PTAB Definition of “Proceeding” Found Inconsistent With the Law

Yesterday, in Intellectual Ventures II LLC v. JPMorgan Chase & Co. (here), the CAFC considered whether or not the interlocutory jurisdiction of Section 18 of the America Invents Act (AIA) is triggered by the mere filing of a CBM petition.  In this case, JP Morgan sought a stay pending a CBM filing, which was denied by the district court.  Shortly thereafter, JP appealed to the CAFC under Section 18. The Patentee argued that appeal was improper because Section 18 only conveyed interlocutory jurisdiction for CBM “proceedings,” and the PTAB had not yet acted on the petition at the time of the appeal— that is, it wasn’t a “proceeding” unless and until instituted.

Relying on a strict read of the language of Section 18, the CAFC found that a “proceeding” followed institution.  On the other hand, the dissent pointed out that such a conclusion was not intended by Congress given that CBM is designed to serve as a litigation substitute.  

While the dissent is certainly correct as to goal of the CBM statutes, the unambiguous nature of statutes rule the day.  Given the efficacy of CBM filings to date, perhaps we will see a technical amendment along these lines. (should any additional patent reform legislation ever make it out the door).  

Of greater interest to me, however,  is the CAFC’s commentary in this decision on the PTAB’s rules defining  “proceeding.”  PTAB rules (37 C.F.R. § 42.2) define a “proceeding” as being “a trial or preliminary proceeding.”  A “preliminary proceeding” is defined as starting with the filing of a petition. The CAFC indicated that such an expansive definition of “proceeding” is inconsistent with the AIA statutes.  What is the impact of this decree on the agency?

One example might be the ability to settle an IPR, PGR, or CBM prior to institution. At present settlement is not uncommon before trial institution, yet does the statute convey that authority under the CAFC’s read of “proceeding”?

35 U.S.C.§ 317 Settlement, provides that:

(a) IN GENERAL.–An inter partes review instituted under this chapter shall be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the Office has decided the merits of the proceeding before the request for termination is filed. If the inter partes review is terminated with respect to a petitioner under this section, no estoppel under section 315(e) shall attach to the petitioner, or to the real party in interest or privy of the petitioner, on the basis of that petitioner’s institution of that inter partes review. If no petitioner remains in the inter partes review, the Office may terminate the review or proceed to a final written decision under section 318(a).

(b) AGREEMENTS IN WRITING.–Any agreement or understanding between the patent owner and a petitioner, including any collateral agreements referred to in such agreement or understanding, made in connection with, or in contemplation of, the termination of an inter partes review under this section shall be in writing and a true copy of such agreement or understanding shall be filed in the Office before the termination of the inter partes review as between the parties. At the request of a party to the proceeding, the agreement or understanding shall be treated as business confidential information, shall be kept separate from the file of the involved patents, and shall be made available only to Federal Government agencies on written request, or to any person on a showing of good cause.

(emphasis added)

Applying the CAFC’s read, the PTAB has the power to terminate instituted proceedings, not pre-institution proceedings. The mention of 315(e) estoppel further supports the CAFC’s read as 315(e) estoppel cannot attach unless the petition moves forward to a written decision— after institution and trial. While Congress may have intended to permit settlement pre-institution, 317 doesn’t seem to provide that authority. (presumably an oversight as settlement prior to institution would seem uncommon) 

On the other hand, the PTAB rule state:

§ 42.74 Settlement.(a) Board role. The parties may agree to settle any issue in a proceeding . . . .

As noted above, the definition of “proceeding” used by the PTAB includes pre-institution filings under 37 C.F.R. § 42.2.

The power to terminate a proceeding for settlement is conveyed by 317. The CAFC would seemingly determine the PTO rules inconsistent with the law on this point. That said, I wouldn’t expect parties to make this argument to the Board if they are seeking settlement.  Instead, parties to such settlements might argue that any settlement agreements need not be provided for pre-institution settlements, that is, the trigger for such is only for settlement of instituted “proceedings.”