The Federal Circuit has reinstated part of a challenge raised by a group of Patent Trial and Appeal Board (PTAB) petitioners against the NHK-Fintiv rule, which allows the discretionary denial of PTAB petitions based on the status of parallel litigation. That lawsuit, filed by Alphabet (Google), Apple, Cisco, and Intel and later joined by Edwards Lifesciences, argues that NHK-Fintiv was improper on three bases: that the rule violates the America Invents Act (AIA), that it is arbitrary and capricious, and that it needed to be implemented via notice-and-comment rulemaking under the Administrative Procedure Act (APA) but had not been. However, the Federal Circuit’s precedential Apple v. Vidal decision, issued earlier in March, reached a somewhat different conclusion. While it affirmed the district court’s denial of the first two claims under caselaw barring certain PTAB decisions from appellate review, the Federal Circuit reversed the denial of the rulemaking claim and held that at least Apple has standing to pursue that issue.

Under the NHK-Fintiv rule, the PTAB can tie institution in an AIA review to a variety of factors based on certain aspects of a district court case asserting the same patent. The rule has long been a point of contention for frequent defendants, especially the NHK-Fintiv factor allowing the PTAB to deny institution when its final written decision deadline would fall too close to the district court’s scheduled trial date. Given the popularity of venues, like West Texas, that schedule trials as early as possible, this forces petitioners to file earlier than they might otherwise—essentially, further compressing the one-year window within which defendants may file an inter partes review (IPR).

The plaintiffs’ complaint, filed by Apple, Cisco, Google, and Intel in the Northern District of California in August 2020 (5:20-cv-06218) and adding Edwards as a coplaintiff in November 2020, cited this time pressure as well as the NHK-Fintiv’s broader practical impact: They asserted that the 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”. As noted above, the plaintiffs 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 APA, on which grounds they sought to set the rule aside.

Later that November, then-USPTO Director Andrei Iancu moved to dismiss, contending that the plaintiffs lack standing due to 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. Iancu further argued that Cuozzo also undermined the plaintiffs’ claims under the APA, alleging that the statute provides no cause of action where Congress has clearly prohibited appellate review, nor for decisions committed to an agency’s discretion, and that IPR institution decisions are not final agency actions and therefore are not subject to review under the APA.

In November 2021, District Judge Edward Davila ruled on the motion to dismiss, agreeing with the defendants that they had standing but accepting the director’s argument as to justiciability, and dismissed the case on the latter basis. Judge Davila held 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 to 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”. The plaintiffs appealed the following month.

The Federal Circuit’s March 13 decision on appeal began by recounting the above history and then detailed the history of post-Cuozzo caselaw on the appealability of institution-related matters. In particular, the court noted the distinction between cases addressing the “merely collateral effect of a provision concerning “the manner in which the agency’s review ‘proceeds’ once instituted”, which fall outside the Cuozzo “principle of unreviewability”, and those where the issue turns on the question of “whether the agency should have instituted review at all”, for which most appeals are barred.

Here, the Federal Circuit held that the “[p]laintiffs’ statutory and arbitrary-and-capriciousness challenges in this case focus directly and expressly on institution standards, nothing else”, and ruled that neither Thryv nor Cuozzo excludes matters that deal squarely with institution from appeal. The court acknowledged that those decisions dealt with petition-specific challenges, whereas the present case involves the USPTO director’s overarching directions to the PTAB over how to exercise her institution discretion. Nonetheless, the Federal Circuit “conclude[d] that the IPR statute’s preclusion of review, as now settled by the Supreme Court based on statutory text, legislative history, and structure, must encompass preclusion of review of the content-focused challenges to the instructions at issue here”.

This conclusion, explained the Federal Circuit, depends upon the fact that the director’s delegation of her institution authority to the PTAB is both “inevitab[le]” and expected by Congress, “given the large number of institution decisions the Director would otherwise have to make personally, in highly technical matters involving significant records, while fulfilling many other responsibilities”, as the court held in its 2016 Ethicon Endo-Surgery v. Covidien decision. The director must be able to give guidance to instruct her delegatees on how to make the institution decisions that she would make on her own behalf, both to ensure consistency with her specified policy choices and to minimize the need for her to reverse institution decisions using her post-Arthrex director review authority. If the director were to issue her own decisions that incorporate the same reasoning as in the NHK-Fintiv rule, the court held that they “would be unreviewable for being contrary to statute or arbitrary and capricious”. This must also be true for delegated decisions, ruled the Federal Circuit: “For the IPR system to function with the delegations that are inevitable and congressionally expected, the same conclusion must follow for the instructions given by the Director to the Board as delegatee”. As a result, the Federal Circuit affirmed the district court’s dismissal of the plaintiffs’ statutory and arbitrary-and-capriciousness challenges.

However, the Federal Circuit reached a different conclusion as to their argument that the NHK-Fintiv rule was improperly implemented without notice-and-comment rulemaking, an issue that the district court did not reach due to its justiciability ruling based on Cuozzo. Here, the court rejected the director’s argument that Cuozzo also barred the Federal Circuit from reviewing the rulemaking claim, holding that “[w]hether notice-and-comment rulemaking procedures had to be employed for an agency action presents a matter ‘quite apart from the matter of substantive reviewability’” under the Supreme Court’s 1993 decision in Lincoln v. Vigil (quoting Lincoln).

Given Lincoln’s “recognized distinction” that the “APA’s procedural requirements are enforceable apart from the reviewability of the underlying action” (internal Lincoln citation and quote omitted), the Federal Circuit “reject[ed] a conclusion of unreviewability” for the plaintiffs’ rulemaking claim. In particular, the court “s[aw] no basis for extending Cuozzo to protect . . . the Director’s choice of whether to use notice-and-comment rulemaking to announce instructions for the institution decision”. The Federal Circuit also held that it had not “been presented a persuasive justification for concluding that the use or non-use of notice-and-comment rulemaking procedures is a matter ‘committed to agency discretion by law’” under the applicable statutory provisions. The court explained that even though “non-enforcement choices are committed to agency discretion by law”, this “does not mean that the choice of announcement procedure for issuing instructions for the making of choices is also committed to agency discretion by law”.

Finally, the Federal Circuit determined that “at least Apple has standing” to pursue the plaintiffs’ rulemaking challenge, indicating that they should not have presented their alleged harms in the aggregate to justify standing. The Federal Circuit then concluded that Apple’s standing allows the court to reverse and remand for consideration of that issue on the merits, “along with any question about standing of other plaintiffs available for decision on remand if necessary”.

For more on the earlier history of this litigation, see “California Court Dismisses Tech Companies’ Challenge to the PTAB’s NHK-Fintiv Rule” (November 2021). Coverage of other litigation targeting NHK-Fintiv, including appeals stemming directly from discretionary denials invoking that rule, can also be found here.