Principal Timothy W. Riffe, authored article published in Law360, “Challenges Ahead For PTAB After High Court SAS Ruling.”
In the U.S. Supreme Court's recent decision in SAS Institute Inc. v. Iancu, the court issued a split 5-4 decision holding that if "the Patent Office institutes an inter partes review, it must decide the patentability of all of the claims the petitioner has challenged." The court's decision rejected the Patent Trial and Appeal Board's prior rule-based policy of invoking its discretion to institute "partial institutions" of inter partes reviews on fewer than all of the challenged claims. In its ruling, the court explicitly rejected the U.S. Patent and Trademark Office director's policy argument — that partial institution is efficient because it permits the board to focus on the most promising challenges and avoid spending time and resources on others. In rejecting the director's argument, the court noted that such policy argument is "properly addressed to Congress, not this Court."
But must the PTO follow the Supreme Court's directive and address its policy and efficiency arguments to Congress? Hasn't Congress already given the PTAB the discretion it needs to control its own docket and avoid spending time and resources on unsatisfactory inter partes review challenges?
As way of background, private parties may challenge an issued patent by filing an inter partes review petition. The petition must specify which claims are being challenged, and explain why the challenge is likely to succeed. Under the governing statute, the PTO director must then decide whether or not to grant the petition and institute a trial before the Patent Trial and Appeal Board. At the conclusion of the proceeding, Section 318(a) of the Patent Act indicates that the PTAB "shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner and any new claim added [during the IPR]."[1] The Supreme Court in SAS held that the statute requires that the PTO decide the patentability of all challenged claims.
After the court's decision in SAS, many commentators have predicted that the decision will simplify the PTAB's institution decisions because the question now will simply be whether there is at least one challenged claim where the petitioner has presented a "reasonable likelihood" of prevailing on the merits.[2] Seemingly in line with these predictions, on April 26, 2018, the PTAB issued a memorandum outlining its procedures for reviewing patents in light of SAS. The PTAB noted that "[a]s required by the decision, the PTAB will institute as to all claims or none," and "[a]t this time, if the PTAB institutes a trial, the PTAB will institute on all challenges raised in the petition." Of course, this approach is directly contrary to the PTAB's docket control and efficiency/judicial resources policy considerations, which led to its now-defunct procedure of issuing "partial institution" decisions.
So what is the PTAB to do to balance these competing considerations? Importantly, the PTAB doesn't have to wait for Congress to act to provide it with the ability to control its own docket and resources. This is so, because no statute expressly compels the PTAB to institute an IPR. Indeed, as the Supreme Court in SAS noted, 35 U.S.C. 314(a) "invests the Director with discretion on the question whether to institute review."[3]
The PTAB itself has recognized its discretion by stating that "Congress did not mandate that an inter partes review must be instituted under certain conditions. Rather by stating that the Director — and by extension — the Board — may not institute review unless certain conditions are met, Congress made institution discretionary."[4] The PTO further addressed its congressionally mandated discretion under Section 314 before the Federal Circuit in Shaw Industries Group Inc. v. Automated Creel Systems Inc. When asked during oral argument if the PTAB can decline to institute when "there's only one claim, one ground," the PTO stated "[w]e actually have authority to do that. If you look at the legislative history and comments made by Senator Kyl, they even put in provisions where if, for efficiency reasons, there is a claim that has a reasonable likelihood of success of going forward, we can deny to institute that claim. That is within our discretion to do. It's not something that usually happens, but it is permissible." And even Federal Circuit Judge Pauline Newman, whose dissenting opinion in SAS was vindicated by the Supreme Court's decision, has recognized that "[t]he PTO can refuse to institute any post-grant challenge, as the statute provides.”[5]
Given this framework, there are two possible outcomes for the PTAB's institution decisions going forward. The first, and most widely predicted, outcome is that the SAS decision will simplify the PTAB's institution decisions because the question now will be whether there is at least one challenged claim where the petitioner has presented a "reasonable likelihood" of prevailing on the merits. If so, and the PTAB decides to institute, then it must institute the IPR against all challenged claims in accordance with the SAS decision. Such a decision, however, could run counter to the PTO's directive of focusing on the most promising challenges and avoid spending time and resources on others.
The second outcome, and perhaps less politically acceptable, is for the PTAB to make a substantive determination at the institution stage as to whether or not the petitioner has met the "reasonable likelihood of success" standard with respect to all of the challenged claims, not just a single claim. Indeed, the PTAB's April 26 memorandum impliedly suggests that the PTAB may be considering such action given its statement that "[a]t this time, if the PTAB institutes trial, the PTAB will institute on all challenges raised in the petition." Under such a scenario, if the PTAB decides that the petitioner has failed to meet the standard for all challenged claims, then the PTAB would have the statutory discretion to deny institution. While perhaps draconian from the petitioner's perspective, such decisions would permit the PTAB to meet its policy directive of avoiding institution of weaker challenges that do not meet the "substantial likelihood of success" standard and avoid the attendant expenditure of the PTAB's and parties' resources addressing claims and/or grounds that the PTAB pre-SAS would have kept out of the proceeding. Adding Plausibility to this outcome is the fact that the Supreme Court in SAS seemed to implicitly sanction such action by the PTAB.[6]
This "all claims meet the likelihood of success standard" approach would avoid the PTAB instituting IPRs on claims for which the PTAB determines are not likely invalid in view of the grounds presented in the petition. Indeed, just two days after the Supreme Court's decision in SAS, the PTAB issued one of its first institution decisions in Western Digital Corp. v. Spex Technologies Inc.[7] In its decision, the PTAB said it was not convinced that the petitioner was likely to succeed in its challenge to nine of the 11 claims but the board said two of those 11 claims likely would have been obvious. Following SAS, the PTAB instituted with respect to all grounds set forth in the petition.
It is apparent that based on the Western Digital institution decision that if the PTAB proceeds to institute IPRs based on a single or small group of claims meeting the standard, it will likely overwhelm the ability of the PTAB to meet its congressional directive, result in a waste of PTAB and parties' resources, and may simply not prove feasible in the long term.
While time will tell how the PTAB further responds to the SAS decision, putting forth additional resources at the institution decision stage to determine whether or not a petitioner has met the requisite "substantial likelihood of success" standard for all challenged claims would assist the PTAB in meeting its policy directives while operating within the confines of the statute and the Supreme Court's SAS decision.
[1] 35 U.S.C. §318(a).
[2] 35 U.S.C. 314(a).
[3] SAS, Op. at 8.
[4] Intelligent Bio-Systems, Inc. v. Illumina Cambridge Ltd., IPR2013-00324, Paper 19 at 4 (P.T.A.B. Nov 21, 2013).
[5] Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309, 1332 (Fed. Cir. 2016).
[6] SAS, Op. at 8 ("But while §314(a) invests the Director with discretion on the question whether to institute review . . . . The text says only that the Director can decide 'whether' to institute the requested review . . . .").
[7] Western Digital Corp. v. Spex Technologies Inc. IPR2018-00082, Paper 11 (P.T.A.B. April 25, 2018).
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