“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 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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