USPTO and Tech Companies Push Back Against Inventor Association’s Bid to Pause PTAB Trials

October 21, 2020

In August, Alphabet (Google), Apple, Cisco, and Intel sued USPTO Director Andrei Iancu over the NHK-Fintiv rule, a set of Patent Trial and Appeal Board (PTAB) decisions that allows the Board to consider the status of parallel district litigation in deciding whether to institute an America Invents Act (AIA) review petition. Most notably, the rule permits the PTAB to deny institution when the district court case’s scheduled trial date is too close to the PTAB proceeding’s final decision date. Last month, however, those tech companies’ lawsuit became the setting for another battle when inventors’ industry association US Inventor and several other entities moved to intervene, and then weeks later moved to enjoin the PTAB from instituting trial in any AIA reviews until the USPTO puts forth rules in compliance with the notice-and-comment provisions of the Administrative Procedure Act (APA). Both the USPTO and the plaintiffs have now filed briefs in opposition: the Patent Office has argued that US Inventor’s injunction request “lacks merit at every level”, while the plaintiffs—beyond their immediate substantive objections—assert that US Inventor “seek[s] to transform this case into an entirely different lawsuit”.

As noted in RPX’s recent third-quarter review, the NHK-Fintiv factor allowing the consideration of a district court trial date (one of six factors) can be particularly impactful for frequent petitioner-defendants. The reason pertains to timing: a district court defendant may only file an inter partes review (IPR) petition within one year of getting served with an infringement complaint. Since defendants often do not learn what claims are asserted against them until later in litigation, IPRs are often filed toward the end of that window—a window that can become even narrower if that defendant is sued in a district like the Western District of Texas that prioritizes relatively quick time to trial. Such defendants wishing to avoid a discretionary denial by the PTAB under the NHK-Fintiv rule may therefore find themselves in a race of sorts against the district court’s trial date to file a PTAB petition.

The tech company plaintiffs cited this practical impact in their August 31 complaint, asserting that the NHK-Fintiv rule “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 plaintiffs further assert that the rule conflicts with the AIA and is arbitrary and capricious. Additionally, they argue that it is procedurally unsound—also raising their own concerns over the rule not having been “adopted through notice-and-comment rulemaking” under the APA, on which grounds they seek to set the rule aside. The plaintiffs’ district court action was accompanied by an August 27 petition for writ of mandamus filed by coplaintiff Cisco in two IPRs, challenging the NHK-Fintiv rule under the AIA and APA before the Federal Circuit.

As noted above, US Inventor also challenges the NHK-Fintiv rule under the APA, though the entity’s proposed complaint in intervention—naming potential coplaintiffs 360 Heros, Inc.; Clearplay, Inc.; Dareltech LLC; E-Watch, Inc.; Larry Golden; Tinnus Enterprises, LLC; and World Source Enterprises, LLC— naturally focuses on instances where the PTAB’s discretion actually does result in the institution of trial. Specifically, the complaint asserts that the rule has led to institution in AIA reviews that allegedly would “have been denied or not have been brought had the USPTO issued lawful regulations governing discretionary denial prior to the bringing of those petitions.”

On September 25, US Inventor and World Source Enterprises then filed a motion requesting a temporary restraining order (TRO) and a preliminary injunction seeking to enjoin the USPTO (and by extension the PTAB) “from instituting AIA trials against any patent owner until such time as Defendant promulgates rules for the discretionary denial of AIA trial institution petitions in accordance with the notice-and-comment provisions of the APA”. The movants argue that they are likely to succeed on the merits based on the notion that the AIA requires the USPTO Director to go through the formal rulemaking process for such regulations, citing in part language from 35 USC Section 316(a) stating “that the Director ‘shall’ promulgate regulations on what constitutes ‘sufficient grounds” to institute trial under Section 314(a)”. US Inventor and World Source Enterprises further argue that the Federal Circuit recently confirmed in its Facebook v. Windy City decision that the designation of decisions as precedential by the Precedential Opinion Panel “are not notice-and-comment rulemaking”. The movants’ motion identifies as the requisite irreparable harm the alleged fact that their “property is at stake, not just damages” (citing 35 USC Section 261) and that they have been deprived of notice-and-comment rights through the USPTO Director’s alleged failure to implement the NHK-Fintiv rule in compliance with the APA.

On September 30, District Judge Edward J. Davila set a hearing on the motion for an injunction—though noting that the motion was premature because the court had not yet ruled on the movants’ motion to intervene, so the proposed intervenors were not yet parties and therefore “have no standing to seek relief”. The court also expressed skepticism about the emergency nature of the motion in light of the movants’ two stipulations to extend the briefing schedule for their motion to intervene.

The USPTO’s Brief in Opposition

On October 19, the USPTO opposed the movants’ request for a TRO and preliminary injunction, stating (as noted above) that the motion “lacks merit at every level”. In particular, the USPTO argued that the AIA gives the agency’s Director the “unreviewable discretion” whether to institute an AIA review trial, “even if the merits of the petition warrant institution”, under the US Supreme Court’s decision in Cuozzo Speed Technologies v. Lee. US Inventor’s and World Source’s reliance on the APA amounts to an attempt to “circumvent the AIA’s plain language and obtain review of the Director’s decision-making through a procedural backdoor”, argued the USPTO. The agency explained that the AIA does not require the Director to set regulations governing the exercise of discretion over institution—it merely requires the Director to establish regulations governing the standard regarding a petition’s sufficiency for institution. The USPTO pointed out that the Director had done so in 2012—issuing a final rule laying out such standards establishing, in part, that the Board may deny petitions regardless of their likelihood of success on the merits. Furthermore, the USPTO argued that the Director’s authority to set precedent—including the rule here at issue—because Congress made him or her responsible for “providing policy direction and management supervision for the” USPTO.

For this and other reasons, the USPTO continued, the movants cannot prevail on the merits—noting that their claim to compel rulemaking lacks merit because 1) the USPTO has not denied any rulemaking petition, and 2) it already fulfilled its rulemaking obligation in 2012, as noted above. Additionally, the Patent Office argued that US Inventor and World Source are likely to fail in their claim to set aside the Director’s designation of the decisions underpinning the NHK-Fintiv rule as precedential, because the USPTO holds the discretion to deny institution as a matter of statutory authority and because “issuing guidance to the Board is not a final agency action subject to review under the APA”. Regardless, the USPTO continued, “the Director is well within his authority to issue such guidance without engaging in notice-and-comment rulemaking.”

Furthermore, the USPTO asserted that US Inventor and World Source had failed to show irreparable harm through “the Director’s alleged failure to engage in notice-and-comment rulemaking”, arguing that 1) “ambiguity in a legal standard cannot be a concrete injury”, 2) “patent holders do not have a right to discretionary denial of IPR petitions, so a rule governing the exercise of that discretion does not impair their rights”; and 3) “being compelled to participate in an adjudicative proceeding is not itself a concrete harm, so institution of IPR proceedings cannot be an irreparable harm”.

Lastly, the USPTO argued that the movants had not sufficiently shown that the “extraordinarily broad remedy” of a nationwide preliminary injunction barring all PTAB trial institutions was warranted—noting that “US Inventor does not even attempt to justify” such relief. Moreover, such an injunction “plainly defies Congress’s provision that IPR institution decisions move forward under a strict statutory timeline”.

The Plaintiff’s Opposition Brief

That same day, the plaintiffs filed their own motion in opposition to US Inventor’s and World Source’s request for a TRO and preliminary injunction—arguing, as also mentioned above, that the movants “seek to transform this case into an entirely different lawsuit” through their attempt to intervene in the first place. As for the movants’ request for injunctive relief, the plaintiffs also noted—as did the USPTO—that the agency already conducted the rulemaking required of it in 2012, so it could not have “withheld” any rulemaking as argued in the proposed complaint in intervention. For that reason, the plaintiffs assert that “US Inventor’s real contention”—“that the PTO’s existing regulations are ‘incomplete,’ . . . because (in US Inventor’s view) they ‘omit[] discretionary considerations’ that US Inventor would like the PTO to adopt—fails, in part because this is not required under the same statutory authority leading to the 2012 rule.

Additionally, the plaintiffs argued that US Inventor is not entitled to an order halting all new AIA review trials. Here, the plaintiffs cited the principle that, “[l]ike any remedy, an injunction may issue only upon a showing of some ‘violation of law’ and must be tailored to provide redress for that violation”. More specifically, they argued that “[t]he APA does not authorize a court to ‘set aside’ or enjoin agency action that is not proven unlawful”, a “limitation [that also] applies to the Court’s inherent equitable powers”. Because a temporary injunction is “not even similar to, let alone of the same character as, the only final relief available—i.e., an order compelling the PTO to undertake the supposedly withheld or delayed rulemaking and setting aside the rules adopted through precedential designation”—such relief is unavailable to US Inventor and World Source, explained the plaintiffs.

Finally, the plaintiffs asserted that US Inventor’s delay in filing suit undercuts its assertion of irreparable harm, noting that the PTAB has been instituting AIA review trials since 2012, while the Board has exercised its discretion under the General Plastic factors since September 2017 and under the first of the NHK-Fintiv line of cases—in NHK Spring v. Intri-Plex Technologies (IPR2018-00752)—since May 2019. The fact that US Inventor did nothing until late August 2020 “in the face of years of IPRs and other proceedings conducted without its desired regulations confirms that its asserted irreparable harm is illusory”. US Inventor’s specific allegations of irreparable harm also fail, the plaintiffs argued, contending that its assertion of “mere procedural harm” is insufficient. The plaintiffs also rejected its arguments that “additional regulations would yield more or clearer guidance from the PTO”, and “that the supposed lack of guidance causes its members to incur greater ‘economic burden and uncertainty’”, as both unduly speculative.

For more details on the plaintiffs’ suit against Director Iancu, see “Coalition of Tech Plaintiffs Challenge Discretionary Denials Under the PTAB’s ‘NHK-Fintiv Rule’” (September 2020).

Another US Inventor Brief: Alleged Institution Bias at the PTAB

Finally, as noted by US Inventor in its proposed complaint in intervention, the association “frequently files amicus briefs in pending court proceedings to advance the point of view of its inventor-membership”. In one such brief, filed last month in another company’s IPR appeal, US Inventor argued that it has found “statistically significant” evidence that the incentive compensation structure of the PTAB leadership and its Administrative Patent Judges (APJs) favors the institution of trials to increase the PTAB’s caseload, hence creating a bias towards institution.

Specifically, USI claims to have identified an “October Effect” whereby APJs are supposedly more likely to institute less meritorious petitions in October than in September—the first and last months of the USPTO’s fiscal year, respectively, which purportedly align with the performance evaluation cycle of the APJs. USI suggests that APJs are “stuff[ing] the pipeline” in the beginning of each fiscal year to “guarantee … future work”.

RPX has since taken a close look at US Inventor’s analysis. This review, which recreates the study and tests the association’s hypothesis using RPX data, reveals that US Inventor’s analysis suffers from fundamental definitional and methodological issues, thereby making its conclusion exceedingly fragile.

For the full RPX study, see “Data Analysis: Amicus Brief on Alleged PTAB Institution Bias Rests on Shaky Foundation” (October 2020).

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