Intellectual Property

• Publication year: 2020
• Author: By Morgan Chu, Dominik Slusarczyk, Caleb Graves

Intellectual Property

By Morgan Chu, Dominik Slusarczyk, Caleb Graves

A Look at The Patent Trial and Appeal Board’s Recent Fintiv Decision as the Board Travels Through a Crossroads

Patent applications undergo a lengthy examination process at the United States Patent and Trademark Office, and the patents that ultimately issue are therefore presumptively valid.¹ Nevertheless, it is possible for anyone to challenge the validity of an issued patent, and one popular tool for doing so is known as inter partes review, or “IPR.” An IPR is an adversarial proceeding that takes place before panels of administrative patent judges (APJs) who are appointed through a different process than the federal district court judges of the Constitution’s Article III. The IPR procedure, which has been used to invalidate scores of patents, today stands in the midst of a transformation.

Established by Congress nearly a decade ago with the Leahy-Smith America Invents Act,² IPR was meant “to provide an effective and efficient alternative” to litigation in the federal district courts.³ In its early days, the APJ panels that heard IPR cases were assailed as “death squads . . . killing property rights.”⁴ With a high rate of invalidation outcomes, IPRs quickly became a popular tool for operating companies accused of patent infringement in the district courts. That trend has receded in recent years.

Today, the Patent Trial and Appeal Board (PTAB), the body responsible for hearing and adjudicating IPR cases, opts for increased use of procedural discretion when choosing which cases to hear on the merits. For example, last year’s Fintiv decision developed a new standard that gave APJs considerable discretion to decline taking cases based on a balancing between the status of parallel district court proceedings and the threshold merits of the arguments presented to the PTAB.⁵ The decision has significant implications for how patent infringement actions are litigated in district courts, especially on the patentee’s choice of venue.

Juxtaposed with this significant recent policy development is the Supreme Court’s agreement last year to review a challenge to the Constitutional legitimacy of the APJs that render IPR decisions, such as Fintiv, on behalf of the PTAB. The Court of Appeals for the Federal Circuit has already ruled that the powers and responsibilities given these APJs by the America Invents Act make them noninferior “Officers” that may only be appointed by the President with confirmation by the Senate, as required by the Appointments Clause. The court remedied the Constitutional problem by providing the Director of the Patent Office even more power to remove APJs from duty, reasoning that this “narrowest viable approach” took APJs outside the Appointments Clause’s category of non-inferior “Officers.”⁶ The merits of the challenge, and the remedy, are now before the Justices of the Supreme Court.

Some argue that giving the Director of the Patent Office power to remove judges at will—the Federal Circuit’s remedy—could actually erode the accountability and transparency of the PTAB, in opposition to the goals of the Appointments Clause. Other remedies have been suggested. In view of the significance of the IPR procedure, and the import of cases like Fintiv, the Supreme Court’s decision could have substantial impact on how the PTAB crafts policy and the public’s understanding of that process.

This article discusses recent developments in the procedural element of the PTAB’s decisions about which cases will be heard on the merits, the current Appointments Clause challenge, and how the outcome of that challenge might impact the PTAB and the IPRs filed before it.

The Mechanics of Inter Partes Review Challenges at the Patent Office

[Page 79]

Any member of the public can seek an IPR to challenge the novelty or non-obviousness of a patent on the basis of certain common kinds of prior art, such as patents and printed publications.⁷ A challenge begins with the filing of a petition setting forth the legal grounds, argument, and evidence supporting a petitioner’s request to cancel issued patent claims as unpatentable.8 Most disputes are adjudicated within 18 months.⁹

Administrative Patent Judges (APJs)

The PTAB is staffed with APJs who preside over IPR proceedings. These so-called "Article I" administrative judges are created entirely by statute, which requires them to "be persons of competent legal knowledge and scientific ability," and provides for them to be appointed by the Secretary of Commerce in consultation with the Director of the Patent and Trademark Office (the "Director").¹⁰ Under the statutory scheme of the America Invents Act, APJs could generally can only be removed for cause.¹¹ In addition to the APJs, the Director, the Deputy Director, the Commissioner for Patents, and the Commissioner for Trademarks are also members of the PTAB who may sit on IPR panels.¹²

APJs are situated quite differently than Article III district court judges. Unlike APJs, district court judges have lifetime tenure as spelled out in Article III of the Constitution. And the Article III judges' status as "Officers" makes them subject to appointment by the President by and with the advice of the Senate pursuant to the Appointments Clause, a different procedure than what the America Invents Act provided for APJs.

Institution Decisions

Once an IPR petition requesting cancellation of patent claims is filed, a panel of three members of the PTAB—in the vast majority of cases, three APJs—typically determines whether the petition warrants the institution of a full proceeding on the merits, known in this context as a trial. A petition must meet the threshold standard of "a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition" to justify institution.¹³

If no trial is instituted, the petition is terminated, and the patentee retains its patent rights (subject, of course, to the outcome of any other proceedings where the patent has also been challenged). If trial is instituted, however, the same panel then typically proceeds to preside over the trial, which takes place largely on the papers. The panel then makes a binding decision on the merits of the challenge memorialized in a final written decision.¹⁴

Although decisions on the merits may be appealed to the Federal Circuit,¹⁵ a panel's decision on institution is not reviewable.¹⁶ Moreover, institution is not actually literally required by statute: although an IPR may not be instituted unless a petitioner demonstrates that its petition meets the reasonable-likelihood standard referenced above, the PTAB's decision to deny institution may be based on factors other than the merits of the prior art challenge alone. For example, a petition may be denied even if it demonstrates the statutory threshold of "a reasonable likelihood that the petitioner would prevail" if the petition is based on arguments that had previously been considered.¹⁷ Another line of cases, discussed below in connection with NHK Spring and its progeny,¹⁸ pertains to denial of institution in view of the status of parallel proceedings, such as district court infringement actions.

To Institute or Not to Institute?

IPR is a popular tool for defendants in patent infringement lawsuits. A patent need not be the subject of any litigation to be the target of an IPR petition, but, in practice, a patent is often challenged in IPR when the patent is asserted in patent infringement litigation (even when the accused infringer asserts an invalidity defense or counterclaim in court). This is, in part, because a patent infringement defendant is barred from challenging in IPR any patent more than one year after the defendant "is served with a complaint alleging infringement of the patent."¹⁹

In fact, IPR proceedings often interact with district court litigation. District courts, for example, sometimes stay patent infringement suits pending the resolution of instituted IPR trials, on the theory that the IPR will function as a streamlined "alternative" to district court litigation. Even if an entire patent is not canceled in IPR, a patent case might be simplified through a partial cancellation, or through the operation of the subsequent statutory estoppel on re-litigating in the district court matters heard in the IPR.²⁰

Further increasing this complexity, the PTAB has been developing law that considers the status of parallel district court litigation for purposes of its institution decisions.

[Page 80]

NHK Spring: IPR Not a Streamlined Alternative When District Court Litigation is Advanced

The 2018 NHK Spring decision found that "instituting an inter partes review" on the petition in that case "'ultimately would be inefficient,' given the status of the district court proceeding between the parties."²¹ In the parallel district court case, "[p]etitioner assert[ed] the same prior art and arguments" that were set forth in its IPR petition, and the case was nearing its final post-discovery stages.²² Concluding that instituting trial in the PTAB "under these circumstances would not be consistent with 'an objective . . . to provide an effective and efficient alternative to district court litigation,'" the PTAB held the "advanced state of the district court proceeding is [a] factor that weighs in favor of denying the Petition."²³

...