TAKEAWAYS

• The USPTO is considering changes to provide a framework to guide practitioners and the PTAB in assessing the circumstances that warrant the PTAB’s exercise of its discretion to deny a petition.
• The USPTO is considering changes to curb the use of inter partes review and post-grant review proceedings by certain for-profit entities.

On April 21, 2023, the U.S. Patent and Trademarks Office (USPTO) published an advance notice of proposed rulemaking seeking comments on the proposed changes addressing the U.S. Patent Trial and Appeal Board’s (PTAB) authority under 35 U.S.C. §§ 314(a) and 325(d) to exercise its discretion in denying petitions for inter partes review (IPR) and post-grant review (PGR). The USPTO is specifically seeking public input on a number of changes under consideration for future rule changes. Those who regularly make use of the IPR and post-grant proceedings before the PTAB will want to carefully review the changes under consideration and provide comments by June 20, 2023, if they want to affect the USPTO’s final rule changes.

The USPTO is considering reforming the rules before the PTAB in two primary areas: (1) the procedural facts that might warrant a discretionary denial; and (2) the type of petitioner or patent owner that might be considered a factor in denying a petition. The USPTO has stated it is considering these changes for the following reasons:

• To provide a framework that results in more uniform and predictable circumstances in which the PTAB will, or will not, exercise its discretion to deny a petition challenging the validity of issued patent claims;
• To provide discretionary denial rules to ensure that certain for-profit entities do not use the IPR or PGR processes in ways that do not advance the mission and vision of the USPTO, and so that certain small-entity patent owners trying to bring products to market are not overburdened with validity challenges before the PTAB; and
• To more adequately define what satisfies the “compelling merits” test in which a petition that otherwise would have been subject to discretionary denial would instead proceed to trial.

Background
When the PTAB opened its doors in 2012, the Board was inundated with petitions challenging the validity of issued patents, most of them involved in parallel district court patent infringement cases. The rate of institution of trials was 73% in the first full year that statistics were gathered and dropped gradually to a low of 56% in fiscal year 2020. That rate drop coincided with two precedential PTAB decisions concerning the PTAB’s statutory authority to deny a petition for discretionary reasons, even if the petitioner satisfied its burden to warrant the institution a trial.

General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, Case IPR2016-01357 (Paper 19) was decided in 2017 and concerned the PTAB’s discretion under 35 U.S.C. §314(a) to deny multiple or serial petitions attacking the same patent. Apple Inc. v. Fintiv, Inc., Case IPR2020-00019 (Paper 11) was decided in 2020 and concerned the PTAB’s discretion under 35 U.S.C. §325(d) to deny a petition of a patent involved in a parallel district court litigation proceeding, if certain conditions were met. Initially, the PTAB did not frequently exercise its discretionary authority to deny petitions, denying only 17% on procedural grounds, based on all denials (27% of which were denials under 314(a) and/or 325(d), but that number jumped to 43% in 2020, 89% of which were denials under 314(a) and/or 325(d). While the percentage of discretionary denials under 314(a) and/or 325(d) has remained high (96% in 2021 and 87% in 2022), the overall denial rate for procedural reasons has declined precipitously (26% in 2021 and 17% in 2022).

The chart and table below illustrate the institution rates and procedural denial rates (rate of non-merits denials based on all denials).

Considering the increase in discretionary denials, recently appointed USPTO Director Katherine K. Vidal issued interim guidelines in June of 2022 addressing the PTAB’s approach to discretionary denials of PTAB petitions. Specifically, the guidance addressed the PTAB’s application of its precedential Apple Inc. v. Fintiv decision, and Vidal clarified that the PTAB will not deny institution of an IPR or PGR petition under Fintiv if any of the following conditions apply:

1. A request for denial under Fintiv is based on a parallel U.S. International Trade Commission (ITC) proceeding;
2. A petitioner stipulates not to pursue the same grounds as in the petition or any grounds that could have reasonably been raised in the petition (i.e., a petitioner agrees to a so-called “Soterastipulation”) in a parallel district court proceeding; and
3. A petition presents “compelling evidence” of unpatentability.

Reforms Being Considered by the USPTO
On April 21, 2023, the agency issued an advance notice of proposed rulemaking entitled “Changes Under Consideration to Discretionary Institution Practices, Petition Word-Count Limits, and Settlement Practices for America Invents Act Trial Proceedings Before the Patent Trial and Appeal Board.” Fed. Reg., Vol. 88, No. 77, 24503-24518, (April 21, 2023). According to the publication, the rule changes are designed to “build on and codify existing precedent and guidance on Director’s discretion to determine whether to institute an IPR or PGR.”

The USPTO is considering modifying the rules of practice before the PTAB mostly to address three issues. First, the USPTO is considering changes to provide a framework to guide practitioners and the PTAB in assessing the circumstances in which specific elements are met (and applicable exceptions do not apply) that warrant the PTAB’s exercise of its discretion to deny a petition. Second, the USPTO is considering changes to curb the use of IPR and PGR proceedings by certain for-profit entities that do not compete in the marketplace, and/or who otherwise have no apparent reason for challenging the patent claims at issue. Third, the USPTO is considering changes to define the circumstances in which a petition presenting “compelling merits” will be allowed to proceed at the Board even where the petition would otherwise be a candidate for discretionary denial. The first and third issues concern the specific facts presented in the Petition and the Patent Owner Preliminary Response, and the second issue concerns the type of entity involved, either as the petitioner or the patent owner.

Providing a Framework for Discretionary Denial
This issue is one that impacts all stakeholders before the PTAB, and consequently consumes most of the publication text. The USPTO is considering changes that would provide discretionary denials of petitions in seven categories, the following five of which cover prior adjudication upholding validity, serial petitions, 35 U.S.C. §325(d) framework, parallel petitions and parallel litigation.

Prior Adjudication Upholding Validity
The USPTO’s proposed changes would provide that prior final adjudications by a district court or by the Office in America Invents Act (AIA) post-grant proceedings upholding the validity of claims that “substantially overlap” the challenged claims will result in discretionary denial, except in cases in which the petitioner has standing to challenge the validity of the claims in district court or intends to pursue commercialization of a product or service in the field of the invention of a challenged claim; was not a real party in interest (RPI) or privy to the party previously challenging one or more of the challenged claims (unless any earlier challenge was resolved for reasons not materially related to the merits of the petition, e.g., a post-grant proceeding that was discretionarily denied or otherwise was not evaluated on the merits); and meets a heightened burden of “compelling merits.”

The publication proposes the following definitions for the expressions “substantially overlap” and “compelling merits:”

Substantial overlap exists when at least one challenged claim is “substantially the same” as a claim in a set to which the claim is being compared. For purposes of this comparison, claims will be deemed to be “substantially the same” when any differences between the claims are not material to patentability.

Compelling merits exists when the evidence of record before the Board at the institution stage is highly likely to lead to a conclusion that one or more claims are unpatentable by a preponderance of the evidence.

Serial Petitions
Serial petitions are those filed after a first petition is filed challenging the validity of the same challenged claim, and after the patent owner preliminary response (or when the response was due) is filed in the first petition. Serial petitions are governed by the General Plastic decision, which presented seven non-exclusive factors the PTAB considers in whether to exercise its discretion and deny the petition. The publication proposes replacing factors 1 – 7 with the following test:

The Board will discretionarily deny, subject to two exceptions, any serial IPR or PGR petition (with at least one challenged claim that is the same as a challenged claim in a previously filed IPR, PGR, or CBM petition) that is filed by one of the following: the same petitioner, a real party in interest or privy to that petitioner, a party with a significant relationship to that petitioner (as discussed in Valve Corp. v. Electronic Scripting Products, Inc., IPR2019-00062, -00063, -00084, 2019 WL 1490575 (PTAB Apr. 2, 2019) (precedential) (“Valve I”), or a party who previously joined an instituted IPR or PGR filed by that petitioner (as discussed in Valve I).

The two exceptions are that the Board will not discretionarily deny such a petition when: (1) the earlier petition was resolved for reasons not materially related to the merits of the petition (e.g., was discretionarily denied or otherwise was not evaluated on the merits); or (2) exceptional circumstances are shown. Exceptional circumstances may, for example, include (a) situations in which a patentee changes the scope of the claims, for example, through amendment or a proposed claim construction; (b) situations where, at the time of filing of the first petition, the petitioner reasonably could not have known of or found the prior art asserted in the serial petition; or (c) situations in which the petitioner raises a new statutory challenge (35 U.S.C. 101, 112, or 102/103) that was not in the prior petition and has a justifiable explanation for why they did not raise the statutory challenge in the earlier petition.

The publication proposes the following definition of “significant relationship,” although it uses the expression “substantial relationship” in the definition section and “significant relationship” in discussing the proposed changes. The substantial relationship test would be broadly construed and would encompass, but not be limited to, RPI or privies of the party to the AIA proceeding, and would also include others that are significantly related to that party, including at least those entities as discussed in Valve I and Valve Corp. v. Electronic Scripting Products, Inc., IPR2019-00064, -00065, -00085, 2019 WL 1965688 (PTAB May 1, 2019) (“Valve II”).

35 U.S.C. §325(d) Framework
Under the statute, the PTAB may deny a petition when the same or substantially the same prior art or arguments previously were presented to the Office. The PTAB currently assesses exercising its discretion to deny a petition based on the two-part framework of Advanced Bionics, LLC v. Med-El Elektromedizinische Geräte GmbH, IPR2019-01469, Paper 6 at 8 (PTAB Feb. 13, 2020) (precedential), including the non-exclusive factors set out in Becton, Dickinson & Co. v. B. Braun Melsungen AG, IPR2017-01586, Paper 8 at 17-18 (PTAB Dec. 15, 2017) (precedential as to section III.C.5, first paragraph). The USPTO is considering limiting its exercise of discretion under 325(d) to situations in which the USPTO previously addressed the prior art or arguments. Art would have been “previously addressed” if the claims were distinguished over the art, where the art was cited in a rejection or was distinguished in a notice of allowance or an examiner interview.

The USPTO is also proposing to clarify that 35 U.S.C. §325(d) applies to art or arguments previously addressed during proceedings related to the challenged patent or family members of the challenged patent, but only if the claims in the family member application or patent contain or contained substantially the same limitations as those at issue in the challenged claims. The publication states that under the proposal, prior art will be considered “substantially the same” only if the disclosure in the prior art previously addressed contains the same teaching relied upon in the petition and that teaching was addressed by the Office.

The proposals under consideration in this section provide that if the patent owner meets its burden in showing that the same or substantially the same art or arguments were previously addressed by the Office, then the Board will not institute a trial unless the petitioner establishes material error by the Office.

Parallel Petitions
A parallel petition is when the same petitioner (or privy or RPI with a petitioner) files more than one petition challenging the same patent either at the same time as the first petition or up until the filing of a preliminary response in the first petition. The USPTO is considering changes that would provide that, “when determining whether to institute an IPR or PGR, the Board will not institute parallel petitions unless the petitioner has made a showing of good cause as to why parallel petitions are necessary.”

The USPTO recognizes a compelling interest in filing multiple petitions to address different claim constructions, or to address different priority claim arguments, and it does not appear that the proposed changes will impact these types of separate filings since these would represent good cause. The USPTO is considering changes that permit a petitioner to pay additional fees for a higher word-count limit to encompass situations in which a large number of claims are being challenged, there are a large number of grounds per challenged claim(s), the technology is complex, there are a large number of different claimed embodiments, and the like. The additional word-count limit could be up to double the current limit, thus enabling a petitioner to essentially file two petitions in one long petition. If a petitioner chooses to pay additional fees and take advantage of the additional word count, filing another petition with additional word count would not be permitted.

With respect to the showing of “good cause” to justify parallel petitions, the USPTO is considering permitting the petitioner to file a separate five-page paper to (1) rank the petitions in the order it wishes the PTAB to consider; and (2) provide a succinct explanation of the differences between the petitions, why the issues presented in the multiple petitions are material, and why the PTAB should institute additional petitions if it identifies one petition that satisfies the petitioner’s burden to institute trial.

Parallel Litigation
Parallel litigation exists when there is a district court action involving the same challenged patent, in which a trial adjudicating the patentability of the challenged claims has not already been concluded. The USPTO stated that it retains its discretion to deny institution of an IPR or PGR in circumstances in which parallel proceedings would result in significant inefficiency or in which there is gamesmanship or harassment.

The proposed changes may include the following two situations in which the PTAB will not deny a petition using its discretionary authority. First, the USPTO is exploring whether different criteria should apply to discretionary denials of PGRs versus IPRs, given their different statutes, threshold standards and estoppel provisions. One possibility is a rule providing that the Board will not invoke its discretion to deny institution of a PGR based on parallel district court litigation. Second, the USPTO is considering a rule providing that the PTAB will not exercise its discretion to deny institution of an IPR or PGR based on the existence or status of a parallel International Trade Commission (ITC) proceeding.

If neither of these situations exists, then the USPTO is considering two alternatives where the PTAB may exercise its discretionary authority. The first is one in which discretionary denial determinations are governed solely by a clear, predictable rule. The second is one in which discretionary denial determinations are governed by a clear, predictable rule, and where appropriate, in conjunction with a streamlined version of the current Fintiv factors. In either option, a set of safe harbor exceptions to discretionary denial applies.

According to the first alternative, the USPTO is considering whether to adopt a rule providing that the Board will not invoke its discretion to deny an IPR petition based on a parallel district court proceeding if the IPR petition is filed within six months after the date on which the petitioner, An RPI or a privy thereof is served with a complaint alleging infringement of the patent, subject to the exception that the petitioner, RPI or privy did not first file a civil action seeking declaratory judgment of non-infringement of any claim of the patent.

There are a set of safe harbor exceptions the USPTO is considering to either the first or second alternative (discussed below). The USPTO is considering a rule providing that the Board will not deny institution under 35 U.S.C. 314(a) in view of parallel litigation when the petitioner files a stipulation agreeing not to pursue potentially overlapping grounds in district court. There are two types of stipulations. The first is referred to as a “Sand Revolution stipulation,” based on the PTAB’s decision in Sand Revolution, II, LLC v. Cont’l Intermodal Grp. ⸻ Trucking LLC, IPR2019-01393, 2020 WL 3273334, at *5 (PTAB June 16, 2020), and is limited to the pursuit of grounds asserted in the petition. The second is referred to as a “Sotera stipulation,” based on the PTAB’s decision in Sotera Wireless, Inc. v. Masimo Corp., IPR2020-01019, 2020 WL 7049373, at *7 (PTAB Dec. 1, 2020), and includes the stipulation not to pursue grounds raised in the petition or that could have been reasonably raised in the petition. The type of stipulation the USPTO is considering that would avoid a discretionary denial is only the broader Sotera stipulation, which is consistent with the current practice before the PTAB.

The USPTO also is considering creating a bright line exception or safe harbor, and to reduce uncertainty, seeks public feedback on whether Fintiv should be replaced entirely by a Sotera stipulation requirement. The USPTO also is considering a rule providing that the Board will not invoke its discretion to deny institution of an IPR based on a parallel district court proceeding if the parallel proceeding has been stayed and is reasonably expected to remain stayed at least until the deadline for the Board’s decision regarding whether to institute an IPR. Other exceptions include a “compelling merits” exception, as discussed in more detail above. If the circumstances favor a discretionary denial, the PTAB may not discretionarily deny institution if the petition presents compelling merits.

According to the second alternative, the rule set forth in the first alternative above would be applied, as well as applying a streamlined version of one or more of the other current Fintiv factors. The publication refers to this as a “factor-based test.” The USPTO is considering a factor-based test that eliminates Fintiv factors 1 and 5, in favor of considering RPI and privies, or alternatively parties that are substantially related. The USPTO further is considering the following three non-exclusive factors to guide the PTAB’s discretion where the petitioner (RPI or privy) is a party in an ongoing district court litigation involving the same patent:

1. Past and future expected investment in the parallel proceeding by the district court and the parties;

2. The degree of overlap between the issues in the petition and the parallel district court proceeding; and

3. Any other circumstances that the parties contend are relevant to the Board’s exercise of discretion.

The USPTO is proposing that petitioners seeking to avoid discretionary denials file a stipulation that neither they nor their privy nor RPI have filed post-grant proceedings against any of the challenged claims, and that if instituted, they will not challenge the claims in a subsequent post-grant proceeding before the USPTO. The USPTO is considering amending the rules to provide a procedure for separate briefing on discretionary denial, in which the patent owner would file, prior to the deadline for a preliminary response, a separate 10-page request for discretionary denial to address any relevant factors regarding discretionary denial. The petitioner will have 10 pages to file an opposition, and the patent owner will have five pages for a patent owner reply.

Exercising Discretion Based on the Type or Identity of Petitioner or Patent Owner
We’ve discussed five of the seven categories in which the USPTO is considering changes, and in this section, we turn to the two remaining categories. The first involves petitions filed by certain for-profit entities (non-market competitors), and the second involves petitions challenging under-resourced patent owner patents where the patentee has or is attempting to bring products to market. Thus, the first category involves the identity of the petitioner, whereas the second category involves the identity of the patent owner.

Under the first category, the USPTO is considering changes that would make clear that the PTAB will discretionarily deny any petition for IPR or PGR filed by an entity that:

1. Is a for-profit entity;
2. Has not been sued on the challenged patent or has not been threatened with infringement of the challenged patent in a manner sufficient to give rise to declaratory judgment standing;
3. Is not otherwise an entity that is practicing, or could be alleged to practice, in the field of the challenged patent with a product or service on the market or with a product or service in which the party has invested to bring to market; and
4. Does not have a substantial relationship with an entity that falls outside the scope of elements 1 –

The USPTO is considering whether it should deny an IPR or PGR if the patent owner provides a covenant not to sue the for-profit petitioner and its customers.

Under the second category, the USPTO is considering a rule establishing that, absent compelling merits, the status of the patent owner would lead to a denial of institution when:

1. The patent owner had claimed micro-entity or small-entity status at issuance of the challenged patent and timely requested discretionary denial when presented with the opportunity;
2. During the calendar year preceding the filing of the petition, the patent owner did not exceed eight times the micro entity’s gross income level under 37 CFR 1.29(a)(3); and
3. At the time the petition was filed, the patent owner (or a licensee of the patent that started practicing the patent after becoming a licensee) was commercializing the subject matter of a challenged claim.

Concluding Remarks
It should be apparent to anyone who practices regularly before the PTAB that the USPTO is considering some significant changes to the rules of practice governing a very important and hotly contested area of practice—discretionary denials. This advance notice presents practitioners with an excellent opportunity to play a pivotal role in the USPTO’s rulemaking process and provide constructive feedback on proposals that could have a serious impact on their practice.

Comments are due by June 20, 2023.

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