Giving the Federal Circuit a run for its money: challenging patents in the PTAB.

Author:Dreyfuss, Rochelle Cooper
Position:Patent Trial and Appeal Board - III. Interaction between the PTAB and the Federal Circuit B. Federal Circuit Review of PTAB Decisions through Conlusion, with footnotes, p. 271-300
  1. Federal Circuit Review of PTAB Decisions

    While the procedures instituted by the AIA could contribute significantly to the sound administration of patent law, enjoying the benefits will depend heavily on whether the Federal Circuit is willing to grant a healthy degree of deference to PTAB decisions (that is, share its authority over patent jurisprudence) and on what it makes of the PTO's rules regulating the proceedings in which these decisions are issued. These are not easy questions. Congress interposed dispute resolution in a specialized agency under review in a specialized court. However, it failed to make clear how the two tribunals ought to relate to one another. The statute gave the PTO authority to "prescribe regulations ... establishing and governing ... [the three new methods of] review," (227) but it did not mandate notice and comment, (228) thus arguably withholding formal rulemaking authority. Similarly, Congress directed the PTO to entertain inter partes PGR, IPR, and CBM review and specifically mentioned discovery, responsive filings, oral hearings, and final written determinations; the AIA also renamed the BPAI the Patent Trial and Appeal Board. (229) However the statute nowhere incorporates the phrase "on the record after opportunity for an agency hearing," (230) which is the best evidence that Congress intended the procedures to constitute formal adjudications and thus intended to delegate to the agency interpretive authority entitled to judicial deference. (231)

    Not only is the statute unclear about how much authority Congress meant to vest in the PTO, the Federal Circuit's past approach to agency review has been decidedly mixed. As Arti Rai and Stuart Benjamin documented in 2007, despite Dickinson v. Zurko, (232) which admonished the Federal Circuit to apply mainstream administrative law to its review of agency action, the Federal Circuit has not consistently done so. Tajas v. Doll, (233) the Federal Circuit's previous foray into PTO rulemaking, produced a split decision. The court rejected a PTO rule on continuations because, in one judge's view, no deference was owed the PTO, and in the other two judges' view, because the rule had a substantive effect inconsistent with the Patent Act. (234) Substantively, while the Federal Circuit has reviewed factual findings on a substantial evidence standard (or for clear error), it has reviewed PTO legal determinations de novo. (235)

    The AIA's delineation of the PTO's new authorities and obligations ought to have prompted the Federal Circuit to reconsider its approach to administrative deference. But the early cases reviewing the PTO's authority and PTAB decisions, In re Cuozzo Speed Technologies, Microsoft Corp. v. Proxyconn, Inc., and Ver sat a Development Grp., Inc. v. SAP America, Inc., suggest that the court is not ready to take systematic heed of congressional willingness to rely on the PTO. (236) Quite the reverse.

    To be sure, in Cuozzo, the court referenced the Chevron framework in reaching the decision to approve the PTAB's use of the BRI. It assumed--arguendo--that since Congress was silent on claim construction, the PTO could adopt a reasonable interpretation. It found the BRI to be reasonable because it was supported by the policy rationales applicable to other forms of examination. (237) The Chevron analysis was, however, extremely short (two paragraphs) and mechanical. Indeed, the court withdrew its initial opinion in the case (238) in order to add a paragraph emphasizing that it did not, in fact, agree to the use of the BRI on Chevron grounds. In the revised opinion, it denied that "Congress has newly granted the PTO power to interpret substantive statutory 'patentability' standards." (239) According to the court, "[s]uch a power would representa radical change in the authority historically conferred on the PTO by Congress, and we could not find such a transformation effected by the regulation-authorizing language of [section] 316." (240)

    Instead, the court devoted most of its discussion of the BRI (eight paragraphs) to its own interpretation of the ALA. Noting that the BRI has been applied "for more than 100 years in various types of PTO proceedings," (241) it reasoned that Congress must have been aware of it and thus can be said to have implicitly approved its use. (242) As to PTO-imposed limitations on amendment (which, as we saw, is a major reason for the BRI controversy), the court did not apply Chevron at all. Rather, it found the availability of amendment sufficient, (243) once again reasoning that congressional awareness can be taken as adoption.

    Despite the court's careful clarification that its approval of the BRI was not because of deference to the PTO, the decision to deny a rehearing en banc still drew two strong dissents. (244) The dissenters mainly claimed that since post-grant opposition was meant to be a cheap substitute for litigation, it was more appropriate to use what they termed the "actual" construction of challenged claims. (245) But echoing her position in Tafas, Chief Judge Prost also questioned whether the standard of construction fell within the PTO's procedural authority. Because in her view it did not, the choice of the BRI merited no Chevron deference at all. (246)

    Given the Cuozzo court's heavy reliance on past practice regarding claim construction, it is not surprising the court has been even more skeptical of PTO authority on issues unique to post-grant practices. In Proxyconn, the question was whether the Board's Idle Free decision appropriately required the patent holder to prove an amendment was patentably distinct over all the prior art in the record (and not merely the art the petitioner raised). Although this time the court expressly referenced the standard articulated in the Administrative Procedure Act (APA), (247) it mainly provided its own assessment of the rule and the procedure used to create it. (248)

    Versata, a CBM, was much the same. The Federal Circuit acknowledged that Congress had left it to the PTO to define the term "covered business method" and carefully noted that the PTO had considered both the legislative history and public responses to the notice it published in the Federal Register. Nonetheless, the court conducted its own assessment. (249) In the end, it decided that it agreed with the PTO that covered business methods are not limited to products and services of the financial sector, noting only at the very end of that section of the opinion that the PTO's expertise entitles it to "substantial deference in how it defines its mission." (250) It handled another issue that arose in the case similarly, deciding for itself that in CBMs, the PTAB has authority to decide whether the claims are drawn to patentable subject matter. (251)

    The fate of matters like the narrow constraints the PTO placed on how the parties present their cases (the time and page limits; the minimal discovery), which have no history and are not tied to the PTAB's mission, are even more difficult to determine. It is, however, worth nothing that although page, time, discovery, and argument limitations have an impact on the parties' ability to present their cases (especially in light of the broad view of the grounds that can be asserted, at least in CBMs), these limits do not appear to significantly impair argumentation, and they are well tailored to Congress's goal of creating a quick and less expensive way to weed out invalid claims. (252) Furthermore, PTAB panels enjoy the discretion to alter many of these limits in the interest of justice or for good cause. (253) Thus, if a Chevron standard were applied, these regulations appear to lie squarely within the regulatory authority Congress accorded to the PTO and to be consistent with the Patent Act and permissible interpretations of the ALA. (254)

    Whereas procedurally, Cuozzo, Proxyconn, and Versuta send a somewhat mixed message, substantively, they do no such thing: nothing in these decisions even gestures at the notion that the Federal Circuit is prepared to defer to PTAB decisions. (255) In reviewing the merits, Cuozzo and Proxyconn cited Teva. (256) In other words, the court adopted the standard the Supreme Court imposed on review of district court claim constructions to consider the PTAB's claim construction. Indeed, in Proxyconn, the court reversed the PTAB's construction of the claim, (257) even though the court is less versed in the application of the BRI than is the PTAB. In Versata, it went much further. First, despite having decided in Cuozzo that it had no jurisdiction to review PTAB decisions on whether to institute IPRs, (258) the Versata court redefined the issue: it decided it could review whether the PTAB had exceeded its CBM authority by hearing challenges to patents that it misidentified as drawn to "covered business methods." (259) And even though the court accepted the Board's definition of what constituted a "covered business method," and despite its own complete lack of case law on the meaning of a "covered business method" or a "technological invention," it nevertheless reviewed the PTAB decision de novo. (260) Similarly, it reviewed the question whether the invention at issue was patentable subject matter in the same way as it would have reviewed a decision of a trial court. (261)

    This approach may be a function of the court's skepticism as to whether the APA applies with full force to the PTO (which was created a century before the rise of the administrative state and is mentioned only marginally in the legislative history of the APA). (262) Or it may stem from a fear that the PTAB is, indeed, acting like a "death squad." Alternatively, it may derive from what judge Hughes, in dissenting from Versata's holding that institution decisions are reviewable, claims is an "appetite for arrogating to the court the Board's statutory authority." (263) But to the extent that the court's attitude derives from the perception that...

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