Legal update: United States
PTAB developments during the pandemic Neal Gerber Eisenberg’s Emer Simic explains that despite Covid-19 and constitutional challenges, the PTAB was a busy forum in 2020 Despite the onslaught of Covid-19 and a transition to fully remote proceedings, the US Patent Trial and Appeal Board (PTAB) garnered significant patent law headlines in 2020. In May, PTAB designated its decision in Fintiv precedential, fuelling intense public debate about a perceived increase in propatentee policy making by the US Patent and Trademark Office (USPTO). In October, the Supreme Court of the US (SCOTUS) granted certiorari in a case questioning the constitutionality of the appointment of PTAB judges. And, by year’s end, PTAB clocked a significant increase in IPR petitions filed over 2019. With 2020 now firmly in the rearview mirror and the Covid-19 threat (hopefully) in retreat, this article considers the impact of these significant PTAB policy and practice developments in 2021 and beyond.
proceeding.2 And precedent expanding the power of PTAB to deny IPR petitions on discretionary, non-substantive grounds is not new. For example, as early as 2017, PTAB began issuing precedential decisions governing discretionary denial of so-called “follow-on IPR petitions,” ie, later-filed petitions against the same patent.3
PTAB expands precedent on discretionary denial of petitions
Patent owners viewed such precedents as a welcome injection of balance into an institution which many, including Federal Circuit Judge Rader, originally regarded as the “patent death squad”. Patent challengers, however, complained that these precedential decisions constitute improper and subjective policy making on behalf of the USPTO that dramatically reduced the availability of IPR. Others argued that the NHK/Fintiv rules4 encourage plaintiffs to avoid IPR by filing suit in so-called “rocket-docket” jurisdictions where litigation schedules may outpace PTAB’s statutory timeframe for issuing a final written decision. Either way, by 2020, such precedent appears to have had a dramatic impact on IPR institution rates: PTAB institution of petitions was at an all-time low of 56%, a drop of almost 20% from 75% in 2014.5 In response to Fintiv, industry tech giants Apple, Google, Cisco and Intel sued the USPTO in California Federal Court asserting, inter alia, that the Fintiv/NHK rules undermine
the purpose of the America Invents Act (AIA) to weed out weak patents and congressional intent that IPRs provide an efficient and alternative mechanism to the district court for removing invalid patents.6 Plaintiffs also argued that because the Fintiv/NHK rules did not go through a proper notice and comment period, they are invalid under the AIA and Administrative Procedure Act (APA). Following the Google litigation, in October 2020, the USPTO sought public comment on discretionary denial of IPR petitions, including comment on potential codification of its current policies and practices through rulemaking. The public response to this unprecedented move was intense – the USPTO received over 800 comments – exceeding those received in any prior AIA post-grant proceeding rulemaking efforts. Fast forward to mid-2021, and the controversy over Fintiv and related precedents continues. In January, representative body for inventors, US Inventor filed suit against the USPTO in Texas to bar PTAB from instituting new proceedings until the USPTO engages in formal comment and rulemaking regarding discretionary denials based on parallel litigation.7 But, at least as of the date of this article, PTAB has not taken any public action toward formal rulemaking, and the Google court has yet to issue any substantive ruling. Meanwhile, according to data from Unified Patents, PTAB has issued 43 petition denials under section 314(a) in Q1 2021, which means discretionary denials are already on pace to double those issued in 2020 (85).8 Unless the USPTO director de-designates this latest wave of precedents or a court rules such precedents unlawful, it appears that discretionary denials may continue to rise in 2021 and beyond – with one potential caveat. In January 2021, Trump-appointed USPTO Director Andre Iancu formally resigned with the change in the administration. Iancu
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On 5 May 2020, the PTAB designated as precedential its decision in Apple Inc v Fintiv, Inc.1 Fintiv propounded six factors that the board must consider in determining whether to deny institution of an IPR petition under 35 USC section 314(a), including whether the parallel litigation is stayed, the proximity of a trial date to the anticipated PTAB decision, overlap of issues between the petition and parallel proceedings, and the resources already invested in the district court case. Fintiv is significant because it authorises PTAB to exercise its discretion to deny institution of a timely-filed IPR petition because of parallel litigation involving the same patent, rather than on the merits of the petition. PTAB’s elevation of Fintiv to precedential expanded on its earlier precedential decision in NHK Spring where PTAB denied institution of an inter partes review (IPR) in view of the advanced state of a related district court
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“Others argued that the NHK/Fintiv rules encourage plaintiffs to avoid IPR by filing suit in so-called ‘rocketdocket’ jurisdictions.”
Legal update: United States was reportedly the driving force behind USPTO policy initiatives aimed at improving the position of patent owners before PTAB, including precedential decisions such as Fintiv/ NHK.9 Biden has yet to appoint a successor; however, whoever he chooses will have significant power to continue and expand, or to erase, Iancu’s legacy.
The Supreme Court examines constitutionality of PTAB judge appointments In October 2020, the Supreme Court (SCOTUS) granted cert in Arthrex v Smith & Nephew10 At the heart of the case is the status of PTAB judges: are they “principal” or “inferior” officers? If they are principal officers as the Federal Circuit decided, did that court cure any appointments clause defect prospectively by severing the application of 5 USC 7513(a), which provides employment protections for PTAB judges? On 21 June 2021, SCOTUS handed down its decision, ultimately saving PTAB, but differing significantly from the Federal Circuit as to the source of the constitutional violation and the appropriate remedy. The plurality opinion held that 35 USC section6(c), which provides, inter alia, that “only the Patent Trial and Appeal Board may grant rehearings” of IPRs is unconstitutional. To remedy this violation, SCOTUS severed the offending statutory provision to make final PTAB decisions reviewable by the director. SCOTUS remanded the case to the USPTO acting director, who is to decide whether to rehear Smith & Nephew’s petition for IPR. The decision raises a myriad of questions, including what the new director review procedure will involve. In the wake of the decision, PTAB issued “interim procedures for director review,” permitting director review to be initiated sua sponte by the director or requested by a party to a PTAB proceeding. And the “director’s review may address any issue, including issues of fact and issues of law, and will be de novo.” Interestingly, director review appears to differ significantly in scope from a request for panel rehearing under 37 CFR section 42.71(d), which is confined to “matters the party believes the PTAB misapprehended or overlooked.” Also questionable is whether director review under current USPTO leadership would pass constitutional muster. SCOTUS held that ‘[o]nly an officer properly appointed to a principal office may issue a final decision binding the Executive Branch...’ and remanded Arthrex to PTAB for review by the “acting director.” However, current USPTO head Drew Hirshfeld is not the acting director but rather a person “performing the functions and
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duties of the Under Secretary of Commerce for Intellectual Property and Director of the USPTO.” Thus, should Hirshfeld proceed to conduct director reviews himself, we should expect constitutional challenges to follow. Additionally, Arthrex raises questions about the implications of putting all final PTAB decisions in the hands of a single political appointee. All eyes are now on President Biden’s choice for the next USPTO director.
IPR petitions on the rise Controversy and constitutional challenges aside, the PTAB was a busier forum in 2020, clocking a 16% rise in filings over 2019.11 The cause of this increase is not entirely clear. Some commentators surmise that PTAB was a more attractive forum than the district court during the pandemic.12 Since many PTAB judges were already accustomed to remote hearings from PTAB’s satellite offices and the majority of PTAB litigation before oral hearing is conducted via paper submission, PTAB’s transition to remote trials was accomplished relatively quickly and seamlessly compared to the district court. However, the uptick in 2020 filings over 2019 may simply signal a return to the status quo for petition numbers prior to the stark drop-off in 2019. For example, according to Lex Machina, the total number of petitions filed in 2020 (1,538) is still about 200 fewer than the total filed in 2015-2018 when petitions averaged around 1,700 per year. Aside from total petition numbers, there was a notable surge in petition filings in Q3 of 2020. Some attribute the increase to Fintiv’s elevation to precedential status in May, with some patent challengers rushing to get petitions on file to weaken the chances of discretionary denial in view of advanced district court litigation.13 Should we expect petition numbers to increase in 2021 and beyond? So far, the answer is yes, but not by much: for the period of January-May of 2021, petitioners filed 527 IPRs, which is six more than the same period in 2020. However, interestingly, petition filings in the biotech/pharma space are on pace to exceed a record low in 2020, with 32 petitions filed as of the end of May, which is nearly double the number filed during the same period in 2020.14 And because district court patent litigation was up about 12% in 2020 and 70% of IPRs are filed by defendants in district court litigation, we can likely expect at least a similar increase in total PTAB petitions filed in 2021.15
Summary Mid-way through 2021, PTAB remains a popular, if sometimes controversial, choice of forum for patent challengers. However,
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developments in the second half of the year, including the Supreme Court decision in Arthrex, district court litigation involving discretionary denials, and President Biden’s appointment of a new USPTO director, have the potential to dramatically change the current landscape. Footnotes 1. IPR2020-00019 (Paper 11) (PTAB 20 Mar 2020). 2. NHK Spring Co v Intri-Plex Techs, Inc, Case IPR2018-00752, Paper 8 (PTAB 12 Sep 2018) (precedential). 3. See Gen Plastic Indus Co, Ltd v Canon Kabushiki Kaisha, Case IPR2019-01357 (PTAB 6 Sept 2017) (Paper 19) (precedential); Valve Corporation v Electronic Scripting Products, Inc, IPR2019-00062, -00063, -00084, Paper 11 (PTAB 2 Apr 2019) (precedential). 4. The PTAB has invoked the so-called NHK-Fintiv rule that originates from two precedential PTAB decisions, NHK Spring Co v Intri-Plex Techs, Inc and Apple Inc v Fintiv, Inc. 5. https://www.uspto.gov/sites/default/files/ documents/Trial_Statistics_20200630_.pdf 6. Apple Inc et al v Iancu, 5:20-cv-06128 (N D Cal). 7. US Inventor Inc, et al v Hirshfeld, C A 2:21-cv00047 (E D T X). 8. h t t p s : / / w w w . u n i f i e d p a t e n t s . c o m / insights/2021/uncertainty-at-the-uspto-rateof-discretionary-denials-continues-to-climb 9. https://www.law360.com/articles/1347266/ iancu-leaves-pro-patentee-legacy-as-usptodirector 10. (No 19-1434). 11. Lex Machina Patent Litigation Report 2020. 12. https://www.law360.com/articles/1361077/ uptick-in-2020-ptab-cases-may-signal-newnormal 13. Id. 14. Lex Machina database. 15. Patent Litigation Special Report: 2020 Year In Review, Docket Navigator, 19 Jan 2021.
Author Emer Simic is a partner in the IP practice group of Neal Gerber Eisenberg, a leading Chicago-based law firm. As an experienced litigator and registered patent attorney, Emer focuses her practice on patent litigation and client counselling in the life sciences space.
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