Why it matters: On April 25, 2015, the U.S. Supreme Court held hearings on two IP cases, Cuozzo Speed Technologies v. Lee and Kirtsaeng v. John Wiley & Sons. In Cuozzo, the issues before the Court were whether the Broadest Reasonable Interpretation (BRI) standard for claim construction is proper in inter partes review (IPR) proceedings before the Patent Trial and Appeal Board (PTAB) and whether the PTAB’s decision to institute an IPR is subject to judicial review. The issue in Kirtsaeng was the appropriate standard for awarding attorney fees to the prevailing party in copyright infringement cases. Recaps of the oral arguments are provided here.

Detailed discussion (Cuozzo): On April 25, 2016, the United States Supreme Court heard oral argument in Cuozzo Speed Technologies v. Lee to determine two very distinct issues: whether (1) the “broadest reasonable interpretation” or the Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) “ordinary and customary” meaning standard used by the district courts should be applied in inter partes review (IPR) proceedings, and (2) PTAB determinations on whether to institute an IPR proceeding is subject to judicial review.

Procedural history: See our discussion of the Cuozzo case and the Court’s grant of certiorari in our February 2016 newsletter for more detail, but to briefly review, Garmin International, Inc. and Garmin USA, Inc. (collectively, Garmin) filed an IPR petition challenging three claims of a navigational patent held by Cuozzo, and the PTAB instituted an IPR proceeding. Cuozzo later claimed this institution decision exceeded the scope of the PTAB’s authority, improperly considering extraneous facts and evidence not raised in Garmin’s IPR petition. The PTAB, applying a broadest reasonable interpretation to the phrase “integrally attached” invalidated Cuozzo’s patent claims as obvious. Cuozzo appealed to the Federal Circuit, and although Cuozzo and Garmin settled their dispute, the U.S. Patent and Trademark Office (PTO) intervened to defend the PTAB’s decision. In February 2015, the Federal Circuit (with one judge dissenting) affirmed, holding (1) the PTAB properly applied the broadest reasonable interpretation standard and (2) the PTAB’s decision to institute was not subject to judicial review, regardless of whether the PTAB exceeded its authority. The Federal Circuit denied en banc review with a 6-5 vote, and Cuozzo filed a Petition for a Writ of Certiorari to the U.S. Supreme Court in October 2015.

Claim construction standards: Although federal courts and the International Trade Commission apply the ordinary and customary meaning standard in construing claims, according to the Federal Circuit’s guidance in Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005), the PTO uses a broadest reasonable interpretation (BRI) standard in patent examination and post grant invalidity proceedings. Cuozzo argued that the BRI construction is appropriate only in proceedings allowing “a broad ability to amend the claims,” differentiating the “extremely limited” and “almost always denied” motion to amend available in IPR proceedings. The PTO responded that Congress was aware of the Patent and Trademark Office’s consistent use of the BRI standard, and the statute’s silence on proper construction tacitly accepted the PTO’s construction standard in IPR proceedings. The application of different standards in parallel proceedings may lead to different results, such that a judicially upheld patent is invalidated in a parallel or later proceeding by the PTAB.

Oral argument: Because the AIA is silent on the proper claims construction standard in IPR proceedings, much of the oral argument focused on legislative intent. Some of the arguments and comments by the Justices during hearing on this issue are provided below.

  • Cuozzo argued that Congress’ intent was “to substitute and provide a district court-like litigation for the determination of patentability,” and—by doing so—to have the PTAB apply same claim construction standard used by the district courts. Justice Elena Kagan, however, suggested that because the PTO “does pretty much everything by this broadest-construction standard,” one might infer Congress intended the PTAB to apply the PTO’s usual BRI standard. In response, Cuozzo focused on the similarities between district court and IPR proceedings as justification for adopting the standard used in district court.
  • Cuozzo argued that application of the BRI standard has resulted in an alarming rate of patent invalidation, inconsistent with the intent of the law. In response, Justice Stephen Breyer asked if the statistics might properly reflect Congress’ intent to correct for patent trolls and “the Patent Office issuing billions of patents that shouldn’t have been issued.” Justice Breyer continued, asking if the purpose of IPR proceedings may be to expeditiously allow a single opportunity to amend and then—applying the BRI—decide if the patent should have ever been issued.
  • With respect to the argument that the BRI standard is justified in view of the right of a patent owner to amend its claims, Justice John Roberts indicated discomfort with this justification in view of the limitation on such amendments. Justice Roberts went on to state that “it’s a very extraordinary animal in legal culture to have two different proceedings addressing the same question that lead to different results.” and “I’m sorry. It just seems to me that that’s a bizarre way to … decide a legal question.” Chief Justice Roberts further compared the current system to an appeal from a district court judgment to an administrative agency and expressed his doubt that the present system represents improved judicial efficiency.

Judicial review: 35 U.S.C. § 314 states that “[t]he determination by the Director whether to institute an inter partesreview under this section shall be final and nonappealable.” The Patent Office has applied this statute strictly, taking the position that no appeal is permissible, while the petitioner argues that an improperly instituted IPR should be subject to appellate review.

Each side presented a brief argument and responded to questions. Petitioner argued that the language of the statute only bars appeals of decisions not to institute and interlocutory petitions for mandamus. The Patent Office, in response to pointed questions from Justice Ruth Bader Ginsburg and Justice Sonya Sotomayor, argued that even an IPR instituted in violation of the statute is never appealable, but left open the possibility of mandamus review.

Detailed discussion (Kirstaeng): On April 25, 2016, the United States Supreme Court heard oral argument in Kirtsaeng v. John Wiley & Sons to review the proper legal standard to be applied in awarding attorney fees to prevailing parties in copyright infringement lawsuits. The Court’s decision may resolve a split among the U.S. Circuit Courts of Appeal.

Procedural history: We discussed the grant of certiorari and procedural history of the Kirtsaeng case in our April 2016 newsletter, but to briefly review, this is a return trip to the Supreme Court for these parties. In 2013, the Court reversed the Second Circuit Court of Appeals, holding that, as a result of the first sale doctrine, Kirtsaeng did not infringe textbook copyrights when he imported cheaper international textbooks for sale in the United States. The Supreme Court is reviewing the denial of Kirtsaeng’s request to recover attorney fees.

Circuit split: The circuits are split on the issue of when to award fees under Section 505 of the Copyright Act (17 U.S.C. § 505). Kirtsaeng argued in his cert petition that the Second Circuit improperly upheld the district court’s denial of attorney fees applying the Matthew Bender standard, which Kirtsaeng contends overly relies on the objective reasonableness of the defendant’s defense. In furtherance of his position, Kirtsaeng argued that he would have: (1) obtained his fees in the Ninth or Eleventh Circuit, because they only ask if the prevailing party’s claim or defense furthered the interests of the Copyright Act; (2) been entitled to a rebuttable presumption in favor of recovering his fees in the Fifth or Seventh Circuits; and (3) likely obtained his fees in the Third, Fourth, or Sixth Circuits—which apply the four factors from the Supreme Court’s 1994 Fogerty v. Fantasy, Inc. decision (i.e., frivolousness, motivation, objective unreasonableness, and considerations of compensation and deterrence).

Oral argument: At oral argument, Kirtsaeng maintained the position that the Matthew Bender standard improperly focuses on a single factor—the objective unreasonableness of the losing party’s claim and that such a singular focus all but ensures a denial of attorney fees because the “objective unreasonableness” bar is very low and has not resulted in a single award of attorney fees in 15 years. In contrast, the standard adopted by the Ninth and Eleventh Circuits, argued Kirtsaeng, is more appropriate because it allows a district court discretion in awarding attorney fees if the suit “furthered the interests of the Copyright Act” such that defendants seeking to advance meritorious copyright defenses should be encouraged to litigate by allowing recovery of attorney fees. Justice Elena Kagan and Justice Ruth Bader Ginsburg, however, each expressed concern with such an approach in view of the potential deterrent effect it may have on litigants.

On the whole, the Justices appeared to have concerns regarding adopting the more liberal and potentially vague and unpredictable standard proposed by Kirtsaeng and yet also appeared somewhat uncomfortable with the rigidity of the objective reasonableness standard, argued for by John Wiley & Sons. Notably, Assistant to the Solicitor General of the United States, Elaine Goldberg, appeared in support of John Wiley & Sons’ position. Ms. Goldberg argued that the more liberal standard for awarding attorney fees could make pro bono services more difficult to provide to “starving artists” and in an effort to subdue concerns that the standard was one-sided in application also presented statistics attributing the disparity between plaintiff and defendant fee awards to unopposed default and declaratory judgments.

See here to read the transcript of the oral argument before the Supreme Court in Cuozzo Speed Technologies v. Leeand here to read the oral argument before the Supreme Court in Kirtsaeng v. John Wiley & Sons.

See here to read Ronald Mann, Argument analysis: Justices struggle to read “tea leaves” in Congress’s slipshod drafting of Patent Act provisions for inter partes review, SCOTUSblog (4/26/16); and here to read Ronald Mann,Argument analysis: Justices worry about amorphous standards for fee awards in copyright cases, SCOTUSblog (4/26/16).

For more on this subject, see here to read the article in Manatt’s 2/16 newsletter entitled “On the Watch List.—Supreme Court Agrees to Hear Challenge to the PTAB’s Claims Construction Standard and IPR Institution Decisions; and here to read the article in Manatt’s 4/16 newsletter entitled “The Supreme Court Agrees to Review the Standard for Awarding Attorneys’ Fees to a Prevailing Party in Copyright Infringement Suits.”