The Court will consider whether the Patent Trial and Appeal Board must determine the unpatentability of all claims challenged by petitioners, or just those claims it has instituted review on, in inter partes review determinations.
On November 27, 2017, the US Supreme Court held oral arguments in SAS Institute Inc. v. Matal to determine whether the Patent Trial and Appeal Board (PTAB or Board) is required to issue a final written decision on all claims challenged in an inter partes review (IPR) petition, or just the challenged claims that the Board “instituted” review on. The Supreme Court’s decision has the potential to dramatically change IPR procedures and set off a new phase of rulemaking at the US Patent and Trademark Office (Patent Office).
At its heart, the fight in SAS Institute Inc. is over the correct interpretation of two statutory sections that appear at odds with each other: 35 U.S.C. § 314(a), which governs IPR institution, and 35 U.S.C. § 318(a), which governs final written decisions in instituted IPRs. Although Section 314(a) permits the Board to institute IPR on “at least 1 of the claims challenged in the petition,” Section 318(a) requires that the Board “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” Interpreting these statutes, the Patent Office has authorized the Board “to proceed on all or some of the challenged claims . . . when instituting inter partes review,” which has led the Board to determine the unpatentability of only those claims that IPR was instituted on (the “instituted claims”), as opposed to all claims challenged in the IPR petition (the “challenged claims”). 37 C.F.R. § 42.108(a).
In March 2013, SAS Institute Inc. (SAS) filed an IPR petition challenging the patentability of claims asserted against it by ComplementSoft, LLC. Following the issued Patent Office regulations, the Board instituted review on some, but not all, of the claims challenged in SAS’s petition. In its final written decision, the Board examined only the instituted claims and found all but one of the claims unpatentable in view of the prior art.
SAS appealed the claim constructions adopted in the final written decision and also argued that the Board erred by only addressing some of the claims challenged in its IPR petition. The US Court of Appeals for the Federal Circuit affirmed the Board’s decision, relying on its prior decision in Synopsys, Inc. v. Mentor Graphics Corp., which held that the Board need not address every challenged claim since Sections 314(a) and 318(a) apply in different contexts (i.e., the institution stage and the final written decision stage, respectively). En banc review was denied, SAS filed a petition for writ of certiorari, and the Supreme Court granted SAS’s petition and agreed to review the case.
In its briefing to the Court, SAS argued that the Federal Circuit erred by focusing on Section 314(a), which sets forth the “threshold” for instituting review, rather than Section 318(a), which contains the mandatory language that the Board “shall” issue a final written decision on “any claim challenged.” SAS argued that this language “compels the conclusion that the final written decision must reach all of the claims challenged by the petitioner.” SAS and its supporting amici curiae stressed that this interpretation would strengthen the IPR estoppel provisions by eliminating the “estoppel safe harbor” created when the Board decides not to institute on certain claims challenged in a petition, which would discourage serial challenges to the validity of patents.
The Patent Office and ComplementSoft, along with their supporting amici curiae, argued that the only claims that remain “challenged” at the time of a final written decision are the instituted claims. The Patent Office emphasized that ruling in favor of SAS would grant IPR petitioners an end run around the Supreme Court’s decision in Cuozzo Speed Technologies LLC v. Lee—where the Court confirmed that IPR institution decisions are not appealable—by requiring the Board to include all claims in its (appealable) final written decision regardless of whether a given petition meets the institution threshold as to those claims.
During oral argument, the justices raised a number of textual questions regarding the parties’ interpretations of the phrase “any claim challenged by the Petitioner.” Several justices, including Justices Elena Kagan and Stephen G. Breyer, appeared to indicate that the Board had discretion to decide whether to institute on certain claims. Likewise, Justice Ruth Bader Ginsburg questioned the ability of SAS to even raise this argument since the Board’s institution decision cannot be appealed even after the IPR reaches a final written decision. See Cuozzo Speed Techs., LLC, 136 S. Ct. at 2139-41. Perhaps sensing an inconsistency in SAS’s responses, the justices pressed SAS’s counsel regarding the practical effects of SAS’s position. In particular, the justices raised issues surrounding cancellation of claims and settlement during an instituted IPR, and questioned whether SAS’s position would require the Board to address cancelled claims and issue a final written decision even after a case has settled.
Still, Justice Samuel A. Alito, Jr. pressed the government on Section 318(a)’s seemingly mandatory language that the Board “shall issue” a decision on “any claim challenged.” Likewise, Justice Breyer acknowledged the support for SAS’s position and Justice Neil M. Gorsuch questioned the government on distinctions between the statute authorizing patent reexamination, which explicitly empowers the Patent Office to pick and choose claims, and the statute authorizing institution of an IPR, which has no such language.
The justices’ questions also raised policy questions implicated in both parties’ interpretations of the IPR statutes. Justice Sonia Sotomayor expressed concern that forcing the Board to address noninstituted claims in the final written decision would result in an exceedingly thin record that would make appellate decisions difficult to support. Justice Sotomayor also echoed the Patent Office’s concern that disallowing partial institution would effectively allow review of the Board’s institution decision, although she did not join the majority in Cuozzo. Finally, Justice Ginsburg pressed SAS on whether its interpretation of the statute, which would give petitioners more power to decide the scope of instituted IPRs, is consistent with Congress’s goal of providing the Patent Office with a tool to correct its own mistakes.
Should the Supreme Court side with SAS, the Patent Office will have to reevaluate the current regulations and procedures allowing the Board to institute on only some of the claims challenged in a petition. In crafting new procedures, it is unlikely that the Patent Office would do away with the requirement that the Board issue an institution decision in its entirety, as this is a primary mechanism for reducing the Board’s overcrowded docket. However, if the Board is required to issue a final written decision on all challenged claims, then it is possible that the Board may alter the nature and substance of the opinions that are typically provided at the institution stage. For example, the Board may issue institution decisions with less substantive analysis of the prior art. Instead, the Board’s decisions may focus more on deciding claim construction and other threshold procedural issues, such as denying follow-on petitions or redundant grounds within a single petition. By focusing on claim construction and procedural issues at the institution stage, the Board would be able to wait for the entire record to develop on all challenged claims before analyzing the parties’ substantive arguments and making findings.
If the Board does continue to reach the merits of the prior art in its institution decisions, and decides to institute review, any determination by the Board that the evidence is insufficient for a particular claim may become merely advisory because the claim would nevertheless be included in the trial stage of the review. Thus, the petitioner could potentially address the deficiency finding in its reply. In this scenario, however, the Board would have to be wary of relying on new evidence presented in the petitioner’s reply, as the patent owner would likely argue that any new findings based on reply evidence constitute a new ground of rejection.
Any new procedures will also spur changes in the way IPR petitions are drafted. As noted by SAS and its amici, requiring the Board to carry all claims through the final decision would effectively eliminate the “estoppel safe harbor” that currently arises when the Board decides to deny institution on particular claims but proceed on others. At present, the Board does not issue final written decisions on challenges to particular claims that are denied at the institution stage. This means that no estoppel attaches to those claims. However, if the Board is required to issue a final written decision on all claims challenged in a petition once it institutes review, then the broad estoppel provisions resulting from the final written decision will attach to all claims challenged in the petition. Petitioners will have to factor in the increased risks of estoppel when weighing the benefits that IPRs provide for resolving validity challenges, and potentially mitigate the risk by limiting the number of challenged claims or spreading their challenges over multiple petitions to isolate problematic claims.