Opinion analysis: Justices validate PTO rules for inter partes review
on Jun 20, 2016 at 9:52 pm
The Court’s docket this year did not have as many big-name patent cases as most Terms in recent years. Cuozzo Speed Technologies v. Lee was by far the most important patent case of the year. Surprisingly, for a Term winding down with a series of non-decisions, the Court’s resolution of that case today brought certainty to a major new process of patent review by validating the principal decisions that the Patent and Trademark Office made in setting up that process.
The centerpiece of the 2011 Leahy-Smith America Invents Act is “inter partes review,” a new procedure for dealing with patents that have already been issued.Instead of waiting for a court to resolve a suit attempting to enforce a patent that has already been issued, a competitor can take the patent straight back to the PTO and institute a proceeding to have the patent cancelled there. The statute creates a new entity in the PTO, the Patent Trial and Appeal Board, to rule on those challenges. Because the process involves administrative review of a patent by agency examiners after the patent has been issued, it is in many ways a hybrid between the examination process (conducted by agency examiners who determine whether the agency should issue a patent) and the judicial process (conducted by judges who decide whether it was proper to issue a patent).
The case presents two distinct questions. The first involves the decision to institute inter partes review. Under the statute, disgruntled competitors can file a petition seeking inter partes review. The board can institute review if it finds “a reasonable likelihood that [the challenger] would prevail.” Of particular relevance to this case, the statute also provides that the decision to institute review is “final and nonappealable.” The Federal Circuit has construed that statute broadly to bar substantially all complaints about the board’s decisions about instituting inter partes review.
To see how that works, consider what happened here. Garmin International sought review of a variety of claims in a patent held by Cuozzo Speed Technologies, LLC, emphasizing particular problems with claim 17. The board agreed, and instituted a review that included not only claim 17, but also two other closely related claims, 10 and 14; the process ultimately invalidated all three claims. On appeal to the Federal Circuit, Cuozzo claimed that the board erred in instituting review of claims 10 and 14 because they had not been challenged with sufficient specificity in Garmin’s petition. The Federal Circuit rejected that challenge as barred by the statutory description of the board’s institution decision as “final and nonappealable.”
The Supreme Court agreed. Writing for a six-two majority, Justice Stephen Breyer approved the Federal Circuit’s treatment. The Court emphasized that the dispute at issue here is “an ordinary dispute about the application of . . . the relevant statutes,” and that it would vitiate the “no appeal” provision almost entirely to permit a challenge “raising this kind of legal question and little more.” The Court seemed powerfully influenced by the practicalities of permitting after-the-fact challenges of the decision to institute review. In a case like this one – in which the agency had invalidated the challenged patent claims – overturning a decision to institute review on a procedural ground would have the perverse effect of validating a patent even though the agency already had determined that it had been issued in error. The Court found that Congress could not have intended something so strange: “We doubt that Congress would have granted this authority . . . if it had thought that the agency’s final decision could be unwound under some minor statutory technicality related to its preliminary decision to institute inter partes review.”
The most substantial problem with a literalist reading of the “no appeal” provision would come with permitting it to strip the courts of jurisdiction to consider serious problems with the entire process, such as a constitutional challenge to the regulatory regime or a particular proceeding. Responding to a dissent from Justice Samuel Alito (joined in an odd pairing by Justice Sonia Sotomayor), the Court emphasized that its decision had no effect on those kinds of challenges; the opinion explicitly limited its reach to garden-variety issues like those raised by Cuozzo. Explaining that its understanding of the statute left plenty of room for review of any “shenanigans” in which the board might engage, the Court concluded:
[W]e need not, and do not, decide the precise effect of [the “no appeal” provision] on appeals that implicate constitutional questions . . . . Thus, contrary to the dissent’s suggestion, 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.
Having disposed of the jurisdictional problem, the Court then turned to the major question in the case – the substantive standard for evaluating patent claims within the inter partes review process. Before it issues a patent, the PTO considers applications under a “broadest reasonable interpretation” (BRI) standard: if the broadest reasonable interpretation of the application’s claims conflicts with prior inventions, the patent will not issue; the applicant typically amends the claims to avoid the prior art and tries again. In litigation, after patents have issued, courts apply an “ordinary meaning” standard: if the ordinary meaning of the claims brings them into conflict with prior inventions, then the claims are invalid and the patent is invalidated. As suggested above, the “between two chairs” nature of inter partes review offers good reason for either standard. Because the review is conducted by the agency, it would make sense to use the BRI standard that the agency uses in examining patent applications. Conversely, because the review occurs after the patent has been issued and has the effect of invalidating the patent, it would make sense to use the “ordinary meaning” standard that courts use in deciding whether to invalidate patents.
The PTO necessarily confronted that question in organizing the board’s process; the PTO decided that the board should use the BRI standard, just as the PTO traditionally has used that same standard in assessing applications. Applying that standard, it has been aggressive in invalidating a large share of the patents that it has evaluated. Hoping to stem the impact of a system that has shifted the terms of engagements away from courts and into an agency that has shown itself so quick to retract patents, patentholders have criticized the board’s choice of the BRI standard. The Federal Circuit, however, stood by the board, which brought the question to the Court.
The Court’s resolution of the problem was markedly matter of fact. In marked contrast to its other administrative law decision today (Encino Motorcars, LLC v. Navarro), the Court’s analysis oozed with deference. The opinion rested directly and firmly on a provision of the 2011 statute that orders the PTO to issue “regulations . . . establishing and governing inter partes review under this chapter.” Emphasizing that Chevron requires deference when a statute “leaves a gap or is ambiguous,” the Court found it self-evident that “[t]he statute contains such a gap: No statutory provision unambiguously directs the agency to use one standard or the other.” The Court included a detailed summary of the reasons why it might make sense to use the “ordinary meaning standard,” but went on to explain that “[t]he problem with [that] argument . . . is that, in other significant respects, inter partes review is less like a judicial proceeding and more like a specialized agency proceeding.” The Court’s sense of the situation was crisp: “The upshot is, whether we look at statutory language alone, or that language in context of the statute’s purpose, we find an express delegation of rulemaking authority, a gap that rules might fill, and ambiguity in respect to the boundaries of that gap.”
Operating from a perspective of deference, who could doubt that the Court would affirm the PTO’s choice of the BRI standard? Predictably enough, the Court’s main justification for accepting the PTO’s choice rested on Breyer’s common concern about the adverse effects of a large body of ill-conceived patents. He pressed with vigor the idea that application of the BRI standard would protect the public by leading to more ready invalidation of patents and encouraging patent drafters to craft their claims narrowly.
The only contrary argument that the Court seemed to take seriously involved the opportunity for amendment of challenged claims. When examiners apply the BRI standard to an application, it imposes little harm on applicants because they can simply revise their claims until the examiner agrees that the language is suitably confined; in litigation, by contrast, when an adverse decision results in invalidation of the patent (because a court cannot amend the issued patent), courts read claims more narrowly under the “ordinary meaning” standard. Patentholders have argued strenuously that the board’s general unwillingness to permit amendments during that process has made use of the BRI standard especially inequitable; among other things, the point was the centerpiece of an amicus brief filed by IBM on behalf of neither party. A colloquy at the oral argument (cited in the Court’s opinion) indicated that the board had permitted only a half-dozen amendments in all of the review proceedings to date.
The Court closed its opinion with a considered response to that point, offering an answer that left some little hope for patentholders by pointing out that the problem of improper hostility to amendments was not presented here; Cuozzo had failed to proffer a suitable amendment to its claims. The Court seemed to send a bit of a caution to the board, though, noting that the statute in fact permits amendments during inter partes review, and suggesting that courts might be able to review decisions refusing to permit an amendment as arbitrary or capricious.
The most surprising thing about the opinion is the Court’s unanimity on the merits. It seemed plain from the oral argument that several Justices found the use of the BRI standard to produce an odd system, so it is surprising that all of the Justices agreed that the PTO’s selection of that standard was reasonable. In a Term in which the Court resolved so many of the cases that seemed important by grasping for narrow grounds of disposition, this case stands out as an important case in which the Court faced the principal issue head on and resolved it directly with a unanimous vote. Even the affected parties that strongly would have preferred a contrary decision have to acknowledge the benefits of a decision that directly and plainly resolves the central problem. If we can be sure about anything that will happen in the remaining cases of the Term, we can be sure that many of them will not go nearly so far in answering the questions that brought the cases before the Court.
PLAIN LANGUAGE: In 2011, Congress added a process for so-called “inter partes” review to the Patent Act. Under this process, a competitor that thinks the Patent and Trademark Office (PTO) has erred in issuing a patent, can go to the PTO and ask it to cancel the patent. If the PTO decides that the challenge is likely to succeed, then it can institute a formal review process, in which it has the power to cancel the patent. This case raises two questions about that process. The first is a technical jurisdictional question: whether patentholders can seek judicial review of the PTO’s original decision to institute the review process. The Court says no judicial review is available, pointing to a statute that says that the decision to institute review is “final and nonappealable.”
The second involves the standard for reading the claims in the challenged patents. To readers outside the patent process, this issue may seem even more technical, but in fact it is even more important than the first one. One possible standard is the “ordinary meaning” standard, which courts apply in infringement litigation: courts decide whether a patent is valid based on the “ordinary meaning” of the patent’s language. Another standard is the “broadest reasonable interpretation” (BRI) standard, which examiners apply when they read patent applications to decide if they should issue a patent. The PTO wrote regulations that call for use of the BRI standard in proceedings for inter partes review. The Court agreed with those regulations. It acknowledged that there were good arguments favoring both standards, but decided that it should defer to the PTO’s choice of the BRI standard because Congress gave the PTO discretion to design how the inter partes review process should work.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel on an amicus brief by Intellectual Ventures Management, LLC., in support of the petitioners in this case. However, the author of this post is not affiliated with the firm.]