Supreme Court Denies Petitions Challenging NHK-Fintiv and Section 285 Exceptionality Determination

On March 21, the U.S. Supreme Court issued an order list denying petitions for writs of certiorari in a pair of patent cases that had worked their way up to the nation’s highest court. In denying these petitions, the Supreme Court turns down Intel Corporation’s challenge to the NHK-Fintiv discretionary denial framework at the Patent Trial and Appeal Board (PTAB), while the Court also dismissed an appeal asking whether a patent infringement case can be determined to be exceptional for purposes of awarding attorney’s fees without a finding that the patent owner engaged in litigation misconduct.

Intel: Congress Did Not Envision NHK–Fintiv When It Enacted the AIA

Last December, Intel filed a petition for writ of certiorari in the hopes of getting another chance to invalidate patents owned by VLSI Technology, including a pair of VLSI patents supporting a $2.175 billion damages award handed down by a Western Texas jury last March. Prior to that verdict, Intel filed a series of petitions for inter partes review (IPR) proceedings at the PTAB and appealed a dozen of those petitions that were denied institution under the PTAB’s NHK–Fintiv framework, which considers relevant factors from parallel infringement proceedings in U.S. district court to determine if petitioners are asserting grounds for invalidity and prior art. Under this framework, the PTAB will exercise the U.S. Patent and Trademark Office’s discretion under 35 U.S.C. § 314(a) to deny institution if the district court is likely to reach a determination on validity on substantially the same grounds and prior art as asserted in the IPR petition.

Intel, rehashing arguments that were also raised in a letter to Commerce Secretary Gina Raimondo signed by Intel’s general counsel, and a separate Northern California lawsuit alleging procedural invalidity under the Administrative Procedures Act (APA), told the Supreme Court that the NHK–Fintiv framework sharply undermines access to IPRs in a way that was not envisioned by Congress when it enacted IPRs by passing the America Invents Act (AIA) into law in 2011. Intel contended that the only statutory restriction on IPRs is the one year time-bar found in 35 U.S.C. § 315(b). Intel also raised arguments under the APA, arguing to the U.S. Court of Appeals for the Federal Circuit that the NHK–Fintiv framework was arbitrary and capricious, as well as procedurally invalid as it was adopted as an agency rule without notice and comment rulemaking.

The Federal Circuit wound up dismissing Intel’s arguments last May, ruling that the provision in Section 314(d) proscribing appeals of Director decisions whether or not to institute IPR proceedings eliminated appellate jurisdiction to consider Intel’s case. Intel’s petition argued that, under the Supreme Court’s decision in Cuozzo Speed Technologies v. Lee (2016), appeals of IPR institution denials are only barred when based on a statutory technicality and not when the USPTO acts outside of its statutory limits. Intel also pointed out that the Supreme Court analyzed the propriety of the PTAB’s IPR institution practice in SAS Institute v. Iancu (2017), which ended the PTAB’s practice of partial institutions and required validity determinations on every claim challenged by IPR petitioners. Intel’s petition also asked for the Supreme Court to direct the Federal Circuit to issue mandamus relief, which is theoretically available under other Federal Circuit decisions on PTAB appeals, directing the USPTO to eliminate the NHK–Fintiv framework for being an improper expansion of the agency’s authority.

While VLSI waived the right to respond as the respondent in Intel’s petition, Unified Patents, the sixth-most active entity in terms of IPR petitions filed, filed an amicus brief supporting Intel’s petition for writ. Unified argued that the NHK–Fintiv framework affects the majority of cases filed at the PTAB, which has become the busiest patent venue in the United States in the decade since the AIA was enacted. Unified also contended that the USPTO was relying on non-statutory factors to determine when a discretionary denial should issue, and that the Director’s authority to deny institution under Section 314(a) was intended by Congress to be a “safety valve to control the PTAB’s backlog, not a tool for making policy.”

Heat On-The-Fly: District Court Abused Discretion by Failing to Consider Manner of Litigation

The Supreme Court’s recent order list also denied a petition for writ filed by Heat On-The-Fly, a patent owner challenging the Federal Circuit’s standard for determining that an infringement suit meets exceptionality standards under 35 U.S.C. § 285. In previous litigation in district court, Heat On-The-Fly’s patent claims covering a method for heating water on demand during hydraulic fracturing processes were found to be unenforceable for inequitable conduct; the inventor failed to disclose 61 commercial uses of the claimed method prior to the critical date of the first patent application filed on the invention. After remand from the Federal Circuit, which vacated the district court’s denial of attorney’s fees to the defendants, the district court found that Heat On-The-Fly’s case was exceptional under Section 285 despite zero findings of litigation misconduct, a ruling that was affirmed by the Federal Circuit in a precedential decision clarifying the exceptionality standard.

Heat On-The-Fly had argued that, although the Supreme Court’s 2014 decision in Octane Fitness v. ICON Health & Fitness established a totality of the circumstances test that gives the district court a great amount of discretion in making exceptionality determinations, Federal Circuit decisions have added uncertainty to the scope of factors that a district court must consider. The petition argued that Heat On-The-Fly’s case contradicted the Federal Circuit’s own holding in Electronic Communication Technologies v. ShoppersChoice.com (2020), in which the appellate court determined that the district court had abused its discretion in finding Electronic Communication Technologies’ case exceptional, in part because the district court did not address the plaintiff’s manner of litigation during the totality of the circumstances test.

In Heat On-The-Fly’s case, the Federal Circuit held that Heat On-The-Fly’s manner of litigation was unreasonable because it “persist[ed] in its positions.” Heat On-The-Fly’s petition argued that this finding goes to the substantive strength of its litigating position and not to the unreasonable manner of the litigation itself. “Thus, the district court failed to consider an undisputedly relevant factor,” the petition reads. “That is an abuse of discretion, particularly in light of the district court’s prior determination that [Heat On-The-Fly] did not engage in such misconduct.”

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