On February 4, 2015, the Federal Circuit issued its opinion in In re Cuozzo Speed Technologies, LLC, in which it upheld the Patent Trial and Appeal Board’s (“PTAB’s”) first final written decision in an inter partes review (“IPR”)1. As in prior opinions related to procedural issues in AIA trials, the Federal Circuit continued to allow the PTAB wide discretion in managing the conduct of post-grant reviews. In particular, the Federal Circuit’s opinion addressed two issues important to all post-grant proceedings, holding that: (1) the PTAB’s decisions to institute IPR cannot be appealed; and (2) the broadest reasonable interpretation (“BRI”) claim construction standard applies in an IPR.
Cuozzo Speed Technologies (Cuozzo) filed suit against Garmin International (Garmin) in the District of New Jersey, accusing Garmin of infringing U.S. Patent No. 6,779,074 (the “’074 Patent”)2. On September 16, 2012, the first day that that an IPR petition could be filed under the AIA, Garmin filed an IPR, challenging Claims 1-20 as being either anticipated or obvious in view of several prior art references.3 The PTAB instituted an IPR for all challenged claims, but the institution for Claims 10 and 14 was based on grounds asserted in Garmin’s petition only against Claim 17.4 The Board ultimately issued a final written decision finding all claims to be unpatentable under 35 U.S.C. § 103.5
Cuozzo appealed, contesting, among other issues, (1) the PTAB’s decision to institute IPR on Claim 10 and 14 over a ground not explicitly asserted against those claims, and (2) whether the PTAB can properly apply the BRI standard in IPR proceedings.6 Garmin withdrew from the appeal pursuant to a settlement agreement, but the U.S. Patent and Trademark Office (“PTO”) intervened as authorized by statute.7
THE FEDERAL CIRCUIT’S DECISION
The panel’s decision was divided 2-to-1, with both the majority and dissenting opinions analyzing the relationship of IPRs to previous proceedings before the PTO and attempting to divine congressional intent as expressed in the AIA. The majority focused on the plain language of the statute and on a presumption that where Congress is silent it did not intend to disturb the status quo. In dissent, Judge Newman relied on legislative history and the statutory framework as demonstrating that Congress specifically intended IPRs to operate differently from other PTO proceedings.
PTAB Institution Decisions are Not Appealable.
The Court held that the PTAB’s decisions whether to institute IPR proceedings are entirely non-appealable.8 The Court has previously explained that 35 U.S.C. § 314(d) “precludes interlocutory review of decisions whether to institute IPR.”9However, the Federal Circuit had not yet addressed whether institution decisions were reviewable during an appeal of a final written decision.10 Cuozzo argued that § 314 only relates to interlocutory appeals of institution decisions and that reading § 314 as a complete bar to appeal would permit the PTO to “institute IPR in direct contravention of the statute.”11
Relying on the plain language of § 314(d), the Federal Circuit concluded that “§ 314(d) prohibits review of the decision to institute IPR even after a final decision.”12 The Court reasoned that § 314(d) “is written to exclude all review of the decision whether to institute review” and that this language “cannot reasonably be interpreted as postponing review until after issuance of a final decision on patentability.”13 Moreover, because “[35 U.S.C.] § 319 and [35 U.S.C.] § 141(c) already limit appeals to appeals from final decisions, § 314(d) would have been unnecessary to preclude non-final review of institution decisions.”14 Accordingly, the Court held that “[b]ecause § 314(d) is unnecessary to limit interlocutory appeals, it must be read to bar review of all institution decisions, even after the Board issues a final decision.”15 Moreover, the majority reasoned that, in this case, even if the institution decision was defective for this petition, the error was harmless because “a proper petition,” i.e. one including the instituted grounds, “could have been drafted.”16
The Court did suggest, however, that “mandamus may be available to challenge the PTO’s decision to grant a petition to institute IPR after the Board’s final decision in situations where the PTO has clearly and indisputably exceeded its authority.”17 The majority then concluded, however, that mandamus would not have been appropriate in this case, because “[i]t is not clear that IPR is strictly limited to the grounds asserted in the petition.18
Broadest Reasonable Interpretation is the Appropriate Claim Construction Standard in IPRs.
Cuozzo also contended that the PTO had exceeded its statutory rulemaking authority in adopting the BRI standard for claim construction in IPRs rather than using the same standard applied in district courts.19 Indeed, the Court recognized that the AIA “on its face does not resolve the issue of whether the [BRI] standard is appropriate in IPRs; it is silent on that issue.”20 However, reviewing the history of claim construction standards in proceedings at the PTO and the statutory framework, the Federal Circuit held that (1) “Congress implicitly adopted the [BRI] standard in enacting the AIA,” and (2) that, even if Congress had not adopted this standard implicitly, the PTO nevertheless acted properly within its statutorily granted rulemaking authority.21
At the outset, the Federal Circuit noted that “the [BRI] standard has been applied by the PTO and its predecessor for more than 100 years in various types of PTO proceedings.”22 Cuozzo argued that the use of the BRI standard in previous proceedings was not relevant because in those proceedings, a patent owner could amend its claims.23 The Federal Circuit disagreed, reasoning that although “the opportunity to amend is cabined in the IPR setting, it is thus nonetheless available.”24 Because the use of the BRI standard in PTO proceedings was a “widely known . . . agency practice,” Congress is “presumed . . . to adopt that interpretation when it re-enacts a statute without change.”25Here, “[t]here is no indication that the AIA was designed to change the claim construction standard that the PTO has applied for more than 100 years.”26Accordingly the Court held that “Congress impliedly adopted the existing rule of adopting the broadest reasonable construction.”27 The Court however did note the one exception to this rule: expired patents are not subject to the BRI, because a patent owner cannot amend the claims.28 The PTAB, however, has previously held a terminal disclaimer in abeyance until after completion of an IPR trial to prevent patent owners from circumventing the BRI standard.29
Moreover, even if Congress had not implicitly adopted the BRI standard, the Federal Circuit concluded that the PTO was independently empowered to do so.30 Specifically, the AIA grants the PTO rulemaking authority to develop regulations governing the institution and conduct of IPR proceedings.31 The Court explained that the adoption of the BRI standard implicates both of these powers, and is thus “within the PTO’s authority under the statute.”32 Because the PTO was operating within its rulemaking authority, the Federal Circuit analyzed the regulation under the Chevron framework.33 Under Chevron, the validity of administrative regulations is analyzed using a two-step test. First, the reviewing court determines “whether Congress has directly spoken to the precise question at issue.”34 Second, if the statute is ambiguous, the Court considers “whether the agency’s interpretation is based on a permissible construction of the statutory language at issue.”35 Even assuming that the AIA did not adopt the BRI standard (i.e., assuming arguendo the requisite ambiguity for Chevron step 1), the Federal Circuit held that the PTO’s adoption of that standard “presents a reasonable interpretation of the statute.”36 Accordingly, the Court upheld the PTO’s regulation directing the PTAB to apply the BRI standard in IPR proceedings.37
Although the majority focused on the similarities between AIA trials and previous proceedings before the PTO, Judge Newman opined that there are substantial differences that impact the policy considerations underlying the majority opinion. In particular, Judge Newman noted that Congress specifically stated that the AIA converted inter partes reexamination “from an examinational proceeding to an adjudicative proceeding”38 According to Judge Newman, the majority’s reliance on the standards used in those proceedings is thus unreliable, because Congress intended IPRs to operate as “a surrogate for district court litigation,” not as a process for reexamining patents.39 Moreover, Judge Newman criticized the majority’s reliance on the ability to amend claims in IPRs, noting that although the rules allow for amendment, they do not contemplate the type of “iterative” amendment process that previously justified the use of the BRI standard, and that the ability to amend is “almost entirely illusory.”40
Judge Newman also dissented from the majority’s conclusion that institution decisions are unappealable. In Judge Newman’s view, the PTAB’s decision to institute on grounds not presented in the petition contravenes 35 U.S.C. § 312(a)(3), which requires that a petition identify the grounds and evidence as to each challenged claim.41 Accordingly, Judge Newman questioned the majority’s conclusion that the PTAB’s institution on unasserted grounds was harmless.42Judge Newman concluded that § 314(d) could be read to only preclude interlocutory review and explained that she would have exercised the Court’s power to interpret the statute by applying “thoughtful adjustment to the legislative purpose, not heavy-handed foreclosure of all review of anything related to the petition.” 43
IMPLICATIONS OF THE CUOZZO DECISION
Unless an en banc Federal Circuit or the Supreme Court takes up this case, the Federal Circuit will continue to defer to the PTO’s decisions regarding management of post-grant proceedings. However, it is likely that parties will soon test the extent of the PTO’s discretion. For example, a party to an IPR may take up the Federal Circuit’s invitation to pursue mandamus to challenge institution decisions. Likewise, the Federal Circuit’s statement that expired patents are not subject to the BRI standard calls into question the Board’s previous decision refusing to give effect to a terminal disclaimer filed to avoid the application of that standard.44