Courts Shed Light on the Scope of Federal Court Review of Patent Office Decisions Initiating AIA Patent Challenges

Petitioners who have been unsuccessful in requesting IPR or CBM Review have challenged these determinations in three different ways: collateral challenge in district court; direct appeal to the Federal Circuit; and petition for writ of mandamus to the Federal Circuit. Thus far, each of these attempts at court review has proven unsuccessful.

In Dominion Dealer Solutions, LLC v. Lee, No. 3:13-CV-699, 2014 U.S. Dist. LEXIS 54350 (E.D. Va. Apr. 18, 2014), the PTAB had denied several Dominion petitions for IPR brought against claims from certain AutoAlert, Inc. patents. Dominion challenged these non-institution decisions in district court under the Administrative Procedure Act (APA; http://1.usa.gov/1riQAA1), naming the PTO Deputy Director as defendant. Dominion presented three arguments as to why the district court should review these PTAB denials, but the district court rejected all three.

Dominion first argued that Section 314(d) precluded appeal to the Federal Circuit, but not a collateral APA challenge in district court. The district court disagreed, stating that such a collateral challenge constitutes an appeal within the language of Section 314(d). Second, Dominion argued that the court could at least consider whether the PTAB correctly construed the relevant legal standards. The district court again disagreed stating, “this appeal is a direct challenge to the PTAB's legal determination and application of the standards set forth in the statute, a challenge that addresses the merits of the PTAB's decision ' .” Thus, the court found it fell within the statutory bar on appeals. Finally, Dominion argued that Section 314(d) only precluded appeal from the granting of a petition. Seizing on the language of the statute ' “the determination ' whether to institute” ' the court instead found the appeal bar encompassed all PTAB determinations. At the time of this writing, Dominion has not filed notice of an appeal of the district court's decision dismissing the case.

As for the Federal Circuit, although a party may appeal a final PTAB decision, the Federal Circuit has held that a non-institution decision does not qualify. “We hold that we may not hear [Petitioner's] appeal from the [PTAB's] denial of the petition for inter partes review.” St. Jude Medical, Cardiology Div., Inc. v. Volcano Corp., No. 14-1183, 2014 U.S. App. LEXIS 7731 (Fed. Cir. Apr. 24, 2014). The PTAB had denied St. Jude's IPR petition based on a previous infringement claim against St. Jude in district court proceedings, determining that 35 U.S.C. '315(b) requires IPR challenges to be brought within one year of such an infringement allegation. St. Jude appealed directly to the Federal Circuit. Looking to the appeal bar in 35 U.S.C. '314(d) and the scope of appeals contemplated elsewhere in the statutes, the Federal Circuit found that it has jurisdiction only over appeals from a PTAB decision rendered after complete proceedings, i.e., institution and final written decision, not from an initial denial.

Extending the reasoning from St. Jude, the Federal Circuit has also held that a petitioner “has no 'clear and indisputable' right to challenge a non-institution decision directly in this court, including by way of mandamus.” In re Dominion Dealer Solutions, LLC, No. 14-109, 2014 U.S. App. LEXIS 7674 (Fed. Cir. Apr. 24, 2014). In this decision, the Federal Circuit noted the recent district court decision rejecting a collateral challenge in Dominion Dealer Solutions, LLC v. Lee, discussed above. It also noted that the PTO's position with regard to the district court case was consistent with the district court's decision dismissing Dominion's collateral challenge. The Federal Circuit declined to address the viability of a collateral challenge to a PTAB denial in district court, however, instead limiting its decision to the mandamus context.

PTAB Institution Decisions

Like petitioners, patent-holders have also sought court review via collateral challenge in district court and petition for writ of mandamus to the Federal Circuit. Thus far, these attempts have also proven unsuccessful.

In Versata Development Corp. v. Rea, Case No. 1:13-cv-328, 959 F. Supp. 2d 912 (E.D. Va. 2013), Versata challenged a PTAB institution decision under the APA, naming the PTO Acting Deputy Director as defendant. The PTAB had instituted trial proceedings on Versata's patent regarding whether the claims at issue were patent-eligible under 35 U.S.C. '101, at the behest of Petitioners SAP America Inc. and SAP AG.

The district court framed the analysis as presenting two issues, and held that resolution of either issue required dismissal of the case. First, the court held that it lacked jurisdiction to review a PTAB institution decision, looking to the appeal bar in '324(e) and the rest of the statutory scheme in the AIA to determine that appeal or review of PTAB determinations is only possible under different circumstances. Second, the court held that review under the APA was foreclosed because the initial PTAB institution decision failed both prongs of the APA requirement in 5 U.S.C. '704, which provides judicial review of a “final agency action for which there is no other adequate remedy in a court.”

Versata has appealed this decision, appeal No. 14-1145. That appeal has been consolidated with Versata's Federal Circuit appeal from the PTAB's final decision canceling certain patent claims, appeal No. 14-1194, discussed below.

A patent-holder has also sought to halt PTAB proceedings shortly after institution, but the Federal Circuit denied the request. “[The] mandamus petition is not a proper vehicle for challenging the institution of inter partes review.” In re The Procter & Gamble Co., No. 14-121, 2014 U.S. App. LEXIS 7677 (Fed. Cir. Apr. 24, 2014). Clio USA, Inc. filed IPR petitions against patents owned by P&G, and the PTAB had instituted trial proceedings. P&G petitioned for writ of mandamus, arguing that IPR proceedings were precluded by a district court declaratory judgment action filed by Clio USA, which Clio USA had voluntarily dismissed. The Federal Circuit instead determined that it could not reach this substantive question, given its limited appellate jurisdiction under 35 U.S.C. '314(d) and the standards governing mandamus. The Federal Circuit noted two separate questions that may remain for it to consider: first, whether it might review an institution determination as part of an appeal from a final PTAB decision (perhaps as in Versata appeal No. 14-1194), or second whether “an immediate challenge could be brought in district court” (perhaps as in Versata appeal No. 14-1145).

Pending Questions

The Federal Circuit is scheduled to consider whether courts can review an initial PTAB determination as part of: 1) a direct Federal Circuit appeal from a final PTAB decision rendered after trial; 2) an interlocutory appeal from a district court stay order entered while PTAB proceedings are ongoing; or 3) an immediate challenge brought in district court.

The Federal Circuit has observed that “[p]erhaps section 314(d)'s broad language precludes all judicial review of the institution decision, even in an eventual [final decision] appeal.” In re The Procter & Gamble Co., 2014 U.S. App. LEXIS 7677. As noted above, Versata has appealed from the PTAB's final decision to cancel certain patent claims (appeal No. 14-1194). In its briefing, Versata has asked the Federal Circuit to reconsider the PTAB's institution decision. Specifically, Versata has raised the issues of whether the challenged patent is the type of patent eligible for CBM Review, and whether the PTAB can institute CBM Review regarding patent eligibility under 35 U.S.C. '101. SAP and the PTO (which intervened) have responded, and amicus briefs have been filed on both sides. As of this writing, briefing appears complete, but oral argument has not yet been set.

A patent-holder has also raised a PTAB institution decision as an issue in an appeal from a stay of litigation. The District of Delaware entered a litigation stay in Benefit Funding System LLC v. Advance America, Cash Advance Centers, Inc., Case No. 1:12-cv-00801, Dkt. Nos. 89, 90 (D. Del. Oct. 25, 2013) (oral order and hearing transcript), after the PTAB instituted CBM Review of Benefit Funding's asserted patent. AIA '18(b) provides for immediate interlocutory appeal of any such stay decision, and Benefit Funding lodged an appeal (consolidated appeal Nos. 14-1122, 14-1124, and 14-1125, involving three underlying defendants affected by the stay). As part of that appeal, Benefit Funding has asked the Federal Circuit to consider whether the PTAB can institute CBM Review regarding patent eligibility under 35 U.S.C. '101 (an issue Versata has also raised). As of this writing, briefing appears complete, but oral argument has not been set.

As for district court challenges, as described above, the Eastern District of Virginia has rejected the possibility of reviewing a PTAB initial determination both when the PTAB has instituted proceedings (Versata) and when it has not (Dominion).

Conclusion

While some open questions remain particularly with respect to the Federal Circuit, it appears at this point that federal court review of initial PTAB determinations may be very limited. Although the decisions above have involved specific types of AIA proceedings, given the similarities in statutory language, the courts' interpretations would seem to apply equally to all three types of AIA proceedings discussed herein. As parties continue to make use of the AIA challenge proceedings, petitioners, patent-holders, and litigants should thus be mindful of the potential finality of the PTAB's initial determinations and continue to monitor related decisions expected over the next year or so.

Jose C. Villarreal is a partner at Wilson Sonsini Goodrich & Rosati, P.C., with a practice in intellectual property litigation including proceedings before the Patent Trial and Appeal Board. Joel C. Boehm is an associate at WSGR in the same practice group as Mr. Villarreal.

Effective September 2012, the Leahy-Smith America Invents Act (AIA) established new ways to challenge the validity of a patent before the United States Patent and Trademark Office (PTO). Pub. L. No. 112-29, 125 Stat. 284 (2011). These proceedings include inter partes review (IPR), post-grant review (PGR), and the transitional program for covered business method patents (CBM Review). Such proceedings begin with a petition for review, to which a patent-holder can respond before the Patent Trial and Appeal Board (PTAB) makes an initial decision whether to institute review.

The AIA provides that the PTAB's initial decision on whether to institute proceedings “shall be final and nonappealable.” 35 U.S.C. '314(d) (IPR); '324(e) (PGR and CBM Review). But the precise meaning of this provision has already been disputed. Recent decisions have begun to shed light on the scope of review federal courts have on a PTAB initial determination.

PTAB Non-Institution Decisions

Petitioners who have been unsuccessful in requesting IPR or CBM Review have challenged these determinations in three different ways: collateral challenge in district court; direct appeal to the Federal Circuit; and petition for writ of mandamus to the Federal Circuit. Thus far, each of these attempts at court review has proven unsuccessful.

In Dominion Dealer Solutions, LLC v. Lee, No. 3:13-CV-699, 2014 U.S. Dist. LEXIS 54350 (E.D. Va. Apr. 18, 2014), the PTAB had denied several Dominion petitions for IPR brought against claims from certain AutoAlert, Inc. patents. Dominion challenged these non-institution decisions in district court under the Administrative Procedure Act (APA; http://1.usa.gov/1riQAA1), naming the PTO Deputy Director as defendant. Dominion presented three arguments as to why the district court should review these PTAB denials, but the district court rejected all three.

Dominion first argued that Section 314(d) precluded appeal to the Federal Circuit, but not a collateral APA challenge in district court. The district court disagreed, stating that such a collateral challenge constitutes an appeal within the language of Section 314(d). Second, Dominion argued that the court could at least consider whether the PTAB correctly construed the relevant legal standards. The district court again disagreed stating, “this appeal is a direct challenge to the PTAB's legal determination and application of the standards set forth in the statute, a challenge that addresses the merits of the PTAB's decision ' .” Thus, the court found it fell within the statutory bar on appeals. Finally, Dominion argued that Section 314(d) only precluded appeal from the granting of a petition. Seizing on the language of the statute ' “the determination ' whether to institute” ' the court instead found the appeal bar encompassed all PTAB determinations. At the time of this writing, Dominion has not filed notice of an appeal of the district court's decision dismissing the case.

As for the Federal Circuit, although a party may appeal a final PTAB decision, the Federal Circuit has held that a non-institution decision does not qualify. “We hold that we may not hear [Petitioner's] appeal from the [PTAB's] denial of the petition for inter partes review.” St. Jude Medical, Cardiology Div., Inc. v. Volcano Corp., No. 14-1183, 2014 U.S. App. LEXIS 7731 (Fed. Cir. Apr. 24, 2014). The PTAB had denied St. Jude's IPR petition based on a previous infringement claim against St. Jude in district court proceedings, determining that 35 U.S.C. '315(b) requires IPR challenges to be brought within one year of such an infringement allegation. St. Jude appealed directly to the Federal Circuit. Looking to the appeal bar in 35 U.S.C. '314(d) and the scope of appeals contemplated elsewhere in the statutes, the Federal Circuit found that it has jurisdiction only over appeals from a PTAB decision rendered after complete proceedings, i.e., institution and final written decision, not from an initial denial.

Extending the reasoning from St. Jude, the Federal Circuit has also held that a petitioner “has no 'clear and indisputable' right to challenge a non-institution decision directly in this court, including by way of mandamus.” In re Dominion Dealer Solutions, LLC, No. 14-109, 2014 U.S. App. LEXIS 7674 (Fed. Cir. Apr. 24, 2014). In this decision, the Federal Circuit noted the recent district court decision rejecting a collateral challenge in Dominion Dealer Solutions, LLC v. Lee, discussed above. It also noted that the PTO's position with regard to the district court case was consistent with the district court's decision dismissing Dominion's collateral challenge. The Federal Circuit declined to address the viability of a collateral challenge to a PTAB denial in district court, however, instead limiting its decision to the mandamus context.

PTAB Institution Decisions

Like petitioners, patent-holders have also sought court review via collateral challenge in district court and petition for writ of mandamus to the Federal Circuit. Thus far, these attempts have also proven unsuccessful.

In Versata Development Corp. v. Rea, Case No. 1:13-cv-328, 959 F. Supp. 2d 912 (E.D. Va. 2013), Versata challenged a PTAB institution decision under the APA, naming the PTO Acting Deputy Director as defendant. The PTAB had instituted trial proceedings on Versata's patent regarding whether the claims at issue were patent-eligible under 35 U.S.C. '101, at the behest of Petitioners SAP America Inc. and SAP AG.

The district court framed the analysis as presenting two issues, and held that resolution of either issue required dismissal of the case. First, the court held that it lacked jurisdiction to review a PTAB institution decision, looking to the appeal bar in '324(e) and the rest of the statutory scheme in the AIA to determine that appeal or review of PTAB determinations is only possible under different circumstances. Second, the court held that review under the APA was foreclosed because the initial PTAB institution decision failed both prongs of the APA requirement in 5 U.S.C. '704, which provides judicial review of a “final agency action for which there is no other adequate remedy in a court.”

Versata has appealed this decision, appeal No. 14-1145. That appeal has been consolidated with Versata's Federal Circuit appeal from the PTAB's final decision canceling certain patent claims, appeal No. 14-1194, discussed below.

A patent-holder has also sought to halt PTAB proceedings shortly after institution, but the Federal Circuit denied the request. “[The] mandamus petition is not a proper vehicle for challenging the institution of inter partes review.” In re The Procter & Gamble Co., No. 14-121, 2014 U.S. App. LEXIS 7677 (Fed. Cir. Apr. 24, 2014). Clio USA, Inc. filed IPR petitions against patents owned by P&G, and the PTAB had instituted trial proceedings. P&G petitioned for writ of mandamus, arguing that IPR proceedings were precluded by a district court declaratory judgment action filed by Clio USA, which Clio USA had voluntarily dismissed. The Federal Circuit instead determined that it could not reach this substantive question, given its limited appellate jurisdiction under 35 U.S.C. '314(d) and the standards governing mandamus. The Federal Circuit noted two separate questions that may remain for it to consider: first, whether it might review an institution determination as part of an appeal from a final PTAB decision (perhaps as in Versata appeal No. 14-1194), or second whether “an immediate challenge could be brought in district court” (perhaps as in Versata appeal No. 14-1145).

Pending Questions

The Federal Circuit is scheduled to consider whether courts can review an initial PTAB determination as part of: 1) a direct Federal Circuit appeal from a final PTAB decision rendered after trial; 2) an interlocutory appeal from a district court stay order entered while PTAB proceedings are ongoing; or 3) an immediate challenge brought in district court.

The Federal Circuit has observed that “[p]erhaps section 314(d)'s broad language precludes all judicial review of the institution decision, even in an eventual [final decision] appeal.” In re The Procter & Gamble Co., 2014 U.S. App. LEXIS 7677. As noted above, Versata has appealed from the PTAB's final decision to cancel certain patent claims (appeal No. 14-1194). In its briefing, Versata has asked the Federal Circuit to reconsider the PTAB's institution decision. Specifically, Versata has raised the issues of whether the challenged patent is the type of patent eligible for CBM Review, and whether the PTAB can institute CBM Review regarding patent eligibility under 35 U.S.C. '101. SAP and the PTO (which intervened) have responded, and amicus briefs have been filed on both sides. As of this writing, briefing appears complete, but oral argument has not yet been set.

A patent-holder has also raised a PTAB institution decision as an issue in an appeal from a stay of litigation. The District of Delaware entered a litigation stay in Benefit Funding System LLC v. Advance America, Cash Advance Centers, Inc., Case No. 1:12-cv-00801, Dkt. Nos. 89, 90 (D. Del. Oct. 25, 2013) (oral order and hearing transcript), after the PTAB instituted CBM Review of Benefit Funding's asserted patent. AIA '18(b) provides for immediate interlocutory appeal of any such stay decision, and Benefit Funding lodged an appeal (consolidated appeal Nos. 14-1122, 14-1124, and 14-1125, involving three underlying defendants affected by the stay). As part of that appeal, Benefit Funding has asked the Federal Circuit to consider whether the PTAB can institute CBM Review regarding patent eligibility under 35 U.S.C. '101 (an issue Versata has also raised). As of this writing, briefing appears complete, but oral argument has not been set.

As for district court challenges, as described above, the Eastern District of Virginia has rejected the possibility of reviewing a PTAB initial determination both when the PTAB has instituted proceedings (Versata) and when it has not (Dominion).

Conclusion

While some open questions remain particularly with respect to the Federal Circuit, it appears at this point that federal court review of initial PTAB determinations may be very limited. Although the decisions above have involved specific types of AIA proceedings, given the similarities in statutory language, the courts' interpretations would seem to apply equally to all three types of AIA proceedings discussed herein. As parties continue to make use of the AIA challenge proceedings, petitioners, patent-holders, and litigants should thus be mindful of the potential finality of the PTAB's initial determinations and continue to monitor related decisions expected over the next year or so.

Jose C. Villarreal is a partner at Wilson Sonsini Goodrich & Rosati, P.C., with a practice in intellectual property litigation including proceedings before the Patent Trial and Appeal Board. Joel C. Boehm is an associate at WSGR in the same practice group as Mr. Villarreal.