Smith & Nephew petitioned for inter partes review (IPR) of Arthrex’s patent. After the petition was filed, but before the Board issued an institution decision, Arthrex statutorily disclaimed all the challenged claims under 37 C.F.R. § 42.107(e). Arthrex then filed a Preliminary Response arguing that an IPR should not be instituted because, under 37 C.F.R. § 42.107(e), no IPR “will be instituted based on disclaimed claims.” Arthrex added that its disclaimer was not a request for an adverse judgment.

The Board subsequently entered an adverse judgment against Arthrex pursuant to 37 C.F.R. § 42.73(b)(2).  Section 42.73(b) contains a list of “[a]ctions construed to be a request for adverse judgment,” the second of which is “[c]ancellation or disclaimer of a claim such that the party has no remaining claim in the trial.” That adverse judgment created certain estoppel effects that impacted two of Arthrex’s pending continuation patent applications.

Arthrex confirms that patent owners who disclaim all challenged claims prior to institution face the prospect of adverse judgment on the claims pursuant to § 42.73(b) (and the estoppels that go along with it).

Arthrex appealed. Smith & Nephew argued that the Federal Circuit lacked jurisdiction to hear the case because 35 U.S.C. § 319 created the exclusive means of appeal and the Board did not issue a “final written decision” as required by that section. The Federal Circuit rejected this argument, stating that Arthrex was permitted to appeal pursuant to 28 U.S.C. § 1295(a)(4), which provides for appeal from a PTAB decision “with respect to” an IPR.

Turning to the merits, the Federal Circuit affirmed, holding that the Board properly entered adverse judgment pursuant to § 42.73(b). The Court concluded that “[t]he application of the rule on its face does not turn on the patentee’s characterization of its own request,” meaning that Arthrex could not avoid an adverse judgment simply by stating that it was not seeking one. The Court also rejected Arthrex’s argument that § 42.73(b)(2)’s reference to “trial” means that it applies only after an IPR is instituted. The Court explained that (i) § 42.73(b) speaks of adverse judgment during “a proceeding,” which begins with the filing of a petition; (ii) the language of § 42.73(b)(2) simply reflects that “there is no claim remaining for trial” (emphasis added); and (iii) the other subsections of § 42.73(b) do not turn on whether an IPR has been instituted.

Judge O’Malley concurred. Judge O’Malley agreed that the Board’s interpretation of § 42.73(b) was consistent with the regulation’s text, but she believed that the PTO probably lacked the authority to adopt the regulation in the first place. In Judge O’Malley’s view, Federal Circuit precedent and the Board’s enabling statutes likely prohibited the Board from issuing adverse judgments with estoppel effect prior to institution. But because Arthrex had specifically disclaimed this argument, Judge O’Malley agreed that the panel should not address it.

Judge Newman dissented, arguing that § 42.73(b)(2) did not apply because, without an institution decision, there could be no “trial.” In Judge Newman’s view, “[t]he inclusion of ‘in the trial’ in subsection (b)(2) is a critical distinction from the other subsections . . . .This distinction cannot be ignored.”

Arthrex confirms that patent owners who disclaim all challenged claims prior to institution face the prospect of adverse judgment on the claims pursuant to § 42.73(b) (and the estoppels that go along with it). However, the various opinions suggest that, in a future case, a patent owner might successfully argue that the PTO lacked statutory authority to adopt the regulation.

RELATED CASES

• Hamilton Beach Brands, Inc. v. f’real Foods, LLC, 908 F.3d 1328 (Fed. Cir. 2018) (finding no APA violation where Board adopted its own construction for the first time in the final written decision because the parties had notice of the contested claim-construction issues and an opportunity to be heard; time-bar issue raised by appellee could only be heard on a cross-appeal).
• Ericsson Inc. v. Intellectual Ventures I LLC, 901 F.3d 1374 (Fed. Cir. 2018) (Board’s failure to consider argument in IPR petitioner’s reply was an abuse of discretion because it was properly responsive to Patent Owner Response).
• Anacor Pharm., Inc. v. Iancu, 889 F.3d 1372 (Fed. Cir. 2018) (no APA violation for citing two references not in petition; new evidence is to be expected as long as party is given notice and opportunity to respond).
• Paice LLC v. Ford Motor Co., 881 F.3d 894 (Fed. Cir. 2018) (no APA violation where the Board rejected similar arguments in other IPRs and cited relevant portions of petitioner’s brief collecting cases).