial decision on whether a trial should be instituted. Justice Thomas, writing for the majority in the Oil States case, found that “inter-partes review falls squarely within the public rights doctrine.” Characterizing patents as “public franchises,” the Court concluded that granting patents is one of the constitutional functions that can be carried out by the executive or legislative branches, without judicial determination, and these public rights can likewise be canceled outside of a federal court — and with no right to a jury trial.
However, another U.S. Supreme Court decision handed down the same day in SAS Institute v. Iancu, No. 16-969, has upended a major provision of the U.S. Patent and Trademark Office (PTO) regulations for IPR and post-grant review (PGR) proceedings. By concluding in a 5-4 decision that the agency lacks the authority to render partial judgments on petitions that challenge issued patents, the PTO may be forced to overhaul its rules and regulations for implementing a key component of the 2011 patent reforms.
The PTO’s initial reaction to the SAS case has been to issue a memorandum on April 26, 2018, acknowledging that, going forward, “the PTAB will institute as to all claims or none.” For trials in progress, the memorandum suggests that the PTAB panels may issue supplemental orders and will expect the parties to “work cooperatively amongst themselves to resolve disputes and propose reasonable modifications to trial schedules.” The memo further commits the PTAB to address all challenged claims in its final written decisions.
The AIA created several new administrative procedures to challenge or revise U.S. patents after they have been issued. The most commonly used procedure, IPR, can be brought against any patent issued for more than nine months. Newly issued patents are subject to PGR during the first nine months following their issuance and then IPR challenges thereafter. The AIA requires the PTO to conduct IPR and PGR proceedings with “dispatch,” and, absent extraordinary reasons, a final decision must be rendered within one year of the institution of an IPR.
The SAS case involved an IPR proceeding brought by SAS against a patent issued to one of its competitors, ComplementSoft. SAS sought review of all 16 claims of the patent. Applying the PTO’s existing rules for IPR proceedings, the PTAB reviewed the petition and concluded that SAS had met the threshold requirement of presenting arguments reasonably likely to succeed as to claims 1 and 3–10 and instituted a trial as to only these claims and declined to review the rest. SAS was ultimately successful in invalidating almost all of the subset of claims on which the trial was conducted, but SAS maintained throughout the proceedings that the PTAB had a responsibility to rule on all of the challenged claims, not just the ones that were the subject of the trial.
SAS appealed to the Federal Circuit, but the appeals court rejected SAS’s challenge to the PTAB procedures, setting the stage for Supreme Court review. In the 5-4 decision handed down on April 24, the majority opinion written by Justice Gorsuch criticized the PTO for taking liberties when implementing the AIA-authorized patent reviews, writing that “whatever its virtues or vices, Congress’ prescribed policy here is clear.”
We find that the plain text of §318(a) supplies a ready answer. It directs that “[i]f an inter partes review is instituted and not dismissed under this chapter, the [Board] shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner . . . .” §318(a) (emphasis added). This directive is both mandatory and comprehensive. The word “shall” generally imposes a nondiscretionary duty.
As is often the case, the Court split on partisan lines, with the four judges appointed by democratic presidents dissenting. Justice Ginsburg’s dissenting opinion, joined by Justices Breyer, Sotomayor and Kagan, characterized the majority opinion as a “wooden reading” of the statute. In a second dissenting opinion by Justice Breyer (and also joined by the other dissenters), he concluded that the PTAB’s practice of initiating partial trials was a reasonable exercise of rulemaking authority.
Nonetheless, the majority opinion is now the law of the land, and the PTAB has acknowledged that it will abide by it. How the PTAB judges do so, however, remains to be seen. The one-page guidance issued the following week offered little in the way of specifics, apart from noting that new trials will be instituted on all claims, whether or not the petitioner has met the burden of demonstrating a reasonable likelihood of success as to some of the challenged claims. (One such trial initiation decision was already issued in IPR2018-00082, where a PTAB panel initiated a trial on all claims, even though it was not convinced that petitioner, Western Digital, was likely to succeed in its challenge to most of the claims in a patent owned by Spex Technologies.)
On April 30, the PTO held a nationwide webinar (billed as a “Chat with the Chief”), during which Chief PTAB Judge David Ruschke and two of his vice chiefs provided some further guidance and answered curated questions from the listening audience. Judge Ruschke confirmed that the PTAB intended to follow the SAS ruling and would, in fact, now consider not only all claims challenged by petitioners but also all grounds. (A petition can raise more than one ground for invalidity of a claim, and many PTAB panels had adopted the practice in their institution decisions of holding a trial on less than all of the grounds whenever they concluded some grounds were redundant.)
Judge Ruschke also said that the PTO estimates that about 20 percent of the pending trials were instituted on less than all of the claims (roughly 200 cases). In these so-called “partial institution” cases, he said supplemental orders would be sent out shortly requiring the parties to confer and notice their PTAB panels within one week if a conference call is desired to modify the trial schedules. (These orders appear to have gone out shortly after the end of the webinar on April 30.)
How Will This Affect AIA Proceedings Going Forward?
For 80 percent of the currently pending trials, the answer appears to be “not at all.” As Chief Judge Ruschke noted, most pending trials were instituted on all claims and all grounds anyway. So these trials should proceed as they would have if the SASdecision had never been handed down.
Even for the “partial institution” cases, many of these cases are in early stages, and the supplemental orders adding claims and/or grounds will just mean that the parties will need to address more issues. Patent owners will need to defend more claims. Petitioners will have an opportunity to convince the PTAB panels that claims that had been culled in the institution decision should be reconsidered.
The “sticky wicket” cases will be the trials that were partially instituted and are now in the late stages of the proceedings (e.g., where the patent owner’s response and the petitioner’s reply have already been submitted). In these cases, the PTAB will probably have to reopen proceedings and allow supplemental briefing. In some cases, this will preclude a decision within the statute-mandated one-year deadline. Luckily for the PTO, the AIA provides that the PTAB panels can designate cases as “exceptional” and have an additional six months to reach a decision.
With regard to PTAB trials currently underway, it remains to be seen how much leeway petitioners will have to introduce new evidence or arguments as to the claims that were originally excluded from the proceeding because the PTAB found the petitioner failed to meet the threshold requirement of demonstrating a reasonable likelihood of success. Presumably, petitioners will now be able to cross-examine patent owner experts on all of the claims and attack statements and opinions that the PTAB may have found persuasive in concluding at the institution stage that the petitioner failed to present an argument reasonably likely to succeed as to some claims or grounds.
For patent owners who have been just served with an IPR (or PGR) petition, the strategy of filing a preliminary response may warrant rethinking. However, in most instances, a preliminary response will continue to be of value in framing issues. And when a petition has a fundamental flaw (e.g., it presents arguments that are redundant in light of other petitions or are the same or substantially the same as those raised during the original patent prosecution), a preliminary response still appears to be the best way for a patent owner to ensure that a trial is not instituted.
For would-be petitioners, the SAS decision provides an added benefit in that all of the arguments and claims must be considered and the PTAB final written decision on all claims and grounds ultimately will be appealable to an Article III federal court, i.e., the Court of Appeals for the Federal Circuit. However, the trade-off here is that the AIA “estoppel” will attach to all of the claims and grounds adjudicated in the trial, that is to say an unsuccessful petitioner will now be precluded from raising each and all of the arguments presented by the petition. (Previously, the “estoppel” applied only to claims and grounds on which a trial was actually instituted in “partial institution” situations.)
If institution as to all challenged claims is inevitable whenever a trial is granted, it is not clear whether the PTAB trial institution decisions will continue to be as comprehensive, as is currently the practice, with explanations of why some claim challenges fail to pass muster. Moreover, it is also not clear whether there will be more petitions denied in the PTAB’s discretion. As the dissenters in the SAS decision noted, the Court has previously held that the PTO has essentially unfettered discretion in accepting IPR and PGR petitions and could find some of the claim challenges to be unsupportable and simply reject the entire petition. This could force petitioners to refile (assuming they are not time-barred) with challenges to fewer claims.
Finally, the new regime may change the likelihood of federal district court judges granting stays in underlying patent infringement suits. At present, some judges in infringement actions are unwilling to grant a stay pending the outcome of an IPR proceeding if any of the claims asserted in the infringement suit are culled by the PTAB from its review. Since partial review by the PTAB is no longer an option, district courts may be more willing to stay their proceedings until all the dust settles at the PTAB.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.
Compliments of Pepper Hamilton, a member of the EACCNY