Change in PTAB Claim Construction May Make Matters Worse for Patent Owners

As I pointed out back in March, the Patent Trial & Appeal Board’s (PTAB) switch from the Broadest Reasonable Interpretation (BRI) standard to a Phillips claim construction for AIA Trial Proceedings was telegraphed in advance. The rule package, released today (here), is limited to AIA trial proceedings (IPR, PGR, CBM). Left untouched are patent interference, reexamination, reissue, supplemental examination and derivation proceedings. Upon final rule issuance (late summer/fall) AIA trial proceedings will apply a district court or “Phillips” claim construction. Given the current proposal it appears that this change will apply to all pending proceedings.

Patent Owners were quick to applaud the proposed claim construction change as a huge win……it’s not.

Setting aside the ramifications of this change on stakeholders for a moment, the agency will seemingly justify the use of BRI in other post grant proceedings (i.e., non-AIA trials) as being examinational in nature. If that is the case, it would seem that the final rule will need to include interference (yes, there are some left) and derivation proceedings as these proceedings are contested. Moreover, as the justification for BRI has always been the ability to amend, and it does not seem that amendment will be dropped from AIA trials, this proposed change is moving away from longstanding agency policies.

But, back to the practical implications for Patent Owners.

As I warned back in 2015, Patent Owners should be careful what they wish for with respect to Phillips. Patent Owners seeking to enforce their patents in the PTAB era are inevitably faced with a motion to stay any infringement litigation pending the PTAB outcome. Two weeks back, Patent Owners lost a significant tool in winning those battles in SAS Institute. With non-instituted claims going away, and along with it the motivation to file robust Patent Owner Preliminary Responses, the institution rate can only go up.

On the heels of SAS, a change to Phillips gives district courts yet another reason to await a PTAB outcome. That is, the PTAB will be construing claims under Phillips within 6 months of a petition filing. How will a district court look at a timely filed PTAB proceeding instituted on all litigated claims, now applying Phillips, and decide to continue with its own proceeding?. Especially given the lengthy dockets in some districts where Markman is some 12-18 months down the line? It is hard to imagine the stay rate not being strongly impacted by these developments.

Patent Owners are hopeful that Phillips will lead to better outcomes on the merits. This is because of a false impression that BRI must be broader that a Phillips construction. Yet, in the vast majority of cases, it is not. As I discussed in my 2015 post linked above, the PTAB will now be the first forum to construe claims under Phillips in the typical case. And, after B&B Hardware, that construction may be binding on the courts.

Going forward, I expect the ITC to continue to see increased filings given its practice of continuing its actions despite PTAB parallel proceedings.

As to traditional district court litigation, adopting Phillips at the PTAB essentially creates a bifurcated system. Validity and claim construction will be first determined by the PTAB in many disputes. Patent Owners are failing to see the forest for the trees..