Authored Brian S. Mudge
In its first decision addressing the post-grant patent trial program recently established by Congress, the Supreme Court in Cuozzo1 has given a resounding victory to the U.S. Patent & Trademark Office. Rejecting a challenge to the PTO’s handling of these new proceedings, the ruling confirms that the Office has broad powers to determine how the cases will be tried and the standards used to govern them. As a result, patent owners will continue to face a difficult path before the PTO in defending challenges to patent validity — one that, to date, has proven to be significantly more hazardous than the courts to patentees.
Cuozzo involves two key issues which have been hotly debated since the Patent Trial and Appeal Board — the adjudicative arm of the PTO — began hearing these post-grant trial proceedings: (1) whether the Board’s decision to institute trial is reviewable on appeal, and (2) whether the “broadest reasonable construction” is the proper standard for interpreting the claims of the patent under review.
Cuozzo Case Background
Beginning in 2012, the Patent Trial and Appeal Board (“PTAB” or “Board”) has conducted administrative trial proceedings in which a party can challenge patent validity by filing a petition for review. Inter Partes review (“IPR”) proceedings permit a party to assert grounds of unpatentability based on prior art patents and printed publications.2 Trials proceed in two phases: first, the PTAB reviews the petition and supporting evidence, along with any preliminary response by the patent owner, and determines whether to institute a trial — along with the grounds for unpatentability to be tried. If trial is instituted, the parties take limited discovery and file a response and reply, respectively. The patent owner may also seek to amend the claims. Then, after oral argument, the PTAB issues its final written decision. On the other hand, if the petition is denied, the case ends without a trial.
Cuozzo’s patent involves a device for displaying vehicle speed and the relevant speed limit. Garmin filed an IPR petition challenging claims of Cuozzo’s patent as obvious over various sets of prior art. Garmin’s obviousness challenge to one claim (claim 17) included references not asserted against two other challenged claims (claims 10 and 14). The PTAB instituted review of claim 17 as challenged, but did not institute review of claims 10 and 14 on the specific combinations of references cited in the petition. Instead, the PTAB sua sponte instituted review of claims 10 and 14 based on the same combination of references cited against claim 17. At the conclusion of the IPR, the Board issued a final decision in which it construed the claim terms under the broadest reasonable construction standard, found all three claims obvious, and denied Cuozzo’s motion to amend.
Cuozzo appealed the PTAB’s final decision to the Federal Circuit. Garmin withdrew (based on a settlement agreement), and the PTO (via Director Lee) intervened. The Federal Circuit affirmed the PTAB’s rulings, holding that the statute precludes any review of the decision to institute, even after a final decision, and that the IPR statutory provisions do not limit the PTAB’s authority in determining patentability to those grounds alleged in the petition. The court also ruled that the PTAB correctly applied the broadest reasonable construction, which was the prevailing standard applied by the PTO in reexamination and reissue proceedings, reasoning that Congress implicitly adopted this standard. Alternatively, in the court’s view, the PTO was within its rulemaking authority to adopt the broadest reasonable construction standard. The court declined en banc review.
At the Supreme Court, Cuozzo argued that the PTAB’s decision to try claims 10 and 14 –which Cuozzo deemed ultra vires because the grounds at trial for those claims were not in the petition — was appealable after the PTAB’s final decision. Because the PTAB exceeded its statutory authority, according to Cuozzo, the decision was subject to judicial review; otherwise, the PTO would effectively have a “blank check” to rewrite its jurisdiction.
Cuozzo also contended that the Board should have applied the Phillips3 ordinary meaning standard for claim construction used in district court litigation, rather than the broadest reasonable construction, arguing that IPRs replaced the prior reexamination regime with a court-like adjudicatory trial on validity and are thus intended to be a substitute for district court proceedings. According to Cuozzo, patents are being invalidated at a high rate in significant part because the PTAB uses broadest reasonable construction, which introduces uncertainty and permits conflicting validity determinations. As part of its argument that patent trials are more like a court proceeding and less like an examination, Cuozzo pointed to the low percentage of amendments granted, compared to the ability to enter amendments as of right in examination and reexamination.
Director Lee, for the PTO, argued that the decision below is correct. According to Lee, the statute plainly and completely bars all appeals of institution decisions, not merely interlocutory appeals, furthering the Congressional goal of permitting the PTO to revisit issued patents and improving patent quality. Lee also argued that the PTO properly exercised its authority in adopting the regulation applying the broadest reasonable construction, the same standard it has used for over 100 years in other proceedings. According to Lee, the standard is appropriate because patent owners have the ability to amend claims in the post grant proceedings — making post grant trials more like examination than district court litigation.
Supreme Court Backs the PTO
Ultimately, the Supreme Court sided with the PTO on both issues.
With respect to appealability, the Court held that the statute plainly barred any appeal of the Board’s decision to institute trial. Given the express statutory language, Congress clearly intended to bar appeals of the decision to institute even after the final trial decision, rather than merely ban interlocutory review. Barring such appeals is consistent with an important Congressional objective of enabling the PTO to revisit and revise issued patents that should not have been granted.
However, the bar is limited to appeals relating to the decision to institute a trial, which would include the specific grounds for trial as determined by the PTAB, and matters closely related to the PTO’s determination. Under the Court’s ruling, judicial review is not necessarily precluded for constitutional questions (such as due process), questions as to other statutory provisions not closely tied to the institution determination, or questions as to whether the PTO has exceeded its statutory authority — for example, by instituting trial on grounds of indefiniteness under section 112 (which is not one of the grounds for challenging a patent under the IPR statutory provisions). Indeed, according to the Court, judicial review would remain available under the Administrative Procedure Act where the PTO acts contrary to constitutional rights, beyond statutory jurisdiction, or in an arbitrary and capricious manner.
Here, Cuozzo’s appeal of the specific grounds tried by the PTAB — namely, that the petition did not specify the precise grounds for trial of claims 10 and 14, amounts to little more than a challenge to the PTAB’s determination that the information presented in the petition warranted IPR review. Thus, the Court held, appeal of this issue is barred.
As for claim interpretation, the Court ruled that the regulation establishing use of the “broadest reasonable construction” standard was a reasonable exercise by the PTO of its rulemaking authority. The statutory provisions establishing inter partes review did not specify a claim interpretation standard, but did grant the PTO authority to establish regulations governing IPR review. And where a statute leaves a gap or is ambiguous as to a particular matter, the courts will defer, under Chevron,4 to agency interpretation in enacting regulations if reasonable in light of the of the text, nature and purpose of the statute.
Here, according to the Court, there was such a “gap,” as the statute did not unambiguously establish either claim construction standard. Moreover, the PTO’s determination to use the broadest reasonable construction is consistent with the PTO’s long practice in other proceedings such as reexaminations and interferences.
The Court also rejected Cuozzo’s position that IPRs are intended as a surrogate for district court proceedings on validity. Rather, they are intended as a hybrid action having characteristics of an administrative proceeding. For example, in IPRs and other post-grant proceedings, patent owners may seek to amend claims, the PTAB may continue to conduct a trial even if the challenger withdraws, and the burden of proof is by a preponderance of the evidence (as in examination) rather than clear and convincing evidence (as in district court). Though acknowledging the low rate for amending claims, the Court was not persuaded that this alters the nature of the proceedings — rather, in its view, this may reflect that no amendments could save those patents, which never should have issued in the first place. Indeed, the Court reasoned that in changing the regime from proceedings called reexamination to trial-like proceedings called reviews, Congress did not express any intent to change the basic purpose, which is to give the PTO a “second look” — a chance to reexamine its prior decision to issue the patent. Accordingly, the nature of these new review proceedings does not compel a district court-like claim construction standard.
Implications of the Cuozzo Ruling
In affirming the Cuozzo decisions below, the Supreme Court has placed its imprimatur on the new post-grant validity regime established by Congress and shaped by the Patent & Trademark Office.
Under the ruling, the PTO/PTAB will have nearly unfettered discretion in determining which cases should proceed to trial as well as what issues should be tried. Though the Court cautioned that rogue decisions by the PTAB which are clearly outside the bounds of its statutory authority — such as initiating an IPR trial based on indefiniteness — would remain subject to judicial review, as a practical matter so long as the PTAB bases a trial institution decision on statutory grounds using information in the petition, there will be little recourse by either party in challenging the grounds set for trial.
Likewise, the decision vests substantial leeway with the Patent Office in establishing rules governing patent trials at the PTO. The Supreme Court clearly stated that the PTO’s rulemaking authority is not limited to “procedural” issues, but rather extends to substantive rules such as establishing the standard to be used for construing claims. And even though the PTO’s rules may lead to inconsistent validity results between a patent review before the PTAB and a ruling in district court, inconsistent results have long been possible (as noted by the Supreme Court) given the dual tracks available for patent validity challenges. So long as rules established by the PTO are reasonable, the courts are unlikely to disturb them and will instead defer to the PTO under Chevron.
Finally, any change to the PTO’s rules concerning the post grant proceedings will have to come from Congress (or the PTO), not the courts. In particular, application of the “broadest reasonable construction” standard for interpreting patent claims has been a hot button issue, and many have advocated for applying the Phillips ordinary meaning standard instead. Such a change would result in reducing the rate of unpatentability findings and giving courts better guidance on the meaning of claims — since the PTAB would then be applying the same standard as used in the courts. However, no change to the current regime appears imminent, and it remains to be seen whether there will be sufficient support in Congress to alter the standard.
Acknowledgement The author wishes to thank Ksenia Takhistova for her contributions to this article.
1Cuozzo Speed Technologies, LLC v. Lee, No. 15-446 (Sup. Ct. June 20, 2016).
2Other proceedings, known as post grant review and covered business method review, permit challenges on additional grounds.
3Phillips v. AWH Corp., 415 F. 3d 1303 (Fed. Cir. 2005)
4Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984).