In a recent precedential opinion, the Federal Circuit dismissed a patent owner’s appeal of a ruling by the PTAB that assignor estoppel does not prevent a former patent owner from challenging a patent via inter partes review. The case, Husky Injection Molding Systems Ltd. v. Athena Automation Ltd.,[1] saw the court of appeals effectively defer to the Board on the question of assignor estoppel because, in its view, the issue does not fall within the “narrow” exceptions to the “broad” bar against review of institution decisions.

Key Takeaway: The decision identifies four narrow exceptions to the bar on appeal of a PTAB institution decision: (1) constitutional questions, (2) issues depending on other statutes less closely related to the AIA, (3) questions of interpretation that reach well beyond the section defining institution, and (4) issues going to the Board’s ultimate invalidation authority. In particular, the court states that questions as to who may raise an AIA challenge will not be reviewable on appeal, and further signals that these exceptions will not be expansively read.

Background: Petitioner Athena filed a petition challenging claims 1-22 of U.S. patent 7,670,536, which relates to injection molding machines, as unpatentable on several prior art grounds. In its preliminary response, patent owner Husky argued that Athena was barred from seeking review of the ’536 patent under the doctrine of assignor estoppel, an equitable doctrine that bars a patent assignor from later challenging the patent’s validity. The issue of assignor estoppel arose because a co-inventor of the ’536 patent (Schad), who formerly owned and was president of Husky, had assigned his rights in the patent to Husky and, after selling Husky to a private equity group, left to form Athena.

The PTAB rejected the argument regarding assignor estoppel and instituted review of the challenged claims on anticipation and/or obviousness grounds. With respect to assignor estoppel, the Board reasoned that the statute, 35 U.S.C. § 311, broadly provided that any person other than the patent owner may seek inter partes review of a patent, and that the statute was not subject to an exception based on the equitable doctrine of assignor estoppel. In support, the Board compared § 311 to statutory provisions covering ITC proceedings which – in contrast to § 311 – provide for consideration of “all legal and equitable defenses.” [2]

In its final written decision,[3] the PTAB determined that claims 1, 4–16, 18, and 20–22 are unpatentable, but rejected the arguments for unpatentability of claims 2, 3, 17, or 19. The Board did not address the issue of assignor estoppel in its final decision.

Husky appealed the PTAB’s decision on unpatentability, focusing exclusively on the issue of assignor estoppel. Athena cross-appealed, and the PTO (Director Lee) intervened.

Assignor Estoppel Question Not Reviewable on Appeal. On appeal to the Federal Circuit, Husky contended that assignor estoppel should apply to bar Athena from challenging the ’536 patent because Athena is in privity with Schad, who assigned his rights in the patent to Husky. Further, Husky contended that the Board acted outside of its statutory authority in instituting review while rejecting assignor estoppel and issuing a final decision holding claims unpatentable.

In a split decision, the Federal Circuit dismissed Husky’s appeal, ruling that the court lacked jurisdiction to review the Board’s determination that assignor estoppel did not bar Athena from proceeding with its challenge to the ’536 patent. The court’s decision was based on section 314(d), which renders the Board’s decisions to institute final and non-appealable. The panel majority began by considering those cases it had previously decided under section 314(d), as informed by the recent Supreme Court ruling in Cuozzo.[4] The majority concluded that the cases establish a two-part test for determining whether the Federal Circuit may review a particular challenge to a PTAB’s decision to institute. First, based on Cuozzo, the court must determine if the challenge is

closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review,

in which case review is barred under § 314(d),[5] or if instead the challenge meets one of these three exceptions that

[i] ‘implicate[s] constitutional questions,’ [ii] ‘depend[s] on other less closely related statutes,’ or [iii] ‘present[s] other questions of interpretation that reach, in terms of scope and impact,’ well beyond ‘this section,’’

for which judicial review may proceed.[6] Second, even if none of the foregoing exceptions apply, the court should consider another exception to the bar against review, when

the challenge … is nevertheless directed to the Board’s ultimate invalidation authority with respect to a specific patent,

in which case the court may also proceed with review.[7]

Turning to Husky’s appeal, the majority determined that the question of assignor estoppel did not meet any of the articulated exceptions to the bar on appeal. There was no constitutional question raised, so the court quickly disposed of that prong. With respect to the second prong, the court opined that “closely related” statutes would include at least those that define the IPR process. Here, determining whether assignor estoppel applies in IPRs necessarily involves interpreting § 311 – a statutory provision governing who may (and who may not) file a petition for review, and one “very ‘closely related’ to” any institution decision – meaning this exception does not apply. As for the third prong, the court disagreed with Husky and reasoned that assignor estoppel implicates the same concerns as those raised by Section 314 – namely, matters going to the Board’s threshold determination regarding whether the petition meets the requirements for proceeding with inter partes review – thus making the question one not “well beyond” § 314.[8]

Next, the Federal Circuit majority addressed the final exception: whether the question raised relates to the Board’s “ultimate invalidation authority.” Relying on its prior decisions in Versata[9] and Achates,[10] the majority opined that the Board’s invalidation authority “derives from the patent challenged and the type of the review,” and not “who petitions for review.” In so doing, the court articulated a contrast between what patents may be invalidated, on the one hand, and who may challenge a patent, on the other. More specifically, according to the majority, the court in Versata was able to review a determination whether the patent met the statutory definition of a covered business method (CBM) patent, because the issue turned on the type of patent involved. But in Achates, the question whether a particular party was time-barred from filing an IPR was not subject to judicial review because the issue only affected that party; it did not foreclose the PTAB from hearing reviews initiated by other parties.[11]

Within this framework, the court considered assignor estoppel and rejected Husky’s position here as well. Because assignor estoppel acts to prevent a party who assigns a patent’s rights from later claiming the patent is of no value, the majority reasoned that the issue merely limits the parties that may challenge the patent’s validity, and does not foreclose the tribunal from evaluating invalidity assertions against the patent generally (i.e., by other members of the public). The majority highlighted the different circumstances presented by Versata, which involved the Board’s authority to hear challenges to a patent under the CBM statutory provisions; there, the issue whether a patent qualified for CBM review turned on the nature of the patent itself. As the majority pointed out, assignor estoppel does not provide the PTAB with the authority to invalidate a patent but, rather, is more like the procedural limits found unreviewable in Achates. Accordingly, because assignor estoppel implicates who may challenge a patent, the majority ruled that the issue does not fall within the “narrow exceptions” to the “broad ban” on judicial review of institution decisions.[12]

In dissent, Judge Plager agreed with the majority opinion’s identification of the Cuozzo exceptions, but disagreed with the majority’s conclusion that the applicability of assignor estoppel could not be reviewed on appeal. Rather, in the dissent’s view, the question of assignor estoppel should be reviewable because it derives from judge-made common law, rather than any particular statute. Further, even to the extent that the assignor estoppel question results in statutory interpretation of § 311, the dissent suggested that the issue should nevertheless be reviewable under the second prong of Cuozzo, because § 311 may be deemed a “less closely related statute” to section 314, or under Cuozzo’s third prong, because it presents a question that reaches “well beyond” section 314.[13]

What does this case mean for patent owners and challengers? The immediate effect is to confirm that patent owners cannot rely upon assignor estoppel as a potential defense to forestall an AIA review. But the Federal Circuit’s ruling also clarifies that, based on Cuozzo and its own prior Versata and Achates opinions, the court will generally not review any PTAB decision that derives from its institution decision unless it falls within one of the four exceptions to the bar on appeal: the three Cuozzo exceptions or the exception relating to the Board’s ultimate invalidation authority. Given the court’s discussion of these exceptions, moreover, it appears that the Federal Circuit will narrowly apply these exceptions. In particular, when an issue impacts the identity of parties that may present an AIA challenge (the “who”) but not the nature of the patent itself under challenge (the “what”), the court is unlikely to stretch one of the exceptions to fit the issue and undertake review.