Digging deep into Cuozzo: avenues for appeal open; possible Congressional action; role of USPTO Director key 21 Jun 16
Yesterday’s Supreme Court decision in Cuozzo v Lee was surely the most eagerly anticipated patent ruling from America’s highest court since it handed down its Alice judgment two years ago. Such has been the impact of inter partes reviews (IPRs) since they came into force in 2012 that any challenge to their standing was always bound to draw the close attention of the patent community.
The opinion that the institution of an IPR is not appealable and that the USPTO has been correct in using the broadest reasonable interpretation standard when it reviews patent claims, leaves in place the system that has led some to worry for the rights of patents owners in the US.
As I canvassed senior members of the patent community for their response to yesterday’s ruling a number of points stuck out. For one, while it has left the status quo in place, some still see at least one avenue to challenge the proceedings. “The issue left open by the opinion is whether institution decisions that do not hinge on the PTAB’s determination of a reasonable likelihood of invalidity can ultimately be reversed on appeal,” Ashley Keller of Gerchen Keller Capital commented. “The Court’s decision seems to leave open this possibility.”
So, while Cuozzo may look fairly bleak for a large portion of the patent-owning community, the door may not be shut on the appeal issue.
The appeal issue left open – a view from a former USPTO head
That’s a point that former USPTO Director Todd Dickinson dissects in his response to the opinion. Here’s his analysis which includes parts of Justice Breyer’s majority opinion:
“I think the more important aspect of the opinion may turn out to be the parsing of the appealability issue. While Breyer clearly states that “the statute means what the statute says” on the inability to appeal initiations of IPRs, he then characterises, and minimises, the question of this particular appeal stating:
“the legal dispute at issue [here] is an ordinary dispute about the application of certain relevant patent statutes concerning the Patent Office’s decision to institute inter partes review. In our view, the “No Appeal” provision’s language must, at the least, forbid an appeal that attacks a “determination . . . whether to institute” review by raising this kind of legal question and little more. §314(d)….. We doubt that Congress would have granted the Patent Office 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.”
This seems to be an attempt to begin to answer the dissent’s concern about possible “shenanigans” in the way the PTO might use or abuse the statute or their own rules, and in so doing undermine the so-called “three part scheme” for post-grant review. The dissent gives by way of example, an attempt to interpret the claims of a patent as coming within the definition of “financial services” in a CBM, when they very clearly don’t (their example is tempered glass), in order to permit 101 or 112 to be used to attack the patent when they couldn’t otherwise be used, as in an IPR.
The majority then goes further to distinguish types of appeals, and answers the dissent, by stating:
“Nevertheless, in light of §314(d)’s own text and the presumption favoring review, we emphasise that our interpretation applies where the grounds for attacking the decision to institute inter partes review consist of questions that are closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review. [i.e .those ordinary disputes discussed above]… This means that we need not, and do not, decide the precise effect of §314(d) on appeals that implicate constitutional questions, that depend on other less closely related statutes, or that present other questions of interpretation that reach, in terms of scope and impact, well beyond “this section.” ….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 by, for example, canceling a patent claim for “indefiniteness under §112” in inter partes review….Such “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.”
These last three carve outs create potentially large exceptions to non-appealabilty, and will very likely be cited repeatedly in appeals. They also have the nice advantage of increasing overall fairness in the process, and also seems to be consistent with J Plager’s holding in Versata II, in which the CAFC allowed the appeal of the PTO’s definitions of “financial services” and “technological” in the CBM rules.”
Eyes on Congress
But where does this leave those members of the patent community who have been looking to rein in the PTAB’s use of broadest reasonable interpretation (BRI)? Well, most likely pounding the halls of Congress hoping to ensure the passage of some type of patent reform.
Tellingly, that was a point that Kevin Rhodes, chief IP counsel of 3M and part of the advocacy group the Coalition for 21st Century Patent Reform (as well as being the President of the IPO), made when I asked him for a reaction to the decision. “The policy question will continue to be one for Congress as it considers whether it is sound patent policy to interpret patent claims in AIA reviews according to their “broadest reasonable interpretation”, whereas in litigation those same claims are given their “ordinary meaning as understood by a person of skill in the art,” he said. “As evidenced by the current proposed patent reform legislation, I hope Congress continues to recognise that the inconsistency and gamesmanship created by the use of differing claim construction standards in AIA reviews and in litigation leads to undue uncertainty that undermines innovators who seek to use the legal protections afforded by patent rights to secure the investments in research, development, manufacturing, and jobs that can turn an invention into a business.”
It’s worth noting that ditching BRI has strong support in the House of Representatives and on the Senate Judiciary Committee, suggesting that any patent legislation may still speed the end for the PTAB’s claim review standard.
An emboldened PTO?
While members of the IP community will pick apart yesterday’s decision to criticise it or look for future challenges, there’s no doubt that the ruling was a significant boon to the USPTO. The AIA gave the agency huge leeway in the implementation of post-issuance review proceedings and in Cuozzo the Supreme Court effectively confirmed the extent of those powers. “In the context of the PTAB, the AIA granted the USPTO substantive rulemaking authority, authority they have reasonably---and commendably---exercised,” remarked Jonathan Stroud, chief patent counsel at Unified Patents. “The Supreme Court thus applied the longstanding doctrine of Chevron deference in a just and reasoned way. The often-overlooked (and increasingly critical) intersection of patent and administrative law appears to have carried the day."
That Cuozzo underlines the PTO’s authority was also stressed by former Director David Kappos, who headed the agency when the AIA was written and then passed in 2011. “I do not see the decision as an endorsement that the BRI standard is the necessary, only, or "right" standard per se, but as an unremarkable recognition that Congress did not dictate a standard, leaving the USPTO to do so through its rule making authority,” he commented. “The goodness I see in the decision is an affirmation of the USPTO's authority and ability to make rules as a means to implement Congress' statutory direction to it, and of Congress' discretion in its judgment to give to the USPTO the leeway to make rules in its reasonable judgment. Now the question becomes whether the USPTO feels it makes sense, in light of what has been learned in the several years it has been running the post-grant system, to revisit the BRI standard and consider other approaches including blended ones that apply BRI where it makes most sense - such as to amended claims - and the Philips standard in other cases.”
Ready for who in 2017?
So with the USPTO’s rule-making authority left intact, the question of who succeeds Michelle Lee as the agency’s next director following the presidential election this November becomes even more significant. As IPNav founder Erich Spangenberg pointed out: “It will be interesting to see if the director and PTAB use this opinion to more aggressively embrace what they obviously perceive as their mission. If one feels strongly that the Supreme Court got it wrong on these issues, it will probably be most productive to focus in on who will be the next director. Sort of makes me miss Director Kappos.”
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