USPTO Clarifies Post-Arthrex Director Review Process as Patent Owners Raise New Objections

  • July 23, 2021
  • Category: Patent Litigation Feature

A month after the US Supreme Court issued its June 21 decision in Arthrex, the wrangling over the impact of that ruling has begun to ramp up. In Arthrex, the Court left the Patent Trial and Appeal Board (PTAB) largely intact but gave the USPTO director the authority to rehear final validity decisions in America Invents Act (AIA) reviews. The Patent Office has since implemented that holding through an interim director review program, kicking off a battle over how that new process should affect existing appeals—and over whether Drew Hirshfeld, the Commissioner for Patents temporarily leading the agency, has the authority to wield that review power.

As detailed in RPX’s analysis, the Supreme Court held in Arthrex that the appointment of the PTAB’s administrative patent judges (APJs) violated the US Constitution’s Appointments Clause. The reason, held the Court, was that for the APJs to count as inferior officers—the category of executive branch official that does not require Senate confirmation—the USPTO director would need the power to review their final decisions on patent validity. The solution endorsed by a majority of the Court was to give the director that review authority, whereas beforehand only PTAB panels could rehear a final decision.

On June 29, the USPTO announced an interim director review procedure to implement the Arthrex holding, creating a separate process for director review of both IPR and post-grant review (PGR) decisions that will exist alongside the preexisting panel rehearing system. Under this new structure, a party dissatisfied with a panel’s final written decision has two options to fight that outcome within the PTAB: the dissatisfied party can (1) request director review of the final written decision, or (2) request panel rehearing. Should the party initially seek director review under the first option, a denial by the director removes the option to then request a panel rehearing. If the party first seeks panel rehearing, the party may only subsequently seek director review if the panel granted the rehearing request. The director’s review can address any issue; is conducted de novo (i.e., with no deference to the panel’s ruling); and can even be initiated sua sponte (without a request from either party), either in the first instance or after a panel grants or denies rehearing.

The Patent Office then clarified how the process will work in a July 20 update to its Arthrex Q&As” page, which it first published alongside its announcement of the director review program. Among the new information revealed were details on staffing, with that revised guidance explaining that an “advisory committee established by the Director” comprised of “members from various business units within” the USPTO will evaluate requests for director review and advise the director on whether they should be granted. While underscoring that the advisory committee is not limited to an “exclusive list of criteria”, the Q&A pages states that “petitions may warrant review if they if they include, for example, material errors of fact or law, matters that the Board misapprehended or overlooked, novel issues of law or policy, issues on which Board panel decisions are split, issues of particular importance to the Office or patent community, or inconsistencies with Office procedures, guidance, or decisions”. Similar criteria may be applied to PTAB decisions that the director reviews sua sponte, which are flagged for the director by an “internal management team” within the PTAB.

Other aspects of that process clarified in the update include how remanded rulings will be treated, with the USPTO stating that review requests for PTAB decisions appealed and then remanded due to Arthrex will be considered timely if filed within 30 days of a court’s remand order.

On June 21, the USPTO filed briefs in two PTAB appeals active before the Federal Circuit—one in a consolidated appeal of two covered business method reviews filed by patent owner New Vision Gaming & Development, and another in an appeal of an IPR filed by NPE Mobility WorkX, LLC—laying out in further detail how it believes such remands should proceed in light of Arthrex. The USPTO explains that under the “limited remand” established by Arthrex, a party is “not entitled to a hearing before a new panel of APJs”. Rather, the Patent Office argues that this remand should give the patent owners “the opportunity to request Director rehearing of the Board’s final written decisions consistent with the Board’s regulations and interim guidance”. Under such a limited remand, the USPTO asserts that the court should retain jurisdiction, enabling it to reactivate the same appeal should the director deny review.

The briefs also rejected as premature various arguments raised in the two appeals, including one challenge raised by both appellants: that Arthrex requires director review to be conducted by the USPTO director or acting director. Drew Hirshfeld is neither, they argue, as he is merely identified as “performing the functions and duties of the Under Secretary of Commerce for Intellectual Property and Director”. Both appellants argue using identical language that to allow Hirshfeld to conduct reviews “would only repeat the constitutional problems confirmed in Arthrex”. The USPTO’s decision to have him do so anyway “raises fundamental questions under the Federal Vacancies Reform Act”, assert the two appellants. Moreover, they both argue that the USPTO needs to establish its post-Arthrex procedures through a formal notice-and-comment rulemaking process under the Administrative Procedure Act, further raising rulemaking-related concerns over transparency.

Another argument raised by both appellants relates to due process: they assert that the PTAB’s bonus compensation structure creates a financial bias in favor of instituting non-meritorious AIA reviews, purportedly in violation of the US Constitution’s Due Process clause. In both appeals, US Inventor (USI)—an organization representing the interests of inventors—filed amicus briefs seeking to bolster these allegations of bias using data on institution rates, though RPX has since identified flaws in its underlying methodology and rebutted its conclusions. But in May, the Federal Circuit resolved New Vision’s appeal without addressing these claims of bias, though oral arguments in the second case suggest that the Federal Circuit is still pondering the issue. For more on that decision and related activity, see “Federal Circuit Sidesteps Bias Claims in New Vision Ruling as Dissent Flags Forum Selection Issue” (May 2021).

Additional arguments raised by the appellants include New Vision’s assertion that the Federal Circuit should allow additional briefing on the impact of a forum selection clause that allegedly should have precluded the PTAB from hearing the case, in lieu of the District of Nevada (as purportedly required under that clause). (Mobility WorkX, meanwhile, argues that Arthrex failed to account for the statutory time limit within which the PTAB must issue a final decision, a time limit allegedly exceeded here—purportedly requiring a ruling on the merits in its favor as a result.

Appellate challenges aside, one all but certain result of the USPTO’s new director review system will be a flood of additional rehearing requests, as parties previously limited to panel rehearing can now file requests for director review as well. This impact could be compounded by the availability of good-cause waivers for parties outside the 30-day rehearing window. A deluge of new requests could make impacted IPRs and PGRs take much longer to resolve, particularly for such cases that subsequently get appealed to the Federal Circuit.

See RPX’s second-quarter review for more on the impact of Arthrex, and for a wide-ranging analysis of other key trends impacting patent litigation and the patent marketplace.

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