1 Jun
2018

Supreme Court shakes up the PTAB, while new USPTO head sends strong pro-patent signals

No one expected the Supreme Court to turn the US patent system upside down with <em class="italic-light">Oil States</em> – and it did not. But its <em class="italic-light">SAS</em> judgment issued on the same day could mean some big post-grant changes. Meanwhile, Andrei Iancu is exhibiting pro-patent inclinations

The nine justices of the US Supreme Court certainly kept the US patent community and the wider world waiting for their opinion in Oil States Energy Services v Greene’s Energy Group. Of the major patent cases decided by the court since Chief Justice Roberts took over, only Bilski has taken longer to be handed down.

That might have suggested that Oil States, which brought into question the constitutionality of inter partes reviews, might be closer than is customary for a case concerning patents. In the end, though, the 7-2 decision was a clear affirmation that the inter partes review regime, which has had such a huge impact since its introduction by the America Invents Act, does not violate Article III or the Seventh Amendment of the US Constitution.

No big surprise

Even though the Supreme Court decided to grant certiorari in this case, it always seemed unlikely that it was about to scuttle the entire inter partes review process. Oral arguments did not change that view, with the only question being how big a minority Justice Gorsuch – a well-known critic of administrative over-reaching – might be able to build.

In the end, he only managed to carry Roberts with him, although Gorsuch was given the opportunity to outline the degree to which he disagreed with the majority in the kind of dissent that will play well with the anti-Patent Trial and Appeal Board (PTAB) crowd.

Perhaps eager to limit any collateral damage from his opinion (as the author of the Alice decision he knows all about unintended consequences), writing for the majority Justice Thomas was at pains to stress the narrowness of the decision. “We address only the precise constitutional challenges that Oil States raised here,” he stated.

That elicited warm praise from Scott Kamholz, the PTAB judge who presided over the original inter partes review brought by Greene’s Energy Group and who is now a partner at Covington & Burling. “I have to say that Justice Thomas engaged in Supreme Court best practices by taking care to point out the limits of this decision,” he said. “The court reaffirms that a patent is a public right and also reaffirms that there is no constitutional entitlement for a dispute touching a public right to be heard by an Article III tribunal – period.”

The narrowness of Thomas’s opinion might give some hope to those looking to mount further challenges to post-grant procedures. However, according to one PTAB proponent, further actions along the lines of Oil States would be folly. “I’m sure some will try,” commented Unified Patents’ CEO Kavin Jakel. “But it’s going to get harder and harder as time passes to convince the Supreme Court that either they were wrong or that this time, the issue is different.”

Those hoping for a different result reserved much of their venom for Thomas’s assertion that the granting of a patent is effectively the grant of a public franchise. In a statement, Adam Mossoff, a law professor at George Mason University, responded by saying: “The decision ignores the Supreme Court’s own substantial case law over the past two centuries that patents are private property rights that secure the fruits of productive labours under the Constitution – like all other property rights in homes, farms and animals.”

SAS heralds PTAB change

But if Oil States settled the long-term future of inter partes reviews, the decision in SAS Institute v Iancu arguably carries far greater significance for the future of post-grant practice. As Joshua Goldberg, a partner at Finnegan, Henderson, Farabow, Garrett & Dunner put it shortly after the opinions were handed down: “This morning is about Oil States; this afternoon and the coming months will be about SAS.”

In SAS Institute, the narrow 5-4 majority – with the justices split on ideological grounds (a rarity in cases concerning patents) – ruled that the PTAB must review all of the claims challenged in an instituted inter partes review and not simply cherry-pick those that the board thinks most worthy of review.

The question at the heart of this case came down to statutory interpretation. With that in mind, it is instructive to hear the thoughts of former US Patent and Trademark Office (USPTO) Director David Kappos, who was actively involved in the drafting and passage of the America Invents Act and then its implementation. “It was the understanding of all of us at the PTO at the time, and of the members of Congress who were helping to drive the AIA [America Invents Act], that the legislation was giving authority to the agency to make quick and easy decisions on claims that didn’t need to go through exhaustive review,” he said.

Having written the forthright dissent in Oil States, Gorsuch also penned the majority opinion in SAS Institute. That left observers with the slightly strange sight of him pulling apart the whole inter partes review process in the former case, but then writing in the latter that when the USPTO grants IP rights, “sometimes bad patents slip through”. It seems that the newest justice on the Supreme Court was happy to explain why inter partes review was unconstitutional while simultaneously giving the PTAB’s keenest supporters their next marketing slogan.

Implementing SAS

Soon after SAS was handed down the USPTO issued guidance on how it would be implemented. In an ongoing inter partes review that has been partially instituted, this stated, the panel of administrative patent judges “may issue an order supplementing the institution decision to institute on all challenges raised in the petition”. The deadlines around concluding an inter partes review may also be extended.

In addition, the office provided statistics on the volume of partially instituted inter partes reviews. During its 2018 fiscal year, through to the end of February – when the PTAB instituted a trial – it did so on all challenged claims 98% of the time. For fiscal year 2017, PTAB institution occurred for all challenged claims 89% of the time; while in 2016 it was 76%.

In a subsequent USPTO webinar, PTAB Chief Judge David Ruschke, along with vice chief judges Tim Fink and Scott Weidenfeller, provided additional guidance. They announced that not only would the board review all challenges in an instituted inter partes review, as SAS directed, but also all grounds raised by the petitioner.

For those ongoing inter partes reviews that have been instituted, but only on a partial basis (ie, not all of the claims that were challenged in the original petition are under review), the guidance has given administrative patent judges the leeway to decide whether to expand an inter partes review to include all challenges and all grounds.

Trouble ahead

The rapid pace at which partially instituted inter partes reviews have been expanded appears, initially at least, to be bad news for patent owners. The onus is now on them to respond in full to the inter partes review that was filed originally. Given the tight timeline under which reviews are conducted, some patent owners and their advisers may now feel the pressure as they prepare to defend more claims in their grants and on more grounds than they thought they would have to on institution.

The changes also shift part of the settlement dynamic: before SAS, when an inter partes review was instituted only on some but not all claims, that might have signalled that the patent under review was stronger than the petitioner originally thought and so might have made them more amenable to settle a parallel infringement lawsuit.

However, while partial petitions may lead to more griping about the PTAB from some patent owners, the SAS decision and its implementation look set to also significantly shift the landscape for petitioners as they consider which claims to challenge and on what grounds. The Supreme Court’s ruling may now cause them to become far more discerning.

“For ongoing IPRs [inter partes reviews] where new claims and grounds are being added, it’s clearly worse for the patent owners,” stated Finnegan partner Erika Arner. “But we have other clients who are very early in their cases, waiting for institution decisions, and I think some of those are big wins for patent owners because they’re petitions that were written with all kinds of grounds that now look very complex and I think are more likely not to be instituted.”

The USPTO director, and by extension the PTAB, still has a lot of discretion in determining which inter partes reviews to institute. “I think it’s more likely that the board will use that discretion in those cases where the petition seems overly complex and has lots of alternative grounds where now they would have to take all of them,” Arner added. That means that petitioners and their lawyers will have to think even more carefully about how they craft their inter partes reviews before they file. From here onwards, it is all or nothing.

In the almost six-year history of inter partes reviews, the decision on whether to institute a review has taken on out-sized significance. That is because all the data shows that those claims which are instituted stand a good chance of being invalidated in the final written decision. This has seen petitioners and patent owners pour their resources and focus onto the early stages of an inter partes review’s lifecycle.

That might now start to shift a little. The number of claims which are reviewed by the PTAB seems set to rise inexorably, but the decision to institute may also become far less indicative of invalidity in a final decision.

As it now must institute on all challenges and all grounds, the board will not be cherry-picking those claims which it feels most merit review and so the proportion of claims found to be invalid after institution should drop. For the PTAB, which has faced accusations of an anti-patent bias from the start, that might lead to a welcome shift in the prevailing narrative.

Pro-patent Iancu begins to make his mark

Since he took over as director of the USPTO, Andrei Iancu has been outlining his intention to bring greater consistency to the US patent system. That has been a welcome message to rights holders who, over the last few years, have become accustomed to a whirlwind of legal and policy changes, many of which have not exactly gone their way.

However, as he strives for that predictability, Iancu has also had to absorb a series of developments that have required the USPTO to respond. These include the patent subject matter guidance that the agency issued in light of the Court of Appeals for the Federal Circuit’s decision in Berkheimer and its reaction to the Supreme Court’s judgment in SAS.

At the beginning of May, Iancu made his first significant reform unprompted by the courts, when the USPTO announced its intention to change the claim construction standards in post-issuance procedures, ditching broadest reasonable interpretation for the narrower Philips standard. That change will bring the PTAB into line with Article III courts and the International Trade Commission, ushering in the kind of consistency for which critics of the PTAB have long called.

The general consensus among post-grant practitioners is that in practical terms this may not make as big a difference as some might hope. “To date, in those instances where claim construction has occurred in both district court and the PTAB, the different claim construction standards have generally resulted in similar if not identical constructions,” commented Sangeeta Shah, a partner at Brooks Kushman.

She also pointed out that the PTAB’s relative importance in claim construction was likely to increase. “Given the modified claim construction standard, and the increased likelihood of litigation stays following SAS, practitioners should be mindful that the PTAB’s claim construction ruling as the first by any adjudicatory body, will have greater significance across all forums,” she said.

As with the implementation of SAS, the most immediate impact of a change in the claim construction standard is likely to be on pending reviews before the board. “The proposed rule indicates that the board intends to have the rule apply to all pending IPR [inter partes review], PGR [post-grant review] and CBM [covered business method] proceedings before the PTAB,” Finnegan’s Cory Bell pointed out. “Accordingly, we could potentially see the PTO implement the rule change in a similar way to how it implemented the SAS guidance, which creates the potential for additional briefing and discovery, as well as extensions.”

That means there is plenty for petitioners and patent owners to consider, even if the shift to broadest reasonable interpretation is not in and of itself a big change. It is also worth sparing a thought for the PTAB’s administrative patent judges, who face the daunting task of implementing the recent changes while still deciding post-issuance reviews within a relatively tight timeframe.

However, to focus simply on the practical significance of a shift to broadest reasonable interpretation is to ignore the wider message from the announcement, which surely favours patent owners. Those lobbying for change have pushed to level the playing field at the PTAB, so that standards that apply in district court also apply in reviews before the board. Iancu clearly has some sympathy for those gripes – and a more pro-patent owner stance than the one his predecessor Michelle Lee seemed to convey is likely to leave an impression on the USPTO’s corps of examiners and administrative patent judges.

Many observers expect further changes along the same lines, with claim amendments one likely focus area. Should that happen, once again it might be the message rather than the substance that leaves the greater impression.