On July 13, the USPTO’s Patent Trial and Appeal Board (PTAB or Board) designated two decisions informative that apply the NHK factors for determining whether the PTAB will exercise its discretion to deny inter partes review (IPR) under 35 U.S.C. § 314(a) based on a parallel district court proceeding. In one case, the PTAB exercised its discretion to deny institution, and in the other, it did not. Each case provides valuable guidance.

Apple Inc. v. Fintiv, Inc., Case IPR2020-00019, Paper 15 (P.T.A.B. May 13, 2020) (informative)

This decision comes on the heels of the PTAB’s precedential Order in Apple Inc. v. Fintiv, Inc., Case IPR2020-00019, Paper 11 (P.T.A.B. Mar. 20, 2020) (precedential), which we previously discussed here. That Order provided additional guidance for the analysis of the factors from NHK Spring Co. v. Intri-Plex Techs., Inc., IPR2019-00752, Paper 8 (P.T.A.B. Sept. 12, 2018). Those factors are used to determine whether the Board should exercise its discretion to deny institution of an IPR under § 314(a) in view of an ongoing litigation involving the same patent. The Board examined these factors to determine whether efficiency and integrity of the system are best served by denying or instituting review.

1. Whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted.

Because neither party had requested a stay of the district court case, this factor was neutral.

2. Proximity of the court’s trial date to the PTAB’s projected statutory deadline for a final written decision.

An amended scheduling order was entered in the district court case, resulting from the uncertainty surrounding COVID-19 and the effect on trial dates. Following entry of the scheduling order, the trial date was set to approximately two months before the Final Written Decision would be due in this proceeding. This factor weighed in favor of denial.

3. Investment in the parallel proceeding by the court and the parties.

The parallel litigation was fairly advanced. The parties had already conducted a Markman hearing, the district court had issued a claim construction order, and the parties had exchanged initial invalidity and infringement contentions. However, fact discovery was in its early stages, expert reports were not yet due, and substantive motion practice had not yet occurred. The Board determined that “[b]ased on the level of investment and effort already expended on claim construction and invalidity contentions in the District Court, this factor weighs somewhat in favor of discretionary denial in this case.”

4. Overlap between issues raised in the petition and in the parallel proceeding.

This factor weighed in favor of denial because “Petitioner’s assertions of additional invalidity contentions in the District Court is not relevant to the question of the degree of overlap for this factor.” The same art was presented in the Petitioner’s final invalidity contentions, challenging the identical claims as those challenged in IPR.

5. Whether the Petitioner and the defendant in the parallel proceeding are the same party.

Because the Petitioner and the defendant in the parallel litigation are the same party, this factor weighed in favor of denial.

6. Other circumstances that impact the PTAB’s exercise of discretion, including the merits.

The Board explained that it need not conduct a “full merits analysis” but, here, the Board found that the “initial inspection of the merits on the record before us suggests some of Petitioner’s challenges contain certain weaknesses and, taken as a whole, the strengths of the merits do not outweigh other factors in favor of discretionary denial.” The Board was also persuaded by the Patent Owner’s argument that neither the Petitioner nor its expert explained why one of skill in the art would have modified the primary reference’s device to arrive at the claimed invention. It was enough that the Patent Owner “pointed out that Petitioner’s case, at least as to two of three independent claims, is a close call.” As a result, this factor weighed in favor of discretionary denial.

Based on the Board’s holistic review of the § 314(a) factors, and the majority of those weighing in favor of denial, the Board decided to exercise its discretion not to institute review.

Sand Revolution II, LLC v. Continental Intermodal Grp. – Trucking LLC, Case IPR2019-01393, Paper 24 (P.T.A.B. June 16, 2020) (informative)

In this case, the Board originally denied institution under § 314(a) in view of the NHK factors. The Petitioner then filed a Request for Rehearing and concurrently requested Precedential Opinion Panel (POP) review. The POP declined to review the decision, but the Board proceeded with the rehearing. It then sought further briefing from the parties on the application of the NHK factors. The Board considered the briefing and additional evidence submitted, which explained that the district court’s trial schedule was uncertain and changing. The Board ultimately reversed itself, deciding its prior § 314(a) denial was unwarranted when applying the NHK factors in view of the Fintiv precedential Order (referenced above and discussed here) which had issued between the Board’s original decision denying institution and its rehearing decision. The Board’s NHK analysis is provided below.

1. Whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted.

Because no stay had been sought or granted, this factor weighed in favor of neither party.

2. Proximity of the court’s trial date to the PTAB’s projected statutory deadline for a final written decision.

The Petitioner argued that the trial date of the parallel district court litigation was uncertain, pointing to the district court’s qualifier “or as available” added to each calendared trial date. This indicated a continuing degree of uncertainty. Additionally, the parties had jointly moved the district court to extend schedule deadlines twice, and these motions were granted. The district court also amended the scheduling order after the parties submitted the supplemental briefing, indicating that “it is unclear that the court in the related district court litigation will adhere to any currently scheduled jury trial date or, if it is changed, when such a trial will be held.” As a result, this factor weighed in favor of not exercising discretion to deny institution under § 314(a).

3. Investment in the parallel proceeding by the court and the parties.

Although the parties had conducted a Markman hearing, the Board determined the parties had not invested substantially in the merits of the invalidity positions. “Here, the parties have exchanged infringement and invalidity contentions, and the district court has conducted a Markman hearing and entered a related Order, repeatedly set and amended the case’s schedule, granted several pro hac vice motions, heard and denied a motion to dismiss, and transferred the case from one judge to another.” Nevertheless, “much of the district court’s investment relates to ancillary matters untethered to the validity issue itself” and the court’s two-page Markman Order did not demonstrate the high level of investment present in Fintiv. This factor thus weighed “only marginally, if at all, in favor of exercising discretion to deny institution under 35 U.S.C. § 314(a).”

4. Overlap between issues raised in the petition and in the parallel proceeding.

Because the Petitioner stipulated to the Patent Owner that it would not pursue the same grounds in the district court litigation that are present in the petition, this factor weighed “marginally” in favor of not exercising discretion to deny under § 314(a).

The Board also provided further guidance explaining that broader stipulations and waivers may cause this factor to tip even further in Petitioner’s favor:

Petitioner could have stipulated that it would not pursue any ground raised or that could have been reasonably raised in an IPR, i.e., any ground that could be raised under §§ 102 or 103 on the basis of prior art patents or printed publications. A broader stipulation of that nature, not at issue here, might better address concerns regarding duplicative efforts and potentially conflicting decisions in a much more substantial way. Likewise, such a stipulation might help ensure that an IPR functions as a true alternative to litigation in relation to grounds that could be at issue in an IPR. Further still, Petitioner could have expressly waived in the district court any overlapping patentability/invalidity defenses. Doing so might have tipped this factor more conclusively in its favor.

5. Whether the Petitioner and the defendant in the parallel proceeding are the same party.

Because the parties to the district court litigation and this proceeding were the same, this factor weighed in favor of denial.

6. Other circumstances that impact the PTAB’s exercise of discretion, including the merits.

For this factor, the Board determined that it need not consider the Petitioner’s policy arguments because the balance of the other factors weighed in the Petitioner’s favor and the Petitioner had met its burden of demonstrating a reasonable likelihood that it would prevail. As a result, the Board reversed its initial denial decision under § 314(a) and instituted review.

Conclusion

The Fintiv and Sand Revolution cases provide valuable insight into how the PTAB will exercise its discretion to deny institution under § 314(a) when there is parallel litigation. Petitioners need to consider the effect of amendments to scheduling orders or any uncertainty that may exist in the district court’s schedule and address these issues in the petition if they are a concern. Petitioners will be most likely to avoid § 314(a) discretionary denials when filing the IPR petition as early as possible, well before the co-pending litigation progresses substantially. Patent Owners, on the other hand, may have a strong argument for denying institution when there is a related litigation that has significantly advanced, particularly if the unpatentability grounds are weak. To perhaps tip the scale toward institution, Petitioners should consider stipulating that they will not raise at the district court any ground raised or that reasonably could have been raised in the IPR.