Coalition of Tech Plaintiffs Challenge Discretionary Denials Under the PTAB’s “NHK-Fintiv Rule”

September 6, 2020

Alphabet (Google), Apple, Cisco, and Intel have jointly sued Andrei Iancu (5:20-cv-06218) in his capacity as the Director of the USPTO in a new Northern District of California complaint. The coplaintiffs challenge what they call the “NHK-Fintiv rule”—an agency action that permits discretionary refusal to institute trial in response to a petition for inter partes review (IPR) based on a set of “factors relating to the pendency of parallel patent infringement litigation” in district court. The complaint alleges that the NHK-Fintiv rule violates the America Invents Act (AIA), is arbitrary and capricious, and is procedurally unsound, not having been “adopted through notice-and-comment rulemaking” under the Administrative Procedure Act (APA). The suit seeks to stop application of the rule, which the coplaintiffs contend “has dramatically reduced the availability of IPR, regardless of the weakness of the patent claims being challenged, thereby undermining IPR’s central role in protecting a strong patent system”.

The Patent Trial and Appeal Board (PTAB) first noted that the existence and stage of related district court litigation could be considered in denying institution of trial in its September 2018 decision in NHK Spring v. Intri-Plex Technologies, (IPR2018-00752). The panel denying institution expressly did so on traditional bases, analyzing its discretion under 35 USC Section 325(d), which permits denial when “the same or substantially the same prior art or arguments previously were presented to the Office”. However, the panel went further, also deciding “that an additional factor supports denying institution under Section 314(a)”. The patent owner had offered two additional reasons not to institute trial: (1) because the petitioner knew about the challenged patent for over a decade but waited to challenge it; and (2) because concurrent trials before the PTAB and in district court would be inefficient, “given the status of the district court proceeding between the parties”.

The panel rejected the timing argument but endorsed the appeal to efficiency. The panel ruled that Section 314 (a)—which reads, “The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition filed under section 311 and any response filed under section 313 shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition”—is not “encompassed by Section 325(d)”. In fact, the panel noted that the August 2018 Update to the Office Patent Trial Practice Guide invited “parties to address additional factors that may bear on the Board’s discretionary decision to institute or not institute under Section 314(a)”. Thus, while grounding its refusal to institute trial in a traditional analysis, the panel ruled that where the PTAB trial would not end until September 2019, months after a five-day jury trial, scheduled for March 2019, the former would “be an inefficient use of Board resources”.

The Director designated the NHK decision “precedential” in May 2019. Per the agency, “a precedential decision establishes binding authority concerning major policy or procedural issues, or other issues of exceptional importance, including constitutional questions, important issues regarding statutes, rules, and regulations, important issues regarding case law, or issues of broad applicability to the Board”.

In the subsequent Fintiv proceeding (IPR2020-00019), the panel went further, basing its refusal to institute trial solely on Section 314(a) discretion and applying six factors to be considered in any such analysis: “(1) whether the court granted a stay or evidence exists that one may be granted if [an IPR] proceeding is instituted; (2) proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision; (3) investment in the parallel proceeding by the court and the parties; (4) overlap between issues raised in the petition and in the parallel proceedings; (5) whether the petitioner and the defendant in the parallel proceeding are the same party; and (6) other circumstances that impact the Board’s exercise of discretion including the merits”. Under this rubric, the panel ruled that a PTAB trial, in light of ongoing litigation in the Western District of Texas, would be an inefficient use of Board resources.

In May of this year, the Director designated the Fintiv decision precedential. Thus, according to the coplaintiffs, was the NHK-Fintiv rule born, through the agency’s internal designation process, rather than through procedures outlined in the APA, which governs how administrative agency rules are to be made.

Apple, Cisco, Google, and Intel have collectively asked the Northern District of California to “declare the NHK-Fintiv rule unlawful and set it aside under the APA. The Court should further permanently enjoin the Director from applying the rule or the non-statutory factors it incorporates to deny institution of IPR”. The case has been initially assigned to District Judge Edward J. Davila.

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