Supreme Court Preserves IPR But Dictates Changes – Director Iancu Has Many Options To Consider

Orrick, Herrington & Sutcliffe LLP

On April 24, 2018 the Supreme Court issued two decisions that preserve Inter Partes Review ("IPR") but dictate changes to IPR procedures. The Court, however, left room for Director Iancu to consider many options to implement changes.

Oil States Energy Services, LLC v. Greene's Energy Group, LLC

In the first decision, the Supreme Court held, 7-2, that Inter Partes Reviews ("IPRs") are constitutional.

This case arose after patent owner Oil States – whose patent was the subject of an adverse decision by the Patent Trial and Appeal Board ("PTAB") – challenged the constitutionality of the IPR procedure, arguing that a determination to revoke its patent rights can only be made by an Article III court.

What did the Court say?

The Court disagreed. The Court characterized an IPR as a mere reconsideration of a patent grant. Thus, like initial patent grants, IPRs involve public rights that can be adjudicated in administrative proceedings if Congress so chooses. The Court further found that a patent right is a public franchise, subject to statutory authority, and IPR is a permissible statutory scheme to revoke patent rights. Finally, the Court held that historical English common-law precedents do not require courts to adjudicate patent validity.

What comes next?

While the Court's opinion found that the basic IPR procedure is constitutional, it leaves open several important issues.

First, the Court expressly declined to address whether IPRs can be applied retroactively, to patents that were not issued prior to the passage of the America Invents Act. Thus, we can expect to see appeals both to the Federal Circuit and to the Court raising this issue, until the Court closes the door on this issue one way or the other.

Second, the Court expressly declined to address whether IPRs violated due process. It isn't completely clear from the Court's opinion, but it appears that this statement may have been directed to the concerns about the USPTO's practice of using "expanded panels" in certain situations arising in IPRs. This practice has been criticized by commentators, and was a source of concern to the Chief Justice and Justice Gorsuch both during oral argument and in their dissent. Thus, the issues of how and when the Director decides to use an expanded panel, and whether such panels comport with due process, may be further litigated.

SAS Institute Inc. v. Iancu

In the second decision, the Supreme Court held, 5-4, that in an IPR, the USPTO must decide the patentability of all claims challenged by the petitioner.

Under current USPTO regulations, the PTAB can institute review on some rather than all claims challenged in an IPR petition (the so-called "partial institution"), and then issue a final written decision only on the instituted claims. SAS argued that these regulations were inconsistent with the governing IPR statutes, which it contended required the PTAB to decide the patentability of every claim a petitioner challenged in its IPR petition.

What did the Court say?

The Court agreed. It found clear support for SAS's view in both the language and the structure of the statute. The Court first found that the plain language of 35 U.S.C. § 318(a) requires the PTAB to issue a final written decision on all claims challenged by the petitioner. The Court also found that the statutory structure for IPR in §§ 311–318 makes the petitioner, not the USPTO, the entity that defines the scope of the proceeding. The USPTO only has discretion to decide whether to institute an IPR, after finding that the petitioner is likely to succeed on at least one challenged claim. It does not have discretion to decide which claims to review.

What comes next?

The largest open question left by this decision is how it will apply to pending IPRs. The Court did not provide any guidance as to whether its decision applies retroactively. Thus it is unclear what will happen in IPRs that are still before the PTAB, or to those IPRs that are currently on appeal. We expect that the PTAB will begin to address this issue in all of its pending IPRs that were partially instituted.

Another open question is how the PTAB will treat IPRs with multiple grounds asserted against a given claim. A petitioner frequently presents multiple different grounds on which a claim is allegedly unpatentable. The PTAB has historically denied institution of grounds that it finds to be redundant of another ground that it instituted on, and denied grounds that it found fell short of the institution threshold. The SAS decision did not directly address whether the Office has discretion to institute review on less than all such grounds. The Court found, however, that "the petitioner is master of its complaint and normally entitled to judgment on all of the claims it raises." Slip op. at 5. This reasoning could be interpreted to require institution on all grounds, as much as all patent claims, challenged in the petition. But, it is possible that the PTAB may take the position that § 318's focus on "the patentability of any patent claim challenged by the petitioner" (emphasis added) means that it retains discretion to institute review on fewer than all grounds challenged in the petition, even though it must now review all claims challenged. This is one of the many areas where further development and argument can be expected to flesh out IPR practices and procedures after SAS.

Indeed, the USPTO has a variety of options to consider in determining how to implement this ruling.

It is possible that the Court's decision will cause the PTAB to change how it analyzes IPRs for institution. Currently, most institution decisions substantively address all the claims and grounds raised by a petition. But, in view of the Court's holding, the PTAB may now simply stop its analysis after finding a reasonable likelihood of success in connection with one ground and one claim. This could in turn lead to briefer institution decisions that do not provide a full view of the PTAB's preliminary thoughts on the universe of grounds and claims challenged in the petition. Such a tactic would lessen the PTAB's workload pre-institution, but would likely increase its (and the parties') workload after institution, as everyone would have to address claims and grounds that have a low chance of success.

Or, as the SAS dissent suggests, because § 314(d) states that the Office's decision whether to institute an IPR is nonappealable, the Office could implement a two-step process to achieve de facto partial institution. The Office can first deny institution while noting the claims it would institute. The petitioner can then either refile a petition including only those claims, or take its entire patentability dispute to a district court. Or, it could streamline this process by simply issuing a preliminary decision indicating which claims and grounds it would be willing to institute on, and invite the petitioner to either withdraw everything else, or have its entire petition denied. Were the USPTO to adopt this option, there may be fewer IPRs that proceed to the review phase, as petitioners dissatisfied with a de facto partial institution take their disputes to district courts.

Another option for the USPTO would be to institute review on all challenged claims (and perhaps grounds), but exclude from trial those claims or grounds that the Office concluded did not meet the institution threshold. These claims would then be disposed of via a final written decision, without further briefing or argument during the trial. Such a practice would largely preserve the current IPR practice at the PTAB, but would expand the scope of Federal Circuit review to include the PTAB's decision to exclude such claims from trial. This would provide appellate review of what was formerly an unreviewable partial-institution decision. If implemented, in the short term this could increase the caseload at the Federal Circuit, and could potentially increase the number of remands to the PTAB, depending on how much deference the Federal Circuit gives to the PTAB's conclusion that certain claims failed to meet the institution threshold.

Other possible PTAB reactions to this decision may include:

  1. Reducing the overall number of institutions, to compensate for the additional work the PTAB may have to do on each instituted IPR.
  2. Maintain the nature and quantity of institution decisions at the same level, but find other places in the review process to reduce workloads, perhaps including a less-rigorous review in the Final Written Decision of those claims the PTAB does not believe are worthy of review.
  3. Hiring more PTAB judges, such that all the work gets done at the same high level as before.

This decision may also encourage the patent owner to limit the scope of its preliminary response, particularly with respect to dependent claims. Given that the PTAB is now required to institute on everything if the petition establishes that there is a reasonable likelihood of success in connection with any claim, there is little reason for a patent owner to make arguments in its preliminary response that do not apply to all of the claims at issue in the petition.

Petitioners may also need to exercise more care in crafting their petitions, if the PTAB decides that it does not want to institute review unless all of the challenges presented in the petition have merit. Since the PTAB has discretion to deny institution, even though it has found at least one claim that is reasonably likely to be unpatentable, the PTAB could use that discretion to deny petitions that contain non-meritorious challenges.

Other side effects of this decision may include:

  1. Increased estoppel effects, since now more claims and grounds will be instituted, and thus subject to estoppel.
  2. Potentially increased costs to petitioners and patent owners, as more issues will now be in play during the review.
  3. Increased emphasis on concise briefing, as the parties will likely have to address more issues within the same word limits as before.

The only thing we can say with certainty is that this decision has stirred the pot, and given practitioners and parties many more factors to consider in prosecuting and defending IPRs before the PTAB.

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