Abstract
I. Introduction
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The AIA has been in effect for four years. During this time, the PTAB has received over 3,500 petitions of which approximately 90% have been IPR petitions and 10% CBM petitions. 1 PGRs can only be instituted against patents that issued from applications subject to the first-inventor-to-file provisions of the AIA; i.e., applications with an effective filing date on or before March 16, 2013. Consequently, as of June 30, 2015 only 10 PGR petitions had been filed. This article focuses on IPR proceedings, discussing (i) what IPRs are; (ii) recent events involving biotech/pharma patents; and (iii) what is happening to appeals of the Board's final written decisions at the U.S. Court of Appeals for the Federal Circuit (Federal Circuit).
II. Inter Partes Reviews Replace the Protracted Inter Partes Reexamination Proceedings Administered by Patent Examiners
IPRs were created by the AIA to provide a rapid and low-cost review of the validity of already issued patents. To accomplish this goal, the AIA requires that IPRs be completed (i.e., a final decision rendered) not more than one year after they are instituted. 2 The Director may extend the time period for six months, but only on a showing of good cause. 3 Because of the short time period, the Board grants limited discovery requests that it considers to be “narrowly tailored.” For example, requests for specific documents, but not for information in general, stand a greater likelihood of being granted.
Under the statute, any person who is not the owner of the patent, may file a petition challenging the validity of one or more claims in a patent, unless that person has filed a civil action opposing that patent. 4 The petition may be filed at any time nine months after the patent has been granted (or a post grant review has been completed, whichever is the later date), but not more than one year after the petitioner has been served with a complaint, in a civil action, alleging infringement of the patent. 5
The petition must clearly demonstrate that there is a reasonable likelihood that at least one of the challenged claims is unpatentable. 6 It may only challenge a patent's claims on the basis of prior patents or printed publications under 35 U.S.C. § 102 (novelty) or § 103 (obviousness). 7 To be successful, the petitioner must provide claim charts and detailed arguments explaining why the claims are unpatentable. The arguments must be supported with substantive evidence, which is usually submitted in the form of expert declarations.
The standard of review for invalidating a patent during an IPR proceeding differs from the standard applied by district courts. In district court, a patent is presumed valid 8 and, when construing the claims, the court strives to ascertain the exact meaning of the terms to one skilled in the art at the time of the invention, by carefully considering the intrinsic evidence and, when necessary, admitting extrinsic evidence into the record. The Board, on the other hand, applies the broadest reasonable interpretation standard for claim construction, which potentially enlarges the scope of available prior art. Also, the Board may invalidate a patent based on a preponderance of the evidence; whereas, clear and convincing evidence is required by a district court. 9 Thus, although the Board imposes a high burden of proof for granting an IPR petition, once initiated, the standard of review is more lenient.
According to the USPTO website, approximately 40% of the claims in instituted IPRs have been found unpatentable and 14% have been canceled or disclaimed. A more important statistic from a practitioner's perspective may be the number of IPRs that have had at least one or more claims invalidated or disclaimed. There have been reports that this number ranges from 77–84%. 10 It is this latter number that has greatly increased the popularity of IPRs from 17 petitions filed in FY 2012, when the AIA first took effect, to 514 petitions in FY 2013, 1,310 in FY 2014, and 1,319 during the first eight months of FY 2015. 11 In FY 2014 and FY 2015, approximately 75% of all petitions were granted; the remaining were either denied or the parties settled prior to institution. 12
These data suggest that petitioners have been effective in invalidating all or some of the claims in IPR proceedings. However, the reasons for this may be two-fold. First, the Board will not initiate an IPR proceeding unless there is a reasonable likelihood that the petitioner will prevail with respect to at least one of the claims in the challenged patent. Thus, there is a preselection process whereby only those cases where the Board is convinced that there is a high probability that a least one claim is unpatentable move forward in the first instance. Second, the statute includes estoppel provisions that prevent a petitioner from ever asserting, in a civil action, that a claim is invalid on any ground that was raised, or could have been raised during an IPR. Thus, only petitioners that are confident that they have “killer” prior art will risk challenging a patent.
III. IPR Challenges in the Biotechnology Industry
A. PTAB invalidates two life sciences patents in 2015
Relatively few biotech/pharma patents have been the subject of an IPR challenge. Only 8% (approximately 115) of challenged patents were issued by Technology Center 1600. 13 In 2015, the Board issued two final IPR decisions involving life sciences patents. Neither was favorable to the patentees. 14 In both cases, the Board construed the claims using the broadest reasonable interpretation and found them to be unpatentable over prior art cited in the petition.
Briefly, in Biomarin Pharmaceutical Inc. v. Genzyme Therapeutic Products Limited Partnership, the invention was directed to a method of treating a patient with Pompe's disease comprising administering human acid alpha glucosidase (GAA) in an amount sufficient to arrest or reduce the accumulation of glycogen in tissues such as heart and skeletal muscle. GAA is said to result in the arrest or reduction of hypertrophic cardiomyopathy. The petitioner, Biomarin Pharmaceutical, argued that the claims would have been obvious over several prior art publications.
The Board began its validity analysis by construing the phrase “whereby the concentration of accumulated glycogen in the patient is reduced and/or further accumulation of glycogen is arrested,” which is recited in claim 1. 15 The patent owner argued that the phrase clearly included the reduction or arrest of glycogen accumulation in skeletal muscle. The Board, however, agreed with petitioner that when patentee added the phrase during prosecution, it relied exclusively on the specification's disclosure that the administration of GAA decreases glycogen in the heart and liver, but not skeletal muscle, to support the newly added language. Reading the claims in light of the specification and applying the broadest reasonable interpretation, the Board found that the claims encompassed glycogen accumulation in the skeletal muscle, heart, or liver. Thus, the Board subsequently concluded that the claims would have been obvious over prior art that taught that the administration of GAA reduces or restores normal levels of glycogen in the muscle tissue of patients with Pompe's disease.
In Butamax Advanced Biofuels LLC v. Gevo Inc., the claims were directed to a recombinant yeast having increased dihydroxy acid dehydratase (DHAD) activity. DHAD is an enzyme that catalyzes the production of metabolites, such as isobutanol. The yeast was engineered to comprise at least one inactivated monothiol glutaredoxin selected from the group consisting of the GRX3 and GRX4 genes. 16 Alterations in GRX3 and GRX4 gene expression or activity were said to increase DHAD activity in recombinant microorganisms. The petitioner, Butamax, argued that the claims would have been obvious over various combinations of prior art.
Here, too, the Board began its analysis by construing the claims. At issue was the term “inactivated,” recited in claim 1. 17 The petitioner argued that “inactivated” meant that “the GRX3 and/or GRX4 protein lacks all activity and excludes … proteins having reduced, attenuated or partial activities.” 18 Petitioner pointed to the patent owner's arguments during prosecution that “the meaning of ‘inactivate’ is to render inactive so that GRX3 and GRX4 protein have no activity thereof.” 19 The Board agreed with the petitioner and made an independent finding that the plain and ordinary meaning of the term is “having destroyed biologic activity; chemically or biologically inert; non-functional.” 20
The question then became whether the claims were anticipated or would have been obvious over the prior art cited by the petitioner.
As an initial matter, the Board considered whether the challenged patent was entitled to the benefit of its provisional applications. If not, then the reference cited in the petition would be available as prior art. To that end, the Board found that the petitioner had provided “comprehensive and persuasive expert testimony and supporting analysis” that the provisionals failed to provide written description support for the inactivation of the GRX3 and GRX4 genes by the insertion or deletion of one or more nucleotides. 21 The patent owner failed to provide any rebuttal evidence and, instead, responded with only attorney argument. The Board was not impressed, and pointed out that the plain and ordinary meaning of the term requires a “lack of all activity.” 22 Thus, the Board concurred with the petitioner that the patent owner was not entitled to the filing date of the provisional applications and, therefore, the patent cited in the petition was available as prior art.
The Board next turned to the teachings of the prior art itself and found that the petitioner's expert provided testimony explaining how it anticipated all but three of the patentee's claims. Once again, the patent owner failed to rebut the expert's position. After independently analyzing the teachings of prior art, the Board concurred with the petitioner and held that the claims were unpatentable under § 102.
Finally, with respect to the remaining claims, the Board found the testimony of the petitioner's expert, that they would have been obvious over several additional prior art references, to be persuasive.
The prior art in both Biomarin and Butamax was undeniably strong and there was no indication that it had ever been before the examiner in the first instance. The fact that neither patent owner appealed to the Federal Circuit indicates that the outcomes may not have been surprising or unexpected. It is worth noting that it is highly unlikely that the claims in these patents would have survived challenge in either the predecessor proceeding, inter partes reexam, or a district court litigation.
Nevertheless, these two decisions provide an important lesson for practitioners. That is, practitioners are well advised to note the great weight the Board placed on the expert testimony used to support the petitioner's arguments in Butamax. Regardless of whether one is a patent owner or petitioner, this type of supporting evidence is crucial in an IPR proceeding.
B. Should any person be allowed to file an IPR petition?
Surprisingly, what has become controversial in the biotech industry is the AIA provision that allows “a person” to file an IPR petition. 23 Recently, an enterprising hedge fund manager filed 16 IPR petitions challenging patents owned by 10 different drug companies. According to the petitioner, Mr. Kyle Bass, the drug companies have engaged in abusive tactics by enforcing “weak” patents. Mr. Bass claims that invalidating these patents will lower drug prices and open the market to generic competition.
The pharmaceutical companies whose patents have been challenged contend that it is Mr. Kyle who is abusing the patent system for financial gain. The companies allege that the hedge fund improperly seeks to make profits in two ways. First, by demanding cash in return for not filing an IPR and, second, by taking a short position on the companies' stocks so that the fund will gain if prices drop.
To stop this alleged profiteering, two drug industry lobbying groups, Biotechnology Industry Organization (BIO) and the Pharmaceutical Research and Manufacturers of America (PhRMA), are urging Congress to exempt pharmaceutical patents from AIA review. The groups are arguing that IPR challenges on biopharmaceutical patents will hinder the discovery and development of new medicines.
Hopefully, Congress will not rush to judgment on these issues. Exempting one industry from IPR challenge or prohibiting certain individuals or groups from making such challenges, would set a dangerous precedent. Other industries have already started pushing back arguing that discoveries and innovation are important to all fields, not just biotechnology. Patent law has always been technology neutral and Congress should ensure that it remains so.
Nor should Congress prohibit one type of individual or group of individuals from filing an IPR petition. This line would be impossible to draw. Arguments can always be made as to why someone should not be allowed to file an IPR petition. Moreover, a person's motivation for filing an IPR petition is irrelevant to the issue of patent validity. The Board decides patentability based on the prior art and the merits of the arguments before it, not on a petitioner's motive. In any event, the vast majority of petitioners are undoubtedly motivated by profit, otherwise they would not go to the trouble and cost of filing a petition in the first instance. That is, most IPR petitioners are competitors, alleged infringers, or public interest groups that either want to make money manufacturing an invention they believe is unpatentable or make an invention available to the public at a lower cost.
IV. Precedential Federal Circuit Decisions
A party dissatisfied with the Board's final written decision in an IPR can appeal to the Federal Circuit. 24 In its review, the court gives the Board's factual findings deference unless they are unsupported by substantial evidence or are deemed arbitrary and capricious. 25 Consequently, Board decisions have a very high affirmance rate. For example, in FY2015, the court issued decisions in 18 IPR appeals. The Board was affirmed 17 times and one judgment was mixed (affirmed-in-part, reversed-in-part, vacated-in-part and remanded).
A. Two ground-breaking Federal Circuit decisions
1. In re Cuozzo
On February 4, 2015, the Federal Circuit issued its first precedential decision in an IPR appeal, In re Cuozzo Speed Technologies, LLC. 26
Briefly, the invention at issue was directed to a speed limit indicator for a vehicle comprising a global positioning system (GPS) unit, a display controller connected to the GPS, and a speedometer. 27 The purpose of the GPS unit was to track a vehicle's location, identify the local speed limit, and send the information to the display controller. An interface was said to display both speeds above the legal speed limit as well as the legal speed limit. 28 The court noted that the specification disclosed one embodiment wherein speeds above the speed limit were displayed in red and superimposed on the legal speed limit that was displayed in white.
Garmin International, Inc. and Garmin USA, Inc. (Garmin) filed an IPR petition challenging the validity of three claims in Cuozzo's patent. The Board granted the petition and instituted an IPR proceeding.
The initial step in the Board's validity analysis was to construe the claims. At issue was the phrase “integrally attached.” Applying the broadest reasonable interpretation, the Board concluded that the phrase meant “discrete parts physically joined together as a unit without each losing its own separate identity.” Given this construction, the Board found that the claims were unpatentable over the prior art cited in the petition.
Cuozzo filed a motion to amend the claims. However, the Board found that one of the proposed substitute claims lacked written descriptive support in the specification 29 and improperly enlarged the claim's scope. Therefore, the Board denied entry.
Cuozzo's appeal to the Federal Circuit raised two important statutory issues. First, Cuozzo contended that the Board had improperly instituted the IPR in the first instance. Cuozzo pointed out that the Board used a prior art reference that was not cited in the IPR petition to invalidate two of the claims. Specifically, Cuozzo contended that the Board erred in holding that two claims (claims 10 and 14) were unpatentable over a publication that the petition had only cited to invalidate a third claim (claim 17).
In addition, Cuozzo argued that the Board had employed an incorrect standard for construing the claims and, therefore, erroneously concluded that the claims were obvious. According to Cuozzo, the Board should have used the same claim construction standard applied by district courts; i.e., the Board should have determined what the claim terms actually meant, and not have given them their broadest reasonable interpretation. Cuozzo contended that the claims are patentable over the prior art when the appropriate construction standard is applied.
a. Decisions to institute an IPR are not appealable
The Federal Circuit first considered the issue of whether the Board properly instituted the IPR. The court found that it was barred by statute to review such decisions. The court pointed to 35 U.S.C. § 314(d), which states that “[t]he determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” The court noted that IPRs have two phases: (i) an initial phase that involves a determination of whether to institute an IPR; and (ii) a second phase that consists of the actual IPR proceeding and the final decision on the issues raised during said proceeding. 30 The court found that only final written decisions on the merits; i.e., the latter phase, are appealable. The court further found that § 314(d) bars all appeals of Board decisions to institute an IPR, regardless of whether a final decision has been rendered. 31
b. Broadest reasonable interpretation is the appropriate standard for claim construction in IPR proceedings
With respect to the Board's use of the broadest reasonable interpretation to construe the claims during an IPR proceeding, the court acknowledged that the AIA was silent on this issue. However, it pointed out that for more than 100 years, this standard has been applied in proceedings before the USPTO and its predecessor. 32 The court found nothing in the statute that indicated Congress's intent to deviate from that standard. 33
In addition, the court pointed out that Congress had granted the USPTO rulemaking authority in the AIA to “establish [] and govern[] inter partes review under this chapter and the relationship of such review to other proceedings under this title … § 316(a)(4).” 34 The court did not find that the USPTO had exceeded its authority under the statute in promulgating a rule (37 C.F.R. § 42.221(a)) that requires claims in an IPR to be construed under the broadest reasonable interpretation standard.
Finding that the Board had not relied on extrinsic evidence to construe the claims, the court proceeded to review the Board's construction de novo. 35 To that end, the court concluded that the Board had not erred in its interpretation and, subsequently, agreed that the claims would have been obvious in view of the prior art. The court also held that the Board's denial of the patent owner's proposed amendment to substitute the claims was proper because it broadened the scope of the claims. 36
c. Cuozzo's petition for en banc rehearing denied
Cuozzo petitioned the court for an en banc hearing to consider the appropriateness of the broadest reasonable interpretation standard for construing claims in an IPR proceeding.
On July 8, 2015, in a contentious 6–5 split decision, the Federal Circuit denied Cuozzo's request. Writing for the majority, Judge Dyk reiterated the court's earlier decision that the USPTO had not exceeded its rulemaking authority in adopting the broadest reasonable interpretation standard of review. According to the majority, it was up to Congress to legislate any deviation from the historical standard. In the dissenting opinion, Chief Judge Proust argued that in adjudicatory proceedings, patent claims must be given their actual meaning.
2. Microsoft Corporation v. Proxyconn, Inc.
a. The court reverses the Board's claim construction, but the broadest reasonable interpretation standard is sustained
Whether the Board's use of the broadest reasonable interpretation standard to construe claims in an IPR is appropriate was raised again in Microsoft Corporation v. Proxyconn, Inc. v. Michelle K. Lee. 37
The invention in Proxyconn was directed to “a system for increasing the speed of data access in a packet-switched network.” 38 The invention was said to reduce “the redundant transmission of data throughout the network.” 39 Like the patent owner in Cuozzo, Proxyconn argued that the Board exceeded its authority in applying the broadest reasonable interpretation standard to construe the patent claims in an IPR. The court disallowed this argument in view of its prior decision in Cuozzo.
Nevertheless, the court acknowledged that the broadest reasonable interpretation of claims must also be a correct interpretation. Here, too, the court found that the claims could be construed based on the intrinsic record alone and, therefore, it reviewed the Board's claim construction de novo. 40 In so doing, the court pointed out that claims must be “read in light of the specification and teachings in the underlying patent.” 41 The court found that given the plain language of several claims, as well as the teachings in the specification, the Board's construction was unreasonably broad. Accordingly, the court vacated the Board's findings and remanded for proceedings consistent with its opinion. 42
b. Motion to amend
During the IPR, Proxyconn filed a motion to amend several claims. The Board denied the motion for two reasons. First, according to the Board, Proxyconn had failed to meet its burden of establishing the patentability of the substitute claims (i) over the prior art of record, and (ii) over prior art not of record but known to the patent owner. The Board relied on 37 C.F.R. § 42.20(c) and its decision in Idle Free Systems, Inc. v. Bergstrom, Inc. 43 to support its position. Idle Free is an “informative” Board decision that sets forth several requirements, not mentioned in the regulations, which a patent owner must satisfy in order for a motion to amend claims to be entered. 44
Second, the Board found that the substitute claims were unpatentable over prior art that was not used to originally institute review of claims for which the amendment was sought. The prior art relied upon by the Board to invalidate the patent was of record, but it was cited by the petitioner to institute the review of other related claims.
On appeal, Proxyconn argued that it was improper for the Board to invalidate claims based on a reference that was not used to institute the review of the original claims; i.e., the reference the Board relied on to invalidate the proposed substitute claims (claims 35 and 36) had not been applied against the cancelled claims (claims 1 and 3) when the Board instituted the IPR. Notably, Proxyconn did not argue that the substitute claims were actually patentable over the reference. In addition, Proxyconn contended that the Board had exceeded the authority of its own regulation (37 C.F.R. § 42.121(a)(2)(i)) by imposing the additional requirements set forth in Idle Free.
Once again, the Federal Circuit pointed out that under the AIA, the USPTO had the authority to promulgate rules governing IPRs. 45 The court agreed with the USPTO that “§ 42.121(a)(2) is not an exhaustive list of the grounds on which the Board can deny a motion to amend” and that Congress gave the USPTO the authority to set forth standards and procedures to amend the claims during an IPR. 46 However, the court was concerned with the USPTO's “fluid, case-based interpretation” of its own regulations and, therefore, it did not endorse the non-regulatory requirements discussed in Idle Free which the Board relied upon to deny entry of the motion. The court emphasized that it was not addressing whether the patentee must demonstrate that the claims were patentable over all the prior art known to the patent owner. 47
The court concluded that it was reasonable for the Board to require the patentee to demonstrate that the substitute claims were patentable over the prior art of record. Had the Board not applied the prior art, the IPR proceeding would have resulted in the issuance of an improper patent. Specifically, the IPR would have permitted a patent that was clearly anticipated by the prior art to issue. In addition, the court pointed out that the Board's reliance on the prior art was not “fundamentally unfair” to Proxyconn. The prior art was a part of the IPR proceeding and Proxyconn had an opportunity both in its brief and at oral hearing to distinguish the substitute claims over the prior art and chose not to do so. Thus, the court affirmed the Board's denial of Proxyconn's motion to amend.
To date, the Federal Circuit has not rendered a precedential decision in an appeal of an IPR involving a biotech/pharma patent. Nevertheless, the decisions in Cuozzo and Proxyconn are highly relevant because they control IPR proceedings with respect to these patents as well.
First, the court's holding that it lacks jurisdiction to review Board decisions on whether to institute, or to deny the institution of, an IPR proceeding can impact biotech patent owners in one of two ways. That is, whenever the Board denies or vacates the institution of an IPR, the patent owner can take comfort in knowing that (i) the decision is final; and (ii) the petitioner is estopped from challenging the patent, even in a civil action, on any ground raised in the petition. On the other hand, when the Board decides to institute an IPR and finds that one or more claims are invalid, the patent owner's only recourse is to appeal the patentability issue.
Second, biotech patent owners need to be aware that the court's affirmation of the broadest reasonable interpretation standard gives petitioners greater latitude in arguing the applicability of prior art. That is, the broader the Board construes the claims, the greater the scope of available prior art. However, as demonstrated in Proxyconn, even when applying this more lenient standard of claim construction, the Board is not infallible. 48 Thus, while patent owners may be able to successfully challenge the Board's interpretation of their claims, they must, at the same time, take care to draft claims in a manner that curtails their exposure to a wide field of prior art.
Third, it is imperative that biotech patent owners adhere to the requirements articulated by the court for amending claims during an IPR. Briefly, the court endorsed the provisions enumerated in the USPTO's regulations (37 C.F.R. §§ 42.121 and 42.50) and affirmed the Board's holding that the claims must be patentable over the prior art of record. Recently, in response to the court's admonitory statement in Proxyconn and much public outcry, the Board “clarified” its position (in Idle Free) as to what a patentee must demonstrate in order to establish the patentability of proposed substitute claims over “all prior art known to the owner.” According to the Board, this phrase should be understood as meaning “no more than the material prior art that Patent Owner makes of record in the [] proceeding pursuant to its duty of candor and good faith to the Office.” 49 Although the Board's “clarification” is still somewhat ambiguous, hopefully, this signals their intent to make it easier for patent owners to amend claims during an IPR.
V. Conclusion
One of the purposes of the post-grant proceedings established by the AIA was to improve patent quality by providing new avenues to challenge validity in a rapid, low cost manner. From the perspective of the petitioners, the number of IPRs in which the Board has found unpatentable claims and the Board's high affirmance rate at the Federal Circuit, demonstrate that the statute has been quite successful. Patent owners, however, contend that the statute has gone too far and tipped the scale in the petitioner's favor.
To date, the Federal Circuit has only issued two precedential decisions in IPR appeals from the PTAB, but they are instructional for practitioners in all technologies, including biotechnology. The most contentious issue raised in both of these decisions is whether the Board's use of the broadest reasonable interpretation standard to construe claims is appropriate.
This question will most likely have to be settled either through legislative action by Congress or at the Supreme Court. For now, however, all parties to an IPR are bound by this standard and will need to adjust their strategies accordingly.