CAFC Affirms PTAB in First Inter Partes Review Appeal

Earlier today the United States Court of Appeals for the Federal Circuit issued its much anticipated decision in In re Cuozzo Speed Technologies, which is the first appeal of a final decision of the Patent Trial and Appeal Board (PTAB) in an Inter Partes Review (IPR) proceeding. For discussion of the oral argument see Patent Office Asks to Have Its Cake and Eat It Too.

Cuozzo Speed Technologies (“Cuozzo”) is the owner of U.S. Patent No. 6,778,074, which relates to a speed limit indicator and method for displaying speed and the relevant speed limit. On September 16, 2012, Garmin International, Inc. and Garmin USA, Inc. (collectively, “Garmin”) petitioned the United States Patent and Trademark Office (USPTO), requesting institution of an IPR with respect to claims 10, 14, and 17 of the ’074 patent. The IPR petition filed by Garmin was filed on the first day possible. Post grant procedures, such as IPRs, were created as part of the America Invents Act (AIA), but not available for use until the first anniversary of the law becoming effective.

Garmin contended that claim 10 was invalid as anticipated under 35 U.S.C. § 102(e) or as obvious under 35 U.S.C. § 103(a) and that claims 14 and 17 were obvious under § 103(a). The USPTO instituted IPR, determining that there was a reasonable likelihood that claims 10, 14, and 17 were obvious under § 103 over (1) U.S. Patent Nos. 6,633,811 (“Aumayer”), 3,980,041 (“Evans”), and 2,711,153 (“Wendt”); and/or (2) German Patent No. 197 55 470 (“Tegethoff”), U.S. Patent No. 6,515,596 (“Awada”), Evans, and Wendt. Although Garmin’s petition with respect to claim 17 included the grounds on which the PTO instituted review, the petition did not list Evans or Wendt as grounds for finding either claim 10 or claim 14 invalid.

Ultimately, the PTAB issued a final decision finding claims 10, 14, and 17 obvious. The Board additionally denied Cuozzo’s motion to amend the ’074 patent by substituting new claims 21, 22, and 23 for claims 10, 14, and 17.  The Board rejected the amendment because (1) substitute claim 21 lacked written description support as required by 35 U.S.C. § 112, and (2) the substitute claims would improperly enlarge the scope of the claims as construed by the Board.

On appeal to the Federal Circuit Cuozzo primarily raised several issues. First, Cuozzo argued that the IPR was improperly instituted by the USPTO because with respect to claims 10 and 14 the basis for granting the petition to institute the IPR was certain prior art not raised by the petitioner. Second, Cuozzo argued that the PTAB applied the incorrect standard when evaluating the scope of the claim.

Whether the USPTO properly instituted the IPR relative to claims 10 and 14 is a matter of great importance for several reasons: (1) pursuant to 35 U.S.C. 312(a)(3), a complete IPR petition requires that petitioner identify with particularity “the grounds on which the challenge to each claim is based,” and (2) 35 U.S.C. 314(d) provides that a USPTO decision to institute an IPR is not appealable. Previously, in St. Jude Med., Cardiology Div., Inc. v. Volcano Corp., the Federal Circuit ruled that 314(d) made it impossible for the Federal Circuit review a USPTO denial to institute an IPR proceeding. The decision in this case, however, extended that ruling and holds that the Federal Circuit is without authority to review the propriety of the institution of an IPR even after the conclusion of an IPR proceeding. Thus, the USPTO has unreviewable discretion to do whatever they want with respect to instituting IPRs, even in situations where petitions are clearly defective on their face.

Writing for the panel majority, Judge Dyk, who was joined by Judge Clevenger, explained that regardless of whether the USPTO properly should have instituted an IPR, the decision of the USPTO could not be reviewed or challenged even after a completed IPR proceeding. Dye wrote:

Contrary to Cuozzo’s contention, we hold that we lack jurisdiction to review the PTO’s decision to institute IPR… We conclude that § 314(d) prohibits review of the decision to institute IPR even after a final decision. On its face, the provision is not directed to precluding review only before a final decision. It is written to exclude all review of the decision whether to institute review.

Another issue raised by Cuozzo related to whether the PTAB should, when construing a claim in IPR, rely on the traditionally applied standard applied to review of applications, namely the “broadest reasonable interpretation” standard, or whether the more narrow standard applied by the district courts should be utilized. Not surprisingly, Judge Dyk found that the broadest reasonable interpretation standard is appropriate. He wrote:

There is no indication that the AIA was designed to change the claim construction standard that the PTO has applied for more than 100 years… Congress in enacting the AIA was well aware that the broadest reasonable interpretation standard was the prevailing rule. It can therefore be inferred that Congress impliedly adopted the existing rule of adopting the broadest reasonable construction.

Judge Newman participated in the decision and filed a dissent. The dissent is not a scathing indictment of the majority, but Newman does in a matter of fact manner explain that the majority is wrong. Newman makes a compelling argument with respect to the broadest reasonable interpretation standard, saying that by applying that standard to IPRs the Court if fundamentally dishonoring the intent of the statute in creating post grant review procedures.

Newman explains that the AIA created IPRs in order to provide a lower cost, quicker alternative for defendants to challenge the validity of patent claims. In order for IPR to operate as a surrogate to the more time consuming and costly patent litigation that occurs in district courts the PTAB must apply the same standard as used in the district courts. She explained:

This purpose was achieved by providing a new adjudicatory proceeding in the administrative agency, the Patent and Trademark Office in the Department of Commerce, whereby a newly formed Patent Trial and Appeal Board (PTAB) serves as a surrogate for district court litigation of patent validity…

[T]he panel majority authorizes and requires treating the claims of an issued patent in the same way as pending claims in the patent application stage, where claims are subject to the “broadest reasonable interpretation” examination protocol. The panel majority thus precludes achieving review of patent validity in Inter Partes Review comparable to that of the district courts, where validity is determined based on the correct claim construction, not an artificially “broadest” construction…

Ultimately, Judge Newman concluded that it is impossible for the USPTO to “serve as a surrogate for district court litigation if the PTAB does not apply the same law to the same evidence.”

Judge Newman was equally troubled by the fact that the panel majority has rendered the Federal Circuit incapable of reviewing USPTO decisions to institute IPR proceedings, which would effectively insulate the Office from any review and thereby allow the Office to disregard the statute, which they seem to have clearly done here with respect to claims 10 and 14. Newman asked: “Does this mean that such decisions can never be judicially reviewed, even if contrary to law, even if material to the final appealed judgment?” In answering her own question she wrote: “This ruling appears to impede full judicial review of the PTAB’s final decision…”

Newman would have interpreted 314(d) as preventing interlocutory appeals, not final reviews of a completed proceeding. She pointed out that preventing appellate review of an interlocutory appeal is routine, while preventing all judicial review is extraordinary and improper.

Not surprisingly, I find Judge Newman’s dissent to be better reasoned and more legally accurate. While 314(d) does clearly say that the decision to institute a review is not appealable, interpreting that to mean that the Federal Circuit cannot review the decision as part of its review of a final decision effectively means that an agency decision to institute a process to strip away vested property rights is immune from review by an Article III court. Even if that is what Congress intended it would seem to clearly violate at least the spirit of the bedrock Constitutional principles that ensure checks and balances between and among co-equal branches of government. If Congress could do this here with patent rights, which are also specifically mentioned in the Constitution then why couldn’t Congress prevent judicial review of decisions relating to real property? The interpretation of Judges Dyk and Clevenger is unprincipled, not bounded and fundamentally dangerous.

Similarly, it is impossible to ignore the fact that Congress wanted to provide an alternative to district court patent litigation with respect to reviewing validity of issued patents. If the post grant procedures of the AIA are an alternative to litigation logic demands that the same rules of interpreting claims that apply at the district court level apply to these alternative administrative proceedings.