On Monday, the U.S. Supreme Court heard oral arguments in Cuozzo Speed Technologies v. Lee. At issue in this appeal is the fundamental nature of IPR—is it an efficient means to cull bad patents that shouldn’t have been issued in the first place, or is it a cost-effective substitute for district court litigation? While we’ll have to wait until June for the final decision to learn the answer, the Justices’ questions highlight some of their concerns.
Although this case concerns just one patent owner seeking to save one patent, the outcome of the case will influence nearly every future IPR and might change the outcome in some. Reflecting those stakes, some of the biggest patent owners and some of the most frequent defendants of patent infringement lawsuits have squared off on either side of the case.
“Broadest Reasonable Interpretation” versus “Ordinary Meaning”
The actual question that the Justices will decide concerns the standard by which claims are construed during IPR. The PTO has applied the broadest reasonable interpretation (BRI) standard during examination and post-grant reexamination in most circumstances. The district courts, in contrast, apply the “ordinary meaning” standard during litigation. Congress did not explicitly specify which standard should apply, and the PTO implemented IPR using the BRI standard.
The difference between those standards can be significant, because the BRI standard can give a patent broader scope, which exposes it to a wider range of prior art. During examination, the applicant can amend the claims to avoid the prior art, mitigating the consequences of BRI. However, during IPR, the patent owner is limited to just one motion to amend, leaving it potentially unable to avoid the prior art that BRI sweeps in.
The perceived injustice of exposing the claims to a wider range of prior art with the BRI standard, but constraining the opportunity to amend the claims, is central to Cuozzo’s appeal. On the basis of IPR’s limited amendment, along with other structural features such as its adversarial nature, Cuozzo argued that IPR should be understood as a substitute for district court litigation and, therefore, the PTO should give claims their ordinary meaning. The government defended the PTO’s current use of the BRI standard.
Conflicts Across Industries
For companies that regularly interact with patents, IPR has had a significant impact on how patent rights are evaluated. Unsurprisingly, views on the proper role for IPR vary greatly, depending on how patents affect one’s business. The third-party briefs filed in this case illustrate the sharp divide.
Cuozzo is not a large company, but it has support from some major patent owners. The pharma and biotech industry trade associations filed briefs in support of Cuozzo, seeking to do away with the BRI standard in IPR. On the other side of the coin, however, the generic pharma manufacturers trade association opposed Cuozzo and defended IPR in its current form, which might help those generic manufacturers clear the branded manufacturers’ patents blocking their path to market.
Schisms also exist across industries. Unlike the branded pharma and biotech companies, computer tech giants like Apple, Dell, and EMC, and the financial services trade association filed briefs defending BRI in IPR. The computer tech and financial services industries have been buffeted by patent litigation recently, and IPR is an effective defense in some instances. Opposing the computer tech and finance industries is noted patent licensing company Intellectual Ventures, which, among others, supports Cuozzo.
An Uneasy Court
At oral arguments, the Justices grappled with the proper role of IPR and the consequences of using the BRI standard. Justice Breyer framed the debate as a question of whether Congress was creating “a little court proceeding,” in which case the Board should step into the court’s shoes and apply the ordinary meaning standard, or whether IPR should be viewed as the product of a “partial-Groundhog-Day statute” that lets people repeat examination under the BRI standard.
Justice Kennedy questioned Cuozzo’s rejection of the BRI standard: “if the patent is invalid under the [BRI], . . . doesn’t that mean the PTO should never have issued the patent in the first place, and doesn’t that give very significant meaning and structure to this process?” Justice Kennedy’s question, which Justice Breyer agreed was important, appears to address a concern that requiring the PTO to apply the ordinary meaning standard would mean that patents would survive IPR that the PTO should not have issued during initial examination under the BRI standard.
Justice Breyer sought clarification on Congress’s reasons for creating IPR, and wondered if IPR should be viewed as a response to so-called patent trolls asserting bad patents: “there are these things, for better words, let’s call them patent trolls, and . . . the Patent Office has been issuing billions of patents that shouldn’t have been issued—I overstate—but only some. . . . And so what we’re trying to do with this process is to tell the [Patent O]ffice, you’ve been doing too much too fast. Go back and let people who are hurt by this come in and get rid of those patents that shouldn’t have been issued.”
If repeating examination of patent trolls’ patents is the purpose, then BRI is the most appropriate. On at least the purpose of IPR, Chief Justice Roberts may not agree that IPR is purely a means to seek further examination of the patent. “[I]t seems perfectly clear that Congress meant for [the Board] to substitute for the judicial action,” he stated. “So why . . . should we be so wedded to the way they do business in the PTO with respect to the [BRI] when . . . the point is not to replicate PTO procedures[?] It’s supposed to take the place of district court procedures.”
The tough questioning was not reserved for Cuozzo, and the Justices asked the government about the very real possibility that the PTO and the court will reach conflicting interpretations of the patent. Chief Justice Roberts asked, “So if the district court interprets the patent, . . . is that binding on the PTO? . . . And if the PTO interprets the patent, that’s not binding on the district court[?]” The government agreed that neither would generally bind the other. “[T]hat’s a bizarre way to . . . decide a legal question,” Chief Justice Roberts responded. “And this is under a statute designed to make the patent system more reasonable and more expeditious in reaching judgments?”
As troubled as the Justice might be with the current scheme, Cuozzo’s argument that Congress intended anything else was met with some opposition. Justice Kagan asked, “if I look at the statute, . . . it just doesn’t say one way or the other. So we’re a little bit reading tea leaves, aren’t we?” Cuozzo started to respond that other features of IPR are inconsistent with the BRI standard, but Justice Kagan did not appear moved: “if I’m trying to put myself in Congress’s position, . . . I’m looking at the PTO, and it does pretty much everything by this [BRI] standard. And if I had the clear intent that you’re suggesting, given the backdrop of how the PTO generally operates, wouldn’t I say so?”
No Clear Answer
The tenor and balance of the questions revealed some dissatisfaction among the Justices with either approach. Given the difficulty of choosing between the standards and of defining the purpose of IPR, the Court may heed Justice Breyer’s proposal to let the PTO decide: “if it’s ambiguous between those two purposes, I would begin to think, well, maybe [the PTO] should have the power themselves . . . to decide which to do.”
Deferring to the PTO would cost Cuozzo its patent and would solidify IPR—for the time being—as a critical strategic option for parties facing allegations of patent infringement. Calls for reform in Congress would grow, particularly from those industries where IPR poses a risk to the established business model. Already, several bills that would change IPR are being considered.
Until the Supreme Court issues its decision, patent owners and accused infringers should carefully consider the consequences if IPR suddenly switches to the ordinary meaning claim construction standard. While the strategic considerations around IPR may change, it will remain a viable complement to district court litigation and a means to eliminate a patent.