Stewart Expands on ‘Settled Expectations’ Criteria in Interim Discretionary Denial Process

In the latest Director Discretionary Denial decision, Acting U.S. Patent and Trademark Office (USPTO) Director Coke Morgan Stewart granted AXA Power’s request for discretionary denial based on “settled expectations” of the patent owner—a doctrine that is shaping up to be a key factor in Stewart’s interim discretionary denial process.

Under the “Interim Processes for PTAB Workload Management” and subsequent memorandum to all PTAB Administrative Patent Judges (APJs) detailing the process, to ensure the PTAB can continue to meet its statutory obligations relating to ex parte appeals, the Director will exercise her discretion under 35 U.S.C. 314(a) and 324(a) to determine whether discretionary denial is appropriate for any petition for IPR or post-grant review (PGR). In May, Stewart issued the first four decisions under the new process, granting two of the requests for discretionary denial and rejecting the other two. Since then, 15 more decisions have been issued, including this most recent one, issued June 18.

On June 9, Stewart first issued a decision in which she granted discretionary denial based on the patent owner’s argument that “because one of the patents has been in force since as early as 2012 and Petitioner was aware of it as early as 2013…settled expectations favor denial of institution.” Stewart found this argument persuasive despite several other factors that weighed against granting discretionary denial. That decision was seen as creating a new basis for discretionary denial.

In yesterday’s decision, Stewart explained that the patent owner’s arguments about the petition failing under Section 325(d)—when “the same or substantially the same prior art or arguments were presented to the Office”—were not persuasive and would normally counsel against discretionary denial, but the fact that a) the patent has been in force almost eight years and b) the petitioner failed to provide any “persuasive reasoning why an inter partes review is an appropriate use of Office resources” favors discretionary denial and outweighs other factors.

Stewart further outlined her reasoning with respect to settled expectations, explaining that: “Although there is no bright-line rule on when expectations become settled, in general, the longer the patent has been in force, the more settled expectations should be.”

She added that this approach comports with approaches in other areas, such as for filing infringement lawsuits, where “no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.”

IPWatchdog Founder and CEO Gene Quinn said that Stewart’s approach is “exactly right,” particularly in this case, where the petitioner failed to provide specific reasons that the proceeding should be instituted. Quinn explained:

“If the petitioner can’t or won’t explain why the IPR should go forward, that alone could be dispositive since they are supposed to have the burden. And we require trademark owners to challenge quickly or lose rights to challenge and then be ultimately prevented from challenging at all after five years. I’ve never understood why we aren’t doing the same with patents. A trademark can last forever but a patent only 20 years. It seems backwards to allow a challenge to a patent at any time but a forever trademark only after five years. And, while I know challengers are complaining about the application of ‘settled expectations,’ their complaints are not persuasive. They moan that “we weren’t sued until now, so we didn’t want to challenge.” Boo-hoo. Challengers don’t want a standing requirement so they can challenge at any time without being sued. That means a challenge can come anytime, and if it doesn’t, they have no legitimate complaint. They shouldn’t be able to have their cake and eat it too.”