USPTO Proposes Change In Claim Construction Standard For Post-Grant Proceedings

By Reza Mollaaghababa
On May 9, 2018, U.S. Patent and Trademark Office (PTO) issued a notice of proposed rule for changing the standard for construing claims in unexpired patents in inter partes review (IPR), post-grant review (PGR), and transitional covered business method (CBM) proceedings from current broadest reasonable interpretation (BRI) to the same claim construction standard that is utilized in the federal courts, i.e., the so-called Phillips standard.

Under the Phillips standard, the words of a claim are generally given their ordinary and customary meaning. In contrast, in post-grant review proceedings, the more expansive BRI standard is employed, which expands the scope of prior art that can be applied to invalidate the challenged claims.  The BRI standard  has been in fact outcome determinative in many of the proceedings.

The notice of proposed rule indicates that the U.S. Supreme Court has endorsed the PTO’s ability to choose an approach to claim construction for AIA proceedings. It also indicates that the proposed change in the claim construction standard could lead to greater uniformity and predictability between the claim constructions adopted by the PTAB and the federal courts.  This change will also harmonize the standard used for patentability and infringement, which could otherwise lead to unfair results.  For example, under BRI, it is possible for a patent claim to be invalidated based on a prior art reference although the construction of the same claim in an issued patent under the Phillips standard would not lead to a conclusion of infringement.  Moreover, there have been cases of a patent being found valid and infringed in a district court action but subsequently being found invalid by the PTO under the BRI standard.

The proposed change applies not only to the claims of an unexpired patent but also to claims presented in a motion to amend. “Under the proposed approach, the PTAB would construe patent claims based on the record of the IPR, PGR, or CBM proceeding taking into account the claim language itself, specification, and prosecution history pertaining to the patent.”  Further, consistent with the Phillips standard, extrinsic evidence, such as expert testimony and dictionaries, may be useful in determining what a person of ordinary skill would understand the claim terms to mean; however, extrinsic evidence is viewed as less reliable than intrinsic evidence.

Further, consistent with the Phillips standard, “the doctrine of construing claims to preserve their validity would apply to AIA trials.”  The notice, however, cautions that the doctrine of construing claims to preserve their validity has been limited to cases in which “the court concludes, after applying all the available tools of claim construction, that the claim in ambiguous.”  Further, the Federal Circuit “repeatedly and consistently has recognized that the courts may not redraft claims, whether to make them operable or to sustain their validity.”

The PTO intends that any proposed rule changes adopted in a final rule would be applied to all pending IPR, PGR, and CBM proceedings before the PTAB. The Office is presently soliciting comments on the proposed change, where written comments must be received by July 9, 2018 to ensure consideration.

Posted in BRI Standard, Broadest Reasonable Interpretation, Claim Construction, Covered Business Methods, Inter Partes Review, Post Grant Review, PTAB Procedure, USPTO | Tagged , , , , , , , , , , , , | Leave a comment

SAS Institute Decision Causes Turmoil At The PTAB

By Tom Engellenner
The U.S. Supreme Court’s decision this week in SAS Institute v. Iancu has upended a major provision of the U.S. Patent and Trademark Office (PTO) regulations for inter partes and post grant review proceedings conducted by its Patent Trial and Appeal Board (PTAB).  By concluding in a 5-4 decision that the agency lacks the authority to render partial judgments on petitions that challenge issued patents, the PTO may be forced to overhaul its rules and regulations for implementing a key component of the 2011 patent reforms. (See, SAS Institute v. Iancu No. 16-969, Sup. Ct. April 24, 2018.)

The PTO’s initial reaction has been to issue a Memorandum on April 26, 2018, acknowledging that, going forward, “the PTAB will institute as to all claims or none.” For trials in progress, the memorandum suggests that the PTAB panels may issue supplemental orders and will expect the parties to “work cooperatively amongst themselves to resolve disputes and propose reasonable modifications to trial schedules.”  The memo further commits the PTAB to address all challenged claims in its final written decisions.

The 2011 America Invents Act (AIA) created several new administrative procedures to challenge or revise U.S. patents after they have been issued. The most commonly used procedure, Inter Partes Review (IPR) can be brought against any patent issued for more than nine months.  The AIA requires the USPTO to conduct IPR proceedings with “dispatch” and, absent extraordinary reasons, a final decision must be rendered within one year of the institution of an IPR.  Nearly two thousand IPR decisions have been rendered on patents so far – with nearly a thousand more trials in progress and roughly a thousand more petitions awaiting an initial decision on whether a trial should be instituted.

The SAS Institute case involved an IPR proceeding brought by SAS against a patent issued to one of its competitors, ComplementSoft.  SAS sought review of all 16 claims of the patent.  Applying the PTO’s existing rules for IPR proceedings, the agency’s Patent Trial and Appeal Board reviewed the petition and concluded that SAS had met the threshold requirement of presenting arguments reasonably likely to succeed as to claims 1 and 3–10 and instituted a trial as to only these claims and declined to review the rest. SAS was ultimately successful in invalidating almost all of the subset of claims on which the trial was conducted but SAS maintained throughout the proceedings that the PTAB had a responsibility to rule on all of the challenged claims, not just the ones that were the subject of the trial.

SAS appealed to the Federal Circuit but the appeals court rejected that SAS’s challenge to the PTAB procedures, setting the stage for Supreme Court Review. In the 5-4 decision handed down this week, the majority opinion written by Justice Gorsuch criticized the PTO for taking liberties when implementing the AIA authorized patent reviews, writing that “whatever its virtues or vices, Congress’ prescribed policy here is clear.”

We find that the plain text of §318(a) supplies a ready answer. It directs that “[i]f an inter partes review is instituted and not dismissed under this chapter, the [Board] shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner . . . .” §318(a) (emphasis added). This directive is both mandatory and comprehensive. The word “shall” generally imposes a nondiscretionary duty.

For the Gorsuch majority, the requirement that the final written decision address “any patent claim challenged by the petitioner” clearly meant the decision must address every claim challenged by the petition whether or not it was initially excluded from the trial.

As often the case, the Court split on partisan lines with the four judges appointed by Democratic Presidents dissenting. Justice Ginsburg’s dissenting opinion, joined by Justices Breyer, Sotomayor and Kagan, characterized the majority opinion as a “wooden reading” of the statute. In a second dissenting opinion by Justice Breyer (and also joined by the other dissenters), he concluded that the PTAB’s practice of initiating partial trials was a reasonable exercise of rulemaking authority.

Nonetheless, the majority opinion is now the law of the land and the PTAB has acknowledged that it will abide by it. How the PTAB judges do so, however, remains to be seen. The one-page guidance issued this week offers little in the way of specifics, apart from noting that new trials will be instituted on all claims whether or not the petitioner has met the burden of demonstrating a reasonable likelihood of success as to some of the challenged claims. (One such trial initiation decision was issued yesterday in IPR2018-00082, where a PTAB panel initiated a trial on all claims even though it was not convinced that petitioner, Western Digital, was likely to succeed in its challenge to most of the claims in a patent owned by Spex Technologies.)

If institution as to all challenged claims is inevitable whenever a trial is granted, it is not clear whether the PTAB trial institution decisions will continue to be as comprehensive as is currently the practice with explanations of why some claim challenges fail to pass muster. Moreover, it is also not clear whether there will be more petitions denied in the PTAB’s discretion. As the dissenters in the SAS noted, the Court has previously held that the PTO has essentially unfettered discretion in accepting IPR and PGR petitions and could find some of the claim challenges to be unsupportable and simply reject the entire petition. This could force petitioners to refile (assuming they are not time-barred) with challenges to fewer claims.

With regard to PTAB trials currently underway, it is also not clear whether the Petitioner will have leeway to introduce new evidence or arguments as to the claims that were originally excluded from the proceeding because the PTAB found the petitioner failed to meet the threshold requirement of demonstrating a reasonable likelihood of success. One thing that does appear to be certain, however, is that the petitioner will get a chance to appeal to the Federal Circuit on all claims, not just those that had originally been designated for review at the time the trial commenced.

Finally, the new regime may change the likelihood of federal district court judges granting stays in underlying patent infringement suits. At present, some judges in infringement actions are unwilling to grant a stay pending the outcome of an IPR proceeding if any of the claims asserted in the infringement suit are culled by the PTAB from its review. Since partial review by the PTAB is no longer an option, district courts may be more willing to stay their proceedings until all the dust settles at the PTAB.

Posted in America Invents Act, Appeals, Court of Appeals Fed Circuit, Federal Circuit, Final PTAB Decision, Instittion Decision, Inter Partes Review, Post Grant Review, PTAB Procedure, Stays, Supreme Court, Trial Tactics, USPTO | Tagged , , , , , , , , , ,

SCOTUS Holds Inter Partes Review Proceedings Valid In “Narrow” Decision

By Aparna Nemlekar
This week the Supreme Court of the United States (“Supreme Court”), in a 7-2 decision, held that inter partes review (“IPR”) proceedings conducted by the Patent Trial and Appeal Board (PTAB) do not violate Article III or implicate the Seventh Amendment. This decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 584 U.S. ___ (2018) validates an administrative proceeding that was put into place by Congress in the Leahy-Smith American Invents Act (“AIA”) of 2011.  However, the Court made sure to emphasize the “narrowness of [the] ruling,” stating that it was not ruling on the constitutionality of the PTAB in general but just that the IPR process was constitutional.

As a background, Oil States Energy Services, LLC (“Oil States”) sued Greene’s Energy Group, LLC (“Greene’s Energy”) for infringement of a patent directed to equipment used in hydraulic fracturing (“fracking”). Greene’s Energy subsequently challenged the patent’s validity in District Court and in an inter-partes review (“IPR”), both of which proceeded in parallel. The District Court found in favor of patent validity for Oil States whereas the PTAB found in favor of Greene’s Energy, thereby invalidating the asserted claims.  When Oil States appealed to the Federal Circuit, the Federal Circuit affirmed the PTAB’s decision.  Oil States then appealed to the Supreme Court, arguing in part, that patents were private rights that required adjudication in an Article III court and trial by jury under the Seventh Amendment.

In Oil States, the majority opinion, authored by Justice Clarence Thomas and joined by Justices Kennedy, Ginsburg, Breyer, Alito, Sotomayor, and Kagan, found that “inter-partes review falls squarely within the public rights doctrine.” The Court pointed to several previous decisions to support its finding that the grant of a patent is a matter involving public rights, including United States v. Duell, 172 U.S. 576, 582-583 (1899) (“the grant of a patent involves a matter ‘arising between the government and others’”), Seymour v. Osborne, 11 Wall. 516, 533 (1871) (patents are “public franchises” granted by the government), and Crowell v. Benson, 285 U.S. 22 (“granting patents is one of ‘the constitutional functions” that can be carried out by “the executive or legislative departments’ with-out ‘judicial determination.’ ” and “patents remain ‘subject to [the Board’s] authority’ to cancel outside of an Article III court”).  The Supreme Court further stated that IPR proceedings involve the same matter as the grant of a patent and was just “a second look at an earlier…grant.” Cuozzo Speed Technologies, LLC v. Lee, 579 U.S. ____.  Thus, the Supreme Court found that the U.S. Patent and Trademark Office (“PTO”) has the authority to take a second look at the patent grant without violating Article III.

Oil States argued that patent validity had, in the past, always been decided by the courts. The Supreme Court recognized that “[w]ithin the scope established by the Constitution, Congress may set out conditions and tests for patentability.” Graham v. John Deere Co. of Kansas City, 383 U. S. 1, 6 (1966). The Court thereby concluded that inter partes review is one of those conditions and thus Congress had authority under the Constitution to change the venue to determine patent validity from the courts to the PTO, as it did under the AIA.  Since the decision rejected the Article III challenge, the Court held that the Seventh Amendment also did not apply and a jury was not necessary in IPR proceedings.

In their dissent, Justice Gorsuch, joined by Chief Justice Roberts, argued that patents should not be seen as anti-competitive monopolies, but as procompetitive properties “that are the product of hard work and insight and ‘add to the sum of useful knowledge.’ ” Id., 5-6. The dissent further argues that just because job of issuing invention patents traditionally belonged to the Executive branch, the job of revoking them does not also have to be undertaken only by the Executive. The dissent also pointed out that “the law traditionally treated patents issued under the Patent Clause very differently than monopoly franchises when it came to governmental invasions.” See dissent at page 12. Accordingly, Justice Gorsuch stated that the Court’s decision was a retreat from Article III guarantees.

Interestingly, Justice Gorsuch also addresses the role of the Director of the Patent Office as a political appointee who serves at the pleasure of the President, stating that the Director selects the PTAB members, including how many, who will hear any particular PTAB challenge and can add more members, including himself onto the panel to influence an outcome. Justice Gorsuch therefore implied that there has been a disturbing stacking of the judges in the PTAB to influence the outcome of a case in order to secure the “policy judgments” the Director seeks.

As stated above, the Supreme Court explicitly stated that this ruling was limited to the “precise constitutional challenges that Oil States raised here.” For example, the Court stated that it was not deciding whether it is permissible for the PTAB to review patents issued before the AIA was passed, or whether the board’s processes violate due process. Further, the Court stated that the decision should not be “misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or Takings Clause.”  See opinion at p. 17.  This decision therefore has left room for more challenges to the PTAB’s proceedings.

Posted in America Invents Act, Anticipation/Obvious, Constitutionality, Supreme Court, USPTO | Tagged , , , , , ,

CAFC Affirms PTAB’s Decision To Invalidate Cialis and Adcirca Patents

By Reza Mollaaghababa
In a recent decision, the Court of Appeals for the Federal Circuit (CAFC) affirmed decisions in two inter-partes review (IPR) proceedings that patents owned by ICOS Corporation directed to tadalafil formulations (used in the erectile dysfunction drug, Cialis, and the pulmonary arterial hypertension drug, Adcirca) were invalid as obvious. (CAFC Decision Nos. 17-1071 and 1018, April 18, 2018.)

The challenged claims were directed to a pharmaceutical formulation comprising micronized tadalafil – the active ingredient of the drugs. The challenger, Actelion Pharmaceuticals, argued that the claims were obvious in view of the teachings of four prior art references: Daugan, Butler, Seth and Wadke.  In particular, the challenger argued that Daugan disclosed tadalafil and the excipients included in the claims, Butler disclosed that tadalafil was poorly water soluble, Seth disclosed that micronization was a frequently used method for improving the rate of dissolution of poorly soluble hydrophobic drugs, and Wadke disclosed that it was generally recognized that poorly soluble drugs will be more readily bioavailable when administered in a finely subdivided state preferably in a 10-40 micron range.  The challenger hence argued that it was obvious to combine the references with a reasonable expectation of success.

The Patent Trial and Appeal Board found that, while Seth recognized disadvantages to micronization, those disadvantages would not have stopped ordinarily skilled artisans from using the technique, and held that there was a reasonable expectation of success in combining the teachings of these references. (IPR2015-00561 and IPR2015-00562.)

The CAFC held that substantial evidence supported the Board’s findings. The CAFC did not agree with ICOS’ argument that the prior art taught away from micronization. In particular, the CAFC indicated that although Butler disclosed coprecipitation as a solution to tadalafil’s poor solubility, the Board had credited Actelion’s expert’s testimony that Bulter did not suggest that micronization would not work but rather it had chosen a different solution.  Further, while Seth recognized problems with agglomeration when micronizing, the Board had similarly credited Actelion’s expert’s testimony that there were recognized solutions in the art for the agglomeration problem.  Moreover, the Board determined that Wadke did not teach a sequential approach that favored coprecipitates over micronization but instead described two alternative approaches.

The outcome of these cases appears to demonstrate that “teaching away” arguments have a low probability of success before the Board in defending challenged claims.  The fact that a reference points out the disadvantages associated with a particular approach may not be sufficient to persuade the Board that the reference teaches away from that approach.  For example, the Board may find that the reference simply compares alternative approaches but does not dissuade one of ordinary skill from using the less advantageous approach, or the Board may find that there are known solutions to overcome the cited disadvantages.

Posted in Anticipation/Obvious, Court of Appeals Fed Circuit, Federal Circuit, Inter Partes Review, Post Grant Review, PTAB Procedure, Trial Tactics, USPTO | Tagged , , , , , , , ,

PTAB gives Apple’s Foe a Second Bite by Granting Realtime Data’s Motion to Amend

By Reza Mollaaghababa
In an inter partes review (IPR) proceeding, a patent owner may file one motion to amend the patent in one or more of the following ways: (a) cancel any challenged patent claim, or (b) for each challenged claim, propose a reasonable number of substitute claims.  35 U.S.C. §316(d).  1290.  With regard to substitute claims, the Patent Owner needs to demonstrate that (1) the amendment is responsive to a ground of unpatentability raised in the IPR, (2) that amendment does not broaden the scope of the claims or introduce new subject matter, and (3) the amendment proposes a reasonable number of substitute claims.  37 C.F.R. §42.121.

Through the end of Fiscal year 2017 (which ended on September 30, 2017), only fourteen motions to amend had been granted out of 275 completed trials in which a motion to amend was filed.

In October of 2017, the patent appellate court (CAFC) ruled that that Board must assess the patentability of the substitute claims proposed by the patent owner “without placing the burden of persuasion on the patent owner.” Aqua Products, Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017).  It is not yet clear whether this ruling will significantly impact the PTAB’s reluctance is granting motions to amend.  But in a recent IPR (IPR2016-01737) in which Apple had challenged certain claims of U.S. Patent 8,880,862 (the “’862 Patent”) owned by Realtime Data LLC, the PTAB granted the Realtime’s motion to amend.

The ‘862 Patent relates to “providing accelerated loading of operating system and application programs upon system boot or application launch,” and the use of data compression and decompression techniques for such purpose. Apple had challenged certain claims of the ‘862 Patent as being obvious in view of combined teachings of a number of references.  After the institution of trial, the patent owner filed a Patent Owner Response to rebut the petitioner’s obviousness allegations and further filed a contingent motion to amend.

The PTAB ruled that the challenged claims were in fact obvious in view of the art cited by Apple, but granted Realtime’s motion to amend. The PTAB noted that the patent owner sought to add 55 substitute claims to replace the 55 challenged claims, where each substitute claim added limitations that narrow the scope of the claim that it replaced.  The PTAB further noted that the patent owner identified support in the original disclosure for the proposed substitute claims including the narrowing amendments. Further, the narrowing amendments were in direct response to the grounds of unpatentability raised in the trial.  Thus, the PTAB concluded that the patent owner had satisfied the procedural requirements of filing a motion to amend.

With regard to the distinction of the substitute claims relative to the art cited by the petitioner, the PTAB emphasized that the patent owner did not have the burden of persuasion with respect to the patentability of the substitute claims. The PTAB indicated that it determines “whether the substitute claim is unpatentable by a preponderance of the evidence based on the entirety of the record, including any opposition made by the petitioner.” The PTAB concluded that based on the entirety of the record, the preponderance of the evidence showed that the petitioner had failed to establish that the proposed substitute claims were obvious over the art cited by the petitioner.

Notwithstanding patent owner’s success in this IPR, patent owners may need to wait for future decisions of PTAB regarding motions to amend to determine whether filing a motion to amend is a tool that can be effectively utilized in defending challenged patents before the PTAB.

Posted in Amendments before the PTAB, America Invents Act, Anticipation/Obvious, Inter Partes Review, PTAB Procedure, Trial Tactics | Tagged , , , ,