On Monday, June 27, the Supreme Court granted Click-to-Call’s petition for writ of certiorari, vacated the Federal Circuit’s judgment below, and remanded the case “for further consideration in light of Cuozzo Speed Technologies, LLC v. Lee, 579 U. S. ___ (2016).”  Click-to-Call Technologies, LP v. Oracle, Corp., No. 15-1014.  This so-called “GVR” order leaves open the question of whether Click-to-Call may challenge an aspect of the PTAB’s institution decision on grounds left (purposefully) unanswered in the Supreme Court’s Cuozzo decision.  Unfortunately for Click-to-Call, the Federal Circuit is likely to ‘hang up on’ its appeal once and for all.

Briefly, Click-to-Call is one in a series of cases involving 35 U.S.C. § 314(d)’s dictate that the decision of “whether to institute an inter partes review under this section shall be final and nonappealable.”  In Click-to-Call, the patent owner challenged the PTAB’s jurisdiction to institute an IPR under 35 U.S.C. § 315(b), which provides that an IPR “may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.”  While there was admittedly an earlier lawsuit, the PTAB concluded that § 315(b) was not a bar because the suit had been dismissed without prejudice, “leaving the parties in the same legal position as if the underlying complaint had never been served.” Oracle Corp. v. Click–to–Call Techs. LP, No. IPR2013–00312, 2014 WL 5490583, at *7 (P.T.A.B. Oct. 28, 2014).  Click-to-Call sought to challenge this ruling in the Federal Circuit, but the appeal was dismissed by the Federal Circuit by virtue of § 314(d).

As the GVR Order indicates, § 314(d) was at issue in the Supreme Court’s Cuozzo decision.  Over the dissent of Justice Alito (joined by Justice Sotomayor), the Court held that § 314(d) barred Cuozzo’s challenge to the PTAB’s institution decision, where the petition had included only a dependent claim, but the Board nevertheless instituted the IPR on two additional claims from which that claim depended.  The Court reasoned that, where a challenge is based on the correctness of the “reasonable likelihood” of success determination, “or where a patent holder grounds its claim in a statute closely related to that decision to institute inter partes review, §314(d) bars judicial review.”  Slip Op. at 12.  But responding to the dissent, the Court also stated that it was not “categorically preclud[ing]” review when the agency “act[s] outside its statutory limits by, for example cancelling a patent claim for ‘indefiniteness under §112’ in inter partes review.”  Slip Op. at 11.

The question before the Federal Circuit is whether Click-to-Call’s challenge is better analogized as “closely related to” the decision to institute an IPR, or instead as a challenge to the scope of the PTAB’s statutory authority.  As Justice Alito noted, the precise contours of this analysis will not be easy.  Nonetheless, it seems unlikely that the Federal Circuit will feel compelled to establish the contours of the ‘exception’ rather than the rule in the immediate wake of Cuozzo, bringing Click-to-Call’s appeal to an end.

On June 20, 2016, the Supreme Court issued its opinion in Cuozzo Speed Technologies v. Lee.  On its face, it is a broad win for the Patent Office.  The Supreme Court affirmed the use of the “broadest reasonable interpretation” standard for claim construction in Patent Office review proceedings and the limited reviewability of the Patent Office’s decision whether to institute a review.  The decision should provide a degree of clarity for parties going forward in AIA review proceedings.

However, the opinion also leaves many questions unanswered.  Specifically, the scope of issues that are reviewable on appeal concerning the institution decision appears far from settled.  The Supreme Court specifically carved out three areas which may be appropriate for appellate review:

[W]e need not, and do not, decide the precise effect of § 314(d) on appeals that implicate constitutional questions, that depend on other less closely related statutes, or that present other questions of interpretation that reach, in terms of scope and impact, well beyond “this section.”

Slip. Op. at 11.

The Federal Circuit had previously held that it could review matters from the institution decision that related to the Patent Office’s ultimate authority to cancel patent claims.  Versata Dev. Group, Inc. v. SAP Am., Inc., 793 F.3d 1306, 1320-21 (Fed. Cir. 2015).  Whether the Cuozzo opinion represents a significant shift in the law is a matter that is likely to be extensively litigated.  But regardless, going forward, it will be interesting to see how the Federal Circuit draws the line between those issues that are reviewable, and those that are not.

The America Invents Act (AIA) of 2011 ushered in a new era for the Court of Appeals for the Federal Circuit, introducing 3 new post-grant administrative proceedings that are conducted before the U.S. Patent Trial and Appeal Board (PTAB) and appealable to the Federal Circuit.  The proceedings introduced by the AIA include the inter partes review (IPR), covered business method (CBM) and post-grant review (PGR).

On February 15, 2015, the Federal Circuit issued its first opinion in review of a PTAB decision as it decided In re Cuozzo Speed Technologies, LLC—opening the gates for review of similar PTAB decisions. During this initial period of PTAB review, Rothwell Figg has analyzed each relevant decision made by the Federal Circuit in order to better understand how the Federal Circuit is reacting to PTAB decisions. Despite the relatively small sample size of cases, some interesting statistics are present.  As of June 1, 2016, the Federal Circuit has issued 110 decisions in review of PTAB post-grant proceedings.  Of these decisions, eighty-seven cases were affirmed, yielding an affirmance rate of 81%.  Another eight cases (7%) were dismissed, meaning that nearly 90 % of the PTAB’s decisions have remained intact.  While this era of review for the Federal Circuit is still presumably in its early stages, it is clear that the Federal Circuit is giving great deference to the PTAB decisions.  In its review of PTAB decisions, the Federal Circuit has generated forty-nine opinions (45%) and issued thirty-one precedential decisions (28%).  It will be interesting to note whether these trends continue as the workload for the Federal Circuit is expected to continue growing.

rfem2

Not surprisingly, the number of AIA trial dispositions has grown in a rather significant fashion over the past few years.  In FY 2014, over 1,300 IPR petitions were filed that created appellate jurisdiction for the Federal Circuit.  In FY 2015, the number of IPR petitions filed jumped to over 1,700.  For perspective, only 514 IPR petitions were filed in FY 2013. As of April 30, 2016, more than 850 IPR petitions have been filed for FY 2016.  As this wave of reviews continues, it will be interesting to analyze the exact ramification that it has on the Federal Circuit, with eighteen Federal Circuit judges reviewing the work of more than two hundred and fifty Administrative Patent Judges. As one would expect, the significant increase of post-grant administrative proceedings has led to an increase in cases appealed to and decided by the Federal Circuit, as it has issued sixty-two decisions in 2016 alone.

rfem

While there is a noticeable increase in the workload of the court as it relates to PTAB cases, the affirmance rate and the rate of issuing precedential decisions has remained steady. Of the sixty-two decisions in 2016, the Federal Circuit has affirmed forty-eight (an affirmance rate of 77%), while seventeen decisions (27%), have been designated as precedential. When broken down by month, the increased workload becomes even more evident. Each successive month of 2016 saw an increase in the docket size of PTAB reviews.  In fact, eighteen cases were decided in May 2016, which was more than the first five months of 2015 combined.  Due to the varying number of cases each month, it is difficult to find a trend in monthly affirmance rates; however, it is noteworthy that in May 2016, the court had an 89% affirmance rate.  It is yet to be seen if the continual influx of cases will lead to a higher affirmance rate, similar to the rate seen in May.

With eighteen judges on the Federal Circuit—twelve active and six senior members—it is of interest to analyze how AIA cases were distributed by judge and how judges decided on such cases when sitting on a panel.  Despite random case assignment, several judges have significant experience hearing PTAB cases when compared to others.  For example, Judge Wallach is the “most experienced” Federal Circuit judge (in regards to PTAB cases), having been a member of thirty-seven panels.  Behind Judge Wallach in experience are Chief Judge Prost (thirty-five cases), and Judge Hughes (twenty-nine cases).  On the other end of the spectrum, Judges Reyna, Stoll, Chen, and Newman have each been on the bench for less than twenty PTAB cases.  It is noteworthy that the judges who sit on more panels also seem to have a higher panel affirmance rate.  The “most experienced” judges previously mentioned have, respectively, 89%, 89%, 93%, and 88% affirmance rates on panels on which each sits.  It is also worth mentioning that while Judge Wallach and Chief Judge Prost have presided over a larger number of cases, each has only authored two opinions — compared to Judges Taranto and Dyk, who have sat on 25 cases and authored seven and six opinions, respectively.

With such a high overall affirmance rate on PTAB cases reviewed by the Federal Circuit, it is difficult to determine significant and noticeable trends regarding the panels in which each judge sits.  While most judges have an affirmance rate above 80%, Judge Moore has noticeably the lowest affirmance rate among active judges, with panels on which she sits approving only 65% of PTAB cases.  Judge Moore has presided over twenty cases and authored four opinions — all of which are non-affirmative.  In general, of the sixteen cases we noted as non-affirmative, there is a pretty even balance of these cases being reversed on the basis of claim construction or lack of substantial evidence, with slightly fewer cases being reversed on procedural grounds. Therefore, as a practical matter, it is important to stake out and maintain claim construction arguments as well as develop the record of secondary indicia including commercial success.

In sum, the era of Federal Circuit review of PTAB decisions is in its early stages.  Over the past year and a half, the workload and number of cases being reviewed has steadily increased.  Currently, the Federal Circuit is affirming the PTAB decisions at a noticeably high rate.  As the current trend continues, it will be interesting to analyze how this new “surge” of cases stemming from the AIA will affect the Federal Circuit.

The Federal Circuit has been charged with oversight of the USPTO, including oversight of PTAB trials.  However, given the large number of AIA review petitions that have been filed[1] and that are being instituted,[2] there is some question as to the court’s ability to provide that oversight, even if only a fraction of the AIA reviews go to final decision.[3]  The Federal Circuit has undoubtedly recognized its dilemma and appears to be taking a “hands off” approach where possible to manage its docket.

One tool the court is using to dispose of cases expeditiously is liberal use of Rule 36.[4]  Relevant to the review of PTAB decisions, Rule 36 provides that a judgment of affirmance may be entered without opinion if “the decision of an administrative agency warrants affirmance under the standard of review in the statute authorizing the petition for review” or “a judgment or decision has been entered without an error of law.”[5]  Such a decision has no precedential value and does not provide any guidance or even support a conclusion that the PTAB’s analysis was correct.  While such a practice may be justified when reviewing ex parte determinations, it may not be when reviewing those made during AIA reviews.  Unlike the situation with ex parte cases, AIA reviews are almost always of important patent rights – at least those important enough to support a lawsuit.[6]  Further AIA reviews are part of a relatively new area of the law where there is scant precedent to guide the PTAB and practitioners handling the cases.

A second tool the court is using to expeditiously dispose of cases is liberal application of 35 U.S.C. § 314(d).[7]  Based on this statute, in a series of early decisions, the court decided that it has no jurisdiction to hear (1) an interlocutory appeal from either an institution decision or a non-institution decision;[8]  (2) an institution decision, even after a PTAB final decision;[9] or,  finally, (3) with limited exceptions,[10] an appeal of any determination underlying the institution decision, such as identification of the real party in interest or a determination of whether § 315(b) bars AIA review.[11]

The court in Cuozzo suggested that “mandamus may be available to challenge” the grant of a petition to institute “where the PTO has clearly and indisputably exceeded its authority.”  However, in order to be entitled to mandamus the court noted that three conditions must be satisfied:

Even if § 314 does not bar mandamus after a final decision, at least “three conditions must be satisfied before [a writ of mandamus] may issue.” Cheney v. U.S. Dist. Court for the D.C., 542 U.S. 367, 380, 124 S. Ct. 2576, 159 L. Ed. 2d 459 (2004). “First, ‘the party seeking issuance of the writ [must] have no other adequate means to attain the relief he desires.'” Id. (quoting Kerr v. U.S. Dist. Court for the N. Dist. of Cal., 426 U.S. 394, 403, 96 S. Ct. 2119, 48 L. Ed. 2d 725 (1976) (alteration in original)). That condition appears to be satisfied since review by appeal is unavailable. “Second, the petitioner must satisfy ‘the burden of showing that his right to issuance of the writ is clear and indisputable.'” Id. at 381 (internal quotations, citation, and alterations omitted). “Third, the issuing court, in the exercise of its discretion, must be satisfied that the writ is appropriate under the circumstances.” Id. (citations omitted).

Unsurprisingly, the court has never granted a mandamus petition to review such action in an AIA review proceeding.[12]  Thus, it appears that the court’s “hands off” approach may well permit the PTAB to wrongly decide a number of issues underlying its institution decisions and thereby act ultra vires, i.e., beyond the power granted to it by Congress.   Query whether the Federal Circuit’s docket management should outweigh its responsibility to provide oversight of the PTAB, particularly when legal issues are implicated.

[1] Over 4800 as of publication of this article.  http://www.uspto.gov/sites/default/files/documents/2016-3-31%20PTAB.pdf.  See also PTAB Challenge Navigator (BNA May 1, 2016).

[2] While statistics vary, at least 60% are instituted. http://www.uspto.gov/sites/default/files/documents/2016-3-31%20PTAB.pdf.

[3] The settlement rate is estimated to be more than 40%, with approximately half of the settlements prior to institution. That still leaves approximately 1700 of the 4800 cases to be finally decided and likely appealed by the losing party to the Federal Circuit, given that more than 90% of these cases are in litigation.

[4] Roughly 54% of the 80 cases decided through March 2016 were decided under Rule 36.  D. Dahlgren presentation, BIO IPCC meeting (April 1, 2016).

[5] Rule 36, Federal Circuit Rules of Practice (June 1, 2011).

[6] Some statistics show that more than 90% of AIA reviews are coupled to litigation.

[7] 35 U.S.C. § 314(d)provides:  “The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.”  Identical language is found in 35 U.S.C. § 324(e) which governs post-grant reviews.

[8] St. Jude Medical, Cardiology Div. v. Volcano Corp., 749 F.3d 1373 (Fed. Cir. 2014) (holding only the PTAB’s “final written decision” on the merits under § 318(a) resulting from the conduct of the proceeding after institution was appealable but not deciding  whether the statute precluded all review)).

[9] In re Cuozzo Speed Technologies, LLC, 793 F.3d 1268 (Fed. Cir. 2015) (substitute opinion) (holding that an IPR proceeds in two phases – the first is whether to institute and the second is the trial – and that only the second phase is reviewable).  Judge Newman dissented.  In her opinion, § 314(d) only bars review of interlocutory proceedings, not review after a final decision by the agency.

[10] See Versata Dev. v. SAP AG, 793 F.3d 1292 (Fed. Cir. 2015) (holding that when a determination gives the PTAB’s its “invalidity authority”, such as the determination whether the claims are CBM claims subject to a CBM review, then that determination is reviewable).

[11] See, e.g., Achates Ref. Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) (summarizing the statutory background and its legal precedent); Click to Call v. Oracle, 622 Fed. Appx. 907 (Fed. Cir. 2015) (nonprecedential).

[12] See, e.g., In re Redline Detection, LLC, 547 Fed. Appx. 994 (Fed. Cir. 2013) (non-precedential); In re MCM Portfolio, LLC, 554 Fed. Appx. 944 (Fed. Cir. 2014) (non-precedential) (allegation that §315(b) barred review); In re Dominion Dealer Sol’ns, LLC, 749 F.3d 1379 (Fed. Cir. 2014); The Procter & Gamble Co., LLC, 749 F.3d 1376 (Fed. Cir. 2014) (allegation that § 315(a) barred review).

In a 16-page non precedential opinion, the Federal Circuit held that the PTAB must construe claims of an expired patent using a Phillips-type claim construction, even if the subject patent had not expired at the time the AIA trial was instituted.   Black & Decker v. Positec USA, Inc., Nos. 2015-1646, -1647, slip op. at 9 (Fed. Cir. May 18, 2016).  In Black & Decker, the subject patent expired three months before the final decision was entered.  Id.

Most interesting, this holding potentially conflicts with one of the PTAB’s new rules, 37 CFR §42.300(b) (issued April 1, 2016).   That rule requires a patent owner to file a motion within 30 days of the filing of the petition requesting a district court-type claim construction if the subject patent will expire within 18 months from the entry of the Notice of Filing Date Accorded the Petition.  Given the PTAB is required to apply such a claim construction if the subject patent expires prior to the PTAB’s final decision, no such motion is required.  Of course, if the patent owner requests a district court-type construction under the new rule and the PTAB renders a final decision prior to the expiration of subject patent, then the PTAB will have failed to apply the broadest reasonable construction, contrary to its own precedent – a precedent with which the Federal Circuit has agreed.  See In re Cuozzo Speed Techs., 793 F.3d 1268, 1279 (Fed. Cir. 2015)(heard by the Supreme Court on April 25, 2016).  It will be interesting to see how the PTAB reconciles this case with its new rule.

With respect to the merits of the case, the court reversed the unpatentability of 2 claims under §103 and affirmed the patentability of 2 others under §103.  Its decisions were based primarily on the PTAB’s claim constructions – constructions contested by the petitioner.   The court determined that, even though the PTAB’s construction was made under the wrong BRI standard, its construction would have been the same under the proper Phillips-type standard.   Thus, the court did not remand for the PTAB for further analysis but rather reversed in part and affirmed in part.

On January 15, 2016, the Supreme Court granted certiorari in Cuozzo Speed v.Lee, in part, to decide whether the PTAB should be applying the broadest reasonable interpretation when construing claims in AIA review proceedings rather than the claim construction applied in district court litigation.  One of the questions the Court will address is:  “Whether the court of appeals erred in holding that, in IPR proceedings, the Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning.”  In fact, the difference between the two constructions is a myth long perpetrated by the PTAB to avoid giving deference to how district courts have construed claims in companion cases.  See, e.g., SAP America, Inc. v. Versata Development Group, CBM2012-00001, Paper  70, at 7 (PTAB June 11, 2013).  Based on this myth, the PTAB has posited that it can reinterpret and strike down claims which have withstood challenge in federal court between the same two parties.  See, e.g., SAP America at 18 (declining to apply stare decisis based on district court construction).  Given that roughly 80% of AIA reviews are coupled to district court litigation, this myth has impacted a significant number of cases since the PTAB began instituting AIA reviews in the latter half of 2012.  And, of course, reexaminations have been impacted in similar fashion for many years, particularly inter partes reexaminations which also frequently were coupled with litigation.

A careful analysis of how the PTAB applies the broadest reasonable interpretation exposes the myth.  The PTAB does not merely interpret the claims in light of the specification.  Instead the PTAB considers the prosecution history and statements made against interest – at least those made by the patent owner.  How does that approach differ from what a district court does?  It does not, at least not as long as the PTAB applies the broadest reasonable interpretation in light of all relevant facts.

Some respond to the above proposition by saying that courts construe claims to maintain their validity.  In fact, they do not, except in “the limited circumstances … when two constructions are equally plausible, and a strong inference can be shown ‘that the PTO would have recognized that one claim interpretation would render the claim invalid, and that the PTO would not have issued the patent assuming that to be the proper construction of the term.’  This is a rare circumstance ….”  Peter S. Menell et al., Patent Claim Construction:  A Modern Synthesis and Structured Framework, at 51 (quoting Phillips v. AWH Corp., 415 F.3d 1303, 1328 (Fed. Cir. 2005) (en banc).

On February 5, 2016 the Federal Circuit decided TriVascular, Inc. v. Shaun L.W. Samuels, No. 2015-1631, in which the Federal Circuit confirmed the above proposition by holding that the PTAB must give claims their “plain,” “ordinary,” and “customary” meaning, “unless such meaning is inconsistent with the specification and prosecution history.”  Id. at 6, 7.  In so doing, the Federal Circuit exposed the myth that there is any meaningful difference between the PTAB’s broadest reasonable interpretation and the district courts’ construction under Phillips v. AWH Corp., 415 F.3d 1303, 1316 (Fed. Cir. 2005) (en banc), cited in Trivascular, at 6.   Whether the Supreme Court will agree, only time will tell.

It has long been this author’s position that there is no meaningful additional discovery in AIA proceedings but rather only production of specific documents and things which a party can identify.  That position was solidified in Bloomberg Inc. v. Markets-Alert Pty Ltd., CBM2013-00005, Paper 32 (May 29, 2013), designated precedential on May 9, 2016, along with four other PTAB opinions.  See entries made May 9, 2016 on Precedential Decisions Worksheet at http://www.uspto.gov/patents-application-process/patent-trial-and-appeal-board/decisions.

In Bloomberg, Patent Owner Markets-Alert filed a motion for (1) additional discovery seeking prior art and information considered by Petitioner Bloomberg’s declarant and (2) “information related to licensing and commercial implementation.” Id. at 2. Petitioner Bloomberg opposed.  The PTAB granted (1) in part but denied (2).

The opinion begins with a discussion of the AIA, and the need to limit discovery “to lower[] the cost, minimize[] the complexity, and shorten[] the period required for dispute resolution.”  Id.  It then compares the two standards for granting additional discovery – in the interests of justice for IPRs and good cause for PGRs, including CBMs.  Id.  at 2-3.  Without any mention of the need for fairness, it continues:  “Notwithstanding the different standards, the legislative intent for those administrative trial proceedings shares the same principle that each review should be an efficient, streamlined, and cost-effective alternative to district court litigation.”  Id. at 3.  Contrast this statement with that made by the PTO when the AIA rules were first adopted regarding how the proceedings should be conducted.  At that time, according to the PTO, Rules 42.5(a) and (b) gave the Board “wide latitude in administering the proceedings to balance the ideal of precise rules against the need for flexibility to achieve reasonably fast, inexpensive, and fair proceedings.”  77 Fed. Reg.48612, 48616 (Aug. 14, 2012) (emphasis added).

In Bloomberg, the Board reiterated the five Garmin factors set out in IPR2012-0001. See Garmin International, Inc. v. Cuozzo Speed Technologies LLC, Paper 26, at 6-7 (PTAB, Mar. 5, 2013)(also made precedential on May 9, 2016).  However, given that the Bloomberg case is a CBM, the Board “slightly modif[ied]”Factors 1 and 2 in view of the lesser required showing, i.e., “for good cause” rather than the “interests of justice” showing required in IPRs.  Bloomberg, at  4-5.  There’s no suggestion in Bloomberg that the differences in required showings made any difference in the outcome of the case.

Turning to Markets-Alert’s discovery requests relating to documents and things considered by Bloomberg’s declarant, the Board found that Markets-Alert had “sufficiently demonstrate[d] specific factual reasons for expecting that there are other items which the declarant relied on in providing the declaration.”  Id. at 6.  Those “factual reasons” were statements made by the declarant without citation for support.  Id.  Thus Bloomberg was ordered to provide “all documents and things considered by Steven R. Kursh in conjunction with the preparation of his declaration, but only to the extent of Dr. Kursh’s recollection. ….”  Id. at 12 (emphasis added).

The Board denied all other requests.  With respect to those related to licensing and commercial implementation of any specific embodiment of the subject patent or of any technology similar to the patented invention, the Board found “Markets-Alert fail[ed] to provide a specific factual reason or evidence for expecting that the discovery will be ‘useful.’”  Id. at  10.  In part, this was due to Markets-Alert’s failure to “identify any specific licensing proposals, communications, or commercial implementations ….”  Id.   In fact, according to the Board, “even if there is a licensing agreement involving the ‘357 patent, Markets-Alert fails to provide adequate explanation or evidence to establish a nexus between the merits of the invention and such a licensing agreement.”  Id. at 11.  Such an approach to discovery requests  – limiting their grant to production of documents and things  specifically identified by the requester — certainly provides lower cost, minimizes complexity, and shortens the period required for dispute resolution (the Board’s stated objectives in this now-precedential opinion).  However, it ignores the lack of fairness in requiring such a showing without permitting discovery of documents and things surrounding such a license.   It also confirms this author’s position that, at least in most cases, the PTAB does not provide meaningful discovery in AIA reviews.  Rather it only provides production of already identified documents and things.

What was the final outcome in Bloomberg?  Did the PTAB’s decision on Markets-Alert’s discovery requests have any impact on the case?  Bloomberg was filed October 15, 2012 and was the fifth CBM case.  It was finally decided more than two years ago.  See the Final Written Decision, Paper 71 (PTAB, March 26, 2014).  The outcome did not turn on discovery.  Rather it turned on another hotly debated PTAB practice, i.e., that relating to claim amendments.  During trial and notably before it was recognized how difficult amendment of claims during an IPR or CBM would turn out to be, Markets-Alert moved to substitute claims 5-8 for claims 1-4.  The Board ultimately granted Markets-Alert’s motion with respect to the cancellation of claims 1-4 but denied the motion with respect to substituting claims 5-8, leaving Markets-Alert empty-handed, so to speak.  While Markets-Alert argued that the cancellation of claims 1-4 was intended to be contingent on the Board determining their patentability (which it did not do), the Board rejected that argument.  Id. at 11-12.  According to the Board, Markets-Alert did not respond to the petition or address the patentability of claims 1-4.  Id. at 9.  In fact, Markets-Alert had done so in its preliminary response.  See Paper 16, filed 1/22/2013.  While with hindsight, patent owners now know the Board does not consider arguments made in the preliminary response once an AIA review is instituted, that fact was not at all clear back in 2012.  Query the fairness of taking such a harsh position, particularly in such an early case.

The United States Patent and Trademark Office (USPTO) recently enacted new rules for post grant proceedings before the Patent Trial and Appeal Board (PTAB).  (Federal Register, vol. 81, No. 63, at pp. 18750-18766, April 1, 2016).  The new rules were formulated from public comments to proposals published in August 2015 and a series of PTAB listening tours.  While the new rule changes cover a vast array of topics, the major rule changes are directed to (i) allowing patent owners to submit new testimonial evidence in a patent owner’s preliminary response, (ii) permitting Phillips-type claim construction in post grant proceedings, and (iii) introducing Rule 11-type certification for papers filed in post grant proceedings.

 Preliminary Responsive Testimonial Evidence

37 C.F.R. § 42.108(c) is amended to recite (added portion underlined):

Inter partes review shall not be instituted for a ground of unpatentability unless the Board decides that the petition supporting the ground would demonstrate that there is a reasonable likelihood that at least one of the claims challenged in the petition is unpatentable. The Board’s decision will take into account a patent owner preliminary response where such a response is filed, including any testimonial evidence, but a genuine issue of material fact created by such testimonial evidence will be viewed in the light most favorable to the petitioner solely for purposes of deciding whether to institute an inter partes review. A petitioner may seek leave to file a reply to the preliminary response in accordance with §§42.23 and 42.24(c). Any such request must make a showing of good cause.

37 C.F.R. § 42.208(c) is similarly amended.

The amended rules now allow patent owners to submit testimonial evidence (e.g., a declaration) accompanying a patent owner’s preliminary response to achieve a better balance by providing both the petitioner and patent owner the opportunity to present testimonial evidence prior to institution of a post grant proceeding.  Recognizing that a denial of institution is final and non-appealable, the rules aim to provide two safeguards for petitioners.  First, as expressly stated in the rules, “a genuine issue of material fact created by testimonial evidence will be viewed in the light most favorable to the petitioner solely for purposes of deciding whether to institute” a post grant proceeding.  The USPTO noted that this presumption in favor of the petitioner for disputed facts is appropriate given the effect of denial of a petition and the opportunity to fully vet the disputed facts during trial where cross-examination of declarants is available.  (Federal Register, vol. 81, no. 63, at 18756).  The USPTO noted, however, that the mere presence of dueling expert testimony is not sufficient to create a genuine issue of material fact.  (Id. ) (citing Mortgage Grader, Inc. v. First Choice Loan Servs., No. 2015-1415, 2016 WL 362415, at *8 (Fed. Cir. 2016)).

Second, petitioners “may seek leave to file a reply to the preliminary response” upon a showing of good cause.  Despite some comments requesting that petitioners should have a reply as of right when the patent owner submits testimonial evidence in the preliminary response, the USPTO noted that affording petitioners the opportunity to submit a reply to the preliminary response will be granted on a case-by-case basis.  (Id. at 18756 – 757).  Furthermore, although not stated in the rules, the USPTO indicated that “[i]n appropriate circumstances, a panel, in its discretion, may order some limited discovery, including cross-examination of witnesses, before institution.”  (Id. at 18756).  The USPTO did not provide any guidance regarding what circumstances would be appropriate for granting additional discovery for petitioners prior to institution of trial.  However, given the PTAB’s track record for granting additional discovery after institution of trial, the availability of additional discovery for petitioners prior to institution of trial is expected to be very limited.

 Phillips-type Claim Construction

37 C.F.R. § 42.100(b) is amended to recite (added portion underlined):

A claim in an unexpired patent that will not expire before a final written decision is issued shall be given its broadest reasonable construction in light of the specification of the patent in which it appears. A party may request a district court-type claim construction approach to be applied if a party certifies that the involved patent will expire within 18 months from the entry of the Notice of Filing Date Accorded to Petition. The request, accompanied by a party’s certification, must be made in the form of a motion under § 42.20, within 30 days from the filing of the petition.

37 C.F.R. §§ 42.200(b) and 42.300(b) are similarly amended.

As indicated in the amended rules, the procedure for requesting a Phillips-type construction must be made via motion.  The USPTO considered whether this request should be made in the petition itself, but ultimately decided that placing such a requirement in the petition would be a burden on the petitioners.  (Federal Register, vol. 81, no. 63, at 18753).  Thus, the USPTO considered providing either party the opportunity to request a Phillips-type claim construction via motion as the best approach.  (Id.)

Accordingly, within 30 days from when the petition is accorded a filing date, either party  (i.e., petitioner or patent owner) is permitted to request by motion a Phillips-type construction if the requesting party certifies that the patent will expire within eighteen months from the entry of the accorded filing date.  Once the request is filed, a conference call will be conducted with the PTAB panel to discuss whether the request is appropriate and whether any other briefing is necessary for each party to be able to address adequately the appropriate construction standard.  The petitioner may be afforded an opportunity to address a Phillips-type construction analysis before the patent owner is required to file its preliminary response. (Federal Register, vol. 81, no. 63, at 18752).

Despite amending the rules to permit a Phillips-type claim construction standard, the USPTO response to the public comments indicated a clear preference for the broadest reasonable interpretation (BRI) standard.  Particularly, the USPTO emphasized that “applying the broadest reasonable interpretation for a claim is consistent with the Office’s long-standing practice in post-issuance proceedings and encourages clear and unambiguous claim drafting,” further noting that this standard “promotes consistency across all reexaminations, reissues, and AIA proceedings involving the same patent or family of patents before the Office.”  (Id.).  For example, the USPTO expressed concern that adopting a Phillips-type claim construction standard could lead to inconsistent results where a Phillips claim construction standard is applied in inter partes review and BRI is applied in a reexamination for the same patent.  (Id.).  Notably, the USPTO indicated that determining whether a Phillips-type claim construction standard is permitted is within the discretion of the PTAB panel.  (Id. at 18753).  Thus, although a patent will expire before the PTAB issues a final written decision, the PTAB may deny a party’s motion to apply a Phillips-type claim construction standard.  In this regard, a concurrent reexamination of the same patent may persuade the PTAB to deny applying the Phillips-type claim construction to avoid inconsistent results.

 Rule 11-type Certification

37 C.F.R. § 42.11 is amended to prescribe a duty of candor owed to the USPTO, to include a Rule 11-type certification for papers filed with the PTAB with a provision for sanctions for noncompliance, and setting forth the procedure for pursuing a motion for sanctions.  Particularly, 37 C.F.R. § 42.11(b) is added specifying that “[e]very petition, response, written motion, and other paper filed in a proceeding must comply with the signature requirements set forth in §11.18(a).”  Furthermore, 37 C.F.R. § 42.11(c) is added specifying that “[b]y presenting to the Board a petition, response, written motion, or other paper …an attorney … attests to compliance with the certification requirements under §11.18(b)(2).”  Additionally, 37 C.F.R. § 42.11(d) is added permitting the board to impose sanctions if “after notice and a reasonable opportunity to respond, the Board determines that” 42.11(c) is violated.

Notably, the rules specify the procedure for filing a motion for sanctions.  In this regard a moving party in a motion for sanctions (1) must specify the conduct that violates paragraph (c), (2) seek authorization from the Board to file the motion for sanctions, and (3) serve the motion on the other party 21 days prior to seeking the authorization from the Board.  Moreover, the amended rules permit a party to cure any alleged misconduct where the moving party is not permitted to file the motion for sanctions if the challenged paper, claim, defense, contention, or denial is withdrawn or corrected within 21 days after service of the motion, or within another time set by the Board.  37 C.F.R. § 42.11(d)(2).