First Reversal of PTAB in IPR
Yesterday, in Microsoft Corp v. Proxyconn Inc. (here), the Court of Appeals for the Federal Circuit (CAFC) reversed an Inter Partes Review (IPR) determination USPTO’s Patent Trial & Appeal Board— a first. (The decision also affirmed-in-part, vacated-in-part, and remanded-in part) The Court found that the Board’s construction of several key terms to be unreasonably broad. The IPR is now remanded for further Board proceedings on a narrowed construction. In this sense, apart from historical significance, the decision is unremarkable.
At the threshold, we agree with the Director that § 42.121(a)(2) is not an exhaustive list of grounds upon which the Board can deny a motion to amend. In the AIA, Congress gave the PTO authority to “prescribe regulations” “governing inter partes review” and to “set forthstandards and procedures for allowing the patent owner to move to amend the patent.” § 316(a)(4), (a)(9). Congress also provided that, upon final decision, the Director should incorporate only those amended claims that are “determined to be patentable.” § 318(b). Given these directives, the PTO promulgated both the general regulation setting forth the patentee’s burden to establish it is entitled to its requested relief, § 42.20, as well as the more specific regulation setting forth particular requirements regarding the amendment process, § 42.121. Both regulations are plainly applicable to motions to amend filed during IPRs, and Proxyconn does not argue that the PTO acted outside its statutory authority in promulgating either one.
What Proxyconn does challenge is the Board’s interpretation of those regulations as permitting it to deny Proxyconn’s motion to amend claims 1 and 3 for failure to establish patentability over DRP—a reference that the Board did not rely on when instituting review of those particular claims. The Director responds that its authority to do so comes from § 42.20(c), as it has been interpreted in Idle Free—namely, as requiring the patentee “to show patentable distinction [of the substitute claims] over the prior art of record.” Idle Free, 2013 WL 5947697, at *4. According to the Director, it is permissible for the PTO to use adjudicative Board decisions like Idle Free, rather than traditional notice and comment rule-making, to set forth all the conditions that a patentee must meet in order to satisfy its burden of amendment under § 42.20(c).
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The Director argues that adjudication is appropriate here because the PTO “has not ‘had sufficient experience with [motions to amend] to warrant rigidifying its tentative judgment into a hard and fast rule’” and that the PTO “thus ‘must retain power to deal with [such motions] on a case-by-case basis if the administrative process is to be effective.’” Intervenor’s Resp. Letter 3, ECF No. 50 (alterations in original) (quoting SEC v. Chenery Corp., 332 U.S. 194, 202–03 (1947)). Because there is merit to these arguments, we cannot say that the PTO has abused its discretion in choosing adjudication over rulemaking.
The decision does note that while the Court endorses the Board’s use of adjudicative decisions to flesh out the burden of 42.10(c) it does not reach the other requirements of Idle Free, such as the more controversial requirement that the patentee show patentable distinction over all “prior art known to the patent owner.” (footnote 4). That said, this requirement is expected to be dropped soon by the coming rule package anticipated at the end of next month. The new rules are expected to propose a certification from the patentee on this issue, as opposed to an affirmative showing or explanation.
The decision demonstrates the deference given to the agency on such procedural issues. Moreover, the “plainly erroneous or inconsistent with the regulation or governing statutes” is a significant barrier to successfully challenging agency actions.
Finally, the Court emphasizes the obvious policy need to review amended claims for patentability in IPR:
[T]he very nature of IPRs makes the Board’s interpretation appropriate. During IPRs, once the PTO grants a patentee’s motion to amend, the substituted claims are not subject to further examination. Moreover, the petitioner may choose not to challenge the patentability of substitute claims if, for example, the amendments narrowed the claims such that the petitioner no longer faces a risk of infringement. If the patentee were not required to establish patentability of substitute claims over the prior art of record, an amended patent could issue despite the PTO having before it prior art that undermines patentability. Such a result would defeat Congress’s purpose in creating IPR as part of “a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs.”
The PTAB does not have a statutory mandate that enforces speed in remands. It remains to be seen how the agency will handle re-work heading back from the CAFC given the already formidable AIA trial workload.