Cuozzo Affirms PTO’s Ability to Exert Control Over Inter Partes Review
Intellectual Property Law Alert 06/28/16 Anita Boor
In its recent decision, Cuozzo Speed Techs, LLC v. Lee, 579 U.S. _____ (2016), the Supreme Court interpreted two provisions of the America Invents Act (AIA) relating to inter partes review proceedings. First, the Court interpreted whether Section 314(d) bars appeals from a decision whether to institute inter partes review. The Court held that the provision does bar such appeals, so long as the institution decision relates to “an ordinary dispute about the application of certain relevant patent statutes.” The Court left open the question whether other institution decisions, such as ones that implicate constitutional questions, could be appealed. Second, the Court interpreted whether Section 316(a)(4) grants the U.S. Patent and Trademark Office (PTO) authority to promulgate the regulation requiring the Patent Trial and Appeals Board (PTAB) to apply the broadest reasonable interpretation in construing patent claims. The Court held that the provision does grant the PTO such authority and that the PTO exercised that authority reasonably in adopting the broadest reasonable interpretation standard.
II. Factual Background
Cuozzo Speed Technologies, LLC (Cuozzo) holds rights in a patent that relates to speedometer technology. In 2012, Garmin International, Inc. (Garmin) petitioned the PTAB to institute review over the 20 claims of Cuozzo’s patent. In its petition, Garmin argued that claim 17 was obvious in light of the combination of three prior art references. The PTAB granted review of claim 17 on that ground. Although Garmin did not argue that claims 10 and 14 were obvious in light of that same combination, the PTAB granted review on those claims on that same ground nonetheless. The PTAB ultimately concluded that claims 10, 14, and 17 were obvious in light of the combination of the three prior art references.
Cuozzo appealed to the Federal Circuit. Cuozzo argued that the PTAB improperly instituted review on claims 10 and 14 because Garmin had not set forth the grounds for their unpatentability with particularity, as required by the AIA. Cuozzo also argued that the PTAB improperly applied the broadest reasonable interpretation standard in construing the claims because the PTAB should have applied the ordinary meaning standard used by federal courts. The Federal Circuit rejected both arguments in a divided panel.
The Court affirmed the Federal Circuit on both questions. First, the Court held that Section 314(d) bars appeals from a decision whether to institute review, so long as the decision implicated only ordinary questions of patent law. Second, the Court held that Section 316(a)(4) grants the PTO authority to adopt the broadest reasonable interpretation claims construction standard.
The Court’s Holding and Reasoning: The Court held that Section 314(d) bars appeals from a decision whether to institute review. The Court first considered the language of the “no appeal” provision and reasoned that it explicitly forbids such appeals:
[T]he determination by the [PTO] whether to institute an inter partes review under this section shall be final and nonappealable.
Slip Op. at 7 (emphasis in original). The Court next considered that the institution decision in Cuozzo’s case implicated merely “an ordinary dispute about the application of certain relevant patent statutes.” Id. It explained that the question Cuozzo raised on appeal—whether Garmin pled the grounds for unpatentability “with particularity” —was the “kind of legal question” that the no appeals provision forbids. Id. at 7-8.
Justice Alito, joined by Justice Sotomayor, dissented from this section of the majority opinion, arguing that the no appeal provision merely forbids interlocutory appeals. Slip Dissenting Op. at 7 (Alito, J. ). The majority dismissed this position. The Court recognized the strong presumption in favor of judicial review, but determined that the language of the statute, the legislative history, and the statutory scheme overcame that presumption. Slip Op. at 9-10. It noted that to hold otherwise would make the no appeal provision superfluous because the Administrative Procedure Act already forbids interlocutory appeals. Id. at 9. Finally, the Court reasoned that its interpretation of the provision gives effect to Congress’s intent for the PTO to “revisit and revise earlier patent grants” and to conduct the initial determination without court review. Id. at 8 & 10.
The Court explicitly limited its holding, however, to institution decisions that implicate “questions that are closely tied to the application and interpretation of statutes related to the PTO’s decision to initiate inter partes review.” Id. at 11. The Court listed three types of situations where this may not apply, where decisions whether to institute (1) implicate constitutional questions (e.g., due process questions); (2) depend on statutes less closely related to the statutes related to institution of review; or (3) present other questions of interpretation that reach “well beyond” the no appeal provision. Id.
Notes for Parties and Practitioners: The Court’s holding maintains the status quo, but patent owners and petitioners alike should take notice. The Court emphasizes the finality of the PTAB’s institution decision and thus highlights the importance of a strong early showing in an inter partes review. For patent owners, the institution decision presents an opportunity to thwart the proceedings early-on. Patent owners should thus consider using the optional preliminary patent owner response for this purpose. While a petitioner could attempt a new petition, a second bite at the apple presents additional costs for an uncertain result. A patent owner could dissuade a petitioner to retry with a strong win. For petitioners, the institution decision presents a hurdle. Knowing that patent owners may look to the institution decision for an early out, petitioners should conduct thorough prior art searches to avoid a nonappealable decision not to institute.
Finally, the Court’s holding signals relief to the Federal Circuit. With a few situations left undecided, the Court’s opinion means that the great majority of institution decisions will never see Federal Circuit review.
The Court’s Holding and Reasoning: The Court held that Section 316(a)(4) grants the PTO authority to adopt the broadest reasonable interpretation claims construction standard for inter partes review. The Court first considered whether the provision grants the PTO the power to issue such rules. The Court considered the language of the provision and determined that it does not unambiguously direct the PTO to use one standard or the other and thus creates a “gap” where the standard is concerned:
[The PTO may issue] regulations . . . establishing and governing inter partes review under this chapter.
Slip Op. at 13 (emphasis in original). The Court further determined that the statute provision expressly authorizes the PTO to engage in rulemaking to fill this gap. Id. Thus, applying Chevron, the Court reasoned that the PTO may enact rules governing the claims construction standard to apply during inter partes review. Id.
The Court next considered whether the PTO had reasonably adopted the broadest reasonable interpretation standard or whether it should have adopted the plain meaning standard used by the federal courts. The Court reasoned that applying the broadest reasonable interpretation standard protects the public interest because it “encourages the applicant to draft narrowly” and thus “prevent[s] a patent from tying up too much knowledge.” Id. at 17. The Court dismissed Cuozzo’s arguments to the contrary. First, the Court reasoned that inter partes review is not as unfair as Cuozzo suggests because the patent owner has an opportunity to amend its claims during inter partes review. Id. at 18. Second, the Court reasoned that any inconsistency between federal court proceedings and inter partes review proceedings concerning the same patent was anticipated by Congress. Id. at 19. The Court thus concluded that the PTO acted reasonably in adopting the broadest reasonable interpretation standard, without “decid[ing] whether there is a better alternative as a policy matter.” Id. at 20.
Notes for Parties and Practitioners: The Court’s holding sends a message to future patent applicants and patent prosecutors. The prospect of facing the broadest reasonable interpretation standard during inter partes review provides an incentive to draft future patent claims with care. The Court’s holding also sends a message to current patent owners facing institution. If patent owners find their claims are too broad, they can take advantage of the optional amendment process.
The Court’s decision in Cuozzo largely affirms the PTO’s ability to exert control over inter partes review proceedings. Two current petitions—Cooper v. Lee and MCM v. HP—present the Court future opportunities to continue to weigh in on the AIA. These petitions raise constitutional questions to the proceedings.If you have questions, contact Anita Boor at [email protected]es.com/(608) 283-2452, or your Quarles & Brady attorney.