NHK Swallows General Plastic

The America Invents Act (AIA) was passed into law in 2011 to provide a more cost-effective, faster alternative to district court patent litigation.  At the time, bill sponsors explained that some of America’s largest innovators were paying more to their patent lawyers in a given year — to defend against “patent troll” suits— than they were on new research and development.  The role of the Eastern District of Texas (EDTX) in this perceived problem was not lost on legislators.  Provisions were added to the AIA to address perceived joinder abuses in the EDTX.  And, in many respects, EDTX plaintiff behaviors abruptly transformed the AIA from an esoteric, multi-year legislative debate, into law.

Of course, EDTX remains one of the most popular patent venues in the U.S. despite the AIA, and additional efforts to rein in this venue option in TC Heartland.  More recently, EDTX has inspired a copycat venue in the Western District of Texas (WDTX), which has seen a 700% increase in patent cases since 2016. The expansion in popularity of Texas district courts, especially for non-practicing entities (NPEs), makes the PTAB’s recent deference to such litigation under its NHK precedent all the more troubling given its AIA mandate.

As a reminder, NHK Spring Co. Ltd. v. Intri-Plex Technologies Inc. was designated precedential in 2019 (here).  NHK  considered the advanced stage of a parallel litigation as a new General Plastic factor.  In its decision, the Board explained that patent owner argued persuasively that instituting a trial where the district court proceeding, in which petitioner asserts the same prior art and arguments, is nearing its final stages, and where the IPR would conclude months thereafter, would not be consistent with “an objective of the AIA . . . to provide an effective and efficient alternative to district court litigation.”

As one factor of a full General Plastic analysis —where there is a close call— NHK may make sense as an additional feather on the scale.  Unfortunately, some recent PTAB cases are applying NHK as the only factor on the scale.

For example, in Sand Revolution II LLC., v. Continental Inter Modal Group – Trucking LLC. (IPR2019-01393) the majority opinion denied institution, explaining with reference to a full General Plastic analysis that (here):

Here, factors 1–5 and 7 might be found to weigh in favor of not denying institution under 35 U.S.C. § 314(a). However, the precedential NHK decision nevertheless constrains our discretion and compels us to deny institution in the circumstances present here [co-pending WDTX scheduled for trial in the Summer of 2020].

The Sand Revolution dissent (below) emphasized the strength of the relative showings at institution (which other PTAB panels have also noted in denying NHK relief):

According to Petitioner, claim 1 would have been obvious under 35 U.S.C. § 103 over the combined teachings of [petition art]. Pet. 12. In response, Patent Owner states only “the Office need not consider the merits of this case,” and, thus, presents no substantive arguments or evidence to rebut Petitioner’s contentions. Prelim. Resp. 3. On the other hand, to support its position, Petitioner provides a detailed analysis of how each limitation of claim 1 is taught or suggested by [the petition art] Pet. 12–51.

Thus, far from a feather on the scale, NHK is now a giant anvil that favors the now PTAB-racing Texas courts over the more cost effective solution provided by Congress.  That is, several legal publications have reported how the WDTX is setting a goal to “beat the PTAB ” to a decision.  The WDTX docket guarantees an NHK analysis in any related PTAB filing as its docket approaches the same timeline as that of the agency (at least until it starts to conduct more trials). This at a time when roughly 70% of the new WDTX docket constitutes NPE filings, and roughly 60% of PTAB filings are directed to NPE patents.

Pointing out that NHK has effectively swallowed General Plastic, Sand Revolution sought review of the Precedential Opinion Panel (POP) last month (here), arguing:

The POP should reconsider and overrule NHK Spring’s holding that the advanced state of a parallel district court proceeding involving similar invalidity issues as an IPR petition warrants a discretionary denial under § 314(a) because institution under such circumstances would be an inefficient use of Board resources. This holding is inconsistent with the IPR statutory scheme and congressional intent, leads to inconsistent decision-making, encourages forum-shopping for infringement lawsuits, and significantly curtails the availability of IPRs as an alternative forum for challenging patent validity.

Moreover, the panel majority misconstrued NHK Spring as providing a broad license to deny institution solely based on a parallel district court action. While NHK Spring held that an ongoing parallel district court action can, under certain circumstances, support denial of institution when there is another independent reason supporting denial, it did not hold that the parallel district court action can be the primary or sole reason to decline review. Here, the panel majority did not provide any reason for denial beyond the parallel district court action; thus, the Decision cannot be sustained even under NHK Spring.

(emphasis added)

Today, the Board denied POP review of Sand Revolution (here).  The Board provided no reasoning for its denial.  As to the first rehearing issue raised above, it is not surprising that the Board would refuse to completely overrule precedent that is only a year old.  On the other hand, allowing this decision to stand, where NHK trumps all other General Plastic factors is an unfortunate mistake. The agency should not unravel the statutory mandate of the AIA.

The PTAB was created, in significant part, to combat NPE litigation— especially as it relates to Texas courts. Citing such as the sole justification to deny PTAB access turns the entirety of the AIA on its head.