Final Rule Package Updates Current PTAB Practices with Two Additions

The USPTO will publish a final rule package today (draft here) that largely presents the earlier Notice of Proposed Rule Making in final form. Most of the changes addressed rules outdated by the SCOTUS decision in SAS Institute, or simply codified existing practices, such as sur-replies.  As such, the bulk of the earlier proposals were not controversial.

However, the earlier Notice also proposed one new idea, eliminating the presumption accorded to petitioner testimonial evidence in the preliminary proceeding (when disputed by patent owner testimonial evidence to the contrary). This proposal was the focus of much of the public commentary.

Despite most bar associations opposing this change, the final rule will in fact eliminate the presumption, starting January 11th (January 9th being a Saturday). The Final Rule also adds a new rule-based prohibition on Sur-reply filings.

As I previously discussed, this elimination conflicts with 2016 office guidance to the contrary—noting that deciding such evidentiary issues was conducting a “trial within a trial” and would not include the benefit of later cross-examination.  In response to public comments pointing this out, the agency has simply stated that “while parties normally do not have an opportunity to depose the testifying parties prior to institution, the Board’s experience is that cross-examination is not necessary to weigh the strengths and weaknesses of the testimony for purposes of institution.” This reasoning is difficult to reconcile with later examples in the Final Rule Notice that such evidence may be directed to objective indicia of non-obviousness.  How the Board is capable of weighing the strength and weaknesses of business data without cross-examination is unclear.  Perhaps such disputes will informally follow the old practice (as it probably should) and be sent to trial given the Board’s expertise does not lie in weighing such evidence absent the benefit of cross-examination.

The Notice also points out that the burden remains with the petitioner throughout the proceeding, and therefore, that even this temporary presumption is inconsistent with the statutory framework.  But, the Office assigning a temporary presumption for the preliminary proceeding, for limited situations is not upsetting the statutory framework. If anything, it makes the petitioner incrementally more likely to be subject to estoppel if the evidence truly supports the Patent Owner — that’s not a bad thing for patent owners.  Also, while the petitioner maintains the ultimate burden throughout, the Patent Owner now files the last brief in the form of a Sur-reply as a matter of right.  This is far more beneficial than the old, and very limited observation practice (which was limited for a reason).  The Patent Owner being given the last brief (and last word at oral argument) is not in any way consistent with the petitioner burden—that’s not how any other court operates.  Nevertheless, these changes, the switch to Philips claim construction, and the explosion of 314(a) denials provide enough data points to see the legacy that the outgoing Director will leave.  That is, a clear interest to tilt (or “properly adjust” to some) the scales in favor of Patent Owners.

But, is it working?

As to Philips, no, that change was never going to benefit patent owners. It was just always the easiest “unfairness” lever to pull for PTAB critics.

For better or worse, 314(a) is certainly aiding Patent Owners; Institution rates make that clear enough. I’ve maintained since 2018 that it is the most significant change in PTAB practice to date.

Sur-reply practice is also a significant benefit, especially as compared to the previous observation practice.

As to this most recent change to POPR practice, I wouldn’t expect to see an avalanche of declaration filings in 2021 for reasons I detailed previously.  Patent Owners are reluctant to create additional deposition inventory when they typically have discretionary arguments to make that are no-risk. Likewise, many Patent Owner’s prefer to wait rather than rush to file a declaration within 3-months of a petition filing — especially as the Decision to Institute could better inform that investment.

Finally, the second change in the Final Rule Notice that is new is the added language to Rule 42.23 to clarify that Patent Owner Sur-Replies “may only respond to arguments raised in the corresponding reply and may not be accompanied by new evidence other than deposition transcripts of the cross-examination of any reply witness.”  This guidance was previously found only in the Trial Practice Guide and panels applied this guidance very inconsistently. As a formal rule, judges will now need to enforce this prohibition.

The Final Rule will go into effect in 30 days from today, December 9th.