In a high profile case that has been watched closely by the patent community, the Supreme Court decided on January 15 to hear its first review of a PTAB trial under the AIA. The case,Cuozzo Speed Techs, LLC v. Lee, involves the first IPR petition filed with the PTAB, and the first appellate decision on an AIA trial by the Federal Circuit.Cuozzo Speed involves two key issues which have been hotly debated since the PTAB began hearing IPRs and other post-grant proceedings under the AIA, and which sparked a lengthy dissent at the Federal Circuit: (1) whether the “broadest reasonable interpretation” (BRI) is the proper standard for construing the claims of the patent under review, and (2) whether the Board’s decision to institute trial is unreviewable on appeal.

PTAB Proceeding. Cuozzo’s patent, no 6,778,074, involves a speed limit indicator and method for displaying speed and the relevant speed limit for use in vehicles. Garmin filed an IPR petition challenging claims 1-20 of Cuozzo’s patent as obvious over various sets of prior art. Garmin’s obviousness challenge to one claim (claim 17) included references not cited against two other challenged claims (claims 10 and 14). The PTAB instituted review of claim 17 as challenged, but did not institute review of claims 10 and 14 on the specific combinations of references cited in the petition. Instead, the PTAB sua sponteinstituted review of claims 10 and 14 based on the same combinations of references cited against claim 17; challenges to the other claims were denied. At the conclusion of the IPR, the PTAB issued a final decision finding each of the three tried claims obvious. In doing so, the Board construed the claim terms under the BRI standard, and denied Cuozzo’s motion to amend the claims.1

Federal Circuit Appeal. Cuozzo appealed the PTAB’s final decision to the Federal Circuit. Garmin withdrew (based on a settlement agreement), and the PTO (via Michelle Lee, Director) intervened. On appeal, Cuozzo contended that the Board improperly instituted trial on grounds not identified in the petition filed by Garmin, and that it was permitted to appeal the institution decision because the statutory bar under §314(d) merely acts to postpone review of institution decisions until after a final decision. Cuozzo also contended that the Board improperly applied the BRI standard to construing claims in IPRs, arguing that the PTAB should apply the Phillips standard used in district court litigation.

The Federal Circuit affirmed the PTAB’s rulings via a divided panel opinion with a lengthy dissent.2 In the majority opinion, the Federal Circuit held that §314(d) precludes any review of the decision to institute, even after a final decision, and that the IPR statutory provisions do not limit the PTAB’s authority in determining patentability to those grounds alleged in the petition.3 The majority opinion also ruled that the PTAB correctly applied the BRI claim construction standard, reasoning that Congress was well aware that the BRI standard was the prevailing standard applied by the PTO in reexamination and reissue proceedings and yet did not mandate a different standard for IPRs. The court alternatively held that even if Congress did not implicitly adopt the BRI standard, the PTO was within its rulemaking authority to do so. The dissent disagreed on both issues. According to the dissent, § 314(d) merely acts as a bar interlocutory appeals and does not foreclose subsequent review of the institution decision, and the PTAB should apply the samePhillips standard for claim construction used in district court litigation since, in adopting the AIA, Congress intended to replace reexaminations with adjudicative proceedings.

Although the Federal Circuit declined to order rehearing en banc, the court issued opinions in which four judges (Judges Dyk, Lourie, Chen and Hughes) concurred with that decision and five judges (Chief Judge Prost and Judges Newman, Moore, O’Malley and Reyna) dissented; Judge Newman (who dissented from the panel decision) also filed a separate dissent.4 These opinions demonstrate that the full court is fractured on one of the key issues that the Supreme Court will be reviewing — namely, the appropriate claim construction standard to apply in AIA trials. The concurring opinion argued that nothing in the AIA suggests that Congress intended to change the longstanding PTO practice of applying the BRI standard in proceedings before the Office. In contrast, the dissent argued that Congressional silence on the applicable standard should not be used to favor the BRI standard when Congress enacted the AIA trials as a new adjudicatory regime for reviewing patents that is a court-like proceeding, and pointed out that the AIA proceedings lack the back-and forth between applicant and examiner that have been used to justify the BRI standard in examination (and reexamination) proceedings at the PTO. The dissent also disagreed that the PTO’s decision to apply BRI in AIA proceedings should be acceptable agency action entitled to Chevron deference.

Certiorari Petition. Petitioner Cuozzo urged the Supreme Court to grant the petition for certiorari because the issues presented are critical to the functioning of the AIA regime and the patent system as a whole. Cuozzo argued that, under the AIA, patents are being invalidated at a high rate in significant part because the PTAB applies the BRI standard for construing claims, rather than the Phillips standard applied by the district courts. According to Cuozzo, this introduces uncertainty and permits conflicting validity determinations, thereby undercutting Congressional intent in enacting the AIA to reform the patent system. Cuozzo also pointed to seemingly inconsistent rulings by the Federal Circuit in holding that decisions to institute IPRs cannot be reviewed (Cuozzo) but that decisions to institute CBMs are reviewable as found by the court in Versata Dev. Group, Inc. v. SAP America, Inc., 793 F.3d 1306 (Fed. Cir. 2015).

Director Lee, for the PTO, argued that the decision below is correct. According to Lee, the PTO properly exercised its authority to promulgate regulations in adopting a regulation to apply the BRI standard, the same standard it has used for over 100 years in other proceedings, and that the standard is appropriate because patent owners have the ability to amend claims in AIA proceedings — making AIA trials more analogous to examination than to district court litigation. Lee further argued that the statute plainly and completely bars all appeals of institution decisions, and does not merely bar interlocutory appeals at the time of the decision. As for the inconsistency between the Federal Circuit’s rulings inCuozzo and Versata, Lee stated the PTO’s disagreement with that portion of the Versataruling but suggested that review by the Supreme Court was unnecessary because the Federal Circuit has apparently limited its holding in Versata to the question of whether a patent claims a covered business method, as required by Section 18(a) of the AIA. In reply, Cuozzo pointed out that Lee’s opposition brief focused on the merits and failed to dispute that the questions presented are of extreme importance to the patent system.

The Supreme Court’s grant of Cuozzo’s certiorari petition is recognition of the importance of the new AIA proceedings to the functioning of the patent system. Couzzo’s opening merits brief is due on or before February 29, 2016. Since briefing will be completed by the end of April, it is possible that the case will be set for argument and decision by the end of the current Supreme Court term, but more likely that argument will be scheduled for the fall of 2016.