Supreme Court Gives Deference to USPTO in Post Grant Proceedings
The Supreme Court issued its much-anticipated decision in Cuozzo Speed Technologies v. Lee1 on June 20, 2016, resolving two important issues related to Inter Partes Review (“IPR”) of patents and other Patent Trial and Appeal Board (“PTAB”) proceedings, such as Post Grant Review (“PGR”) and Covered Business Method proceedings (“CBM”). The issues decided were (1) the proper standard for claim construction used by the PTAB in an IPR, and (2) whether appellate review is available for a decision from the United States Patent and Trademark Office (“PTO”) on whether or not to institute an IPR. The Supreme Court affirmed the Federal Circuit on both issues, holding that the PTO has the authority to determine the standard for claim construction in PTAB proceedings, and thus affirming the PTAB’s use of the “broadest reasonable interpretation” standard, and that institution decisions in IPRs are, for the most part, not subject to appellate review.
Institution Decisions Are Not Generally Subject to Judicial Review
The Court first addressed the issue of appellate review of institution decisions. For most PTAB proceedings, including IPRs, a statutory framework sets minimum thresholds for the Director to institute a proceeding. With respect to an IPR, the scope is limited to “a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications.”2 For institution, “the Director may not authorize an inter partes review to be instituted…[unless] there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”3 35 U.S.C. §314(d), entitled “No appeal,” expressly states that “[t]he determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” Before the Federal Circuit, the patent owner, Cuozzo, argued that §314(d) was intended to preclude only interlocutory appeals of institution decisions, and not foreclose appellate review of institution decisions following a final decision. The Federal Circuit rejected this argument and held that 35 U.S.C. §314(d) bars any judicial review of the PTO’s initial institution decision “even after a final decision.”4
A 6-2 majority of the Supreme Court affirmed. “Like the Court of Appeals, we believe that Cuozzo’s contention that the Patent Office unlawfully initiated its agency review is not appealable.”5 This holding flowed mainly from the express language of 35 U.S.C. §314(d). The majority rejected the view that this language only precluded interlocutory appeals, as was urged by Cuozzo and the dissent. While recognizing a “‘strong presumption’ in favor of judicial review that we apply when we interpret statutes,” the majority ultimately concluded that the statute and its legislative history provided “clear and convincing” indications that overcame this presumption.6 The majority did, however, limit the reach of this decision, stating that “we do not categorically preclude review of a final decision where a petition fails to give ‘sufficient notice’ such that there is a due process problem with the entire proceeding, nor does our interpretation enable the agency to act outside its statutory limits… .”7 The majority continued by noting that “[s]uch ‘shenanigans’ may be properly reviewable in the context of §319 and under the Administrative Procedure Act, which enables reviewing courts to ‘set aside agency action’ that is ‘contrary to constitutional right,’ ‘in excess of statutory jurisdiction,’ or ‘arbitrary [and] capricious’.”8 This qualification in the scope of this decision may prove to be important in future cases, such as in the context of CBM reviews in which the Federal Circuit has undertaken appellate review of PTO institution decisions related to the threshold question of whether a patent qualifies as a “covered business method.” 9, 10 For now, it is clear that “where a patent holder merely challenges the Patent Office’s ‘determin[ation] that the information presented in the petition… shows that there is a reasonable likelihood’ of success ‘with respect to at least 1 of the claims challenged,’ §314(a), 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.”
Only days after issuing the decision in Cuozzo Speed Technologies v. Lee, the Supreme Court granted a certiorari petition from a patentee claiming that the PTAB should not have instituted an inter parte review because contrary to 35 U.S.C. §315(b) the petition was filed more than one year after a petitioner was sued. The Supreme Court vacated the Federal Circuit’s decision that it lacked authority to review the institution decision and remanded the case with instructions to the Federal Circuit to review it in light of Cuozzo Speed Technologies v. Lee.11
In another decision that followed on the heels of Cuozzo, the Supreme Court denied a patentee’s certiorari petition that had asked the Supreme Court to review a number of questions, one of which was the type of patent that is reviewable under the CBM program.12 Denials of certiorari are often not particularly noteworthy. However, this one coupled with the aforementioned grant and remand may signal that the Supreme Court has left room for potential review of at least some specific PTAB institution decisions.
The Proper Claim Construction Standard for PTAB Proceedings
The tension with respect to the claim construction standard used in PTAB proceedings is that it is a different, and potentially broader, standard than is used in district court litigation. District courts use the standard set out by the Federal Circuit in Phillips, which provides a framework for determining the “ordinary and customary meaning” of claim terms, as they would be understood by a person of ordinary skill in the art.13 In contrast, the PTAB follows 37 C.F.R. §42.100(b), which states that “[a] claim in an unexpired patent shall be given its broadest reasonable construction in light of the specification of the patent in which it appears,” which is the same standard used by the PTO in ex parte patent prosecution. However, since the broadest reasonable construction (“BRI”) standard can result in broader claim scope than the Phillips standard, patent owners have voiced concern that there is potentially a greater likelihood that a claim will be found invalid at the PTAB than in district court over the same prior art.
Before the Federal Circuit, Cuozzo challenged the PTO’s use of BRI, arguing that the district court claim construction methodology, not BRI, should be employed at the PTAB. Cuozzo argued that the BRI standard is an inappropriate standard for IPRs because, unlike the various other proceedings in front of the PTO, IPR does not grant the patent owner the unfettered right to amend his claims. The Federal Circuit rejected this argument and affirmed the PTO’s use of BRI noting that “[e]ven if we were to conclude that Congress did not itself approve the broadest reasonable interpretation standard in enacting the AIA, [35 U.S.C.] §316 provides authority to the PTO to adopt the standard in a regulation,” 14, 15 which it did in promulgating 37 C.F.R. §42.100(b).
Thus, the true issue before the court was not which claim construction standard was more appropriate, but simply whether the PTO’s adoption of the BRI standard was a reasonable exercise of its rulemaking authority. On this issue, the Supreme Court unanimously affirmed, finding an “express delegation of rulemaking authority” by Congress to the PTO and finding that “the Patent Office’s regulation [implementing the BRI standard] is a reasonable exercise of its rulemaking authority.”16 In reaching this conclusion, the Supreme Court considered and rejected concerns regarding unfairness to a patent owner, the risk of inconsistent results between PTAB proceedings and district court litigation, and policy considerations favoring uniformity. The Supreme Court concluded that “the Patent Office’s regulation, selecting the broadest reasonable construction standard, is reasonable” and specifically noted that “we do not decide whether there is a better alternative as a policy matter. That is a question that Congress left to the particular expertise of the Patent Office.” 17
The Supreme Court’s holding, while affirming the Federal Circuit’s decision and maintaining the status quo, is nonetheless significant. The BRI standard is clearly here to stay and parties to PTAB trials need to appreciate how the scope of the claims may be broader in PTAB proceedings than before a district court. For parties challenging patent validity, this potential advantage should not be ignored. The decision also reinforces the importance of the pre-institution phase of PTAB proceedings. The success rate for petitioners seeking to invalidate claims following a favorable institution decision is significant. Since routine institution decisions are not subject to appellate review, it is imperative for petitioners to use care in preparing an effective petition and equally important for patent owners to fully consider how an optional Patent Owner’s Response may be used to prevent or limit institution on one or more grounds.
While opportunities for appellate review are clearly limited, parties disappointed with PTAB institution decisions should consider if the decision is truly outside the scope of judicial review or if aspects of the decision would render review under the Administrative Procedures Act (“APA”) appropriate. That is, the Supreme Court’s Cuozzo decision left opportunities for patentees to potentially challenge institution decisions based on “constitutional”, “other less closely related statutes” to APA, and issues outside the APA section employed in Cuozzo.18 In this vein the recent Supreme Court grant of certiorari and remand for the Federal Circuit to consider appellate review for institution decisions contrary to 35 U.S.C. §315(b) will be instructive.
1. Cuozzo Speed Technologies v. Lee, 579 U.S. ___ (2016), 15-446, decided June 20, 2016.
2. 35 U.S.C. §311(b).
3. 35 U.S.C. §314(a).
4. In re Cuozzo, 793 F. 3d 1268, 1273 (Fed. Cir. 2015).
5. Slip op at 7.
6. Slip op at 9-10.
7. Slip op at 11.
8. Slip op at 11-12.
9. See e.g., Versata Development Group v. SAP America, Inc., 793 F. 3d 1306 (Fed. Cir. 2015).
10. 35 U.S.C. §324(e), which is applicable to CBM review, mirrors the language of 35 U.S.C. §314(d).
11. Click-to-Call Technologies LP v. Oracle Corp. et al., Case Number 15-1014 in the Supreme Court of the United States.
12. Versata Development Group Inc. v. SAP America Inc. et al., Case Number 15-1145, in the Supreme Court of the United States.
13. Phillips v. AWH Corp., 415 F.3d 1303, 1316, 75 USPQ2d 1321, 1329 (Fed. Cir. 2005).
14. In re Cuozzo Speed Techs., LLC, 793 F.3d 1268, 1278.
15. 35 U.S.C. §316(a)(4) states “[The Director shall prescribe regulations] establishing and governing inter partes review under this chapter and the relationship of such review to other proceedings under this title.”
16. Slip op at 17.
17. Slip op at 20.
18. Slip op at 11.