Summary

The U.S. Supreme Court today issued its decision in Cuozzo v. Lee, the first case in which the Court considered the Patent Office’s new administrative reviews of patents. The Court’s decision left in place procedures that critics have charged weigh too heavily in favor of patent challengers and make it too easy to cancel patents. The decision means that these new post-grant proceedings will continue much as they have since 2012, under the same terms that have made them a popular (and lower-cost) adjunct to patent litigation.

Background

As part of a 2011 patent system overhaul, a Patent Trial and Appeal Board (PTAB) was created at the U.S. Patent and Trademark Office (PTO) to conduct administrative trials on validity of patents. PTAB trials have become a popular supplement to litigation both because they are a lower-cost alternative to district court for defendants to argue invalidity of an asserted patent and because results have been overwhelmingly positive for petitioners. PTAB trials have been requested over 5,000 times now, with about 70% of decisions on institution ordering a trial to proceed and about 80% of reviewed claims found invalid.

The Cuozzo appeal stems from the first trial instituted by the PTAB and raises two questions about the new trials that appear at first blush to be largely administrative, but can significantly impact the outcomes of these trials and are charged by critics as being largely responsible for the dire statistics (from patent owners’ perspective, at least) cited above.

First, the appeal questions the manner by which the PTAB interprets claims. When examining patent applications, the PTO interprets claim language according to its “broadest reasonable interpretation” (BRI). In district court proceedings, in contrast, language is interpreted according to how a person skilled in the field would have understood it, which may be a narrower interpretation than the BRI. The PTO chose to use BRI in the new trials and some have charged that this more expansive view of the claims led to more patents being invalidated in PTAB trials than was traditionally the case in district court proceedings. Cuozzo argued that because the new trials were intended to be a low-cost substitute for district court, the same interpretation standard should apply.

Second, the appeal questions the scope of the law making the PTAB’s decision to institute a trial non-appealable. A PTAB trial starts with a petition, in which a petitioner lays out “grounds” by which it argues the patent is invalid. This petition forms the basis of the PTAB’s decision to institute. In Cuozzo’s case, the PTAB instituted a trial on a ground that was not explicitly presented by the petitioner, which Cuozzo argued was improper in a trial context. The appeals court refused to consider the issue, saying that Congress fully insulated the PTAB’s decision – proper or improper – from appellate review. Cuozzo argued that Congress instead prohibited only “interlocutory” review of the decision during the trial, and that improper decisions by government agencies must be appealable.

Action by the Supreme Court

Both questions presented by the case turned on the nature of a PTAB trial – is it more like a reexamination of bad patents, or is it more like a district court trial? – and the Court came out on the side of reexamination. Its decision drew parallels between earlier reexamination procedures and the new “review” procedures and identified multiple dissimilarities between PTAB trials and court trials.

On the claim interpretation question, based on its conclusion that the PTAB trials were more like a reexamination, the Court rejected Cuozzo’s multiple policy arguments that BRI was inappropriate in a trial context. The Court also held that Congress had left the interpretation question open for the PTO to decide, and determined that the PTO’s decision to use BRI was reasonable under the circumstances.

On the appellate review question, based again on its conclusion that the trials were more akin to a reconsideration of a prior agency decision (the decision to grant a patent), the Court rejected Cuozzo’s arguments that a more rigorous review was necessary. In addition, the Court relied on the high bar for instituting a trial (the petitioner must demonstrate a “reasonable likelihood” of success) as justification for insulating the PTAB’s decision from appellate review. As to Cuozzo’s argument that the PTAB’s decision was improper, the Court noted that Cuozzo’s argument rested on a distinction between an “implicit” argument and an “explicit” argument and held that a dispute so minor did not justify appellate review in view of a Congressional statute clearly barring such review.

For both questions, the Court hinted at some options for patent owners, when decisions by the PTAB are so unreasonable as to be “arbitrary and capricious” or to raise constitutional due process concerns. Situations in which a PTAB decision may be so deficient as to qualify under these standards may be rare, but patent owners may still cite these standards to constrain the PTAB’s decision-making and potentially avoid the PTAB acting on its own to resolve shortcomings in a petition.

Takeaways

The Court’s decision means that post-grant proceedings will continue much as they have since their inception in 2012, and patents may continue to be invalidated at the same rate. However, the Patent Office has lately been responding to criticism with changes intended to make it easier for patent owners to amend their claims during PTAB trials. In addition, by hinting at the outer limits of the PTAB’s authority in its decision, the Court has provided patent owners a clear line of argument when facing a defective petition – and at the same time has provided a warning to petitioners to present their arguments clearly and completely, to avoid the necessity for the PTAB to correct any such deficiencies. Both of these may improve patent owners’ chances at the PTAB.

Until then, petitioners should continue to make use of these proceedings as a cost-effective alternative to litigation. Patent owners, in turn, should anticipate these reviews when initiating a litigation or licensing program and should be prepared to vigorously fight to defend their patents.