California Court Dismisses Tech Companies’ Challenge to the PTAB’s NHK-Fintiv Rule

  • November 14, 2021
  • Category: Patent Litigation Feature

The Northern District of California has just dismissed a challenge brought by a group of tech companies against the NHK-Fintiv rule, a controversial practice allowing the Patent Trial and Appeal Board (PTAB) to tie America Invents Act (AIA) review institution to the status of parallel infringement litigation. On November 10, District Judge Edward J. Davila ruled that the lawsuit filed last August by Apple, Cisco, Google, and Intel against then-USPTO Director Andrei Iancu was barred under the US Supreme Court’s decision in Cuozzo Speed Technologies v. Lee, which precludes appellate review of institution decisions and has since been extended to matters “closely related” to institution.

The NHK-Fintiv rule, as established by a pair of PTAB decisions designated as precedential in 2019 and 2020, expanded the circumstances under which the Board may exercise its discretion to deny AIA review petitions to include the status of parallel district court litigation. Among the factors the PTAB may consider is whether the district court has scheduled a trial that is too close to the date when the Board’s final written decision is due. As noted by the plaintiffs in the California suit, which was filed in August 2020 (5:20-cv-06218), this limitation essentially narrows the time within which a district court defendant can file an inter partes review (IPR): companies already have just one year from the date of service to file such a petition, and they now face additional pressure to “rush to file IPRs well before the one-year bar date” when sued in venues that prioritize early trial dates (chief among them the Western District of Texas). Yet it can be impractical to file an AIA review within the initial stages of litigation, as plaintiffs often do not disclose the specific claims being asserted—i.e., those that the defendant would want to target before the PTAB—until later.

The plaintiffs’ complaint also cited the rule’s practical impact at a higher level, asserting that it “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”. They further alleged that the rule conflicts with the AIA and is arbitrary and capricious. Additionally, they argued that NHK-Fintiv is procedurally unsound because it had not been “adopted through notice-and-comment rulemaking” under the Administrative Procedure Act (APA), on which grounds they sought to set the rule aside. In early November, the plaintiffs filed an amended complaint that added coplaintiff Edwards Lifesciences, a company specializing in cardiovascular treatment and monitoring technology, and added examples of multiple IPR petitions filed by Edwards that were denied institution based on the status of parallel district court litigation, alongside similar examples already included for the other coplaintiffs.

In November 2020, the USPTO director then moved to dismiss, contending that the plaintiffs lack standing—specifically, arguing that “the Director’s unreviewable discretion over IPR institution decisions means that Plaintiffs can establish neither an injury in fact nor redressability”. The director further asserted that the plaintiffs’ claims are not justiciable under the APA for three reasons: first, the APA provides no cause of action where Congress has clearly prohibited appellate review, as it has done for AIA review institution decisions per the Supreme Court’s Cuozzo decision; second, because the APA bars courts from reviewing decisions committed to an agency’s discretion and those that require a “balancing of priorities” within the agency’s expertise; and third, because the NHK-Fintiv factors govern institution decisions, which are non-dispositive, they are not final agency actions—the only type of actions subject to review under the APA.

The plaintiffs responded in January, arguing in part that they have standing—asserting that the risk that their IPR petitions will be denied under NHK-Fintiv, and the resulting “loss of their opportunity to obtain the benefits of IPR”, constitutes a sufficient injury-in-fact stemming from the conduct at issue that is addressable by the court.

Additionally, the plaintiffs rebutted the director’s arguments on justiciability in several respects, first countering that the NHK-Fintiv rule is a final agency action (and therefore reviewable under the APA) based on the standard established by the Supreme Court’s 1997 decision in Bennett v. Spear. Under that holding, explained the plaintiffs, the “core question is whether the agency has completed its decisionmaking process, and whether the result of that process is one that will directly affect the parties” (quoting Bennett). In applying that standard, courts consider “both the practical and legal effects of the agency action” (citations omitted). The plaintiffs asserted that “[t]he NHK-Fintiv rule satisfies both elements of the Bennett test because it sets forth a standard that the Board is required to apply in making institution decisions and whose application results in denials of IPR petitions. These ‘practical and legal effects’ are the hallmarks of final agency action”.

Furthermore, the plaintiffs asserted that the NHK-Fintiv rule does not fall within either of the “two narrow circumstances” in which the APA’s “strong presumption” in favor of judicial review is overcome. As to the first of those exceptions—which applies where “Congress expressly bars review by statute”—the plaintiffs pushed back against the director’s argument that the AIA “prohibit[s] parties from bringing collateral APA challenges to the [IPR] process” under 35 USC Sections 141(c), 319, and 314(d). This argument failed, asserted the plaintiffs, because those provisions address appeals of institution decisions in specific IPRs. Consequently, those provisions do not bar a challenge of a “general rule as substantively and procedurally invalid under the AIA and the APA”. As to the second exception invoked by the director, barring review when an “agency action is committed to agency discretion by law”, the plaintiffs argued that this argument fell short because the underlying statute—5 USC Section 702(a)(2)—“bars review only where there is no law to apply, and here, the AIA itself provides the measure of the rule’s unlawfulness”.

Judge Davila ruled on the motion to dismiss on November 10, beginning by agreeing with the plaintiffs that they had standing. In particular, he accepted their characterization of the alleged injury as “not that they were denied IPR, but that the Director is using unlawful considerations that increase the risk of denial, thereby depriving them of the benefits of IPR . . . Indeed, as courts have previously found, the denial of an opportunity to obtain a benefit is itself an injury-in-fact” (emphasis in original). Judge Davila also held that the plaintiffs had met the “causation” requirement of the standing inquiry, determining “that the NHK-Fintiv rule (the conduct complained of) diminishes their opportunity to experience the benefits of IPR (the injury asserted)”. Moreover, Judge Davila concluded, the fact that a favorable decision would prevent the use of the NHK-Fintiv rule meant that the “redressability” prong was met as well.

However, Judge Davila granted the motion as to justiciability, holding that the complaint did not pass the threshold test of whether the issue is reviewable under Cuozzo—for two reasons. First, he explained that the plaintiff’s complaint did not fall within the narrow exceptions to Cuozzo’s bar of judicial review, as it involves neither constitutional nor jurisdictional violations. Second, the NHK-Fintiv rule establishes factors that are “closely related to” the director’s “decision whether to institute”, placing it within Cuozzo’s prohibition on appellate review as required under the Supreme Court’s follow-on decision in Thryv v. Click-to-Call. “Thus, in view of Cuozzo and Thryv, this Court cannot deduce a principled reason why preclusion of judicial review under § 314(d) would not extend to the Director’s determination that parallel litigation is a factor in denying IPR”.

Judge Davila’s decision follows the recent introduction of a reform bill that would eliminate the NHK-Fintiv rule altogether. The Restoring the America Invents Act, introduced by Senators Patrick Leahy (D-VT) and John Cornyn (R-TX), would instead limit discretionary denials to circumstances involving multiple invalidity actions as established in 35 USC Section 325(d)—among a variety of changes largely favoring defendants.

See RPX’s third-quarter review for more on that legislative proposal, as well as an update on the impact of NHK-Fintiv—including an apparent shift from IPR to ex parte reexamination by defendants seeking to avoid discretionary denials.


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