April 2018, the Supreme Court issued its opinion in SAS Institute. As a result, petitioners and patent owners needed to immediately grapple with significant practice changes. In this podcast, Doug Hallward-Driemeier, chair of Ropes & Gray’s appellate and Supreme Court practice, and Scott McKeown, chair of Ropes & Gray’s Patent Trial and Appeal Board practice, discuss the strategic implications of SAS for litigating parties, as well as preview further changes to come, including the potential for further patent reform legislation.
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Doug Hallward-Driemeier: Hello and welcome to this Ropes & Gray podcast. I'm Doug Hallward-Driemeier, chair of the firm's appellate and Supreme Court practice, and I'm joined today by Scott McKeown, chair of the firm's Patent Trial and Appeal Board practice. We're going to continue our discussion of where things are headed with the PTAB in the second half of 2018, including the possibility of patent reform legislation. Well, Scott, we've had a couple of big Supreme Court decisions involving the PTAB. What do you think the impacts of those decisions are going to be on practice before the Board?
Scott McKeown: So we've had two major Supreme Court decisions over the past month or two. The first of which being Oil States, which was the one that got all of the publicity – this was sort of the existential challenge to the PTAB. And the challenge was basically, how is it that the Patent Trial and Appeal Board, which is not an Article III court, can take away a property right without a trial by jury? And how does this make sense? And what the Supreme Court said in a nutshell is, “Well, this is a franchise – it doesn't align itself cleanly with this concept of property rights, at least in a Seventh Amendment context. And there's other mechanisms built into these proceedings – which, by the way, challenge proceedings for patents have been in existence at least since the 1980s, and in the Federal Circuit, there is some Article III review of these challenges.” So at the end of the day, the Supreme Court affirmed, 7-2, that the PTAB is constitutional, so that was the first big decision. And there was some language in there about, “Well maybe there's some additional challenges that we might see in the future – due process challenges or maybe even takings challenges, so we'll have to wait and see how those challenges shake out.” But at least from my perspective, the PTAB was upheld as constitutional. And some of this additional language in there about due process and takings, to me, wouldn't seem to lend itself to a strong challenge in the future, so I'm not expecting another challenge along the lines of Oil States, which could threaten the PTAB as an institution.
The second decision, which didn't get as much coverage as Oil States was the SAS Institute case, which was more of a down in the weeds challenge to the way that the Patent Trial and Appeal Board operates. In other words, can the Patent Trial and Appeal Board use partial institutions? And what I mean by that is if a petitioner files a petition challenging ten claims, does the Patent Trial and Appeal Board have a flexibility to say, “Well, we've looked at all ten. We think one through five might be winners. We think six through ten are not. Therefore we are only going forward on claims one through five.”? That was the way the PTAB was operating prior to SAS. And the challenge was the statutes don't seem to provide for that – the statutes seem to say that if you decide that one claim is weak, you need to sweep in all ten claims, and so that was the SAS challenge. And the Supreme Court came back much more closely divided, but said that, “Well, it doesn't appear as though the PTAB should be using partial institutions.” So that was a significant change to the practice at the PTAB, and a significant change both on the strategy side for petitioners and patent owners.
Doug Hallward-Driemeier: And I know at the time the case was being briefed and argued that there was a lot of views among both petitioners and patent holders that they didn't really want a situation in which the Board had to institute on all of the challenge claims. And yet, that's where the Supreme Court said the statute just requires us to go because of its language. Do you think that that holding, in the end, favors either petitioners or patent holders?
Scott McKeown: I think it definitely favors petitioners. And as you mentioned, Doug, I don't know that it's an outcome that anybody is really happy with, other than SAS Institute. From a petitioner perspective, partial institutions weren't great, but at the same time, going back to that ten-claim example, claim six through ten, by virtue of not being part of the trial, were not subject to statutory estoppel. So if you had to lose at one point, you'd rather lose early and not have the statutory estoppel. As compared to what will happen now, claims six through ten will now be part of the trial, and because they will be in the final written decision, now you have the problem of statutory estoppel. So while it's not perfect for petitioners, it still favors petitioners. For example, if you're a patent owner and you're facing that same ten-claim challenge petition, wherein the past you may have filed a response, and may have come in with evidence focusing on maybe some of the weaker claims in the hopes of shaking those out, there's much less reason to do that now. So your opportunity to respond to these petitions in the short term, while it still exists, strategically you have to now think about, “Well, does it make sense to preview my arguments, knowing now that I have to win on all of the claims?” And so I would expect that patent owners will be more reluctant to file those responses.
And so from the perspective of the agency, where you had fulsome responses from both sides, now you just have the petitioner's submission. So odds are, that institution rate will creep up because you have less feedback and now all of those claims will be thrown into the trial. So looking at it from a patent owner perspective, where claim six through ten may have been shaken out at the beginning, now you have to pay to argue about these claims – you've got additional prosecution history, you might say something that could ruin your infringement case. So the satisfaction that you might get, theoretically, at the end with “ah-ha, now I have statutory estoppel on claims six through ten,” you're giving up a lot to get there. So I think with institution rates likely to creep up, and patent owners now having to put more effort and put more at risk in these proceedings, it's definitely not a good thing for patent owners.
Doug Hallward-Driemeier: Well as your answer suggests, there's a lot that will follow from the SAS Institute decision that I suspect people didn't really anticipate when that was being argued at the Court. But one of the important things about the Board proceeding is always to keep in mind how that plays with and interacts with the district court litigation, which is often going on at the same time. Do you have a view of what SAS means for patent owners that are involved in active infringement proceedings?
Scott McKeown: I do. And I think this is where it gets really bad for patent owners because prior to SAS, going back to my ten-claim petition example, if I'm in a litigation and someone challenges my ten claims, and they move for a stay, what the courts were saying is, "Well, let's wait for institution. We will not stay the case right now because we know that all of these claims may not move forward to trial." So if claim six through ten were pruned out under the old system, you could then go back, and usually you would beat that motion to stay by arguing, “Well, one of the factors we look at in this motion is a simplification of issues for trial. No matter what happens at the PTAB, claim six through ten will have to go to trial.” That was a great benefit under the old system. Now, with those claims being swept in, you lose that benefit, and we're already seeing this pop up in cases. There was a Wi-LAN case, I think it was against LG, where LG was able to go in shortly after they filed the petition, which you wouldn't have done pre-SAS because you knew you would've had to wait for institution. And they argued, “Well, after this Supreme Court decision, odds are all of these claims will be thrown into trial, and that weighs in favor of this simplification of issues for trial.” And the Court agreed – the Court said, "You're right, let's stay now. And, for some reason, this now binary decision at institution (yes, go forward on all / no, go forward on none) we can reassess at that time, but it looks like right now you will probably get all these claims into trial.” So not only are the stays more likely, the motions are coming earlier. And then I think when you layer on some of these other things that are happening at the Patent Office with the agency proposing to go to a Phillips construction, that's sort of the one-two punch with SAS because now in your motion to stay, you have to stand in front of a judge as patent owner and say, "Well, no, Your Honor, we need to go forward even though the Patent Office is looking at all of these claims and may cancel all of them. And we need to go forward even though the Markman briefing in our case isn't scheduled for a year and a half, but yet the PTAB will be giving me a Phillips construction, or at least feedback on a Phillips construction – it may not be a final construction – but I'll be getting that in a couple of months.” That becomes a very difficult argument. So I think SAS, in combination with this recent proposal from the agency, is just the imperfect storm, I guess, from the patent owner perspective.
Doug Hallward-Driemeier: Well, this is a very interesting analysis because I remember when SAS first came down and there was a sense that, look, this was not something that either petitioners or patent owners wanted – that there was some sense that maybe this increased the likelihood that we would see patent reform legislation. But what you're saying suggests that really this is something that does systematically advantage petitioners and disfavors patent owners, and I suspect that may make legislation even less likely.
Scott McKeown: Well, I think SAS makes legislation more likely. Certainly not in the short term – we have midterm elections coming up. I don't expect Congress will be focusing on patent law until 2019. And at the same time, we've got things happening in parallel at the Patent Office where, as I mentioned, the agency has proposed changing from their former claim construction, the broadest reasonable interpretation, to Phillips. So some of these changes that are happening now and will be being proposed going forward, are already in proposed legislation. The STRONGER Patents Act has been introduced in both the Senate and House side, and one of the provisions in there was to change from BRI to Phillips. So there's a lot happening. I suspect that the Patent Office will propose, or to the extent they're asked for feedback from Congress, I think they would like to go back to the pre-SAS view of the world, where they were able to partially institute. It's just much more efficient from an administrative perspective to just take the claims you think are winners and work on those, as opposed to sweeping them all in. And I think patent owners, once they get their arms around what SAS means for litigation strategy and for PTAB strategy, will try to make SAS the driver for legislation. And I think the Patent Office will get behind that change because, as I say, it does help them administratively.
But as to other changes in store for the PTAB in 2018, I think we will see a fair amount of additional rule proposals out of the agency, whether it's directed to improving amendment practices or coming up with some additional briefing to complement the new Phillips construction. I think all of that is in the works. I also think there'll be a fair amount of feedback from the Federal Circuit this year on such things as sovereign immunity, and the one-year window, and whether or not dismissal of a complaint without prejudice somehow resets that window. All of that is being argued and briefed up to the Federal Circuit as we speak. So I think 2018 is shaping up to probably be the year with the most changes to date, from the perspective of the PTAB.
Doug Hallward-Driemeier: So a lot going on this year at the PTAB. And thanks so much, Scott, for breaking that all down for us. Unfortunately, that's all time we have today. But thanks, everyone, for listening. Please tune in to our other podcasts on topics related to legislative and regulatory changes coming out of Washington D.C. You can find them at our website at www.ropesgray.com. And of course check out Scott’s blog at www.patentspostgrant.com. And of course if we can help you navigate any of these changes, please don't hesitate to get in touch.