IP lawyer: PTAB ‘licence to kill’ renewed
In its Cuozzo decision, the US Supreme Court has left the inter partes review system untouched. Patent owners must plan for tough validity fights from the beginning of the prosecution process
Since its creation by the America Invents Act in 2012, the Patent Trial and Appeal Board (PTAB) has a growing reputation as a ‘patent death squad’. This is largely the result of several review procedures and standards being tilted against patent owners, resulting in a higher percentage of patent claims being invalidated by the PTAB through inter partes review (and two other review procedures) than by district courts. On June 20, in Cuozzo Speed Technologies, LLC v Lee, the US Supreme Court strongly approved the PTAB’s approach to inter partes review for two contentious issues.
The first is the threshold determination of whether to institute an inter partes review. This decision is based on the challenger’s petition and supporting documents, and an optional preliminary response from the patent owner. The statute states that this decision is “final and non-appealable”. The court had little problem in finding that Congress clearly intended to bar all review, and that PTAB decisions on whether to institute inter partes review are not appealable.
Two justices dissented in part. They agreed that the initial determination cannot be appealed directly (ie, an interlocutory appeal); but in light of the strong presumption favouring judicial review of administrative action, thought that the decision to institute should be reviewable in an appeal from the final decision by the PTAB. The majority rejected this approach, however, as it read into the statute a limitation as to interlocutory decisions that is not mentioned in the statute and is not necessary. The court was careful to note that it was not categorically precluding review of a PTAB decision that implicated constitutional questions or presented questions of whether the agency acted outside its statutory limits.
“Patent owners have been calling for uniformity in the applicable standard, based on Congress’s intent to create a ‘surrogate’ for court proceedings”
The second issue was whether the PTAB could continue to use its ‘broadest reasonable interpretation’ standard for claim construction and interpretation. District courts apply an ‘ordinary meaning’ standard, which is more favourable for patent owners. The ‘broadest reasonable interpretation’ standard is more expansive and patent claims are more likely to fall foul of prior art as a result. This is a significant reason why patent claims are more likely to be invalidated by the PTAB than in a district court. Patent owners have been calling for uniformity in the applicable standard, based on Congress’s intent to create a ‘surrogate’ for court proceedings.
The court rejected that call and held that the PTAB’s decision to apply the ‘broadest reasonable interpretation’ standard was a reasonable exercise of its rule-making authority under the statute. The court found that while inter partes review may have some aspects of a judicial proceeding, in other respects it is more like a specialised agency proceeding. The party initiating inter partes review need not have constitutional standing and in fact need not remain in the proceeding at all (ie, the PTAB can continue to conduct the review even after the petitioner has settled).
The court recognised that the use of different standards may produce inconsistent results and cause added confusion. However, this possibility has long been present in the US patent system. The court pointed to interferences and re-examinations as examples of US Patent and Trademark Office proceedings where the broadest reasonable standard applies. The court thus concluded that the possibility of inconsistent results is simply inherent in Congress’s regulatory design.
Cuozzo is thus a robust affirmation of PTAB inter partes review practice and continues the trend of enabling patent validity challenges. There is no dispute that there is a substantially high ‘kill rate’ for patent claims undergoing PTAB review. The number of petitions seeking to initiate inter partes review or similar proceedings has steadily increased and, given the cost advantages and the greater likelihood of success, will continue to do so. With the judiciary weighing in on the side of the PTAB, any modification to this system will have to come from the legislature. In the current political climate, however, substantial changes are unlikely and will not come quickly.
Owners of US patents should thus prepare to defend before the PTAB any patents that they are asserting, or intend to assert, against alleged infringers. Plan for a vigorous defence both before and after institution. Attacking weaknesses in petitions with a strong preliminary response may help to sway the PTAB to decide not to institute the proceeding or perhaps limit the number of claims for which review is granted.
For patent applicants, it is not too early to think about PTAB review during prosecution before an examiner. Expect that any allowed claims will eventually be reviewed using the ‘broadest reasonable interpretation’ standard and also using prior art that is not being considered by the examiner. While continuing to seek the broadest claims allowable, also consider adding claims that narrow the broader claims in several aspects, as a hedge against the prospect of the broader claims falling during a PTAB review. This may incur additional costs in the form of excess claims fees, but the number of claims in a patent can also serve a protective function by raising the costs to institute a PTAB proceeding, or require a challenger to institute multiple proceedings.
Finally, patent applicants should consider taking advantage of ‘continuation practice’. While amending patent claims in a PTAB proceeding is a theoretical possibility, it is not a realistic option. It is much easier to make those changes in a pending patent application. Continuation practice has long been a means for keeping a patent family ‘alive’ and allowing applicants to seek broader patent claims or respond to competitor actions in the marketplace to previously issued patents. That flexibility can serve equally well as a response to a PTAB proceeding.