By Kenneth R Adamo and Eugene Goryunov, Kirkland & Ellis
The America Invents Act, enacted in 2011, has significantly changed the patent litigation landscape in the US. It created the Patent Trial and Appeal Board (PTAB) and three new principal post-grant review mechanisms: post-grant review (PGR), inter partes review (IPR) and covered business method review (CBMR) (collectively, PTAB trials).
These PTAB trials operate under a specific set of statutory provisions, administrative rules and precedent from the US Court of Appeals for the Federal Circuit (Federal Circuit). The general rules and structure of PTAB trials are well known. The Federal Circuit, however, recently issued some key decisions that significantly clarify how PTAB trials are to be conducted.
Since 2012, petitioners have requested more than 4,600 PTAB trials in every technology sector from electrical and computer arts to chemicals and pharmaceuticals. The popularity of PTAB trials is not surprising, as 60 per cent of claims in CBMR trials and 50 per cent of those in IPR trials are found unpatentable. The Federal Circuit has also significantly deferred to the PTAB: more than 50 per cent of all appeals from a PTAB final written decision (FWD) receive summary affirmance under Federal Circuit Rule 36, and an additional 30 per cent are affirmed on the merits.
PTAB trials are not “trials” in the conventional sense. They last 12 months, starting with an institution decision and ending with an FWD. Discovery is permitted but is far more limited than US district court discovery. There is no jury, no opening statements or closing arguments, and no live testimony (with very rare exceptions). At bottom, these are trials on the papers with an oral hearing at the end.
Because PTAB trials are conducted by the Patent Office, the entity that issued the patent in the first place, the presumption of validity does not apply. As a result, the petitioner need only prove its patentability challenge by a preponderance of the evidence, an evidentiary burden lower than the “clear and convincing” evidentiary standard applied by US district courts. Another distinguishing feature is that patent owners may move to amend one or more of the challenged claims. Based on this ability, the Patent Office defines disputed terms using the “broadest reasonable interpretation” standard. While arguably broader than the Phillips v AWH claim construction standard applied by US district courts, the PTAB’s construction cannot be “unreasonable”: the claims must always be read “in light of the specification and teachings in the underlying patent”. The Federal Circuit has approved use of the broadest reasonable interpretation standard, but the issue is currently on review before the US Supreme Court.
A number of Federal Circuit decisions have influenced how PTAB trials are conducted. These decisions address statutory estoppel, redundant grounds, scope of appellate review, the PTAB’s motion to exclude and amend practice, and implications of the Administrative Procedure Act on what issues and evidence may properly be presented at a PTAB oral hearing.
Petitioners usually assert multiple grounds of unpatentability that the PTAB may use to institute a PTAB trial. The PTAB routinely rejects some grounds either on the merits or as redundant. Petitioners have questioned the propriety of the PTAB’s redundancy practice. In Shaw Industries Group v Automated Creel Systems, the petitioner filed two petitions requesting an IPR trial, challenging two sets of claims based on multiple grounds. The PTAB instituted PTAB trials on both petitions but only on a subset of the grounds, rejecting some as redundant (the Payne grounds). The PTAB eventully issued an FWD finding some claims unpatentable, but not others.
On appeal, the petitioner argued that the PTAB’s redundancy practice exceeded its authority. The Federal Circuit disagreed, finding that the PTAB had authority to institute a PTAB trial on a subset of the proposed grounds. The PTAB’s redundancy practice, according to the court, has quantifiable benefit, particularly given the PTAB’s statutory obligation to complete PTAB trials in a timely and efficient manner.
The court also denied the petitioner’s writ of mandamus petition asking the court to direct the PTAB to reevaluate its redundancy decision. The petitioner argued that further review was required because statutory estoppel provisions would prevent it from raising the Payne grounds in future proceedings. The court noted the petitioner’s concern but disagreed. IPR statutory estoppel bars the petitioner from asserting arguments on any ground that the petitioner “raised or reasonably could have raised during that inter partes review”. While the petitioner raised the Payne grounds in its petition, no PTAB trial was instituted on those grounds. The petitioner thus “did not raise – nor could it have reasonably raised – the [Payne grounds] during the IPR. The plain language of the statute prohibits the application of estoppel under these circumstances.” The court denied the petitioner’s mandamus petition.
An appeal from the PTAB may only be taken to the Federal Circuit. The appeal may contest the PTAB’s FWD, not the PTAB’s decision on whether to institute a PTAB trial: “The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” The Federal Circuit in In re Cuozzo Speed Technologies, LLC explained that the statute “must be read to bar review of all institution decisions, even after the Board issues a final decision.” Designating the institution decision as “final” does not create appellate jurisdiction, and permitting such review would render other statutory limitations unnecessary. This limitation on appellate review is under review by the US Supreme Court.
The Federal Circuit has, however, identified one very limited exception to the review bar. The PTAB has statutory authority to institute CBMR trials only on CBMR-eligible patents. In Versata Development Group Inc v SAP America Inc, the Federal Circuit explained that an appeal from a CBMR FWD may address whether the PTAB “has violated a limit on its invalidation authority”, ie, whether the challenged patent is CBMR-eligible, even though resolved at institution.
The PTAB makes a number of evidentiary findings, including whether some evidence is new or improper, throughout a PTAB trial. In Belden Inc v Berk-Tek LLC, the petitioner filed a petition requesting a PTAB trial without a supporting expert declaration. The PTAB instituted a PTAB trial on all challenged claims. The patent owner then submitted its response and the petitioner submitted a reply supported by an expert declaration. The patent owner filed a motion to exclude that declaration. The patent owner argued that the declaration was not responsive to its response. The PTAB found that it was and declined to exclude it. The patent owner appealed the PTAB’s FWD cancelling some and confirming other claims.
On appeal to the Federal Circuit, the patent owner argued the PTAB erred in denying its motion to exclude and, further, denied its procedural rights because the patent owner did not have an opportunity to respond to the declaration. The court first found the petitioner’s expert declaration was, in fact, responsive to the patent owner’s response arguments. The court further observed that the patent owner could have responded to the expert declaration in multiple ways:
It can cross-examine the expert and move to file observations on the cross-examination. It can move to exclude the declaration. It can dispute the substance of the declaration at oral hearing before the Board. It can move for permission to submit a surreply responding to the declaration’s contents. And it can request that the Board waive or suspend a regulation that the patent owner believes impairs its opportunity to respond to the declaration. The options are not mutually exclusive.
The patent owner used some, but not all, of these mechanisms during the PTAB trial. That the patent owner failed to request other types of relief is no reason to fault the PTAB.
Patent owners may file a motion to amend the challenged claims in a PTAB trial. Proposed amendments are not entered as a matter of right, however: the patent owner must demonstrate that the proposed amendments are patentable. The Federal Circuit has confirmed the PTAB’s motion to amend practice in Microsoft Corp v Proxyconn, Inc. There, the patent owner filed a motion seeking to substitute new claims for certain challenged claims. The PTAB denied the patent owner’s motion, finding the patent owner did not establish patentability of the proposed amendments under 37 CFR §§ 42.20(c) and 42.121(a)(2) and the PTAB’s guidance in Idle Free Systems, Inc v Bergstrom, Inc.
On appeal, the patent owner argued that the PTAB erred by requiring its motion to satisfy requirements outside of the PTAB’s regulations. The Federal Circuit disagreed. Congress gave the PTAB authority to prescribe regulations governing PTAB trials. The PTAB did so in its regulations and its decisions. The PTAB should only enter those amendments it determines are patentable and where it is appropriate for the patent owner to bear the burden to establish patentability. Entering amendments as a matter of right “would defeat Congress’s purpose” of creating PTAB trials as part of “a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs.” The court concluded the PTAB did not err in denying the patent owner’s motion.
A PTAB trial allows parties to participate in an oral hearing. Parties may not present new evidence or new argument at the hearing because the PTAB trial is already completed. In Dell Inc v Acceleron, LLC, the Federal Circuit explained the importance of this practice. There, the petitioner made a new anticipation argument as to one of the challenged claims at the oral hearing that was not previously made in the petitioner’s pleadings. The PTAB relied on this new argument to find the claim unpatentable in its FWD.
On appeal, the patent owner argued that the PTAB erred in finding the claim unpatentable solely on the petitioner’s new argument. The Federal Circuit agreed. The Administrative Procedures Act imposes particular requirements on the PTAB: it must “timely inform” the patent owner of “the matters of fact and law asserted”; must provide “all interested parties opportunity for the submission and consideration of facts [and] arguments ... [and] hearing and decision on notice”; and must allow “a party ... to submit rebuttal evidence ... as may be required for a full and true disclosure of the facts.” These requirements are reflected in the PTAB’s Office Trial Practice Guide that states: “No new evidence or arguments may be presented at the oral argument.” The court concluded that the PTAB denied the patent owner its procedural rights because the patent owner could not meaningfully respond to the new argument by, for example, supplying rebuttal evidence. The Federal Circuit vacated the PTAB’s decision as to the claim at issue and remanded for further proceedings.
PTAB trials are becoming part of every US patent dispute. It is important to remember, however, that PTAB trials are very different from US district court litigation. Trying the two in the same manner is a mistake. Practitioners must consider the PTAB rules and policy when presenting arguments to the PTAB; they must also play to their audience, so to speak, in order to be successful.