The Problematical IPR Proceedings of the AIA: BRI, Reviewability, Constitutionality

Commonly known as the “patent killer,” Federal Circuit review of decisions in the inter partes review (IPR) proceedings by the Patent Trial and Appeal Board (PTAB) enacted through the AIA (which I usually refer to as the “Abominable Inane Act”) has begun in earnest. In three related decisions (most recently including a denial of rehearing en banc by a badly divided 6-5 decision issued concurrently with reissuance of the earlier panel decision) titled In re Cuozzo Speed Technologies, the Federal Circuit has held: (1) claim construction in IPR proceedings is governed by the prosecution standard of “broadest reasonable interpretation,” rather than the adjudicatory standard applied in the district courts (i.e., claim terms have their “ordinary and customary meaning” per the 2004 Federal Circuit decision of Phillips v. AHW Corp.); and (2) the Federal Circuit lacks appellate jurisdiction to review the PTAB’s decision to institute an IPR proceeding, even if such review is requested of an IPR proceeding which is (a) final and (b) is alleged to be instituted improperly. A vociferous dissent was jointly filed by five Federal Circuit judges (Chief Judge Prost, as well as Judges O’Malley, Newman, Moore, and Reyna) from the denial of rehearing on the applicability of BRI to IPR proceedings. Besides filing a separate dissent in the en banc decision, Judge Newman also filed a scathing dissent in the original and reissued In re Cuozzo Speed Technologies panel decisions which additionally challenged the majority’s view on the lack of appellate reviewability of an improperly instituted IPR proceeding.

Besides the extremely valid and persuasive arguments made by the dissenters in these three In re Cuozzo Speed Technologies decisions on holdings (1) and (2), with respect to holding (2) there is an equally valid and persuasive argument that, whether or not the AIA permits appellate review of improperly instituted IPR proceedings, the Administrative Procedures Act (APA) clearly permits such appellate review, something all of the judges of the Federal Circuit, as well as the patentee, completely blipped over.

But there is an even larger “storm cloud” currently percolating up to both the Federal Circuit (MCM Portfolio v. Hewlett-Packard, currently on appeal from the PTAB) and the Fourth Circuit (Cooper v. Lee, currently on appeal from the Eastern District of Virginia): can an Article I tribunal, such as the PTAB, invalidate a granted patent (which is acknowledged to be “intangible property” under 35 U.S.C. § 261), or does our Constitution mandate (in view of the Fifth Amendment right to “due process,” the Seventh Amendment right to “trial by jury,” as well as generally by the “separation of powers” doctrine) that the validity of a granted patent may only be adjudicated by an Article III tribunal, such as a district court? And if the IPR provisions do fall as being constitutionally invalid, is the whole validity of the AIA now in jeopardy? As some have cogently argued, the various provisions (including those relating to IPRs) of the AIA may not be “severable,” thus potentially causing a chain reaction which could doom the remainder of the Abominable Inane Act to legal oblivion.

Applicability of BRI to IPR which Is an Adjudicatory Proceeding

Briefly, under the broadest reasonable interpretation (BRI) standard, claim terms are given their broadest reasonable construction and without importing limitations into the claims from the patent specification. See MPEP § 2111. The policy underlying the BRI standard is that a patent applicant is free to amend pending claims during prosecution, thus applying the BRI standard may reduce the possibility that claims would be interpreted to have broader scope than might be justified in view of the relevant prior art. Put differently, under BRI, the scope of the claim being interpreted for the purposes of validity is essentially construed “broadly” and within “reason” to include a potentially wider range of prior art than might otherwise be permitted under the more restrictive adjudicatory standard of Phillips that the claim terms be interpreted in view of their “ordinary and customary meaning,” including how those claim terms are defined by the patent specification.

As noted above, a key presumption of the BRI standard is that the patent applicant is “free to amend pending claims.” But as anyone who has any familiarity with IPR proceedings knows, the patentee is not truly “free to amend” the claims of a patent in an IPR proceeding. Instead, the PTAB has rarely granted motions by the patentee to amend claims in patents challenged during IPR proceedings, and only under the most restrictive requirement that patentee fully demonstrate that such amended claims will overcome the validity challenge being made. In short, whatever right to amend such claims exists in IPR proceedings is extremely “limited.”

In the Cuozzo Speed Technologies decisions, the patentee argued that the PTAB shouldn’t have applied the BRI standard to IPR proceedings based essentially on the following arguments: (1) the BRI standard was inappropriate for adjudicatory proceedings such IPRs, especially given the limited ability to amend claims during such proceedings; and (2) the USPTO lacked rule making authority to make BRI the claim construction standard for such IPR proceedings.

The bare majority in the panel decisions, as well as the bare majority in the denial of rehearing en banc rejected these arguments. The majority in all of these decisions acknowledged that that IPR statute did not explicitly provide that the BRI standard be applied to IPR proceedings, but instead referred to the approval of the BRI standard by the Federal Circuit in a variety of other proceedings which included “examinations, interferences, and post-grant proceedings such as reissues and reexaminations.” The majority then argued that there was no indication that the AIA (which enacted the IPR proceedings) “was designed to change the claim construction standard (i.e., the BRI standard) that the [USPTO] has applied for more than 100 years.” Given that Congress was “well aware” that BRI standard was the “prevailing rule” in USPTO proceedings prior to enacting the AIA, the majority argued that it could “be inferred that Congress impliedly adopted the existing rule of adopting” the BRI standard.

But as the dissenters from the denial of rehearing en banc (as well as Judge Newman’s dissent in the panel decisions) screamed, that “impliedly adopted” argument only goes so far. First, silence by Congress “has no meaning in this context” as Congress, in enacting the IPR proceeding in the AIA “was not legislating within an already existing regime.” Second, existing Federal Circuit law “not only fails to support the conclusion drawn by the panel majority, it points to the opposite result,” namely that the BRI standard only applies to proceedings “prior to patent issuance,” citing the 1969 CCPA decision of In re Prater, as well as the 2007 and 1989 and Federal Circuit decisions of In re Buszard and In re Zietz.

Third, the dissenter’s addressed the panel majority’s conclusion that “we must defer to the [USPTO]’s action” as it relates to adopting the BRI standard in IPR proceedings in view of subsections (2) and (4) of 35 U.S.C. § 316. As correctly observed by the dissenter’s, these subsections “are consistent with Congress’ previous grants of authority to prescribe procedural regulations” (citing the 2008 Federal Circuit case of Cooper Techs Co. v. Dudas), thus no Chevron deference should be given to the USPTO’s adoption of BRI as the claim construction standard for IPR proceedings. And even if adoption of the BRI standard “might be properly classified as procedural,” deference was still not warranted as such adoption was “contrary to the intent of Congress.” In any event, even if Chevron deference were applicable, the dissenter’s would have found adoption of the BRI standard in IPR proceedings “unreasonable.”

The next (and most feeble argument) offered by the majority in the panel decisions in favor of the BRI standard was that the ability to amend claims in IPR proceedings “are not materially different in that respect” from other USPTO proceedings. But as Judge Newman might wryly comment, that argument won’t even pass the “chuckle test.” As even the majority conceded, while the opportunity to amend in IPR proceedings is “available,” it is nonetheless “cabined,” including being “limited to a single amendment.” Even that concession was an understatement as, in practice, getting the PTAB to approve any amendment to patent claims in an IPR proceeding was exceedingly rare, as well as requiring the patentee to figuratively “jump through hoops” to get such amendments approved by the PTAB. As observed by the dissenters: “Even the panel majority acknowledges the adjudicatory nature and limited amendment process of IPRs.” In addition, the dissenters rightly questioned how such a limited amendment process “fits within our prior case law emphasizing the ‘readily’ available nature of amendments in other proceedings in which the [BRI standard] is appropriate.”

As David Boundy has astutely pointed out in his recent article Why Administrative Law Matters to Patent Attorneys with respect to the Cuozzo Speed Technologies decisions, there is another fundamental flaw with IPR proceedings specific to the denial of the patentee’s motion to amend its patent which would also undermine applying BRI as the claim construction standard: failure by the USPTO to promulgate those IPR regulations properly. Such failure unfortunately evidences a continuing pattern by the USPTO to play “fast and loose” with the rulemaking procedures, including compliance with the Regulatory Flexibility Act (RFA) and the Paperwork Reduction Act (PRA). As witnessed by the fiasco with the proposed claim-continuation rules in the Tafas/GSK cases, as well as OMB punting an earlier proposed version of the USPTO’s appeal rules, compliance with such RFA and PRA statutes is not a mere “technicality.” Instead, the OMB, as well as others such as David Boundy and me, view such compliance as a serious matter and rightly so. More significantly for IPRs, as David Boundy’s article observes: “During the rulemaking process for the [USPTO]’s AIA regulations, several of the comment letters noted procedural deficiencies in the [USPTO]’s Notices of Proposed Rulemaking and its supporting materials. The letters warned that these deficiencies would expose the PTAB’s decisions [such as in IPRs] to challenge because the PTAB’s regulations were not validly promulgated. The oversights were not corrected before the final regulations were published.”

Regrettably, none of these administrative “faux pas” in promulgating the IPR rules were brought to light by the patentee in these Cuozzo Speed Technologies decisions. But that omission still leaves others free to bring these serious administrative “deficiencies” to the attention of the Federal Circuit (and potentially even the Fourth Circuit) in later cases. How any Federal Circuit judge can ignore such fundamental violations of administrative rulemaking will require judicial “hand waving” and “hoop jumping” even greater than that proffered by the Federal Circuit majority in these Cuozzo Speed Technologies decisions.

Reviewability of an Erroneous Institution of IPR by Appeal

The patentee also argued that the IPR proceeding was improperly instituted with respect to certain patent claims because the PTAB relied upon certain alleged prior art that was not properly identified in the IPR petition, something IPR regulations required. The prior 2014 Federal Circuit case of St. Jude Medical v. Volcano Corp. ruled that a failure to institute an IPR proceeding was not reviewable on appeal in view of 35 U.S.C. § 314(d) (entitled “No Appeal”) which says: “The determination by the Director whether to institute an [IPR] under this section shall be final and nonappealable.” As characterized by the majority in the Cuozzo Speed Technologies panel decisions, the holding in St. Jude “precludes interlocutory review of decisions whether to institute IPRs,” and, in dicta, had suggested that 35 U.S.C. § 314(d) “may well preclude all review by any route.” The majority in Cuozzo Speed Technologies now made that dicta in St. Jude its holding, concluding that 35 U.S.C. § 314(d) “prohibits review of the decision to institute [IPRs] even after a final decision.” (The panel majority in Cuozzo Speed Technologies also suggested a less than inviting alternative to the patentee for challenging an improperly instituted IPR, namely a petition for mandamus.)

In dissent in the Cuozzo Speed Technologies panel decisions, Newman disagreed with the panel majority holding that the propriety of instituting an IPR couldn’t be reviewed on appeal in view of 35 U.S.C. § 314(d). (Strangely, in her separate dissent in the denial of rehearing en banc, Newman didn’t restate her disagreement with this majority panel holding on whether an improperly instituted IPR could be challenged on appeal.) As characterized by Newman, the purpose of 35 U.S.C. § 314(d) was to “control delay and harassing filings” of IPRs, i.e., it only addressed interlocutory reviews, not reviews of final decisions. Newman then observed that such “review is not barred [by 35 U.S.C. § 314(d)] of material aspects that were decided in connection with the petition to institute [the IPR].” In short, 35 U.S.C. § 314(d) “does not preclude judicial review of whether the statute was applied in accordance with its legislated scope.”

But as David Boundy’s article again astutely observes, the Federal Circuit in Cuozzo Speed Technologies never addresses the impact of the Administrative Procedure Act (APA) and specifically 5 U.S.C. § 706(2)(D) (which essentially says that such requested review for compliance by the agency with its own rules must be granted unless the subsequent statute specifically and explicitly excludes this provision, which the AIA most certainly does not): “[A]dministrative law requires a court to exercise jurisdiction to review agency compliance with the agency’s own regulations and guidance, and to set aside agency action issued ‘without observance of procedure required by law.’” As further observed by David Boundy (including pointing out that the Supreme Court has addressed other similar review preclusion statutes on “about a dozen occasions”) review preclusion statutes like 35 U.S.C. § 314(d) “must be read narrowly, to preclude review only of the ultimate decision on the merits, leaving intact jurisdiction to review whether the agency departed from [its] procedural requirements.” In conclusion, David Boundy observes that the “Supreme Court has applied this principle to statutes even broader and clearer than [35 U.S.C. §314(d)], and to government interests far more fundamental.” And while the patentee in Cuozzo Speed Technologies didn’t raise this highly valid argument of procedural impropriety, others are most certainly free to raise it in subsequent cases which allege improper compliance by the PTAB with its IPR regulations.

The Constitutionality of IPRs to Allow an Article I Tribunal to Invalidate Granted Patents

The biggest “nose of the camel” in the IPR “tent” is whether an Article I tribunal, which the PTAB obviously is, can be given (delegated) authority by Congress to invalidate (either wholly or partially) a granted patent. As the appellants in the pending appeals of MCM Portfolio, as well as Cooper persuasively argue, there is binding Supreme Court precedent over a century old which strongly suggests Congress cannot delegate such authority to the PTAB, but only to an Article III court.

The primary case cited for the AIA’s unconstitutional delegation of authority to the PTAB to hold granted patents wholly or partially invalid in IPRs is the 1898 Supreme Court case of McCormick Harvesting Co. v. Aultman. In the context of a reissue proceeding initiated by the inventor, McCormick Harvesting held that the Commissioner of Patents had no constitutional authority to revoke or cancel such a granted patent:

It has been settled by repeated decisions of this court that when a patent has received the signature of the Secretary of the Interior, countersigned by the Commissioner of Patents, and has had affixed to it the seal of the Patent Office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. … It has become the property of the patentee, and as such is entitled to the same legal protection as other property.

McCormick Harvesting further observes:

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.

Even so, there is Federal Circuit precedent which has distinguished the applicability of McCormick Harvesting to reexamination proceedings. In the 1985 Federal Circuit case of Patlex Corp. v. Mossinghoff, a Federal Circuit panel opinion (authored by Judge Newman) held that a reexamination instituted by other than the patentee didn’t violate “due process” under the Fifth Amendment, the guarantee of “trial by jury” under the Seventh Amendment, the authority of the federal courts under Article III, or the “separation of powers” doctrine generally under the Constitution. Without going into a lengthy and esoteric discussion that will most likely cause an Excedrin-size headache, Newman’s basis for distinguishing McCormick Harvesting involves the difference between “public rights” and “private rights.” In brief, those situations involving “public rights” may be resolved by Article I tribunals (such as the PTAB), while “private rights” may only be resolved by an Article III court. In Patlex, Newman deemed patents to be a “public right,” and thus reexamination of a patent could be constitutionally carried out by an Article I tribunal, i.e., the USPTO.

In addition, Newman distinguished McCormick Harvesting as involving reissue for correction of errors by the inventor, initiated by the inventor. By contrast, the purpose of reexamination is “to correct errors made by the government, to remedy defective governmental (not private) action, and if need be to remove patents that should never have been granted.” Accordingly, Newman concluded that McCormick Harvesting didn’t “[forbid] Congress to authorize reexamination to correct governmental mistakes, even against the will of the patent owner.”

With due respect to significant legal prowess of Judge Newman on patent law jurisprudence, one has to wonder whether the distinctions she makes in Patlex would hold up in an en banc Federal Circuit decision, and particularly if brought before the Supreme Court. Such potential fragility of the Patlex ruling as valid precedent is duly noted by the patentees in both MCM Portfolio and Cooper. As also duly noted by the patentees in both these cases, Judge Newman’s understanding at the time of Patlex of the case law doctrinal basis for “public rights” versus “private rights” may have changed in view of subsequent and more recent Supreme Court case law. Accordingly, under the current case law doctrine, the patentees in both MCM Portfolio and Cooper argue that patents would be viewed as “private rights,” meaning only an Article III court may properly and constitutionally adjudicate the validity of such granted patents.

If either (and especially both) the Federal Circuit and the Fourth Circuit in MCM Portfolio and Cooper rule that IPRs enacted through the AIA are an unconstitutional delegation of authority to an Article I tribunal, another significant “shoe” may then be “dropped” on the AIA. As many have observed, there is no “severability clause” in the AIA. And as those many have also observed, the lack of such a ““severability clause” in the AIA was not an oversight by Congress, but a deliberate omission to ensure passage of it. (A “severability clause” was present in earlier drafts of the AIA, but was then removed from the final version.) In other words, it could be very validly argued that if the IPR provision is ruled to be unconstitutional (invalid) by the courts, the entire AIA could completely fall because the invalid IPR provision cannot be “severed” from the remaining (and so far) valid provisions of the AIA. And if that argument is made, it will be very interesting to see what “hoop jumping,” “hand waving,” and so forth is exerted to try to save the Abominable Inane Act from self-destruction due to the deliberate “folly” of the Congress which enacted it.

*© 2015 Eric W. Guttag. Posted on IPWatchdog on July 13, 2015.