Cuozzo v. Lee : Supreme Court to Decide Its First Inter Partes Review Case

Cuozzo Issue I: The PTO's use of the “Broadest Reasonable Interpretation” Standard in IPR

As framed by the petitioner, i.e., the patent owner Cuozzo, the first question for the Court is “whether the Court of Appeals erred in holding that, in IPR proceedings, the Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning.” Currently, in the context of patent litigation, the courts apply the claim construction standard as set forth by the en banc Federal Circuit in Phillips v. AWH, ¹⁶ which Cuozzo refers to as the “plain and ordinary meaning” standard. Under this standard, if a patent claim is amenable to more than one reasonable interpretation, the court is required to adopt what it considers to be the most reasonable of the alternatives, which in many cases will not be the broadest plausible interpretation. During proceedings before the PTO, however, the broadest reasonable interpretation (BRI) standard is in effect, which requires the PTO, when faced with multiple reasonable interpretations of a claim, to adopt the broadest of these interpretations. As a consequence of the different standards, it is possible for a court and the PTO to adopt different interpretations of the same patent claim and for both interpretations to be entirely correct in their respective contexts.

Claim interpretation is often outcome determinative, both in the courts and in proceedings before the PTO. In patent infringement litigation, claim breadth can be a double-edged sword. A patent owner will often argue for a broad interpretation of its claims in order to establish that the allegedly infringing product or activity falls within the scope of the patent. On the other hand, the broader a claim is interpreted, the more vulnerable it is to invalidation by a court. A broader claim encompasses more subject matter, and hence is more likely to be found invalid for reciting subject matter that is not novel, or that is obvious in view of the prior art. Aside from prior art concerns, the broader a claim is interpreted, the more likely it is that a court will find it in violation of the disclosure requirements of 35 U.S.C. § 112, such as the requirement that the patent specification enables one of skill in that area of technology to make and use the full scope of the claimed invention.

In proceedings before the PTO, in contrast, a broad claim interpretation is more of a single-edged sword, because the question of patent infringement is not at issue, and therefore a broad claim interpretation will not benefit a patent owner or patent applicant. To the contrary, since the PTO decides on the validity of patent claims, a broader claim interpretation will generally only increase the likelihood that a claim will be declared unpatentable. This is why the question of whether the PTO should apply the BRI standard during IPR proceedings is so important, and deserving of Supreme Court review. It is quite common for an issued patent claim to be amenable to multiple reasonable interpretations—in fact, one might go so far as to say that it is inevitable. A standard for claim interpretation that systematically results in broader scope of coverage in IPR proceedings compared to in the courts will predictably lead to a higher rate of claim invalidation in IPR compared to the courts, and many would argue that this is exactly what we are seeing.

Prior to the AIA, there was a valid policy rationale for the significantly different claim interpretation approaches used by the PTO and in the courts. During most proceedings before the PTO, particularly during the prosecution of a patent application, but often also during pre-AIA post-grant review practices such as reissue and reexamination, the patent applicant/owner is able to amend pending claims, so long as the amendment is substantively supported by the patent specification. Thus, for example, if a patent examiner rejects a broadly interpreted claim for encompassing the prior art, the applicant can amend the claim in a manner that resolves the ambiguity to clarify that the claim is in fact narrower than originally interpreted by the examiner, and thus is not anticipated or rendered obvious by the prior art. Optimally, this approach leads to improved claims that are more likely to be upheld in the courts, and that more clearly delineate between the claimed invention and unclaimed subject matter. In short, the BRI standard achieves the important policy objective of improving the notice function of patent claims, and given the ability of patent applicants to liberally amend their claims during patent prosecution, the burden on patent applicants is relatively modest.

In the courts, on the other hand, a patent owner is generally not permitted to amend patent claims. Thus, if an alleged infringer successfully defends by convincing the court that an asserted claim is invalid, the patent owner is not going to be able to rescue the claim by amendment. As a consequence, the BRI standard would be significantly more onerous for patent owners in the courts than it is in the PTO. Under the Phillips “plain and ordinary meaning” approach, a court faced with multiple reasonable interpretations of claim scope—which as a practical matter is almost always the situation—is essentially directed to adopt the most reasonable interpretation, which oftentimes is not the broadest reasonable interpretation.

The question before the Supreme Court, i.e., whether the BRI or Phillips standard should be applied during IPR proceedings, is a tricky one because the patent owner's opportunity to amend the claims lies somewhere between the situation in the courts and in non-IPR PTO proceedings. As a formal matter, a patent owner can petition to amend claims during IPR proceedings, and thus resolve ambiguity in a manner that would overcome a determination of unpatentability. ¹⁷ As a practical matter, there are significant limitations on the ability of a patent owner to amend during IPR, and PTAB judges have rarely allowed claim amendments. ¹⁸ This point was raised by Judge Newman in her dissent to the Federal Circuit's decision when it heard Cuozzo, in which she concluded that currently patent owners are not afforded a reasonable opportunity to amend their claims during IPR proceedings. ¹⁹ In the recent PTO notice of proposed rules, the PTO explicitly declined to adopt a more liberal standard for allowing amendment. ²⁰

In advocating for the adoption of a “plain and ordinary meaning” standard in IPR proceedings, the petitioner in Cuozzo is essentially arguing that IPR proceedings are more analogous to judicial proceedings in view of the extremely limited availability of an opportunity to amend claims. In response, the PTO argues that although claim amendment is not so liberally allowed during IPR as it is in other contexts, such as patent prosecution, it is nonetheless permitted under certain circumstances, rendering IPR more analogous to other PTO proceedings than to litigation in the courts. ²¹ While acknowledging that in this regard IPR is more like infringement litigation than most pre-AIA PTO proceedings, the PTO asks the courts to defer to its judgment and expertise as the agency charged by Congress with the responsibility for implementing the AIA. The PTO does have a long-standing practice of applying the “plain and ordinary meaning” approach to claim interpretation in cases in which the patentee is absolutely prevented from further claim amendment, for example during reexamination proceedings involving claims of expired patents. ²²

The PTO recently proposed a rule change that will employ Phillips-type claim construction in IPR proceedings, rather than BRI, in cases where the claims at issue will expire prior to the Board's issuance of a final written decision, because “[s]uch patents essentially lack any viable opportunity to amend the claims in an AIA proceeding.” ²³ At the same time, the PTO explicitly declined to adopt suggestions to implement Phillips-type claim construction under other special circumstances, specifically (1) unexpired patents where the ability to amend claims is no longer present in the trial, such as when a patent owner has elected to forego the opportunity to amend; (2) unexpired patents subject to a terminal disclaimer prior to final decision; and (3) unexpired patents when the parties to the trial have each filed claim construction briefings in another tribunal on terms at issue in the trial. ²⁴

Cuozzo Issue II: Judicial Review of a Decision to Institute IPR Proceedings

The petitioner frames the second question before the Court in Cuozzo as “whether the Court of Appeals erred in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board's decision whether to institute an IPR proceeding is judicially unreviewable.” In order to better understand the context and significance of this question, it is worth briefly reviewing the IPR process, which essentially comprises two stages. In the first stage, the PTAB determines whether to institute IPR, and in the second stage (which only occurs if the first stage results in a decision to institute) the Board conducts the IPR proceedings on the merits and issues a final written decision.

More specifically, the IPR process is initiated when a person other than the patentee files a petition with the PTO challenging the validity of an existing patent. ²⁵ The patentee then has “the right to file a preliminary response to the petition … that sets forth reasons why no inter partes review should be instituted based upon the failure of the petition to meet any requirement of this chapter.” ²⁶ Within three months after the patentee's preliminary response is due, the PTAB must decide whether to grant the petition and institute IPR. ²⁷ Congress authorized the PTO to institute IPR only upon “determin[ing] that the information presented in the petition … and any response … shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.” ²⁸ The decision whether to institute an IPR proceeding is “final and nonappealable.” ²⁹ If the Board decides to institute IPR, the case proceeds to the second phase, i.e., discovery and a trial conducted by a panel of at least three administrative patent judges. ³⁰ Any party to the IPR “who is dissatisfied with the final written decision of the Patent Trial and Appeal Board … may appeal the Board's decision only to the United States Court of Appeals for the Federal Circuit.” ³¹

The dispute in this case basically comes down to whether the statutory language declaring a decision to institute “final and nonappealable” permanently shields a PTAB decision to institute IPR from any judicial review, or, alternatively, merely precludes interlocutory appeals of decisions to institute, while permitting an aggrieved patentee from challenging the decision to institute in the context of an appeal of a final written decision. There are valid legal and policy arguments cutting both ways. On the one hand, a plain reading of the “final and nonappealable” language seems to support the first interpretation, and it would be consistent with Congress's clear desire to make IPR a quick and efficient alternative to the courts for determining questions of patent validity. On the other, Cuozzo and others have made plausible arguments that the “final and nonappealable” language was intended to only apply to the initial decision of whether or not to institute proceeding, and that when the decision to institute results in a decision invalidating patent claims the decision to institute is still open to challenge in the context of an appeal of that final decision. There are also strong policy arguments favoring this interpretation.

In particular, when enacting the AIA, Congress was interested not only in efficiency, but also in limiting the potential for IPR to be used as a means of harassing patent owners, which Congress recognized could significantly diminish the value of issued patents. As Chairman Smith stated in the House, “[t]he inter partes proceeding in [the AIA] has been carefully written to balance the need to encourage its use while at the same time preventing the serial harassment of patent holders.” ³² To achieve the proper balance, Congress imposed constraints on inter partes review, including statutory thresholds to the institution of IPR proceedings. If the PTAB is instituting IPR proceedings under circumstances extending beyond those authorized by statute, and the federal courts are barred by statute from reviewing and correcting these decisions, then patent owners will be forced to defend their patents to an extent never intended by Congress. Furthermore, they will be defending their patent in a less-patent-friendly environment than the courts, unable to benefit from the presumption of validity afforded issued claims during judicial challenges, and under the patentee-unfriendly BRI approach to claim interpretation discussed above.

There are a number of statutory thresholds to institution that the PTAB has arguably been disregarding, and which could be the subject of a successful judicial challenge if the Federal Circuit is deemed to have jurisdiction under the statute. For example, under the statute “[t]he Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition … shows that there is a reasonable likelihood that the petitioner would prevail,” and the petition must “identif[y] … with particularity … the grounds on which the challenge to each claim is based.” ³³ In Cuozzo, the PTO instituted IPR on two patent claims based on prior art that was not identified in the petition as grounds for review of those two claims. After a final decision invalidating those claims, Cuozzo appealed the decision to institute IPR, arguing that the PTAB had improperly instituted IPR based on grounds that were not set forth in petition. The PTAB had arguably exceeded its statutory authority in instituting IPR proceedings, but the Federal Circuit refused to review the decision as “final and nonappealable.” ³⁴

Other statutory limitations on institution, intended by Congress to limit the potential for harassment of patent owners, are also arguably being ignored by the PTAB and avoiding judicial review under the Federal Circuit's interpretation of “final and nonappealable.” For example, Section 315(b) bars institution of inter partes review with respect to a petition filed more than one year after the date on which the petitioner is served with a complaint alleging infringement of the patent. ³⁵ In spite of the clear language of the statute, the PTAB has issued a number of decisions finding that the Board has the discretion to allow a party to an instituted IPR to introduce new arguments and prior art after the expiration of the 315(b) one-year statutory bar. ³⁶ A number of dissenting PTAB judges have argued strenuously (and in my view persuasively) that the clear language of the statute, as well as its legislative history, precludes the majority interpretation and absolutely bars introduction of new arguments and prior art more than one year after a complaint has been filed. ³⁷ But even if these dissenting judges are correct, and the majority have violated the plain language of the statute, the Federal Circuit will not be able to rectify the situation under its current interpretation of “final and nonappealable.” In fact, days after it decided Cuozzo, another panel of the Federal Circuit dismissed an appeal in which the patent owner argued that the PTAB had violated Section 315(b) by permitting a party to file a petition after the expiration of the 315(b) one-year bar, based on the Federal Circuit's interpretation of “final and nonappealable” in Cuozzo. ³⁸