JTEKT v GKN: Lacking Standing, Competitor Cannot Appeal PTAB IPR Ruling

Fenwick & West LLP

Fenwick & West LLP

The Federal Circuit further restricted a petitioner’s ability to appeal a decision by the Patent and Trademark Appeal Board upholding the validity of a patent. The court this month found in JTEKT v. GKN Automotive that a competitor who filed a petition for inter partes review could not appeal the PTAB’s validity determination because its product design was not definite enough to create a concrete and substantial risk of infringement or the likelihood of a claim of infringement. If this line of decisions stands, it will make it harder for competitors to clear the field of conflicting patents that they believe are invalid, as there would be no ability to appeal from an adverse Board decision.

PTAB Post Grant Decisions and Standing to Appeal Them

In the past year and a half, the Federal Circuit has grappled with the rights of petitioners to appeal decisions by the PTAB in post grant proceedings, such as post grant review and inter partes review, under the America Invents Act. Congress established the expanded review proceedings of the AIA to reduce the cost of testing the validity of a dubious patent that could disrupt product development in a field of technology for years. In testimony accompanying draft legislation for post grant review submitted by the American Intellectual Property Law Association, the association’s director raised concerns that under pre AIA law, a potential competitor could only test a patent’s validity through litigation if the patentee brings an infringement action or threatens to do so. A competitor could not challenge a patent in litigation before the competitor incurs the costs and risks of developing and marketing a potentially infringing product. (SeeMatal, “A Guide to the Legislative History of the America Invents Act.”) The post-AIA review proceedings serve another purpose as well. As stated by the Supreme Court in Cuozzo Speed Technologies v. Lee, “[t]he purpose of inter partes review is not only to resolve patent-related disputes among parties, but also to protect the public’s ‘paramount interest in seeing that patent monopolies… are kept within their legitimate scope.’”

In Consumer Watchdog v. Wisconsin Alumni Research Foundation, the Federal Circuit held that the statutory grant of the ability to appeal a Board decision does not automatically grant standing in the Court of Appeals. It first confronted the issue of standing in appeals from PTAB decisions in IPR in Phigenix v. Immunogen. After recognizing that in the 35 years since the Federal Circuit court’s inception, it had not established the legal standard for demonstrating standing in an appeal from a final agency action, the court found that Phigenix had not met its burden of proving standing to appeal. A declaration submitted by Phigenix stating that the existence of the patent had encumbered licensing efforts and a letter highlighting concerns over the patent’s validity from its own attorney did not in the Federal Circuit’s view constitute sufficient facts to support Phigenix’s claim that it had suffered an actual economic injury due to increased competition between itself and the patent holder.

Since Phigenix, the court has twice found that an appellant claiming harm due to fear of a potential infringement action did have standing to appeal an adverse PTAB decision. In PPG Industries v. Valspar Sourcing the court held that since PPG already had launched a commercial product and had received an inquiry from a customer concerned about Valspar’s patent, PPG did have standing. (The court may have been influenced by the infringement suit filed by Valspar soon after PPG filed its appeal.) In contrast to Phigenix, in May 2018 the court in Altaire Pharmaceuticals v. Paragon Bioteck cited testimony by Altaire’s general counsel concerning the imminence of Paragon’s infringement suit as well as testimony that Altaire intended to file an Abbreviated New Drug Application—or ANDA—if Paragon terminated its joint development agreement with Altaire in support of its decision finding standing for Altaire to appeal.

JTEKT and Whether Competitive Harm Gives Rise to Standing

In JTEKT, the Federal Circuit had another opportunity to consider whether current competitive harm, rather than fear of potential infringement suits, constitutes an injury in fact for the purposes of deciding whether an appellant has standing to appeal a PTAB decision. JTEKT, a Toyota subsidiary, petitioned for IPR of seven claims of GKN’s patent. The PTAB upheld the validity of two of the seven claims, and JTEKT appealed the decision to the Federal Circuit.

While the JTEKT panel relied on Phigenix in concluding that JTEKT did not have standing, its ruling was actually an extension of the Phigenix holding. In Phigenix the panel found that the petitioner had not presented facts to support its claim of an economic injury due to increased competition. However, the decision in JTEKT goes further, stating that economic injury due to increased competition, even if supported by the facts, is not enough to establish standing to appeal a decision of the PTAB. Because of this conclusion, the panel in JTEKT gave no weight to JTEKT’s claim of competitive harm and turned to the question of whether JTEKT had proffered adequate evidence that it had suffered an injury based on potential infringement liability. The court held that where a party is not currently engaging in infringing activity, the party must establish that it has concrete plans for future activity that create a substantial risk of future infringement or would likely cause the patentee to assert a claim of infringement. The Federal Circuit panel found that because JTEKT’s product was not yet finalized, JTEKT did not have standing to appeal. It further concluded that the estoppel provisions of the AIA regarding post grant proceedings did not create an injury in fact when JTEKT had not to date engaged in any activity that would give rise to a possible infringement suit.

In requiring a petitioner to show concrete plans for future potentially infringing activity, the Federal Circuit seems to be reverting to its “reasonable apprehension of suit” test for Article III standing that was rejected by the Supreme Court in Medimmune v. Genentech. This brewing conflict likely will come to a head in another case currently before the Federal Circuit concerning standing in appeals from PTAB decisions in post grant proceedings. Oral arguments heard on December 5, 2017 in the pending case, Momenta Pharmaceuticals v. Bristol-Myers Squibb, exclusively addressed the issue of standing. Bristol-Myers Squibb argued that Momenta did not have standing until it filed an abbreviated biologics license application to the U.S. Food and Drug Administration for its biosimilar drug. Momenta argued that it was presently harmed because the PTAB’s adverse decision had forced it to make a decision to either continue on its current path and infringe the patent in the future, or to “work around” the claims of the patent. In its argument, Momenta asserted that the hypothetical question of whether Momenta would have Article III standing to bring a declaratory judgment proceeding is not relevant because in an appeal from an agency action there is no question of ripeness. Despite this assertion, Judge Pauline Newman analogized to the Federal Circuit’s recent decision in Sandoz v. Amgen, holding that there was no case or controversy because “the only activity that would create exposure to potential infringement liability was a future activity requiring an FDA approval that had not yet been sought.” Judge Newman continued that the issue of Article III standing applies to both a declaratory judgment action and to an appeal from a PTAB decision and that the Sandoz “precedent is against [Momenta], strongly.” The judges’ questions emphasized that despite Momenta’s concession that the product in trials infringed Bristol-Myers Squibb’s patent, a long chain of contingencies stood between a product in trials and one that would lead to infringement of the patent by Momenta.

In contrast to the Federal Circuit’s reluctance to recognize increased competition or increased development costs caused by a PTAB decision as an injury in fact for purposes of Article III standing, other courts presented with appeals of administrative proceedings have acknowledged that competitive injury can establish standing in an Article III court. The Supreme Court in Association of Data Processing Service Organizations v. Camp found that a data processing service had standing to challenge a ruling by the Office of the Comptroller of the Currency that national banks may make data processing services available to bank customers and other banks. The Court recognized that the petitioners had sufficiently satisfied the “injury in fact” test by alleging that “competition by national banks in the business of providing data processing services might entail some future loss of profits for the petitioners… .” Similarly the D.C. Circuit Court of Appeals (a court which addresses so many appeals from administrative decisions that it has local rules to address the issue) in First National Bank & Trust v. National Credit Union, found that four banks had standing to challenge the National Credit Union Administration’s approval of applications to expand a credit union’s membership. “[N]o one questions appellants’ Article III standing; that appellants will suffer competitive or economic injury is not in doubt.” See also Liquid Carbonic Industries v. FERC (“Increased competition represents a cognizable Article III injury.”) 

Why JTEKT Matters?

The Federal Circuit’s decision in JTEKT rejects the notion that an economic injury due to increased competition from a patent holder can establish standing in appeals to the Federal Circuit. Such decisions denying standing from adverse decisions of the PTAB disproportionately affect patent challengers. Presumably, a decision by the PTAB invalidating a patent would cause a patent owner a concrete and particularized injury, and therefore the patent owner would be granted an automatic right to appeal. As discussed above, this is not the case for a patent challenger. A competitor who wishes to avoid incurring the costs and risks of developing and marketing a potentially infringing product before having an opportunity to challenge the validity of a patent, as Congress intended, pays a price. As a Federal Circuit judge noted during oral argument of the Momenta case, the estoppel provision of the AIA post grant proceedings “makes it a pretty good situation” for patent holders. Industry competitors must choose between filing a petition for review of a patent before the PTAB, potentially forever losing their day in an Article III court, or investing significantly in product development before making any challenge to a patent in order to file a declaratory judgment action or be poised to appeal an adverse decision by the PTAB.​​​​​

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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