The Federal Circuit has denied a procedural challenge against the USPTO’s director review program, which allows the agency’s director to reassess America Invents Act (AIA) review rulings as required by the US Supreme Court’s Arthrex decision. On October 14, the Federal Circuit declined to grant a mandamus petition from patent owner ESIP Series 2, LLC, which had sought to file a director review petition outside the 30-day window established by the USPTO and argued that this time limit, and certain aspects of the program itself, were unconstitutional. The appellate court disagreed, ruling that the matter fell to the agency’s discretion under the circumstances—and that, in any event, the appellant had not met the high burden of showing that a writ of mandamus was warranted. The decision comes as Congress debates legislative reform that could impose additional procedural requirements on director review, along with other reforms that would undo recent plaintiff-friendly changes to the Patent Trial and Appeal Board (PTAB).

The present appeal stemmed from a litigation campaign over essential oil diffusers waged by ESIP Series 2 and ESIP Series 1, LLC—entities both controlled Earl Sevy, the named inventor of the asserted patents (7,878,418; 9,415,130). In September 2017, defendant Puzhen Life filed an inter partes review (IPR) against the ‘130 patent (IPR2017-02197) that led to the invalidation of three claims as obvious in light of prior art in a February 2019 final written decision. The PTAB also rejected the patent owner’s argument that the petitioner had failed to identify the real party-in-interest under 35 USC Section 312(a)(2). In May 2020, the Federal Circuit affirmed the PTAB’s validity ruling and held that 312(a)(2) decisions are not appealable under the Supreme Court’s Thryv decision, which mostly bars appellate review of decisions applying statutes related to institution. After that court denied en banc review, the case then went to the US Supreme Court, which denied certiorari in October 2020.

Then came the Supreme Court’s June 21, 2021 decision in Arthrex, which upheld the IPR regime over a constitutional challenge but gave the USPTO director much more power over AIA review trials in the process. In Arthrex, the Court ruled that the appointment of the PTAB’s administrative patent judges (APJs) violated the US Constitution’s Appointments Clause because the USPTO director lacked the ability to sufficiently review their decisions. The Court’s solution was to give the director the authority to review and rehear IPR final written decisions himself or herself. (See here for a deep dive on the Arthrex decision.)

On June 29, the USPTO then announced an interim director review procedure to implement Arthrex. The new procedure created a separate process for director review of both IPR and post-grant review decisions that exists 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.

Of particular relevance to the appeal just resolved, the PTAB further specified that parties have 30 days from either the final written decision date or the rehearing decision date to request director review. The Board subsequently clarified that director 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. That guidance also explained that the director may extend rehearing deadlines for “good cause”, and that such a waiver is available for “[p]arties whose deadline for requesting rehearing had expired at the time the Arthrex decision issued”, as long as they are still within the window to file a notice of appeal. (More details about the USPTO’s director review guidance can be found here.)

ESIP Series 2 filed a request for director review on June 29, the same day the program was announced. However, three weeks later, the USPTO replied to an email from ESIP’s counsel that had provided notice of the petition, responding that the petition was untimely because it had been filed more than 30 days after a final written decision or decision on rehearing.

ESIP then filed a mandamus petition with the Federal Circuit, arguing that such review was warranted because it had “attempted all available means to obtain review” of the PTAB’s institution decision. The patent owner further asserted that mandamus was warranted because the Board had made “multiple errors of fact and law related to institution of the subject IPR, and misapprehended the statutory requirement that an IPR petition identify all real parties-in-interest before that IPR is instituted”. ESIP also challenged the director review program itself, arguing that it was “arbitrary and capricious” to apply the 30-day limit to “APJ decisions made prior to Arthrex”—asking the court to order the director to assess its review petition and to hold the court hold the time limit unlawful under 5 USC Section 706 (which relates to unlawful agency actions).

The patent owner further asserted that the emailed untimeliness decision was unconstitutional under Arthrex itself, claiming that the decision provides that “regulatory restrictions cannot insulate APJ decisions from the Director’s discretion and supervision”—including the regulation that institution decisions are final and nonappealable, as well as other regulations addressing “institution-related issues”. (Though ESIP would not prevail on this issue, similar arguments have caught the attention of Circuit Judge Pauline Newman, who in a recent dissent observed that the institution process appears to suffer from a similar Appointments Clause defect as the final written decisions considered in Arthrex.) Additionally, ESIP argued that the USPTO’s email “does not satisfy Arthrex’s requirement for accountability at least because it is not signed by anyone”, as “[t]here is no one to hold accountable for the PTO’s decision that ESIP’s Petition for Review is untimely”. Finally, the company argued that it had not waived its ability to raise issues related to Arthrex because both the Supreme Court and Federal Circuit rulings in that case came down after the PTAB’s final decision, a position allegedly consistent with the Federal Circuit’s May 2021 decision in New Vision Gaming & Development v. SG Gaming.

However, the Federal Circuit denied ESIP’s petition on October 14, in large part due to its rejection of the procedural basis for ESIP’s assertion of timeliness. While the patent owner argued, in response to an inquiry for the court, that the USPTO’s email constituted an agency decision from which direct appeal was possible, the court disagreed with that characterization and rejected its request to construe the mandamus petition as a direct appeal. Rather, the Federal Circuit found that “ESIP’s request was akin to a request to reopen or reconsider the closed IPR based on the belief that the Board misapplied § 312(a)(2) to the facts here and misapprehended the asserted prior art”. As a result, the court held that the matter falls to the USPTO’s discretion, as required by Supreme Court precedent covering requests for review of agency decisions “based merely on assertions of ‘material error’”.

Finally, the Federal Circuit held that ESIP had not met the necessary standard for mandamus relief, briefly noting that the company did not raise an Appointments Clause challenge or seek rehearing in its prior appeal. The court also summarily rejected the patent owner’s other arguments, concluding that “ESIP has not pointed to any clear and indisputable authority that the PTO violated in refusing to reopen and rehear this particular matter”.

This latest ruling comes as the PTAB faces renewed attention from Congress—in particular, through a reform bill recently introduced by Senators Patrick Leahy (D-VT) and John Cornyn (R-TX) called the Restoring the America Invents Act. The director review program is among the various facets of the Board’s inner workings targeted by this bill: specifically, it would codify the director review process and introduce some additional requirements, including one that the director must issue written opinions detailing his or her analysis in any director reviews (whereas the few decisions so far have not included written opinions). The legislation would also require formal rulemaking to establish procedural requirements related to the timing of director reviews, including the timeline under which parties may request such review and the timeline under which the director may review those requests (as well as the proper bases for doing so).

The proposed legislation would also address a variety of criticisms from frequent defendants—including, perhaps most notably, the explicit reversal of the NHK-Fintiv rule, a set of precedential rulings that give the PTAB the discretion to deny institution in AIA reviews based on the status of parallel district court litigation.

See RPX’s third-quarter review for more details on that reform proposal, the PTAB, and other trends impacting patent litigation and the patent marketplace.