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Supreme Court’s Cuozzo Decision Endorses AIA Trial Proceedings, But Preserves Key Roles for both the PTAB and Federal Courts in Patent Disputes

Team Contact: Sangeeta G. Shah, Frank A. Angileri

In Cuozzo Speed Techs., LLC v. Lee,[i] the U.S. Supreme Court rejected the patent owner’s challenge to the U.S. Patent and Trademark Office’s implementation of the Leahy-Smith America Invents Act’s new post grant proceedings. The Court held that Cuozzo could not challenge the Patent Trial and Appeal Board’s decision to institute inter partes review and that the USPTO reasonably exercised its rulemaking authority in requiring the PTAB to construe claims under review using the USPTO’s “broadest reasonable interpretation” standard. The decision affirmed the U.S. Court of Appeals for the Federal Circuit and endorsed the USPTO’s positions on both issues.

Looking beyond that headline, however, the decision signals a balance between the federal courts’ traditional role in patent litigation, including ruling on the validity and unenforceability of issued patents, and the PTAB’s administrative role in reviewing challenged patents.

Background

Following inter partes review, patent owner Cuozzo Speed Technologies, LLC appealed a final written decision by the PTAB that found claims 10, 14 and 17 in U.S. Patent No. 6,788,074 unpatentable.  In its petition for inter partes review, Garmin International, Inc., had challenged inter alia the patentability of claim 17 in light of three prior art patents. The PTAB initiated review of not only claim 17 but also claims 10 and 14, in view of the three asserted prior art patents.[ii]

On appeal to the Federal Circuit, Cuozzo argued that the PTAB erred in instituting review of two claims that were not part of the asserted grounds.  Specifically, Cuozzo argued that the PTAB erred in instituting review of claims 10 and 14 because they had not been challenged “with particularity” as required by 35 U.S.C. § 312(a)(3).  Cuozzo also argued that the PTAB had erred in construing the claims under the USPTO’s broadest reasonable interpretation (“BRI”) construction standard, rather than affording the claims their meaning under the Phillips analysis.[iii] In a divided decision, the Federal Circuit affirmed the PTAB by ruling that the decision to institute was not subject to appeal and that the PTAB reasonably acted within its rulemaking authority in construing claims under the BRI standard.[iv] In a dissent, Circuit Judge Newman argued that Congress intended AIA trials to be functional substitutes for federal court litigation over patent validity. As a result, she argued, PTAB proceedings must be consistent with federal court proceedings, necessitating the adoption of the Phillips analysis used in federal court litigation. Cuozzo filed a petition for certiorari to the Supreme Court, which heard the appeal.

Supreme Court Leaves Door Open for Certain Challenges of Institution Decisions

In a unanimous decision written by Justice Breyer, the Supreme Court affirmed the Federal Circuit on both issues. It held that §314(d) prevented Cuozzo from challenging on appeal the PTAB’s institution decision, either through an interlocutory appeal or in an appeal from the final written decision. It also ruled that 37 C.F.R. § 42.100(b), which implements the BRI standard, was a reasonable exercise of administrative rulemaking under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc..[v] Although the Court found against Cuozzo on both issues, the decision suggests that the Court views the AIA post grant proceedings as events akin to reexamination – a procedure to correct shortcomings during the earlier examination of the claims under review – rather than a streamlined, quasi-judicial procedure to invalidate suspect patents.

First, the Court ruled that § 314(d) prevented “mine-run” challenges to PTAB institution decisions.  It characterized Cuozzo’s contention that the petition did not fairly target two claims for which the Board instituted review as “an ordinary dispute about the application of certain relevant patent statutes” concerning the institution decision. It held that the plain language of §314(d) “must, at the least, forbid an appeal that attacks [an institution decision] by raising this kind of legal question and little more.”[vi]

Equally important, the Court observed that judicial responsibility for overseeing agency proceedings possibly warrants appellate review in other situations. It “emphasize[d]” that its holding applied to attacks on institution decisions involving “questions that are closely tied to the application and interpretation of statutes” related to the institution decision.[vii] The Court recognized that the ruling did not foreclose appeals of institution decisions raising constitutional questions. It also suggested that institution decisions could be appealed that impact “other, less closely related statutes,” or based on issues that extend beyond the reach of §314.[viii]

The Court’s opinions specifically identified two possible future grounds for appeal. Justice Breyer noted that appeal may be available when a PTAB decision fails to provide due process, or when the decision goes beyond the “statutory” limits of the AIA, such as when the review is premised on a violation of 35 U.S.C. § 112, which is not an available challenge for inter partes review proceedings. Furthermore, in his dissent, Justice Alito suggested that issues relating to the PTAB’s jurisdiction also may be subject to appeal. For example, an appeal may be appropriate if the PTAB instituted an inter partes review more than one year after the petitioner asserted invalidity in a court action.[ix]  A jurisdictional issue could also arise in proceedings instituted under the transitional program for covered business method patents based on the PTAB’s incorrect interpretation of the terms “financial product or service” or “technological invention.”[x] Justice Alito summed up the issue by stating that, “I take the Court at its word that today’s opinion will not permit the Patent Office ‘to act outside its statutory limits’ in these ways.”[xi]

Thus, the Court’s Cuozzo decision settles that § 314(d) precludes a petitioner from challenging an institution decision based on a substantive issue of patent law, or the interpretation of a cited reference. It does, however, leave the door ajar to certain other challenges, ranging from constitutional due process issues associated with the AIA and PTAB procedures, to jurisdictional issues. Despite rejecting Cuozzo’s appeal, the Supreme Court decision appears to envision a continuing federal court role in overseeing the AIA trial process.

Supreme Court Concludes That AIA Trials Are Administrative, Not Judicial in Nature

The Supreme Court also signaled a continuing role for federal courts in construing patent claims even after the conclusion of AIA trials. The Court unanimously rejected Cuozzo’s contention that the USPTO erred in promulgating rules requiring the PTAB to construe claims using the BRI standard. Responding to Judge Newman’s dissent, Justice Breyer emphasized that AIA trials are very different from federal court proceedings considering patent validity, observing that in significant respects, “inter partes review is less like a judicial proceeding and more like a specialized agency proceeding.”[xii]

In addition to applying different claim construction standards, the Court listed a number of differences between AIA trials and federal court litigation: the lack of a constitutional standing requirement for petitioners, the PTAB practice of reaching a final decision even after the petitioner settles out, and a lower burden of proof. It concluded:

Most importantly, these features, as well as inter partes review’s predecessors, indicate that the purpose of the proceeding is not quite the same as the purpose of district court litigation. The proceeding involves what used to be called a reexamination (and, as noted above, a cousin of inter partes review, ex parte reexamination, 35 U.S C. §302 et seq., still bears that name). The name and accompanying procedures suggest that the proceeding offers a second look at an earlier administrative grant of a patent. Although Congress changed the name from “reexamination” to “review,” nothing convinces us that, in doing so, Congress wanted to change its basic purposes, namely, to reexamine an earlier agency decision.[xiii]

The long-term impact of this statement will need to observed, to see whether PTAB rulings on factual issues are given preclusive effect in subsequent federal court litigation. In B&B Hardware, Inc. v. Hargis Industries, Inc.,[xiv] which considered the preclusive effect of fact finding in proceedings before the Trademark Trial and Appeal Board, the Court rejected categorical rules governing the doctrine of issue preclusion based on administrative agency rulings.  The Court opted for a case-by-case application of principles from the Restatement (Second) of Judgments. Although the decision does not directly address AIA trials, the procedural differences between inter partes review proceedings and federal court litigation may impact the preclusive effect of PTAB factual findings.

Conclusion

Although the Supreme Court’s Cuozzo decision did not disagree with the USPTO’s procedures for instituting and conducting AIA trials, it also did not embrace the proceedings as interchangeable substitutes for federal court litigation of patent validity issues. The actual impact of the case will become clearer as future court decisions apply it.

 

[i] 579 U.S. ___, No. 15-446, 2016 WL 3369425 (U.S. June 20, 2016).

[ii] Garmin Int’l, Inc. v. Cuozzo Speed Technologies LLC, No. IPR2012-0001 (Nov. 13, 2013).

[iii] See Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc).

[iv] In re Cuozzo Speed Techs. LLC, 793 F.3d 1268 (Fed. Cir. 2015).

[v] 467 U.S. 837 (1984).

[vi] Slip op. at 8.

[vii] Id. at 11.

[viii] Id.

[ix] See 35 U.S.C. § 315(a)(1) and (b).

[x] See AIA §§18(a)(1)(E), (d)(1).

[xi] Alito J., dissenting, at 13-14.

[xii] Slip op. at 15.

[xiii] Id. at 16.

[xiv] 135 S.Ct. 696 (Mar. 24, 2015).