On June 20, 2016, the United States Supreme Court issued its opinion in Cuozzo Speed Technologies, LLC v. Lee, marking a rare instance in which the Court affirmed the Federal Circuit on all issues presented. The Supreme Court addressed two key questions: (i) whether decisions by the Patent Trial and Appeal Board ("Board") to institute inter partes review ("IPR") proceedings are appealable; and (ii) whether the Board's use of the "broadest reasonable construction" is a proper standard for interpreting claims during such proceedings, rather than the "ordinary meaning" standard applied by district courts. The Supreme Court granted certiorari in Cuozzo after the Federal Circuit declined a petition for en banc rehearing of a divided panel decision, which held that 35 U.S.C. § 314(d) requires that the Board's institutions decisions are not appealable, and that the Patent Office was within its rulemaking authority to adopt the broadest reasonable interpretation standard for use in IPR proceedings.

Institution Decisions Are Not Appealable, Except in Rare Circumstances

First, addressing whether the Board's institution decisions are subject to appeal, Justice Breyer, writing for the majority, held that such decisions cannot be appealed because the statutory language of Section 314(d)—"No Appeal. The determination by the [Patent Office] Director whether to institute an [IPR] under this section shall be final and non-appealable"—means precisely what it says. Justice Breyer explained that the "'No Appeal' provision's language must, at the least, forbid an appeal that attacks a 'determination … whether to institute' review" of the Board's grounds for reviewing patentability of challenged claims. According to Justice Breyer, "a contrary holding would undercut one important congressional objective, namely, giving the Patent Office significant power to revisit and revise earlier patent grants." Justice Breyer reasoned that Congress would not have conferred such "significant power" to the Patent Office "if it had thought that the agency's final decision could be unwound under some minor statutory technicality related to its preliminary decision to institute" IPR proceedings.

Noting the dissent's position (written by Justice Alito and joined by Justice Sotomayor) that the "No Appeal" provision in Section 314(d) applied only to bar interlocutory appeals, Justice Breyer wrote that "[w]e cannot accept this interpretation" because "it reads into the provision a limitation (to interlocutory decisions) that the language nowhere mentions and that is unnecessary."

The majority therefore held that a rule "that courts may not revisit th[e] [Board's] initial determination gives effect to th[e] statutory command" that institution decisions are "final" and "nonappealable." In doing so, however, the majority also stated that "we do not categorically preclude review of a final decision" when, for example, "there is a due process problem with the entire proceeding" or the Patent Office "act[ed] outside its statutory limits," such as canceling claims based on patentability grounds not contemplated by statute. The majority thus left open the possibility that the Board's institution decision could be subject to appellate review if it "implicate[d] constitutional questions" or presented "other questions of interpretation that reach … well beyond" the statutory framework for IPR proceedings. Justice Alito's dissent acknowledged the majority's stated intent to prohibit the Patent Office from "act[ing] outside its statutory limits" but criticized this portion of the majority opinion because "how to get there from the Court's reasoning—and how to determine which 'statutory limits' we should enforce and which we should not—remains a mystery."

"Broadest Reasonable Construction" Standard is Approved

Turning to the second question, Justice Breyer, now writing for a unanimous Court, held that the Patent Office's decision to apply the broadest reasonable construction standard in IPR proceedings comported with the agency's administrative authority. Starting from Chevron deference principles, the Court noted that "where a statute leaves a 'gap' or is 'ambiguous,' we typically interpret it as granting leeway to enact rules that are reasonable in light of the text, nature, and purpose of the statute." The Court found that the IPR statutory framework "contains such a gap" because "[n]o statutory provision unambiguously directs that agency to use one standard or the other." Accordingly, in view of the Patent Office's authority to issue "regulations … establishing and governing inter partes review," 35 U.S.C. §316(a)(4), the Court held that a regulation directing the Board to use the broadest reasonable construction of a patent claim was a valid exercise of the agency's rulemaking authority.

The Court explained that the broadest reasonable construction "helps to protect the public" because the Patent Office's "standard increases the possibility that the examiner will find the claim too broad (and deny it)." To that end, applying the broadest reasonable construction "encourages the applicant to draft narrowly" and avoids "unlawfully broad claim[s] [that] might discourage the use of the invention by a member of the public."

The Court further recognized that the Patent Office has used the broadest reasonable construction standard "for more than 100 years" in a variety of proceedings, including interferences and reexaminations that, like IPRs, "resemble district court litigation." The Court did acknowledge the possibility "that the use of the broadest reasonable construction standard in [IPR proceedings], together with the use of an ordinary meaning standard in district court, may produce inconsistent results and cause added confusion." The Court concluded, however, that such possibilities are facts of life that "ha[ve] long been present in our patent system," and that "different evidentiary burdens" for IPR and district-court proceedings "mean that the possibility of inconsistent results is inherent to Congress's regulatory design."

Take-Aways from Cuozzo

Cuozzo represented a critical test of the Patent Office's and Federal Circuit's interpretation and application of the IPR statute, resulting in the Supreme Court's affirmance of the existing approaches to two issues common to nearly all IPR proceedings. Thus, going forward, the handling of IPRs will likely remain unchanged at the Patent Office, with appellate review of institution decisions by the Federal Circuit arising only if such decisions involve constitutional issues or go well beyond the IPR statute.

And the Patent Trial and Appeal Board will continue to interpret nonexpired patent claims using the "broadest reasonable construction" standard perceived to be more favorable to IPR petitioners, rather than the "plain and ordinary meaning" standard used in district court litigation. At the same time, several observers have noted that the Federal Circuit's recent decisions applying the "broadest reasonable interpretation" standard have brought that approach to patent claim construction more in line with the "ordinary meaning" approach that holds sway in district-court cases. If that is so, then the difference between a "broadest reasonable interpretation" and the "ordinary meaning" of a patent claim may not be that great at all.