Settlement Prior to Trial Institution May Not Require Filing of Settlement Documents

Back in 2015, I pointed out that an opinion of the Federal Circuit called into question the PTAB’s practice of requiring settlement documents to terminate an AIA trial preliminary proceeding. I reasoned that as the Federal Circuit interpreted “proceeding” as written in the AIA statutes as not including a preliminary proceeding in Intellectual Ventures II LLC v. JPMorgan Chase & Co. (here), that this statutory construction could impact pre-institution, settlement procedures.

All these years later, the Board has now been asked to consider the issue.

In Samsung Electronics CO., LTD v. Ericsson, the Board dismissed a number of petitions based upon a pre-institution settlement between the parties, but did not require the filing of the settlement documents (as is typically the case).  The majority explained (here):

Section 317 expressly requires that any agreements made in connection with termination of an “instituted” inter partes review shall be filed with the Office before termination. Section 317 does not apply to dismissal or termination of a proceeding prior to institution.  . . .

Less clear is 37 C.F.R. § 42.74, which also addresses settlement. Section 42.74(b) states: “Any agreement or understanding between the parties made in connection with, or in contemplation of, the termination of a proceeding shall be in writing and a true copy shall be filed with the Board before the termination of the trial.”  Thus, § 42.74(b) addresses settlement and termination of a “proceeding,” requiring that agreements to terminate a proceeding must be in writing. Section 42.74(b) also states that a copy of an agreement to terminate a proceeding “shall be filed with the Board before the termination of the trial.” Although the term “proceeding” includes trial and preliminary proceedings, “trial” is defined in 37 C.F.R. § 42.2 as “a contested case instituted by the Board” that “begins with a written decision notifying the petitioner and patent owner of the institution of the trial.” As such, even though § 42.74(b) uses “proceeding” in the first instance to require that settlement agreements be in written form even for proceedings in the preliminary, pre-institution stage, in contrast, the language requiring parties to file settlement agreements is tied to, and a prerequisite for, “termination of the trial.” The second requirement is consistent with § 317. Conversely, to read the language requiring parties to file settlement agreements to apply to all “proceedings” would read out the language “before termination of the trial” from the Rule.

(emphasis added)

As highlighted above, the panel noted that the PTO definition of “proceeding” included the preliminary proceeding, but the context of the rule demonstrated that the “proceeding” discussed by Rule 42.74 was really the IPR trial.

The dissent takes issue with the statutory contextualization of the majority, and highlights the policy rational behind the filing of such documents. While the policy discussion is undoubtedly correct, the statute is unfortunately worded.  And, as I pointed out previously, the debate over the meaning of “proceeding” in the AIA statute has already been addressed by the Federal Circuit in Intellectual Ventures.

[T]he U.S. Patent and Trademark Office (“PTO”) has defined “proceeding” more broadly in its regulations. See 37 C.F.R. § 42.2; 77 Fed. Reg. 48756. The PTO’s interpretation, however, is trumped by the clear language of the AIA. See 35 U.S.C. § 2(b)(2) (“[The PTO] may establish regulations, not inconsistent with law . . . .” (emphasis added)). The PTO’s own regulations are inconsistent on this point, moreover. Compare 37 C.F.R. § 42.2 (“Preliminary Proceeding begins with the filing of a petition for instituting a trial and ends with a written decision as to whether a trial will be instituted. Proceeding means a trial or preliminary proceeding.”) with 37 C.F.R. § 42.101(b) (“The petition requesting the proceeding (emphasis added)) and 77 Fed. Reg. 48756 at 48765 (“[T]he Director may institute a proceeding where a petitioner meets the threshold standards.” (emphasis added)) and id. (stating that “the Board may decline to institute a proceeding” under certain circumstances).

While the Federal Circuit’s construction was considered in the context of CBM interlocutory appeal timing, the PTAB settlement statutes were cited for their consistent use of “proceeding” in the same manner as highlighted by the Samsung majority.

Here, too there was a dissent by Judge Hughes that tracks the policy rationale of the PTAB dissent.

The PTAB dissent also correctly points out that the Board is all over the map on this topic. Seems like the Acting Director may want to make some precedent here to guide the public on the appropriate practices.  My guess is that Samsung will be designated precedential in the weeks ahead.