PTAB Abandons its Practice of Broadly Interpreting Claims of Challenged Patents in favor of Phillips Standard of “Ordinary and Customary Meaning”

By Tom Engellenner
In a final rule published in the Federal Register on October 11, 2018, the U.S. Patent and Trademark Office (USPTO) took a remarkable step of acknowledging unfairness in the way its Patent Trial and Appeal Board (PTAB) has been conducting trials for the past six years. The rule change will apply to all of the new administrative patent challenge proceedings (inter partes reviews, covered business method patent reviews, and post-grant reviews) established by the 2011 America Invents Act (AIA).  The new claim construction rule will be applied to all AIA petitions filed on or after November 13, 2018.

The comments accompanying the USPTO’s Federal Register notice of rule change state:

[R]ecent studies . . . support the concerns expressed by stakeholders regarding the unfairness of using a different claim construction standard in AIA proceedings than that used by the district courts.

At issue is how claims are interpreted when new prior art references are cited by petitioners seeking to invalidate issued U.S. Patents. If a claim term is broadly interpreted, it is more likely that the prior art will be considered anticipatory or render the claim obvious.  (Novelty and non-obviousness are fundamental requirements for patent validity.)

From the very beginning, when inter partes review (IPR) proceedings under the AIA began in 2012, the USPTO adopted a claim construction rule known as broadest reasonable interpretation, i.e., claim terms are given their broadest reasonable interpretation in view of the specification to one having ordinary skill in the art at the time of the invention without importing limitations into the claims from the specification. This so-called BRI standard had long been the standard applied by the USPTO during pre-issuance examination of patent applications.

While BRI standard may be appropriate when patent applications are undergoing examination – where the applicant can amend the claims if the examiner adopt too broad an interpretation – getting the PTAB judges to consider claim amendments in AIA proceedings has proven to be extraordinarily difficult.

The new standard to be applied going forward (for petitions filed on or after November 13, 2018) is the “Phillips standard,” named for the the Federal Circuit’s 2005 ruling in Phillips v. AWH Corp. 415 F.3d 1303, 1313 (Fed. Cir. 2005). Under the Phillips standard, claims are to be given their “ordinary and customary meaning” – not their broadest meaning.  This is the standard applied by all federal district courts and the International Trade Commission when hearing patent cases.  The rule-making comments note  that “the scope of an issued patent should not depend on the happenstance of which court or governmental agency interprets it, at least as far as the objective rules go ” and further notes:

Employing the same standard for AIA proceedings and district courts improves uniformity and predictability as it allows the different fora to use the same standards in interpreting claims.

The new rule further states that any prior claim construction decision in a civil action “will be considered if that determination is timely filed in the record” at the PTAB.

While the PTAB judges are not explicitly required to accept prior claim constructions from federal district courts, the new rule certainly does appear to encourage conformity in interpreting patent claims.

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.

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.