Merck & Cie v. Gnosis : A more deferential standard of review for inter partes review decisions

Background

Merck is the owner of U.S. Patent No. 6,011,040 (“the ′040 patent”), entitled “Use of Tetrahydrofolates in Natural Stereoisomeric Form for the Production of a Pharmaceutical Preparation Suitable for Influencing the Homocysteine Level, Particularly for Assisting the Remethylation of Homocysteine.” The ′040 patent relates to methods of using folates to lower high levels of homocysteine in the body (hyperhomocysteinemia) which can lead to severe cardiovascular, ocular, neurological, and skeletal diseases.

At the request of Gnosis, the PTAB instituted an IPR of claims 1– 3, 5, 6, 8, 9, 11–15, and 19–22 of the ’040 patent. After Merck requested cancellation of claims 1–3, 5, 6, and 13, the only claims remaining in the IPR were claims 8, 9, 11, 12, 14, 15, and 19–22. All of the challenged claims depend, directly or indirectly, from claim 2, which reads: “2. A method of preventing or treating disease associated with increased levels of homocy[s]teine levels in the human body comprising administering at least one tetrahydrofolate in natural stereoisomeric form to a human subject.”

One representative claim that Gnosis challenged under §103 is claim 11: “11. A method according to claim 2, wherein increased levels of homocysteine in the human body are associated with methylene tetrahydrofolate reductase deficiency and wherein the tetrahydrofolate is 5-methyl-(6S)-tetrahydrofolic acid, or a salt thereof.”

In its petition, Gnosis argued that claim 11 was obvious based on three references, namely, Serfontein in view of Marazza and in further view of Ubbink. The petition took the position that Serfontein disclosed treating elevated homocysteine levels and associated diseases by correcting a subject’s deficiency in folate through administration of metabolites of folic acid, and that prior art references such as Marazza specifically suggested the use of one specific metabolite, 5-methyl-(6S)-tetrahydrofolic acid (L-5-MTHF), as a potentially useful folate metabolite in treating folate deficiency. Gnosis further argued that Ubbink disclosed a connection between hyperhomocysteinemia and methylene tetrahydrofolate reductase deficiency, showing that the relationship between high levels of homocysteine and methylene tetrahydrofolate reductase deficiency was known in the prior art. Thus, Gnosis argued that a person of ordinary skill in the art would have been motivated to use L-5-MTHF for the treatment of high levels of homocysteine associated with methylene tetrahydrofolate reductase deficiency: Serfontein disclosed treating hyperhomocysteinemia through correcting folate deficiencies, Marazza disclosed that L-5-MTHF could be used to correct folate deficiencies, and Ubbink disclosed the fact that hyperhomocysteinemia could be associated with methylene tetrahydrofolate reductase deficiency.

In response, Merck sought to undercut each of the references relied upon by Gnosis. With respect to Serfontein, Merck argued that the number of possible folate metabolites disclosed therein was very broad—numbering potentially in the thousands, including various salt forms with different properties—and would not have suggested L-5-MTHF, which was not explicitly disclosed. With respect to Marazza, Merck argued that its disclosure of potential uses for L-5-MTHF was minimal and contradicted by other prior art, as well as being in a separate medical field (cancer treatment, not the treatment of homocysteine levels), and that Marazza was at best an “ambivalent” endorsement of potential uses for L-5-MTHF. With respect to Ubbink, Merck argued that the study therein was limited to folic acid, and thus was inapplicable to a discussion about L-5-MTHF, a folate metabolite.

In addition, Merck argued that folic acid was historically considered the only useful source for folate supplementation (including in Serfontein and Ubbink), partly due to the “inconsistent” evidence regarding reduced folates (a subset of metabolites) such as L-5-MTHF, their instability and difficulty in synthesizing them, their poor activity in human tissues, and the belief that the use of reduced folates could have negative health effects. Based on these arguments, Merck took the position the prior art taught away from the use of L-5-MTHF.

Finally, Merck argued that objective indicia of nonobviousness were probative in demonstrating the validity of the challenged claims. Merck presented arguments for commercial success, licensing, copying, long-felt but unmet need for an effective adjunctive treatment of major depressive disorder, unexpected results in the form of unexpected potency of L-5-MTHF compared to racemic 5-MTHF and high bioavailability of L-5-MTHF compared to folic acid, industry skepticism, and industry praise.

Initial PTAB decision

After briefing supported by expert declarations and deposition testimony and a four-hour oral argument, the PTAB issued a Final Written Decision on 20 June 2014. In that decision, the PTAB found claim 11 invalid for obviousness over Serfontein, Marazza, and Ubbink under the preponderance of the evidence standard for proving invalidity in IPR proceedings. 35 USC § 316(e). The PTAB was persuaded that Serfontein disclosed the use of folate derivatives in the treatment of elevated levels of homocysteine. While Serfontein did not disclose L-5-MTHF explicitly, Gnosis’s expert opined that a POSA would have been able to envisage that compound from the disclosure in Serfontein of “suitable active metabolite[s] of folate.” Merck argued that the number of possible folate metabolites was too broad to cause one of ordinary skill to immediately envisage the use of L-5-MTHF, but the PTAB was persuaded by Gnosis that only a limited number of relevant compounds would have been identified by a person of ordinary skill in the art. The PTAB found that Marazza disclosed the preparation of L-5-MTHF and mentioned its possible use in folate deficiency treatment and was not persuaded by Merck’s arguments that references such as Marazza taught away from the use of L-5-MTHF, finding that there was other evidence in the prior art that the compound might be useful. Finally, the PTAB agreed with Gnosis that a skilled artisan would have looked to Serfontein and Marazza to develop a method for treating the hyperhomocysteinemia associated with methylene tetrahydrofolate reductase deficiency described in Ubbink, finding that Merck’s contention that Ubbink provided data only on folic acid and not on L-5-MTHF was insufficient to persuade them otherwise.

Finally, the PTAB concluded that Merck had failed to establish an adequate nexus between the novel features of the ′040 patent and evidence of commercial success, licensing, copying, and industry praise. It also found that Merck’s evidence of long-felt but unmet need, unexpected results, and industry skepticism was unpersuasive.

First Federal Circuit appeal

Merck appealed the PTAB’s decision, including its ruling that claim 11 was obvious in view of Serfontein, Marazza, and Ubbink. On 17 December 2015, the Federal Circuit issued its opinion affirming the PTAB’s obviousness determination with respect to claim 11. In reaching its decision, the Federal Circuit majority noted that obviousness “is a question of law based on underlying findings of fact”; in their review, they applied the “substantial evidence” standard in reviewing the factual findings underlying the PTAB’s obviousness ruling, including findings of motivation to combine Serfontein, Marazza, and Ubbink and lack of objective indicia of nonobviousness. This standard states that in appeals of Board decisions, factual findings relating to obviousness (i.e. whether a POSA would be motivated to combine references, and whether that combination would have a reasonable expectation of success) are reviewed for substantial evidence, or in other words, “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Consol. Edison Co. of New York v. N.L.R.B., 305 U.S. 197, 229 (1938). The Federal Circuit majority found that there was adequate support for both findings. Based on these factual findings, the Federal Circuit majority reviewed the PTAB’s ultimate conclusion of obviousness de novo and upheld its determination that the challenged claims were invalid.

First, the Federal Circuit majority found that there was ample support in the record for motivation to combine Serfontein’s teaching of the use of a “suitable active metabolite of folate” in a treatment to lower levels of homocysteine and Marazza’s identification of L-5-MTHF as such a potentially useful metabolite. The court rejected Merck’s arguments that the prior art taught away from the combination of references by suggesting that (1) administering racemic 5-MTHF would increase levels of homocysteine, (2) racemic 5-MTHF would be unstable, and (3) L-5-MTHF would not have desirable biochemical properties. Under the substantial evidence standard, the court found that the prior art did not “unambiguously teach” that 5-MTHF would increase homocysteine levels, did not “compel a finding” of chemical instability of that racemate, and was mixed on the issue of potential biochemical effectiveness of the L-isomer. The court agreed with Merck that Ubbink’s disclosure only suggested the use of folic acid in treatment of hyperhomocysteinemia, rather than folate metabolites; however, the court held that this limited disclosure would not undermine the motivation to combine Ubbink with the other references teaching use of different folate metabolites, as L-5-MTHF was known to have similar effects to folic acid when administered.

The majority further held that, although the PTAB did not make an explicit finding that a person of ordinary skill in the art would have had a reasonable expectation of success in combining the prior art references, the PTAB’s opinion implied that there would have been such a reasonable expectation by virtue of the PTAB having rejected Merck’s teaching away argument. The majority therefore refused to overturn the PTAB’s decision for a failure to explicitly state that there was a reasonable expectation of success.

Finally, the majority agreed that the PTAB’s criticism of Merck’s secondary consideration arguments as lacking a nexus to the claimed invention was supported by substantial evidence, noting that “[f]or objective evidence of secondary considerations to be accorded substantial weight, its proponents must establish a nexus” and finding that Merck had not met this burden. Merck & Cie v. Gnosis S.P.A., 808 F.3d 829, 837 (Fed. Cir. 2015), cert. denied, 137 S. Ct. 297 (2016) (quoting In re Huai–Hung Kao, 639 F.3d 1057, 1068 (Fed.Cir.2011)). Because the products Merck analyzed were “mixed” products with material features beyond those claimed in the patent, or incorporated significant prior art elements that appeared relevant to commercial success, the majority agreed that the PTAB was entitled to give those arguments little weight. Similarly, the evidence of licensing involved a multipatent license, and the majority found that the PTAB’s finding that licensing success was not necessarily a result of the patent’s novel features was reasonable.

In dissent, Judge Newman argued that the deferential “substantial evidence” standard, while appropriate for reviewing PTAB decisions arising from ex parte proceedings, is nevertheless inconsistent with the America Invents Act (AIA) when applied to decisions arising from IPR proceedings, which are essentially trials between adverse parties. Judge Newman argued that the Federal Circuit should review IPR decisions under a “clear error” standard. The PTAB applies the AIA’s preponderance of the evidence standard for analyzing unpatentability in an IPR, rather than a court’s standard of clear and convincing evidence; particularly because of this disparity, Judge Newman argued for higher appellate scrutiny, arguing that “[d]eferential review on a standard that looks at only one side of the evidence is less likely to uncover errors in the balance and burden of proof.” “Clear error” is the standard that is applied when a court of appeals reviews a district court’s findings of fact, which should not be set aside unless those findings are “clearly erroneous.” See F.R.C.P. 52(a)(6). Under the “clear error” standard, “[a] finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing body on the entire evidence is left with the definite and firm conviction that a mistake has been committed”; this standard is therefore less deferential than the “substantial evidence” standard, which requires deference to an agency’s decision unless the decision could not have been made reasonably given the evidence presented. Concrete Pipe & Prod. of California, Inc. v. Constr. Laborers Pension Trust for S. California, 508 U.S. 602, 622 (1993) (citation and alterations omitted).

Under the “clear error” standard, Judge Newman argued that the PTAB’s decision was in error, because it was not shown that a person of ordinary skill in the art would have had a motivation to combine the identified references and would have had a reasonable expectation of success. Specifically, she argued that Marazza did not link the L-5-MTHF isomer to the treatment of elevated homocysteine specifically, and that a skilled artisan would not have made that connection without an explicit teaching because of the uncertain predictability of biological response. Moreover, she argued that the majority erred in finding an implied argument of reasonable expectation of success in the PTAB’s decision: although the PTAB found that the references did not teach away from the invention, a lack of “teaching away” should not be construed as an implied finding of a reasonable expectation of success, which (she argued) was also unsupported by the references themselves. Finally, she took issue with the majority’s review of the secondary considerations, arguing that there was no evidence in the record that Merck’s products were successful for any reason other than the technology claimed in the patent. The majority acknowledged that another fact finder may have reasonably evaluated Merck’s secondary considerations evidence differently in the first instance, but found the PTAB’s conclusion supported by substantial evidence. Judge Newman argued that this analysis illustrated the inadequacy of the “substantial evidence” standard: rather than deferring to the PTAB’s determination as reasonable, she argued, the majority should have analyzed whether clear error was present in the PTAB’s determination of invalidity under the AIA’s preponderance of the evidence standard.

En Banc Federal Circuit appeal

Having lost in a 2–1 decision, Merck then asked for a rehearing en banc to determine whether the “substantial evidence” standard of review was appropriate when the Federal Circuit reviewed the PTAB’s decision of obviousness arising from an IPR proceeding, or whether the less deferential “clear error” standard of review was warranted. In its petition, Merck argued that PTAB findings should be reviewed for “clear error,” rather than the more deferential standard of “substantial evidence.” Merck recognized that Federal Circuit precedent supported the “substantial evidence” standard, citing Dickinson v. Zurko, 527 U.S. 150, 152–61 (1999) as adopting the “substantial evidence” standard for PTAB fact determinations. However, it argued that existing decisions had not analyzed the conflict between the substantial evidence standard and the AIA’s goals. Because Congress intended IPRs to serve as an alternative to district court patent litigation, Merck argued, the ordinary court–agency standard of substantial evidence review for agency fact determinations under the Administrative Procedure Act would be inconsistent with the AIA’s goals. Merck concluded that application of the “clear error” standard would alter the result, “as confirmed by Judge Newman in dissent and intimated by the panel majority.”

The court invited a response from Gnosis to the petition for en banc rehearing. In its response, Gnosis argued that Merck’s reading of the AIA was merely speculative, and that without an express statutory mandate to engage in alternative review, the APA’s provisions ought to apply. According to Gnosis, the APA contains a bright-line requirement for substantial evidence review of PTAB decisions: as cited in Zurko, 5 U.S.C. §§ 559 and 706(2)(E) mandate the “substantial evidence” standard of review except where expressly superseded or modified by statute. In addition, Gnosis argued that the history of the AIA did not support a heightened standard of review. Congressional statements about IPRs serving as an alternative to litigation did not imply a Congressional intent to implicitly override the existing APA review standard, particularly because pre-AIA inter partes reexamination proceedings—although different from IPR proceedings—were also intended to serve as an alternative to litigation. Furthermore, Congress expressed its trust in the expertise and fact-finding abilities of administrative patent judges at the PTAB in discussion of the AIA.

On 16 April 2016, the Federal Circuit denied en banc review, with concurring and dissenting opinions that closely tracked Gnosis’s and Merck’s arguments, respectively. Judge O’Malley authored a concurring opinion, joined by Judges Wallach and Stoll, explaining that in her view, the court could not change its standard of review, even in an en banc proceeding, because its hands are tied due to binding precedent holding that PTAB decisions are to be reviewed under the substantial evidence standard. She agreed with Judge Newman, who dissented from the denial of rehearing, insofar as she thought that the substantial evidence standard did not make sense in the context of review of an IPR proceeding. Judge O’Malley noted that, to the extent that IPR proceedings were meant to replace district court litigation, the standard of review should be clear error. Indeed, as she noted, the Supreme Court decision that set forth the substantial evidence standard of review, Dickinson v. Zurko, referred to clear error review as “court/court” review, and to substantial evidence review as “court/agency” review. To the extent that IPR proceedings were meant by Congress to be a substitute for district court proceedings, a clear error standard made more sense. However, Judge O’Malley thought it was up to Congress or the Supreme Court to change the standard of review in the context of this specific type of court/quasi-judicial agency review.

Consistent with her earlier dissent on the merits, Judge Newman dissented from the denial of rehearing en banc. She argued that the concurrence erred in stating that Zurko mandated a substantial evidence standard of review of all PTAB determinations. Rather, Judge Newman argued that Zurko stood for the proposition that the PTO is generally subject to the judicial review framework of the APA, but did not foreclose the possibility that future legislation like the AIA could create new tribunals that would not fall under the APA’s judicial review framework. A review of the AIA as a whole, she argued, shows that Congress intended for IPRs to be a surrogate for district court litigation, and thus, to be reviewed under the same standard as district court litigation. Judge Newman argued that IPR proceedings were in fact not agency grants, but adjudication in accordance with the law of statute and precedent, including a full trial proceeding that results in an estoppel. Accordingly, she argued, IPR proceedings went beyond simple administrative actions and merited a full review under the clear error standard.

Merck’s petition for certiorari

Following the Federal Circuit’s denial of rehearing en banc, Merck petitioned the Supreme Court for certiorari. Merck asked the Court to consider two issues. First, Merck asked the Court to review whether the Zurko decision, or other authority, required that IPR proceedings be reviewed under the deferential “substantial evidence” standard, or whether the statutory scheme and legislative history of the AIA evinces Congress’s intent to apply the less deferential “clear error” standard. Merck argued that Zurko was based on Section 706 of the APA, which provides standards for judicial review of administrative holdings. However, Merck argued, Section 706 has an exception not addressed by Zurko: namely, that where a post-APA statute “expressly” excludes the APA’s review standards, Section 706 does not apply. For example, in Marcello v. Bonds, the Supreme Court held that Congress clearly excluded the APA’s review standards from applying to deportation proceedings under certain post-APA legislation. Marcello v. Bonds, 349 U.S. 302, 310 (1955). Merck argued that the AIA, like the immigration statute in Marcello, clearly showed that Congress did not intend for the APA’s review standards to apply to IPR proceedings. Although the Federal Circuit analyzed the applicability of Section 706 to the AIA in In re Gartside, the Federal Circuit’s leading case in the wake of Zurko, Merck argued that Gartside did not specifically analyze IPRs—instead, Gartside mistakenly took the Zurko holding to mean that the substantial evidence standard would apply to every review of PTO decisions, without considering whether, through the AIA, Congress had expressly excluded the APA’s review standards from applying to IPR proceedings.

Merck sought Supreme Court review of the Federal Circuit’s decision for a number of reasons. Merck argued that: First, the application of an incorrect and unduly deferential standard of review would lead to the affirmance of incorrect decisions on patent validity, which is precisely what Congress was trying to avoid by enacting the AIA. Second, Zurko did not address the situation here because Zurko issued years before the AIA and did not address the terms under which a subsequent statute might be exempt from the review provisions set forth in Section 706 of the APA. Third, Zurko was factually distinguishable because it dealt with an appeal that was subject to multiple levels of agency review, whereas the present case dealt with an adversarial proceeding reviewable only by the Federal Circuit. Fourth, the growing popularity of IPRs means that the standard of review affects not only this case, but increasingly more cases every year. Finally, Merck pointed to language from both the majority and dissenting opinions in the panel decision appeal suggesting that a different standard of review would be outcome-determinative in this case, showing the importance of the proper review standard and the appropriateness of this case for the Court’s review: Judge Newman, in dissent, wrote that “[o]n questions that are close, as here illustrated, the standard of review can affect the result,” and the majority acknowledged that “another factfinder may have reasonably evaluated Merck’s evidence… differently,” explicitly attributing its holding to the fact that “the [PTAB’s] conclusion… is supported by substantial evidence.”

Merck also raised another basis for Supreme Court review, namely that the Federal Circuit exceeded its authority in relying on the PTAB’s “implied” finding of reasonable expectation of success. Merck argued that Supreme Court precedent required that a reasonable expectation of success analysis must be explicit, clearly disclosed, and adequately sustained. The PTAB made no explicit ruling on reasonable expectation of success, Merck argued, and the law did not allow the Federal Circuit to “imply” such an analysis: where the PTAB did not make a ruling on reasonable expectation of success, the Federal Circuit was required to overturn or remand the PTAB’s determination for failure to meet KSR’s requirement of an explicit analysis of expectation of success. KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007). Furthermore, Merck argued, the Federal Circuit’s approach injected uncertainty in the IPR process: by allowing the Federal Circuit to make additional findings not present in the PTAB’s original opinion, litigants will be uneasy and confused by PTAB decisions, not knowing if those decisions have any finality.

Gnosis’s response to Merck’s petition for certiorari

In its response to Merck’s petition, Gnosis argued that a recent Supreme Court case, Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016) found that IPRs in many respects resemble a specialized agency review, and thus should be reviewed at the appellate level the same way as any other agency determination, i.e. under the substantive evidence standard. Gnosis argued that it was unclear from the legislative history whether Congress intended the same standard of review to apply to both district court proceedings and PTAB proceedings—indeed, Congress viewed the expertise of PTAB judges to be superior to that of juries and may have wanted to give them more deference. Gnosis also disagreed that the majority opinion in the panel decision thought that a different standard of appellate review mandated a different outcome; in fact, Gnosis pointed out, the majority found that the PTAB presented “strong evidence of obviousness,” implying that the outcome would have been the same under the clear error standard.

As for Merck’s argument regarding the propriety of affirming the PTAB’s decision absent in an explicit analysis of the reasonable expectation of success, Gnosis argued that Merck ignored the facts of the case. Gnosis argued that in refuting Merck’s “teaching away” argument, the PTAB found that the specified combination of Serfontein, Marazza, and Ubbink would be “viable,” a synonym for successful. Thus, Gnosis argued, a finding of reasonable expectation of success was encompassed in the PTAB’s decision, and the Federal Circuit’s ruling that the PTAB decision implicitly found a reasonable expectation of success was consistent with legal precedent.

Conclusion—Denial of certiorari

On 11 October 2016, the Supreme Court’s denied Merck’s petition for certiorari. The Supreme Court’s denial could impact the decision to litigate patent validity in the PTAB as opposed to litigation in federal court. With its denial, the Supreme Court maintained the status quo where the more deferential “substantial evidence” standard is the proper standard for reviewing obviousness decisions in IPR proceedings. Unless Congress legislatively changes the standard of review, parties litigating validity in the PTAB now have essentially one bite at the apple, with less of a chance for substantive appellate review at the Federal Circuit. Thus, parties should give it their all when litigating patent validity before the judges of the PTAB, knowing that there might not be a good chance of reversing the decision on appeal.