On July 20, SAS Institute filed its opening brief in the Supreme Court in SAS Institute v. Matal, a case with major potential ramifications both for patent validity challenges as well as administrative law jurisprudence. SAS challenges the Patent Trial and Appeal Board’s (PTAB’s) practice of reviewing only some of the patent claims challenged by petitioners in an inter partes review (IPR). The main issue with such a practice relates to the differing estoppel effects that attach to instituted and reviewed claims versus challenged but non-instituted claims. Because the estoppel provisions of the America Invents Act (AIA) apply only to those claims for which the PTAB has issued “a final written decision,”1 the choice not to institute inter partes review for some challenged claims leaves those claims open to further validity challenges in both the PTAB and the district courts.
SAS argues that this practice results in an inter partes review process that is “much more inefficient, uneconomical, and uncertain than the process envisioned by Congress.”2 Instead of providing an efficient alternative forum to settle patent validity disputes outside of district court, “the partial-institution, partial-decision regime adopted by the Patent Trial and Appeal Board . . . leaves the unselected claims dangling, lacking both finality and estoppel, preventing the expediency and economy and efficiency that motivated the America Invents Act.”3 As evidence of the inefficiency resulting from this practice, SAS cites to its own case, dating back to 2012, when ComplementSoft, a rival statistical software company, first filed its patent-infringement complaint against the company.4 In response to this action, SAS filed a petition for inter partes review, arguing that ComplementSoft’s patent was invalid as anticipated by prior art. In light of the IPR proceedings, the district court stayed the case pending resolution of the invalidity contentions. Instead of reviewing all of the patent’s claims as requested by SAS, however, the PTAB chose to institute inter partes review of only 9 out of the 16 claims. Therefore, if SAS is unsuccessful on appeal, it will have to return to district court to challenge the remaining 7 claims, despite having already spent 5 years in agency review.5
While the resolution of this case will have a major impact on how future patent validity challenges proceed, the question that SAS presents to the Supreme Court is a narrow one, framed as an issue of statutory interpretation. The company asks the Court:
"Does 35 U.S.C. § 318(a), which provides that the Patent Trial and Appeal Board in an inter partes review “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner,” require that Board to issue a final written decision as to every claim challenged by the petitioner, or does it allow that Board to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the Federal Circuit held?"6
While SAS argues that the language of Section 318(a) plainly forecloses the PTAB’s current practice, the Patent Office (PTO) and the Federal Circuit disagree. The PTO holds that the phrase “any patent claim challenged by the petitioner”7 refers only to those claims that the PTAB has agreed to review (i.e., those claims for which the Board has instituted inter partes review), not every claim for which the petitioner initially sought review.8 As support for this position, the PTO cites to the language of 35 U.S.C. § 314(a), prohibiting the Office from instituting review unless “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.” (emphasis added). The PTO argues that the difference between the phrases “claims challenged by the petitioner” and “claims challenged in the petition” implies a distinction between the two.9 Furthermore, since the PTO’s partial-institution regulation, 37 C.F.R. 42.108, is a proper exercise of its Congressionally granted power under 35 U.S.C. § 316(a)(2) to promulgate regulations “setting forth the standard for the showing of sufficient grounds to institute a review under section 314(a)”—and is therefore entitled to Chevron deference—the PTO argues that the AIA thus allows the PTAB to institute review on a partial basis.10 As a result, the PTO argues that any interpretation of Section 318(a) “require[ing] the Board to issue final decisions addressing patent claims for which inter partes review had not been initiated . . . would make very little sense.”11
SAS, however, argues that the distinction in language between Sections 314(a) and 318(a) can be explained simply by the fact that a patent owner may, post-petition, cancel claims under 35 U.S.C. § 316(d)(1)(A).12 Thus, “§ 318(a)’s reference to ‘any patent claim challenged by the petitioner’ makes sense as referring to all of the claims challenged in the petition under § 314(a), less any claim that has been cancelled by the patent owner, post-petition, under § 316(d)(1)(A).”13 Accordingly, since SAS has never abandoned its challenges to the claims the Board declined to institute, the company argues that the Board is still required under Section 318(a) to issue a final written decision with respect to those claims.14 Furthermore, SAS reasons, even if the PTO’s partial-institution regulation is an otherwise valid exercise of the Office’s authority under Section 316(a)(2) to promulgate regulations interpreting Section 314(a)—and is therefore entitled to Chevron deference—Section 318(a), on the other hand, is not open to interpretation. Therefore, the PTO cannot use its own regulation to justify disobeying Congress’s clear directive in Section 318(a) requiring “the Board’s final written decision [to] address all, not just some, of th[e] challenged claims.”15 According to SAS, “[w]hatever the wisdom of Chevron, its step two cannot be allowed such free rein as to allow the agency tasked with implementing the statute—here, the Patent and Trademark Office—to fundamentally rewrite the law’s procedures to serve its interests in convenience.”16
So far, outside support has been in SAS’s favor, with the Intellectual Property Owners Association (IPO) filing an amicus brief backing the company on the same day SAS filed its opening brief.17 In its brief, the IPO, which counts approximately 200 companies and over 12,000 individuals as members, expressed its concern that the PTAB’s partial institution practice “permits a challenger two bites at the apple” by allowing the petitioner to challenge in district court those claims that the PTAB declined to institute, which “drives up cost for both parties,” “encourages abusive litigation tactics,” and “is manifestly unfair.”18 SAS’s counsel expects that additional amicus briefs will be filed.
Oral arguments in the case are expected to take place in the fall. Given the Supreme Court’s track record of reversing a number of Federal Circuit patent decisions, it is possible that the Court will find in favor of SAS, ending the PTAB’s practice of instituting IPRs on a claim-by-claim basis.