CAFC Says District Court Must Decide Whether Fintiv Required Notice-and-Comment Rulemaking

“The Supreme Court’s holding as to the Director’s institution discretion ‘does not cover, and we see no basis for extending it to protect as well, the Director’s choice of whether to use notice-and-comment rulemaking to announce instructions for the institution decision.’”

https://depositphotos.com/10042948/stock-illustration-red-boxing-glove-conceptual-vector.htmlThe U.S. Court of Appeals for the Federal Circuit (CAFC) on Monday said that Apple has standing to pursue its claim that the U.S. Patent and Trademark Office (USPTO) Director’s instructions to the Patent Trial and Appeal Board (PTAB) regarding discretionary denial practice under Apple Inc. v. Fintiv, Inc. were made without proper notice-and-comment rulemaking. The CAFC affirmed the district court’s ruling on two other challenges brought by Apple, Cisco, Intel and Edwards Lifesciences, but said that at least Apple had standing to present the challenge that the discretionary denial instructions were improperly issued and reversed on that ground.

The appeal relates to Apple’s and the other companies’ challenge of the Fintiv instructions governing the PTAB’s discretion to deny institution of inter partes review (IPR) proceedings based on their contention that they will result in too many denials. The “Fintiv instructions” came to be after then-USPTO Director Andrei Iancu designated as precedential, “and hence binding on Board panels,” two decisions denying IPR petitions: NHK Spring Co. v. Intri-Plex Technologies, Inc., and Apple Inc. v. Fintiv, Inc.

Apple and the other companies brought the appeal before USPTO Director Kathi Vidal updated the discretionary denial instructions via her June 21, 2022, “compelling merits” memo. However, according to a footnote in the CAFC’s opinion, neither side suggested mootness of the appeal based on that memo or subsequent clarifications, which also were not made via notice-and-comment rulemaking. “A challenge might not be mooted by a change in challenged conduct if the alteration is itself subject to the same asserted deficiency as its predecessor,” noted the opinion.

The companies asserted three grounds under the Administrative Procedure Act (APA): (1) that the Director acted contrary to the IPR provisions of the patent statute; (2) that the Fintiv instructions are arbitrary and capricious; and (3) that the Fintiv instructions were issued without compliance with the notice-and-comment rulemaking requirements.

The United States District Court for the Northern District of California ultimately granted the USPTO’s motion to dismiss the challenges, stating they were to Director actions that were not reviewable. The district court specifically said that the “35 U.S.C. § 314(d), together with Cuozzo and Thryv, precluded review because, to rule on the challenges, the court ‘would have to analyze questions that are closely tied to the application and interpretation of statutes’ governing institution decisions.”

On appeal, the parties and the CAFC treated the district court’s dismissal as invoking an exclusion from the APA that is applicable where “statutes preclude judicial review.” The plaintiffs argued to the CAFC that the district court erred in this determination, and that the Director’s instructions both violate the IPR statute and are arbitrary and capricious. The CAFC disagreed and affirmed the district court on those challenges, but said that the third challenge brought on appeal, that the instructions were not promulgated via notice-and-comment rulemaking, was not barred under 5 U.S.C. § 701(a)(1) nor § 701(a)(2) and that at least Apple had standing to bring it, reversing the district court on that aspect of the dismissal.

A Critical Distinction

The plaintiffs relied on SAS Institute, Inc. v. Iancu for their first two challenges, but the CAFC explained that the challenge there was “critically different” from the present case. In SAS, the subject of the challenge had to do with interpretation of the scope of a final written decision, whereas here, the challenges “have institution as their direct, immediate, express subject.” Although the plaintiffs in this case were challenging the Director’s instructions generally, rather than referring to a specific institution decision, the CAFC said this logic still applies:

“The present case, unlike Thryv and Cuozzo, does not involve a petition-specific challenge, i.e., a challenge to a Director determination whether to institute a review requested in an individual petition. Rather, it involves a challenge to the Director’s instructions to the Board, as delegatee, regarding how to exercise the Director’s institution discretion. But we conclude that the IPR statute’s preclusion of review, as now settled by the Supreme Court based on statutory text, legislative history, and structure, must encompass preclusion of review of the content-focused challenges to the instructions at issue here.”

The CAFC thus ultimately affirmed the district court’s dismissal of the first two challenges under U.S.C. § 701(a)(1).

Absence of Rulemaking is Reviewable

As to the third challenge, that the Director was required, by 35 U.S.C. § 116 together with 5 U.S.C. § 553, to promulgate the institution instructions through notice-and-comment rulemaking procedures, the CAFC said the Supreme Court’s holding as to the Director’s institution discretion “does not cover, and we see no basis for extending it to protect as well, the Director’s choice of whether to use notice-and-comment rulemaking to announce instructions for the institution decision.”

The CAFC cited Lincoln v. Vigil to support this conclusion. There, the Supreme Court decided, on the merits, that § 553 did not require notice-and-comment rulemaking for the agency decision at issue, but “was not asked to and did not hold unreviewable…the agency’s choice not to use notice-and-comment rule-making.” The CAFC further explained that the government in Lincoln noted that: “The rulemaking provision of the APA, 5 U.S.C. 553, may itself provide ‘law to apply’ for reviewing agency procedures, even if there is otherwise no jurisdiction to review the substance of an agency decision,” a distinction the CAFC said applies in the present case.

Turning to Apple’s standing, the CAFC found that Apple “is non-speculatively threatened with harm to a legally protected interest from the challenged instructions.” Although Apple’s amended complaint asserted harm with “only brief elaboration,” the CAFC said “that is enough in this case.” Because Apple is a large enough player that it has been sued for infringement on a regular basis for many years and then subsequently petitioned for IPR of the patents in those suits, some of the petitions have been denied—notably, for Apple, in the Fintiv case itself—”based on the institution instructions at issue,” said the court. The CAFC added: “The applicable standard for redressability here is also met. There is a genuine possibility that the instructions would be changed in a way favorable to Apple in a notice-and-comment rulemaking.”

The case was thus remanded to the district court for review of the challenge to the absence of notice-and-comment rulemaking on the merits.

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Author: almoond

 

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4 comments so far.

  • [Avatar for Pro Say]
    Pro Say
    March 14, 2023 05:56 pm

    “As with the largest U.S. banks being too big to be held responsible for their actions, we rule today that the largest corporations are too big to be held responsible for their infringements.”

    — The CAFC

  • [Avatar for F22strike]
    F22strike
    March 14, 2023 02:46 pm

    The triad of Congress, the SCOTUS, and the USPTO has made US patents essentially worthless.

    Patents on the most valuable inventions will be serially attacked in IPRs and in seemingly endless court litigation.

    More and more companies are pursuing the policy of efficient infringement which has been facilitated by the triad. They prefer to endure years of IPRs and court proceeding, and pay millions in legal fees, rather than enter into a license agreement or design around the asserted patent claims.

    The US patent system is clearly broken and big-tech has bought off Congress to ensure that there will be no fix. The voting public couldn’t care less about the health of the US patent system. The SCOTUS will not fix the broken US patent system. The USPTO certainly will not fix itself.

    CEOs and general counsels of companies will pare back their US patent application filings substantially. Patent prosecution is a dwindling profession in the US.

    The US economy and the well-being of its citizens will suffer irreparable damage due to the systematic destruction of the US patent system. This is not what our founding fathers envisioned.

  • [Avatar for roger]
    roger
    March 14, 2023 03:01 am

    This opinion could not point out any better just how skewed the United States patent system is against inventors. As mentioned here in these very comments, US Inventor (an inventor-member organization) filed a similar civil action, including other individual inventors being listed as co-plaintiff, but it was ruled that Plaintiffs in that case had lack of standing.

    But here, in this Apple et al v. Vidal case, the CAFC says that the Plaintiff has standing because they apparently are accused of infringement on a very regular basis: “Apple is a repeat player, in the relevant respect, on a very large scale.”

    The CAFC continues: “On a regular basis, for many years, [Apple] has been sued for infringement (giving it a concrete stake) and then petitioned for an IPR of patent claims at issue in that suit. … [I]t is far from speculative that this sequence will be repeated in the future, considering Apple’s size and use of a wide variety of technologies and the realistically perceived advantages of the IPR process, including the applicability of a lighter burden of persuasion to prevail in challenging a patent claim than the burden applicable in district court.”

    The CAFC continues: “It is not unduly conjectural, but ‘the predictable effect’ of the instructions [] that the challenged instructions, which are plausibly alleged to cause more denials of institution than might otherwise occur, will continue causing harm in the form of denial of the benefits of IPRs linked to the concrete interest possessed by an infringement defendant—even though Apple cannot specify in advance individual IPR requests (filed with an infringement suit pending) that will be denied.”

    The CAFC even goes so far to say: “There is a genuine possibility that the instructions would be changed in a way favorable to Apple in a notice-and-comment rulemaking. That possibility is confirmed by the fact that the Director, in response to comments, announced favorable clarifications in the June 2020 Memo.”

    Yes, you read that right.

    – Although the CAFC cannot prove it, the CAFC says that Apple will continue to infringe (“this sequence will be repeated in the future”)
    – Although the CAFC cannot prove it, the CAFC says that the challenged instructions will cause more denials of institution (“the challenged instructions [] are plausibly alleged to cause more denials of institution than might otherwise occur”)
    – Although Apple cannot specify in advance individual IPR requests that will be denied, the CAFC says that Apple will continue to be harmed because of the Director’s instructions (“the ‘predictable effect’ of the instructions … will continue causing harm in the form of denial of the benefits of IPRs linked to the concrete interest possessed by an infringement defendant”)
    – Although the CAFC cannot prove it, the CAFC says that a future notice-and-comment rulemaking will be favorable to Apple.

    As such, the CAFC says that Plaintiff has standing.

    Not only does the CAFC here apply conjecture upon conjecture upon conjecture, but they prioritize the benefits of instituting IPRs for infringement defendants (giving notable consideration to a company’s size and ‘perceived advantages of the IPR process’) over that of the benefits of denying institutions of IPRs for inventors.

    The CAFC says that “Apple is non-speculatively threatened with harm to a legally protected interest from the challenged instructions.”

    But what about all patent holders being non-speculatively threatened with harm to their legally protected interest (their patent rights) from the Director’s instructions without proper notice-and-comment rulemaking???

    How might an inventor have gained standing here arguing the opposite of the Plaintiffs in this case? Would an inventor have been able to gain standing?

  • [Avatar for Josh Malone]
    Josh Malone
    March 13, 2023 04:38 pm

    When inventors filed a similar suit, the appeals court ruled that we lacked standing because we are not harmed by IPRs. But inventors are harmed, with total annihilation of patent rights. These giant corporations are not harmed, because they have other means to contest the validity of a patent. Everywhere we turn we find inequities in the U.S. justice system that favor big corporations over individuals and small businesses.