Supreme Court Upholds the PTAB’s Status Quo in Cuozzo

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On June 20, 2016, the Supreme Court issued its opinion in Cuozzo Speed Technologies, LLC v. Lee, which unanimously upheld the “broadest reasonable construction” claim construction standard (BRI) used by the Patent Trial and Appeal Board (PTAB) in inter partes review and other post-grant proceedings created by the America Invents Act (AIA). The Court also ruled that 35 U.S.C. § 314(d) generally bars judicial review of the PTAB’s decision to institute inter partes review.

In prosecuting new patent applications, the United States Patent and Trademark Office (PTO) uses the BRI standard to construe claims. This standard tests the outer boundaries of the claims to ensure they do not run into the prior art. District courts, on the other hand, use the “ordinary meaning” construction, also known as the “Phillips standard,” which asks more narrowly the meaning that a claim would have to a person of ordinary skill in the art in question at the time of the invention. These differing standards have created a long-standing claim construction gap between the PTO and the courts. The gap is generally explained because of the different purposes the two bodies serve: while the PTO is undertaking ex parte examination of a new patent application, with the applicant able to iteratively amend its claims to avoid the prior art, the courts are examining a property right whose boundaries must be fixed to be given effect. These two standards have coexisted on this basis for many decades.

Since the enactment of the AIA, the BRI standard has taken on additional significance. The AIA created several new procedures in the PTAB for review of issued patents, including Inter Partes Review (IPR), Covered Business Method (CBM) Review and Post Grant Review (PGR). These procedures have become popular vehicles for challenging issued patents. Indeed, it is now a common occurrence for a defendant sued for patent infringement in district court to quickly file an IPR petition challenging the patent’s validity in the PTAB, asserting that prior art anticipates and/or renders obvious the patent’s claims. Applying the more expansive BRI standard (which often increases the likelihood that patent claims will be found invalid), the PTAB invalidates patent claims at a much higher rate (and often more quickly and at a lower cost) than in district court, where questions of invalidity often go to the jury.

The AIA did not set forth any specific claim construction standard, but instead granted to the PTO the rule-making authority necessary to give effect to the new reviews. The PTO wrote its rules to incorporate the BRI standard, not the Phillips standard.

After the PTAB invalidated its patent claims following an IPR in which it applied the BRI standard, Cuozzo appealed to the Court of Appeals for the Federal Circuit, which affirmed the PTAB’s decision, and then to the Supreme Court. The first question presented to the Court was whether BRI is the wrong standard to be applied by the PTAB. The second question was whether the PTAB’s institution of IPR is judicially reviewable. The Court ruled “no” on both questions.

What Did the Supreme Court Change?

The Court changed nothing. The Cuozzo opinion instead preserves the PTAB’s use of BRI for all post-grant proceedings.

Ruling 6-2 that the PTAB’s decision to institute review is not appealable, the Court emphasized the straightforward language of 35 U.S.C. § 314(d): “determination by the [Patent Office] whether to institute an inter partes review under this section shall be final and nonappealable.” The Court also noted that Congress intended to give the PTO significant power to revisit and revise earlier patent grants, pointing out that it would undercut that intent to allow the PTAB’s institution decision to be “unwound under some minor statutory technicality,” i.e. a technical deficiency in the petition itself.

Addressing a concern raised in dissent by Justice Alito that was joined by Justice Sotomayor, Justice Breyer’s majority opinion reasoned that significantly flawed institution decisions implicating due process problems, overextending the PTAB’s statutory limits, or employing other “shenanigans” might be properly reviewable under 35 U.S.C. 319 (providing for appeal of final written decisions, as opposed to institution decisions) or under the Administrative Procedures Act. This leaves a narrow path for future litigants to creatively appeal aspects of the PTAB’s institution decisions. The Court also noted that it did not rule on any question about the constitutionality of the “no appeal” clause in § 314(d). Future cases could take up a constitutionality challenge, including two cases currently awaiting decisions on certiorari, MCM Portfolio LLC v. Hewlett-Packard Co. and Cooper v. Lee.

Neither the Court’s opinion nor the other opinions addressed mandamus relief for ongoing inter partes reviews.

How Will Cuozzo Impact Patent Litigation?

Following Cuozzo, parties accused of patent infringement will continue to enjoy a significant tactical advantage in cases involving concurrent district court and PTAB proceedings. In the PTAB, accused infringers can assert a very broad construction of claim terms under the BRI standard (maximizing the chances of an invalidity finding), while in district court they can assert a narrow construction of claim terms under the Phillips “plain meaning” standard (potentially maximizing the chances of a non-infringement finding). If the Court had imposed the Phillips standard on the PTAB, accused infringers would have been forced to advocate a single claim construction in all proceedings, forcing a difficult choice early in the case and making it less likely that the PTAB would continue to invalidate patent claims at such a high rate.

Cuozzo is also an important victory for parties accused of patent infringement because the IPR process will continue to be insulated from appellate review until the PTAB issues a final written decision.

Taken together, the Court upheld two aspects of the IPR process that are most problematic for patent holders: the broader claim construction standard that makes it more likely that patent claims will be found invalid in light of the prior art and the “no appeal” provision that helps ensure a speedy, merits-focused process that in practice often results in the PTAB invalidating some or all claims of a patent.

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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