USPTO Publishes Long-Awaited Proposed Rule on PTAB Changes

The U.S. Patent and Trademark Office (USPTO) today announced a Notice of Proposed Rulemaking (NPRM) that will be officially published in the Federal Register tomorrow and that addresses a subset of issues from the controversial April 2023 Advance Notice of Proposed Rulemaking (ANPRM).

USPTO Director Kathi Vidal received criticism following the ANPRM, most notably from Congress. In a House IP Subcommittee meeting held last year, members of the Subcommittee expressed confusion about the ANPRM and suggested Vidal may have been exceeding her authority with some of the proposals. Vidal attempted to clarify that the ANPRM included both stakeholder and USPTO proposals that the Office was looking for feedback on and said some may not ultimately make it into the official NPRM, which was initially expected by fall of 2023.

In a July 2023 Senate IP Subcommittee hearing, Vidal told Subcommittee Chair Chris Coons (D-DE) the Office would issue two separate NPRMS—one substantive and one procedural.

Today’s NPRM proposes to codify several changes around serial and parallel petitions practices; rules for briefing on discretionary denial requests; termination and settlement agreements; and the factors for consideration of discretionary denials. It also summarizes the comments received on these topics in response to both the ANPRM and an October 2020 Request for Comments (RFC) on “Discretion To Institute Trials Before the Patent Trial and Appeal Board.” The NPRM also noted that “the Office continues to consider issuing proposed rules, with associated opportunities to comment, on other topics raised in the ANPRM.”

The Office received more than 14,500 comments on the ANPRM and said that “the vast majority of comments were from individuals, whose views generally fell on the opposite ends of the spectrum—stating either that AIA review is an important protection against unwarranted litigation and unpatentable claims and the Office should have fewer bases for discretionarily denying review of patents or that AIA review is being misused, for example, to the detriment of small inventors.”

Serial and Parallel Petitions

The first of the changes proposed in the NPRM is to define “serial” and “parallel” petitions. The NPRM defines a serial petition as:

“[A] petition that (1) challenges overlapping claims of the same patent that have already been challenged by the petitioner, the petitioner’s real party in interest, or a privy of the petitioner; and (2) is filed after (a) the filing of a patent owner preliminary response to the first petition; or (b) the expiration of the period for filing such a response under § 42.107(a)(2) or § 42.207(a)(2), or as otherwise ordered, if no preliminary response to the first petition is filed.”

According to the NPRM, comments were mixed as to whether the definition of a serial petition should encompass petitions filed by parties other than the original petitioner, and opinions also varied on what degree of relationship between the parties is sufficient to bring a subsequent petition under the definition of a serial petition. The NPRM ultimately is proposing that applying the common law concepts of “real party in interest” and “privity” to discretion in the serial petition context “carries out Congress’s desire that the Director balance concerns about harassment in exercising discretion.”

A parallel petition is defined as:

“[T]wo or more petitions that (1) challenge the same patent and (2) are filed by the same petitioner on or before: (a) the filing of a patent owner preliminary response to any of the petitions, or (b) the due date set forth in § 42.107(a)(2) or § 42.207(a)(2) for filing a patent owner preliminary response to the first petition (if no patent owner preliminary response to the petitions is filed).”

Comments received to the ANPRM proposal on this point included concerns that the definition was overly restrictive because it focused on petitions challenging the same patent rather than overlapping claims of the patent. But the NPRM said the Office is moving forward with the “same patent” definition in order “to provide a mechanism for the Board to review filing behaviors to assess whether there are any abuses or misuses of the post-grant procedures, including ones that may place unwarranted and unnecessary burdens on the patent owner (e.g., filing, without explanation, multiple petitions challenging a single patent where each petition challenges a single claim of the patent).”

However, said the NPRM, if a petition that is considered parallel challenges different claims “or different art relevant to the different claim sets,” the PTAB can still exercise its discretion to institute both petitions.

Discretionary Denial Briefing

The NPRM’s proposal to allow briefing on discretionary denial in a separate request is perhaps the most substantive contained in today’s NPRM, Stephen McBride of Carmichael IP told IPWatchdog. The rule would allow a patent owner to separately file a request for discretionary denial without Board authorization, “limited to addressing any applicable discretionary institution issues and factors.” Both the patent owner’s briefing and the petitioner’s opposition would be limited to 10 pages, while the patent owner sur-reply would be limited to five pages. The Board could still exercise its discretion to authorize the patent owner to include discretionary denial issues in the patent owner preliminary response “when the circumstances warrant.”

“In general, this proposal is good news for Petitioners because the Petition no longer has to address discretionary denial issues and the Petitioner gets a right of response,” McBride said. “The timing of the briefing (due a month before the preliminary response) and the guidance for the supplemental briefing to refer to the preliminary response for merits discussions appear likely to generate significant pushback from commenters.”

In its discussion of the comments received, the USPTO said that “most commenters favored separate briefing” because “it would free up space in the petitions and patent owner responses to address the merits and allow more fulsome discussion of discretionary denial issues.” While the notice acknowledged that some commenters were concerned that separate briefing would favor petitioners “because it would give a petitioner an automatic right to respond to a patent owner preliminary response,” the Office said the NPRM addresses that by limiting the petitioner’s opposition to the issues raised in the discretionary denial request, “and then allowing a patent owner the opportunity to file a reply brief limited to responding to the petitioner’s opposition.”

Termination and Settlement Agreements

The NPRM would revise the provisions for termination of a proceeding in view of a settlement to clarify that the PTAB “may terminate a proceeding on its own initiative before or after institution” and that “the parties may jointly move for termination of a proceeding, before or after institution.”

According to the NPRM, the settlement rate for America Invents Act (AIA) proceedings has been approximately 30% per year since FY2020, and 50% of those were pre-institution settlements each year. For that reason, the Office is proposing changes that would “ensure that pre-institution settlement agreements are filed with the Office, similar to post-institution settlement agreements.”

While some comments opposed this requirement on the grounds that the statute only requires post-institution settlements be filed, the NPRM explained:

“The statute requires the filing of settlement agreements made in connection with, or in contemplation of, the termination of a proceeding that has been instituted, and is silent on AIA pre-institution settlement. The proposed rule is promulgated within the Director’s authority to prescribe regulations establishing and governing an [inter partes review] IPR under the AIA provisions.”

Factors for Discretionary Denial

Finally, the NPRM proposes to codify existing PTAB practices for discretionarily denying inter partes review (IPR) proceedings. 37 CFR § 42.108(c) would be revised to add the specific considerations for denial of both petitions and joinder and paragraphs e through g would be added, addressing considerations for denial of parallel petitions challenging the same patent; the factors for institution of serial petitions; and discretion based on previously presented art or arguments.

In its discussion of the comments received on this topic, the NPRM noted that some commenters said discretionary denial contradicts Congressional intent by depriving parties of their ability to challenge patents via AIA proceedings and some said the Director does not have the authority to preclude serial and parallel petitions. But the NPRM said congress granted the Director the authority to institute review of post grant proceedings and nowhere requires it. Further, discretionary denial is warranted under 35 U.S.C. 316 and 326, “which require that ‘the Director shall consider the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings instituted under this chapter,’” said the NPRM.

The Director was also granted the authority to establish regulations governing how the AIA will be implemented and ultimately “the language and intent of the above statutes therefore support evaluating whether parallel or serial petitions advance the mission and vision of the Office to promote innovation or the intent behind the AIA to provide a less-expensive alternative to district court litigation when exercising the Director’s discretion to institute.”

The proposal implements current USPTO practice regarding the requirement that petitioners must demonstrate why parallel petitions should be allowed to proceed. “The proposed rule strikes a balance between denying all parallel petitions and instituting all parallel petitions that meet the statutory threshold for institution in 35 USC 314(a) and 35 USC 324(a) by requiring a showing by the petitioner of good cause as to why more than one petition is necessary,” said the NPRM.

With respect to adoption of the General Plastics factors, which are a list of factors the PTAB considers when deciding to institute an IPR, especially regarding serial petitions, the NPRM said that factors 6 and 7—which take into account “(6) the finite resources of the Board, and (7) the requirement to issue a final determination not later than one year after the date on which the Director notices institution of review”—are not proposed for regulatory adoption. This is “in light of stakeholder feedback that parties lack sufficient information to opine on the finite resources of the Board and the Board’s ability to issue a final determination within one year,” said the NPRM.

What’s Missing

Some of the more controversial issues in the ANPRM that did not make it into today’s proposal are discretionary denial of petitions brought by any “for-profit entity” that has not been sued or threatened with infringement of the challenged patent and the “compelling merits” standard for institution. And many practitioners remain hopeful that the PREVAIL Act, which addresses additional and more substantive changes, may still move forward.

Scott McKeown of Wolf Greenfield characterized the NPRM as a “missed opportunity” that could bring “further patent owner headaches.” Most notably, said McKeown, the proposal does not codify Section 314(a) practices under Apple Inc. v. Fintiv, Inc.  “Such discretionary denial practices exploded under the previous Director only to be reined in under the current Director via a guidance memo,” McKeown said. “This ping-pong action will continue across administrations unless and until regulations are issued.”

“Moving these arguments out of the patent owner preliminary response (POPR) to a 10-page document is an extreme disservice to Patent Owners. This is especially true as both issues of 325(d)/314(a) are often argued. Indeed, where the 314(a) issue is Fintiv and questions of a compelling prior art showing must also be addressed, this is plainly an inadequate amount of briefing space (which is currently ample in the POPR).

Finally, forcing the discretionary conversation into a separate filing  leaves only technical arguments for the POPR. Patent Owners are reluctant to make such arguments prior to institution and now may be limited to a 10-page discretionary paper and an empty POPR. The optics there would be problematic for Patent Owners. No way this proposal should make it to the final rule as written.”

Comments on today’s NPRM are due by 60 days from April 19, 2024, and must be submitted via the Federal eRulemaking Portal by entering the docket number PTO-P-2023-0048 on the homepage and clicking “search.”

This article was updated after publication to add Scott McKeown’s comments.