<i>Cuozzo</i> Upholds PTAB Authority

Cuozzo argued before the Federal Circuit that the decision to institute on claims 10 and 14 was unlawful, and the application of the broadest reasonable construction (BRC) standard was erroneous. A divided panel affirmed the PTAB's determination, and the Federal Circuit denied en banc review 6-5.

Background of Inter Partes Review Statutes

Congress created inter partes review as a U.S. Patent and Trademark Office (USPTO) proceeding that replaced inter partes reexamination and allowed the parties a more active role in IPRs. In so doing, the USPTO maintained the considerable discretion it had over reexamination, interferences, and other USPTO procedure, including authority to issue “regulations ' establishing and governing inter partes review.” 35 U.S.C. '316(a)(4). Congress also made PTAB institution decisions “final and nonappealable.” 35 U.S.C. '314(d). Among the regulations established by the USPTO was a requirement that the PTAB give patent claims their “broadest reasonable construction” in light of the specification. 37 C.F.R. '42.100(b). Both the appealability of institution decisions and BRC standard were at issue in Cuozzo.

Institution Decisions Nonappealable

The Court split 7-2 affirming that a patent owner cannot appeal due to the clear statutory provision that IPR institution decisions “shall be final and nonappealable.” 35 U.S.C. '314(d). Justice Breyer wrote that finding otherwise would undercut Congress's delegation to the USPTO of significant power to revise patent grants. But the Court left open the possibility of challenges to institution decisions “that depend on other less closely related statutes” or that “implicate constitutional questions,” while declining to decide “the precise effect of '314(d)” on such challenges.

The Court only provided a few examples of such unconstitutional or extra-statutory “shenanigans”: when an institution decision poses “a due process problem with the entire proceeding” or when the PTAB institutes review on a prohibited basis such as indefiniteness under '112. Justice Alito gave a further example of reviewable institution decisions in his dissent: IPR petitions made over a year after an action is brought in federal court. Thus, it appears the Court anticipates some federal court oversight to ensure that the PTAB complies with specific statutory institution requirements. Yet the Court did not clarify what sort of serious “constitutional question” would exceed the “mine-run claim at issue here,” and thus permit review despite the clear statutory prohibition on appeals.

Broadest Reasonable Construction Remains The IPR Standard

The Court unanimously upheld the BRC standard for IPR claim construction. The Court found that this standard better protects the public from broad claims that could discourage invention and encourages careful, narrowly-drafted patent claims. In the end, the 100 year history of the USPTO applying the BRC standard to its proceedings and the goal of internal consistency between various USPTO agency proceedings persuaded the Court. From the USPTO perspective, IPR continues to be a reexamination procedure with a different name, in other words, a second look at an earlier administrative proceeding. Indeed, for over 35 years the patent statutes have allowed the Director of the Patent Office to trigger a reexamination on her own initiative. The USPTO has long had broad discretion to revisit its own agency decisions.

The Court also noted that patent owner has a chance to amend claims in IPR, which makes the standard more fair in this context. The Court was not persuaded by the patent owner citing the low rate of successful patent owner motions to amend. These arguments may have fallen on deaf ears because the patentee has a nearly unlimited opportunity to amend claims at any time during the earlier agency proceeding ' the original examination of the application. Thus, the Court may have believed that the issued patent claims have already struck the proper balance during the examination process between the patentee's desire for broad claims and the USPTO's rejections that tend to narrow the claims.

The Court noted that over 100 years of history showed that having two standards for claim construction in USPTO proceedings versus in litigation is workable, even though it can lead to different results, particularly given that it allows one claim construction standard in all the agency proceedings. The Court deferred to the USPTO's agency expertise to determine the best standard for claim construction in its own forum's proceedings.

Application to Future Patent Lawsuits

The Supreme Court did little to clarify exactly when institution decisions could be appealed, other than suggesting that they might involve “shenanigans.” Justice Alito's dissent queries “how to determine which 'statutory limits' we should enforce and which we should not.” District courts and the Federal Circuit will have to flesh out this theoretical boundary.

Unfortunately, Cuozzo did not resolve the very institution decision practices that several Federal Circuit judges, including Moore and Reyna, have vocally challenged as “concerning.” For example, in Shaw Industries Grp., Inc. v. Automated Creel Systems, Inc., No. 2015-1116 (Fed. Cir. Mar. 23, 2016), Reyna's concurrence foreshadowed the door the Supreme Court left open ' that institution discretion cannot be entirely free of review: “The PTO's claim to unchecked discretionary authority is unprecedented. Regardless of appealability, administrative discretion is not and never can be 'complete' because it is always bounded by the requirement that an agency act within the law and not violate constitutional safeguards.” Given that Cuozzo interpreted the statutory requirement of presenting a challenge “with particularity” to require only that the “information presented ' warrants review,” it might require a gross overstep by the PTAB before a federal court finds it has jurisdiction to review an institution decision. In addition, a constitutional challenge to an institution decision by a petitioner unhappy with the outcome of their IPR seems likely to occur in the future.

The idea that IPR proceedings should apply a claim construction standard consistent with litigation proceedings might have provided benefits to litigators, but it certainly would have been disadvantageous to the USPTO, which must maintain internal consistency between its various agency proceedings. In particular, since certain proceedings can be merged (e.g., reexamination and IPR), a holding of a Phillips-style claim construction standard for IPRs would have also been a mandate for the USPTO to reconsider the reexamination standard, or at minimum the practice of merging proceedings of different types. By upholding a separate claim construction standard from federal litigation, Cuozzo keeps relevant the value of specialized PTAB and USPTO experience, including knowledge of rules, trends, and related best practices. Moreover, Cuozzo further solidifies the disparities between patent challenges in IPRs and federal litigation, allowing strategic use of both procedures in patent defense when appropriate.

Defendants in patent litigation will still have to grapple with whether to pursue IPRs with their more favorable claim construction standard and the potential to force the patent owner into an early stance on patent scope, or whether to litigate solely in federal court ' avoiding any estoppel and being able to quickly pursue additional defenses such as those related to patentable subject matter and enablement.

Relation to Other Supreme Court Patent Decisions Of the Decade

Cuozzo can be analogized to other cases in recent Supreme Court patent jurisprudence that made it easier to challenge patent validity, including Bilski v. Kappos, 545 F.3d 943 (2008), Mayo v. Prometheus, 132 S. Ct. 1289 (2012), and Alice v. CLS Bank, 134 S. Ct. 2347 (2014). Making it harder to challenge IPR institution and keeping a separate IPR claim construction standard follows a general trend of increasing leeway for patent challenges, perhaps in response to public sentiment that the USPTO was issuing too many patents of questionable quality. Petitioners are likely to continue to have success challenging patent validity in IPRs, as the rate of institution and claim cancellation remains high.

Jennifer R. Bush is an attorney in the Mountain View office of Fenwick & West LLP, where her practice focuses on prosecuting patent applications in a wide range of technical fields. Her practice also involves intellectual property strategy and counseling, as well as inter partes reviews, patent appeals, and reexaminations. Will Pierog is an attorney in the Mountain View office of Fenwick & West LLP, where his practice focuses on commercial and intellectual property litigation, with a particular emphasis on copyright, trademark, trade secret, and patent disputes for technology companies.