On January 18, the Supreme Court denied petitions for writs of certiorari from both Apple and Mylan Laboratories. Each company sought to challenge the NHK/Fintiv framework that was developed by the Patent Trial and Appeal Board (“the Board”). As we previously wrote about on this blog in September of last year, the NHK/Fintiv rule comes from two precedential Board decisions (NHK Spring v. Intri-Plex and Apple v. Fintiv) and, essentially, allows the Board to deny institution of an inter partes review (IPR) where a parallel litigation is occurring in federal court.

Apple and Mylan’s petitions arose from similar grounds, namely after the Court of Appeals for the Federal Circuit (“the CAFC”) refused to review the Board’s denial of each company’s respective IPR petitions. In rejecting Apple’s appeals, the CAFC cited to its own decisions where it held that Board decisions regarding institution are unappealable. The CAFC also cited the Supreme Court’s 2020 decision in Thryv v. Click-to-Call Technologies.

Apple’s petition argued that the Board’s NHK/Fintiv rule is unlawful on several grounds, including that it exceeds the authority of the Director of the U.S. Patent and Trademark Office (“the PTO”), that the rule is arbitrary and capricious, and that it was adopted without following the requirements of the Administrative Procedure Act. Mylan petitioned on similar grounds, notably arguing that the failure to follow the Administrative Procedure Act meant that the NHK/Fintiv rule never went through the notice-and-comment rulemaking process, and thus the public was never able to weigh in on the rule’s alleged defects.

The Supreme Court, however, rejected Apple and Mylan’s requests without explanation. This leaves unreviewed the patents challenged by Apple and Mylan, which belong to Optis Cellular Technology and Jannsen Pharmaceuticals, respectively.

The Supreme Court’s denial of certiorari comes a little over a week after the Northern District of California dismissed a suit filed by Apple, Cisco, Google, and Intel that challenged the NHK/Fintiv rule on the grounds that it violates the Administrative Procedure Act. However, the recent rejections of these challenges to the Board’s discretionary denials does not signal the end of attempts to curtail the NHK/Fintiv rule. For example, the Restoring the America Invents Act, which was introduced by Senators Leahy and Cornyn late last year, would limit the Board’s discretionary denials.

On December 28, 2021, the Federal Circuit issued another decision addressing an appellant’s standing to appeal inter partes review (“IPR”) decisions from the PTAB. The patent community has seen several opinions over the last couple of years as the Federal Circuit continues to navigate the complicated waters of what is and is not sufficient to satisfy Article III standing.

As we previously reported, one recent example came in Apple Inc. v. Qualcomm Inc., No 20-1683 (Fed. Cir. Nov. 10, 2021) where the Federal Circuit dismissed the appeal for lack of standing.

Now, the Federal Circuit provided further guidance on the standing issue in its precedential opinion in Intel Corp. v. Qualcomm Inc., No. 2020-1664 (Fed. Cir. Dec. 28, 2021).

Background

The appeal relates to Qualcomm’s U.S. Patent No. 8,229,043 (“the ’043 patent”) which is directed towards radio frequency communication devices. Specifically the patent is directed towards a mixer portion in the receiver front end of the device that improves the signal-to-noise ratio of a receiver.

Intel petitioned for IPR of claims 1-3, 6, 7, 17-19, and 21 of the ’043 patent, listing itself and its customer Apple, Inc. as the real parties-in-interest. The PTAB found that claims 1-3 and 7 were unpatentable and claims 6, 17-19 and 21 were patentable. The PTAB also granted in-part Qualcomm’s motion to amend and replaced claims 2, 3, and 7 of the ’043 patent with substitute  claims 27, 28 and 31, respectively.  Intel appealed the PTAB’s decision as to the patentability of the surviving original claims and the substitute claims. Qualcomm moved to dismiss the appeal for lack of standing.

Federal Circuit’s Analysis

As the Federal Circuit noted in its decision, to establish standing a party must show: (1) an “injury in fact” (2) “fairly traceable” to the defendant’s challenged conduct and (3) “likely to be redressed by a favorable judicial decision.” See Opinion (“Op.”) at 5. An “injury in fact” must be “concrete and particularized and actual or imminent, not conjectural or hypothetical.” Id. at  5 (quoting Spokeo, Inc. v. Robins, 578 U.S. 330, 339 (2016)). This requirement is generally met when an IPR petitioner “has engaged in, is engaging in, or will likely engage in activity that would give rise to a possible infringement suit.” Id. (quoting Grit Energy Sols., LLC v. Oren Techs., LLC, 957 F.3d 1309, 1319 (Fed. Cir. 2020)).

The Federal Circuit denied Qualcomm’s motion to dismiss for lack on standing on grounds that was a party.  Intel manufactures and sells the SMARTi 5 RF transceiver chip and other RF transceiver chips that are used in smartphones. Qualcomm sued Apple for infringement in 2017, accusing the SMARTi 5 RF transceiver in Apple’s IPhone 7 modem of infringing the ’043 patent. The Federal Circuit found that because Qualcomm had mapped the claims of the ’043 patent to an Intel product in the previous lawsuit against Apple, Intel’s actions gave rise to an infringement lawsuit. The Federal Circuit held that it is of no consequence that the lawsuit was not actually filed against Intel because the standard does not require Intel to face a specific threat of infringement to establish standing.

The Federal Circuit further held that it does not matter that the prior lawsuit settled nearly two years ago because while a settlement can remove a party’s standing, Intel was not a party to Qualcomm and Apple’s settlement agreement.  Also, Qualcomm had informed Intel that it was not offering a covenant not to sue on the patent. The fact that Intel continues to sell the relevant products and faces the risk that Qualcomm may file suit also weighed in favor of standing. Based on these facts, the Federal Circuit concluded that Intel’s injury-in-fact goes beyond mere conjecture and thus, Intel had standing to appeal the IPR decision.

Late last year, the PTAB published its final round of statistics for 2021. From October 1, 2020 to November 30, 2021, 1629 petitions were filed at the Patent Trial and Appeal Board (PTAB). The majority of petitions filed are for Inter Partes Review (IPR), with less than 10% of petitions filed for Post Grant Review (PGR).

By technology, the majority of petitions filed, by far, are in the fields of electrical and computer science. Mechanical and business method petitions are second, biopharma petitions third, chemical petitions fourth and finally, design patent petitions last.

Overall, the institution rates of petitions have gone up slightly in fiscal year (FY) 2021 compared to FY 2020. However, it is still lower than usual compared to the last five years. This trend could be due the PTAB’s use of discretionary denials of IPR petitions when there is a parallel litigation in district court under the Fintiv precedent[1] as we previously discussed.

In contrast, settlement rates have gone up compared to the last five years. However, as we noted in our previous article discussing PTAB statistics, it is challenging to draw any definite conclusions from settlement statistics because it is difficult to find out whether the settlements tend to be more favorable to the challenger or patent owner.

Finally, appeal outcomes in FY 2022 so far (October 1, 2021 to November 30, 2021) are very similar to appeal outcomes from FY 2021 (October 1, 2020 to September 30, 2021).

For more information, the PTAB’s most recent statistics can be found here, and archived materials for previous years can be found here (trial statistics) and here (appeals and interference statistics).

[1] See Apple, Inc. v. Fintiv, Inc., IPR2020-00019, Paper 11 (PTAB Mar. 20, 2020, designated as precedential May 5, 2020)

On October 26, 2021, Chief Administrative Patent Judge (“APJ”) Scott R. Boalick of the Patent Trial and Appeal Board (“PTAB”) lifted a stay that he issued on May 1, 2020, pausing all activity in PTAB cases that were remanded to PTAB from the Federal Circuit under Arthrex.[1] Within the order lifting the stay, Chief APJ Boalick reiterated the purpose of its original stay order and summarized the Arthrex procedural history, which culminated in the Supreme Court’s decision regarding the Constitutional issue raised by this case.

As we previously discussed, Arthrex appealed a Final Decision from the PTAB invalidating its patent to the Federal Circuit, in part, by challenging the constitutionality of the appointment process of the APJs who preside over post grant proceedings before the PTAB. Subsequently, in October 2019, the Federal Circuit concluded that APJs were unconstitutionally appointed under the Appointments Clause of the U.S. Constitution.[2] The Federal Circuit provided the remedy to this constitutional defect by severing the APJs’ removal protections, thus making them “inferior officers” who can be removed at will by the Director of the USPTO (the “Director”). As we previously discussed, this Federal Circuit decision opened the door for over 100 decisions issued prior to Arthrex to be challenged in rehearings under the Appointment Clause.

In order “to avoid burdening the [PTAB] and the parties until all appellate rights have been exhausted,”[3] Chief APJ Boalick issued a general order in Spring 2020 holding all the rehearings in abeyance. That general order suspended PTAB’s Standard Operating Procedure 9 “Procedure for Decisions Remanded from the Federal Circuit for Further Proceedings” (“SOP 9”), until the Supreme Court reviews Arthrex’s constitutional issue,[4] which it did on June 21, 2021.[5] In its decision, the Supreme Court vacated and remanded the Federal Circuit’s decision that APJs were unconstitutionally appointed. While the Supreme Court did come to the same conclusion as the Federal Circuit – that the pre-Arthrex PTAB system was incompatible with the Appointments Clause – it provided a different remedy: granting review authority to the Director.

Thus far, Arthrex appears not to have as big an impact on the PTAB post grant review process as some patentees may have hoped. To date, requests for Director Review have largely been denied under the interim procedure established after the Supreme Court’s ruling. This is consistent with the PTAB’s record of granting rehearings, which generally sit under 5%-15%. It is unclear however, if the low rate of Director Review is also affected by the fact that Andrew Hirshfeld is currently only an acting director of the USPTO (Acting Director), rather than a presidentially-appointed and Senate-confirmed Director. In fact, there are already some parties questioning the Acting Director’s authority to review final decisions made by the APJs.[6]

Nevertheless, not all cases have been denied Director Review. On November 1, the Acting Director issued the first decision granting a request for review. In this first case,[7] Samsung petitioned for Director Review of the PTAB’s Final Written Decision determining that “all challenged claims of U.S. Patent No. 9,819,057 B2 (“the ’057 patent”) [were] unpatentable.” Samsung challenged the PTAB’s Final Written Decision on four grounds, one of which argued that the PTAB’ final written decision was improper because it did not separately consider two claims that were entitled to a provisional priority date, which antedated the prior art reference at issue. In his review, the Acting Director agreed that priority should be awarded on a claim-by-claim basis, vacated the PTAB’s decision, and remanded the case back to PTAB to address the priority date issue.

Now that the PTAB has lifted its stay, we will likely get a better picture on how PTAB will handle its new Director Review procedure both substantively and procedurally.

 

[1] See General Order Lifting General Order in Cases Remanded Under Arthrex Inc. v. Smith & Nephew Inc., 941 F.3d 1320 (Fed. Cir. 2019) (PTAB Oct. 26, 2020). [Hereinafter General Order Lifting Stay].

[2] See Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019).

[3] See General Order Lifting Stay, note 1, at 1.

[4] See General Order in Cases Remanded Under Arthrex Inc. v. Smith & Nephew Inc., 941 F.3d 1320 (Fed. Cir. 2019) (PTAB May 1, 2020).

[5] See United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021).

[6] See e.g., Appellant’s Response to Post-Anthrex Briefing Order at 3, Corephotonics, Ltd. v. Apple Inc., No. 20-1424 (Fed. Cir. Jul. 7, 2021), ECF No. 64.

[7] Ascend Performance Materials Operations LLC v. Samsung SDI Co., Ltd., IPR2020-00349, Paper No. 57 (Nov. 1, 2021).

The Federal Circuit has provided additional guidance about an appellant’s standing to appeal IPR decisions after settling the related litigations and entering into patent license agreements.  In its second decision between the parties on this topic, the court has dismissed the appeal for lack of Article III standing in Apple Inc. v. Qualcomm Inc., No 20-1683 (Fed. Cir. Nov. 10, 2021) (“Apple II”).

Background

The saga began with Qualcomm accusing Apple of infringing several patents in district court.  In response, Apple petitioned the Patent Trial and Appeal Board (“Board”) for inter partes review (“IPR”) of U.S. patents 7,844,037 and 8,683,362.  Then, the parties settled all their patent-infringement litigation worldwide and entered into a six-year global patent license agreement with a two-year extension option.  The ongoing district court litigation was dismissed with prejudice.  Afterward, the Board determined that Apple failed to prove the asserted patent claims were unpatentable.  Apple appealed and the Federal Circuit dismissed the appeal for lack of standing in Apple Inc. v. Qualcomm Inc., 992 F.3d 1378, 1385 (Fed. Cir. 2021) (“Apple I”).

In the first appeal, Apple presented three theories to support its claim of standing to appeal.  First, it argued that the ongoing payment obligations under the license created certain rights in the license.  The court rejected this because Apple neither showed that the validity of any single patent would affect those payments, nor that there was any contract dispute resolved by validity of the patents.  Second, Apple raised the risk of being sued for infringement after the expiration of the license agreement.  Third, Apple noted that it would likely be estopped from challenging these patents in the future under 35 U.S.C. § 315(e).  The court rejected the latter two theories, noting that Apple had provided insufficient evidence that it would continue the accused infringing behavior after the termination of the license.  Furthermore, under existing case law, the estoppel provision was insufficient as a basis for standing.

The court found the underlying facts of Apple II to be very similar to those in Apple I.  Again, Qualcomm accused Apple of infringing several patents in district court.  And, like Apple I, Apple submitted several IPR petitions seeking review of those patents (U.S. Patent Nos. 9,024,418; 8,768,865; and 8,971,861).  At this point, the settlement and license occurred and the district court litigation was dismissed with prejudice.  Like the IPR decisions of Apple I, the Board determined Apple had not proven the claims unpatentable.  Apple appealed, leading to the decision in Apple II.

The Federal Circuit Decision in Apple II

The Federal Circuit noted the difference in standing requirements to appear before administrative agencies and federal court.  While a party may lack constitutional standing before an administrative agency if it meets the statutory requirements, Article III standing requirements before a federal court cannot be removed by statute.  Once a party appeals from the administrative agency to the federal court, it must be able to demonstrate it has a concrete and particularized injury that is actual or imminent, and not conjectural or hypothetical.

The Federal Circuit’s ability to rule differently in Apple II than it did in Apple I was further limited.  Unless the court was sitting en banc, the panel was bound by the earlier decision in Apple I.  Furthermore, Apple admitted during oral arguments that the operative facts in the case were the same as those in Apple I.  The court rejected Apple’s attempts to reframe the issue as one of mootness instead of standing, noting that mootness created by a party voluntarily entering into a settlement does not justify vacatur of a judgment under review.  Ultimately, the Federal Circuit followed its decision in Apple I and dismissed the appeal in Apple II for lack of standing.

Judge Newman dissented from the decision, disagreeing that the settlement and license between the parties had eliminated the controversy between Qualcomm and Apple.  She noted that case law supports finding a licensee has standing to challenge some patents even if other patents would still bar commercialization.  Furthermore, the statutory structure permitting appeals of IPRs does not negate a licensee’s ability to appeal.  Finally, Judge Newman said the court should vacate the Board’s decisions if there is no standing to appeal.  To do otherwise, would force Apple to acquiesce in judgments it could no longer challenge.

Earlier this month, in University of Strathclyde v. Clear-Vu Lighting LLC, the Court of Appeals for the Federal Circuit (“the CAFC”) reversed a decision by the Patent Trial and Appeal Board (“the Board”) that found claims 1-4 of the University of Strathclyde’s U.S. Patent No. 9,839,706 (“the ’706 patent”) invalid as obvious. Specifically, the CAFC determined there was not substantial evidence supporting either that the prior art disclosed all claim limitations of the ’706 patent or that there was a reasonable expectation of success in combining the references used by the Board in making its obviousness determination.

Background

The ’706 patent, which issued on December 12, 2017, relates to a method for “photoinactivating” antibiotic-resistant bacteria like methicillin-resistant Staphylococcus aureus (MRSA) without using a photosensitizing agent. On December 12, 2018, Clear-Vu filed a petition for inter partes review of claims 1-4 of the ’706 patent. The Board instituted Clear-Vu’s IPR on July 10, 2019. A year later, the Board determined that claims 1 and 3 of the ’706 patent would have been obvious over Ashkenazi[1] in view of Nitzan[2], and that claims 2 and 4 would have been obvious in further view of Jones[3]. Strathclyde appealed on the grounds that: 1) neither Ashkenazi nor Nitzan taught exposing bacteria to light without the use of a photosensitizing agent; and 2) the Board’s finding of a reasonable expectation of success in combining Ashkenazi with Nitzan.

The Prior Art Did Not Disclose All Claim Limitations

 The CAFC determined that the Board erroneously found that Ashkenazi and Nitzan disclosed all claim limitations for claims 1 and 3 of the ’706 patent. An obviousness determination generally requires a finding that “all claimed limitations are disclosed in the prior art.” PAR Pharm., Inc. v. TWI Pharms., Inc., 773 F.3d 1186, 1194 (Fed. Cir. 2014). Claims 1 and 3 of the ’706 patent require exposing the bacteria in question to 400-420 nm blue light without the use of a photosensitizer, and that this exposure inactivates the bacteria. Ashkenazi does not disclose or suggest inactivating bacteria without the use of a photosensitizer. Further, while Nitzan provides an example of exposing bacteria to 407-420nm blue light without a photosensitizer, nothing in the reference shows that this exposure inactivated the bacteria.

In its final written decision, the Board cited Clear-Vu’s argument that combining Ashkenazi with Nitzan “disclose[d] exposing bacteria to light without using a photosensitizer.” However, the CAFC reversed the Board, noting that “we fail to see why a skilled artisan would opt to entirely omit a photosensitizer when combining these references.” The CAFC also rejected an argument by Clear-Vu that Ashkenazi and Nitzan “disclose the particular ‘inactivating’ and ‘inactivates’ language.” In so doing, the CAFC declined to read the “inactivation limitation” in “isolation, divorced from the claim as a whole.”

No Reasonable Expectation of Success

The CAFC rejected the Board’s finding that a skilled artisan would have a reasonable expectation of success combining Ashkenazi with Nitzan, holding that the “only support for such a finding is pure conjecture coupled with hindsight reliance on the teachings in the’706 patent.” An obviousness determination generally requires a finding “that a person of ordinary skill in the art would have been motivated to combine or modify the teachings in the prior art and would have had a reasonable expectation of success in doing so.” Regents of Univ. of Cal. v. Broad Inst., Inc., 903 F.3d 1286, 1291 (Fed. Cir. 2018).

Neither Ashkenazi nor Nitzan contains any suggestion of successfully inactivating any bacteria without using a photosensitizer. The Board’s decision relied on Ashkenazi’s teaching that “blue light may” inactivate “other bacterial cells that produce porphyrins,” and that because Ashkenazi showed light-activated porphyrin molecules caused inactivation for one type of bacteria (with the use of a photosensitizer), then “the fact that MRSA has some level of endogenous porphyrin suggests to a skilled artisan that MRSA, too, would exhibit some amount of inactivation after exposure to 407-420nm blue light.”  In reversing the Board, the CAFC emphasized that “not only is there a complete lack of evidence in the record that any bacteria were inactivated after exposure to 407-420 nm blue light without using a photosensitizer, there is also evidence showing that others had failed to inactivated MRSA . . . without using a photosensitizer.” The CAFC rejected Clear-Vu’s attempt to rely on the ’706 patent itself to support the Board’s findings as improper hindsight analysis.

Notwithstanding its holding, the CAFC reiterated in its conclusion that “reasonable expectation of success” does not require “absolute predictability” or “guaranteed success.” “To be sure, we have repeatedly rejected that notion.”

The CAFC’s decision in University of Strathclyde reaffirms the importance to petitioners that they fully develop their obviousness arguments. Petitioners should ensure that their alleged prior art references disclose each and every claim limitation, and that a skilled artisan would combine their cited references with a reasonable expectation of success that is not reliant on hindsight reasoning.

[1] Helena Ashkenazi et al., Eradication of Propionibacterium acnes by its endogenic porphyrins after illumination with high intensity blue light, 35 J. FEMS Immunology & Med. Microbiology 17, 17–24 (2003).

[2] Yeshayahu Nitzan et al., ALA induced photodynamic effects on Gram positive and negative bacteria, 3 Photochemical & Photobiological Scis. 430, 430–35 (2004).

[3] U.S. Pat. App. Pub. No. 2005/00550070.

The U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB) recently released an updated Orange Book patent/biologic patent study on August 11, 2021. This is the third report providing data on post-grant petitions filed against Orange Book and biologic patents released by the PTAB, and it covers AIA petitions filed between September 16, 2012 and June 30, 2021. The first study covering these topics was released on March 13, 2018, and the second on July 18, 2019.

The updated Orange Book patent/biologic patent study (“study”) identifies a petition as challenging an Orange Book-listed patent by cross-referencing the patents challenged in a PTAB petition with the U.S. Food and Drug Administration’s (FDA’s) electronic Orange Book database. This study classified biologic patents as any patents directed towards treating a disease or condition that was not listed in the Orange Book and any patents that potentially cover a Purple Book listed biological product.

Overall, the data from the 2021 PTAB Orange Book patent/biologic patent study shows that petitions challenging Orange Book and biologic patents remain only a small fraction of the overall number of petitions filed. Only 4% of AIA petitions during this time have challenged Orange Book patents, and 2% of petitions have challenged biologic patents. This statistic likely reflects the strength, or perceived strength, of these types of patents to potential challengers. It also reflects patent challengers’ preferences for a different forum due to the availability of special litigation procedures available under the Hatch-Waxman Act and Biologics Price Competition and Innovation Act (BPCIA) for Orange Book and biologics patents, respectively.

Trends Over Time

After the enactment of the AIA in 2013, the data from this study shows that the percentage of petitions challenging Orange Book and biologic patents peaked in fiscal year (FY) 2016 and FY 2017 and has been declining ever since. Interestingly, the study shows that the decline has been more pronounced for Orange Book patents than biologic patents. This trend may be due to the strength of the remaining Orange Book patents after the initial rush of challenges since the enactment of the AIA. The decline could also reflect the relatively lower institution rate and higher post-institution success rate for Orange Book patents, which, together, creates an unfavorable forum for challengers.

The institution rates for Orange Book and biologics patents have also declined. With respect to institution rates since September 2012, both Orange Book and biologic patents are currently slightly below average. Throughout the study period (starting from 2012 to Q3 of 2021), the average institution rate of patents in all technology areas is 64%, while the institution rate for Orange Book and biologics patents are at 62% and 55% respectively. In Q3 of FY 2021, the institution rate of Orange Book patents fell to an all-time low of 27% since FY 2013. While slightly higher than Orange Book patents, the institution rate for biologic patents also hit an all-time low of 33% since FY 2014.

Outcomes of AIA Petitions

After being instituted, Orange Book patents tend to fare better than biologic patents. From September 16, 2012 to June 30, 2021, only 15% of petitions filed against Orange Book patents resulted in all challenged claims being found unpatentable. In contrast, 21% of petitions filed against biologic patents resulted in a final written decision in which all challenged claims were found unpatentable. These differences may partially be due to the types of patents being challenged. Orange Book patents cover only drug compound, formulation, and method claims. See 21 C.F.R. § 314.53(b). In contrast, the definition of biologics set in this PTAB study is broader, and can include manufacturing practices, packaging, metabolites and intermediates. Overall, when challenged, 56% of Orange Book patent claims and 62% of biologic patent claims are either denied institution or held not patentable.

Another interesting statistic with regards to Orange Book and biologics patent trends is the low settlement rate. Compared to the overall settlement rate of 33% in FY 2021 according to PTAB’s AIA Trials FY 2021 Q3 round up, the Orange Book and biologic’s settlement rate of 23% and 18%, respectively, are very low. However, it is challenging to draw any definite conclusions from this statistic because it is difficult to find out whether the settlement for PTAB challenges tend to be more favorable to the challenger or patent owner.

Based on this data, it seems that the scales are currently tipped towards patent owners in PTAB proceedings. Notably, the number of petitions challenging both biologic and Orange Book patents have dropped since their peak in 2016 and 2017; the rate of institution has dropped for both types of patents; and there is a slight increase in the number of Orange Book and Biologics patents receiving a favorable final written decision.

Last month, in the case In re: MaxPower Semiconductor, Inc., the Court of Appeals for the Federal Circuit (“the CAFC”) dismissed an appeal by MaxPower Semiconductor, Inc. (“MaxPower”) of four determinations to institute inter partes review (“IPR”) of four of MaxPower’s patents. The majority’s brief opinion states that a decision to institute an IPR is “nonappealable” under 35 U.S.C. 314(d) and rejects MaxPower’s invocation of the collateral order doctrine. The CAFC also denied MaxPower petition for a writ of mandamus because “MaxPower has not shown that the facts of this case support an exception to the nonappealability of institution decisions and unavailability of mandamus relief.” However, Judge O’Malley’s partial dissent raises questions of the enforceability of arbitration agreements before the Patent Trial and Appeal Board (“the Board”).

Background

In 2007, ROHM Japan and MaxPower entered a technology license agreement (“TLA”). The TLA was amended in 2011 to include an agreement to arbitrate “[a]ny dispute, controversy, or claim arising out of or in relation to this Agreement or at law, or the breach, termination, or validity thereof.” Following a dispute between the parties, MaxPower notified ROHM Japan of its intent to initiate arbitration. ROHM Semiconductor USA (“ROHM USA”), a wholly owned subsidiary of ROHM Japan, responded by filing a complaint in the Northern District of California for declaratory judgment of noninfringement of four MaxPower patents, and additionally filed four IPR petitions concerning those same patents.

The Northern District of California, in a one page order, dismissed the case and compelled ROHM USA to arbitrate. By contrast, the Board instituted the four IPR petitions, holding that “the arbitration clause is not a reason to decline institution.” MaxPower appealed and also sought a writ of mandamus, asking the CAFC to stay or terminate the IPR review without prejudice if an arbitrator determines that IPR proceedings are appropriate.

Judge O’Malley concurred with respect to the dismissal of the IPR appeals. However, on the issue of the writ of mandamus, she dissented.

Judge O’Malley’s Partial Dissent

A writ of mandamus requires MaxPower to:

  1. show it has a clear and indisputable legal right;
  2. show it does not have any other adequate method of obtaining relief; and
  3. convince the court that the writ is appropriate under the circumstances.

1) “A clear and indisputable legal right”

On this point, Judge O’Malley refers to 35 U.S.C. 294(a), which states that arbitration provisions relating to patent validity “shall be valid, irrevocable, and enforceable, except for any grounds that exist at law or in equity for revocation of a contract.” The partial dissent cites to the Supreme Court’s “repeated pronouncements” that favor a “liberal federal policy” on arbitration agreements under the Federal Arbitration Act (“the FAA”). Judge O’Malley notes that the Board resolved doubts about the applicability of arbitration provisions against arbitration, not in favor of it. While there are no cases addressing whether section 294 applies to IPRs, Judge O’Malley reasons that cases considering the FAA indicate section 294 should apply to IPR proceedings. She holds up two Supreme Court cases, EEOC v. Waffle House, Inc., 534 U.S. 279 (2002) and Preston v. Ferrer, 552 U.S. 3466 (2008) as indicating that the FAA (and therefore section 294) apply to prevent institution of agency proceedings initiated by a party to an arbitration agreement.

2) “No other avenue for adequate relief”

A writ of mandamus is “the only way to prevent reviews from proceeding” because the CAFC has determined that section 314(d) precludes an appeal of the Board’s grant of institution. Forcing MaxPower to defend its patents through multiple IPRs “denies MaxPower the benefit of any agreement to arbitrate validity.” While the arbitrator’s invalidity determinations bind only the parties to the arbitration, the Board’s finding of a claim’s invalidity cancels the claim for all parties. Judge O’Malley looks to Congress’s intent in enacting section 294, which was to assure contracting parties “that they could avail themselves of the numerous advantages of arbitration without the possibility of having to reargue the dispute in court.” While ROHM USA argues that MaxPower could still raise its arguments under section 294 after the IPR reviews, Judge O’Malley counters that the harm will already have been done by that point. “Any writ this court issued after a final decision would be too little, too late.”

3) “Mandamus is appropriate”

On the final point, Judge O’Malley states: “Permitting ROHM to avoid arbitration nearly vitiates any agreement to arbitrate disputes over patent validity.” The dissent further notes the strange case of a patent challenger being able to bring an IPR that raises the same validity issues a district court would dismiss in light of an arbitration clause.

The partial dissent concludes that the majority’s decision goes against what Congress and the Supreme Court have clearly voiced regarding the enforceability of arbitration agreements, and that the majority’s decision puts MaxPower in the position of having to argue for the enforcement of its arbitration agreement and the validity of its patents in multiple tribunals. While Judge O’Malley’s partial dissent did not sway the majority, both patentees and patent challengers should take notice of differing opinions at the CAFC on the enforceability of arbitration agreements.

 

On September 16, 2021, eleven congressional leaders (“the Signors”) sent a letter to Andrew Hirshfeld, the acting director of the United States Patent and Trademark Office (“USPTO”), requesting the USPTO to reevaluate the Patent Trial and Appeal Board’s (“PTAB”) view on discretionary denials of petitions for inter partes review (“IPR”).  The Office uses discretionary denials to deny institution of challenges to patents when an upcoming trial in district court would address the patent’s validity on the premise that parallel review would be an inefficient use of the PTAB’s resources. The first signature of the letter is none other than Senator Patrick Leahy (D-VT), one of the two lead sponsors of the America Invents Act. The congressional letter garnered bi-partisan support, with other signors including Senator Elizabeth Warren (D-MA), Congressman Darrell Issa (R-CA), and Senator Richard Blumenthal (D-CT). However, Thom Tillis (R-NC), who has signed previous letters to the USPTO and is an active member of the Senate Judiciary IP Subcommittee, is noticeably absent from the letter.

The Signors emphasized that discretionary denials are contributing to the high price of drugs. As described in the letter, some pharmaceutical companies engage in anti-competitive patent practices that artificially extend the manufacturer’s monopoly on a drug, prevent competitors from entering the market, and drive up the cost of drugs. The letters cites as an example that pharmaceutical companies create “patent thickets” comprising “dozens of questionable, back-to-back patents,” or engage in “product hopping” by transitioning from one branded drug to another very similar drug with a longer patent life.

As noted by the Signors, the IPR process was designed by Congress to provide “a lower-cost and faster alternative to litigation” to allow competitors to challenge weak patents and bring generic or biosimilar products to market sooner. The Signors explained that the IPR system is “one of the few tools available” to serve as a “check against questionable patents” and “help address the root cause of high prescription drug prices.” By denying IPR petitions for “reasons not based on merit” but based on administrative factors “not grounded in statute,” the Signors argued that discretionary denials of IPR petitions have weakened the IPR process.

Particularly, the Signors point to Apple, Inc. v. Fintiv, Inc., IPR2020-00019, Paper 11 (PTAB Mar. 20, 2020, designated as precedential May 5, 2020), which set forth the factors governing the PTAB’s discretion to deny institution of an inter partes review (“IPR”). Since Fintiv, the number of IPR petitions denied for reasons not based on the merit have risen dramatically – from 5% in 2016 to an estimated 19% in 2020.

Currently before the Supreme Court are two petitions for writ of certiorari related to Fintiv as further discussed here. Additionally, various members across the patent community have also weighed in on the Fintiv factors in response to the USPTO’s request for comments on discretionary institutions in 2020 as further discussed in our earlier post found here.

With the additional pressure on the USPTO from Congress, we may see changes to discretionary denials and to Fintiv in the future.

Recently, the Supreme Court received two petitions for writ of certiorari challenging the NHK-Fintiv rule. The PTAB applies the NHK-Fintiv rule when deciding whether to grant institution of an inter partes review. The two petitioners, Apple and Mylan, seek to challenge both the lawfulness of the NHK-Fintiv rule and the Federal Circuit’s contention that it lacks the jurisdiction to review Board denials made under the NHK-Fintiv rule.

The NHK-Fintiv Rule

The NHK-Fintiv rule results from two precedential PTAB decisions, NHK Spring v. Intri-Plex and Apple v. Fintiv. In 2018, the Board held in NHK Spring v. Intri-Plex that a parallel district court litigation might preclude granting inter partes review. Then, in the 2020 Apple v. Fintiv decision, the Board laid out six factors relevant to the decision for instituting review. A few of those factors outline criteria related to parallel litigations, including the trial date of the district court litigation, whether the district court case was stayed pending the Board review, and any overlap between the issues in both the PTAB proceeding and the district court litigation. Together, these cases form the NHK-Fintiv rule, which allows the Board to deny institution of an IPR where a parallel litigation is taking place in federal court. To date, the Board has applied the NHK-Fintiv rule to over 200 IPR petitions.[1]

Apple Inc. v. Optis Cellular Technology, LLC

In July, Apple petitioned the Supreme Court for relief after the Federal Circuit refused to review the Board’s denial of inter partes review. The Board previously declined institution of Apple’s three IPR petitions, justifying the decision with the NHK-Fintiv rule. The Board reasoned that the status of a parallel litigation taking place in the Eastern District of Texas would render an IPR “an inefficient use of Board resources.” The Federal Circuit subsequently dismissed Apple’s appeal of the Board’s decision, arguing that the court lacks the jurisdiction to review the denial. As a result, Apple petitioned the Supreme Court, primarily focusing on whether the NHK-Fintiv rule exceeds the Patent and Trademark Office’s rule-making authority and the Federal Circuit’s jurisdiction to hear the Board’s denial of institution.

First, the petition argues that the NHK-Fintiv rule is unlawful because “the rule exceeds the PTO’s authority under the Leahy-Smith American Invents Act. . ., is arbitrary and capricious, and was adopted without the notice-and-comment rule-making required by the Administrative Procedure Act.”

Apple further argues that the Federal Circuit has the authority to hear an appeal concerning the Board’s denial. The petition explains that the Federal Circuit’s refusal to review the Board’s decision is contrary to Supreme Court precedent, which makes clear the Federal Circuit can hear challenges to Board decisions “when review is sought on the grounds that the denial rested on a rule that exceeds the PTO’s statutory authority, is arbitrary and capricious, or was adopted without legally required procedures.”

Apple also asserts that the NHK-Fintiv rule “exceeds the authority that Congress delegated the [PTO] director.” The petition explains that “the NHK-Fintiv rule undermines the role of IPR in Congress’s effort to improve the integrity of the patent system,” arguing that the Patent and Trademark Office usurped congressional intent by requiring that the Board deny IPRs where there was a parallel infringement suit pending.

Mylan Laboratories Ltd., v. Janssen Pharmaceutica N.V.

On August 9th, Mylan petitioned the Supreme Court on grounds similar to those discussed in the Apple petition. The questions presented in the Mylan petition are:

  1. Does 35 U.S.C. § 314(d) categorically preclude appeal of all decisions not to institute inter-partes review?
  2. Is the NHK-Fintiv Rule substantively and procedurally unlawful?

In its petition, Mylan argues that the NHK-Fintiv rule is unlawful because it was not adopted through the proper notice and comment process. The petition expands on this argument by stating, “had the public been given a chance to weigh in, they could have identified the rule’s many defects, and the director would have had to alter the rule to address those defects or else provide a reasoned explanation for refusing to do so.”

Mylan further asserts that if the Board’s institution decisions were not reviewable by the Federal Circuit, the result would “effectively [hand] the director and the board carte blanche to deny IPR petitions for any random (and potentially unlawful) reason they can dream up.”

The Future of NHK-Fintiv

The Apple and Mylan petitions do not stand alone in the push for challenging the NHK-Fintiv rule. Both Supreme Court petitions join other attempts to challenge this rule, including a California district court litigation based on similar arguments. Considering these pending petitions, the future of the NHK-Fintiv rule is unclear. As for now, however, it is likely that the NHK-Fintiv rule will continue to apply to IPR petitions where a parallel district court litigation exists.

[1] See Unified Patents, “Portal,” https://portal.unifiedpatents.com/ptab/caselist?discretionary_denial_refs=Nhk+Spring+%2F+Fintiv&discretionary_denial_refs=Parallel+Petition+Denial&sort=up_termination_date&up_status=Not+Instituted&up_substatus=Procedural