PTAB Ethics Accusations Are Misguided

Critics of the Patent Trial & Appeal Board (PTAB) are not hard to find — attorneys especially hate change.  Since the start of AIA trial proceedings in 2012, we have seen a never ending stream of challenges to these proceedings as “unfair,” “unconstitutional,” “violating due process,” and employing the “wrong litigation standards.” All of these challenges failed at either the Federal Circuit, Supreme Court, or both. (not at all surprisingly, given similar challenges to the patent reexamination system decades earlier)

Perhaps as a result of the failed judicial challenges, criticism of the agency has now turned far more virulent and personal.

To be clear, I’m a fan of IPWatchdog.com having contributed to its content on occasion. Gene’s spirited dialogue is a refreshing change of pace and helps draw attention to important issues. Recently, however, some of his guest commentators have exceeded the bounds of professional decency.

In a series of posts over the past week, a specific PTAB judge was branded as unethical for presiding over a case involving an old client of his former firm.  Yet, this conclusion is completely divorced from published ethics guidelines of the Dept. of Commerce. Thus, aside from being unprofessional in the first instance, the commentator’s conclusions are simply wrong.

The Dept. of Commerce provides the below graphic to illustrate its rules on the appearance of bias. In short, since PTAB judges are not political appointees; a new PTAB judge is free to preside over the case of a former client after being with the agency for one (1) year. Taking on a case of a former client some 18 months after joining the PTAB is well within the agency’s ethical guidelines.  Moreover, additional controls are at work within the agency to ensure that closer questions are considered prior to authorizing work on a given case.

To be diplomatic, impugning a practitioner’s professional reputation without reference to the applicable ethical standards, or facts, is…. imprudent.

appearances of bias eaag 2017 copy
The USPTO explains the chart above as follows: You cannot work on a matter in which one of the parties is (or is represented by) someone with whom you were employed or served as an agent, attorney, consultant, contractor, director, general partner, or trustee during the past year. (emphasis added)

Whether or not one believes that the Commerce regulations should be changed, or are out of line with Article III practices is irrelevant to the actions of a judge following the applicable agency rules. Commentary attacking a practitioner for not following inapplicable standards (including the comments section of that post), and publicly calling out that practitioner as unethical may very well be an actionable ethical violation itself.

USPTO/PTAB ethical requirements are public (here) as are that of the Dept. of Commerce (here).

Upcoming CLE, Director Change & New Rules

The chatter around the USPTO’s Alexandria campus is the ongoing efforts of the Secretary of Commerce, Wilbur Ross, to select a new USPTO Director. With interviews progressing, some of the bigger names have seemingly fallen out of the picture.  The focus appears to have shifted to attorneys in private practice. Current favorites include a patent litigation partner in DC, the other a patent prosecution focused partner from the West Coast.
Stay tuned.

As noted previously, the PTAB is soliciting comments from the public on possible AIA trial refinements. Comments are specifically welcomed addressing procedures relating to multiple petitions, motions to amend, claim construction, and decisions to institute. In concert, the agency is also seeking input on outdated rules it might eliminate to satisfy the 2-for-1 requirements of the Trump administration. It seems that once the AIA feedback is collected, and some rules are identified for cancellation, the PTAB will be in a position to move toward a rule package – or issue the long-awaited updating of the PTAB Trial Practice Guide.

For those seeking some PTAB related discussion/CLE in the months ahead, there are a few noteworthy programs.

May 10th-11th: American Conference Institute presents its Third Annual Post-Grant PTO Proceedings in New York City (here). This two-day event will cover a variety of AIA Trial Proceeding topics. The second day will include a three-hour workshop entitled Parallel Proceedings: The Good, The Bad, and The Ugly. 

May 16, 2017: MIP PTAB Forum 2017 will be held in New York City. (here)  This is a full-day forum on PTAB trial practices.

I hope to see you at one of these upcoming events.

CAFC Emphasizes that Art of Denied Petition Grounds Can Come Back to Haunt Patentees

It is not uncommon for an AIA Trial Proceeding, such as Inter Partes Review (IPR), to be instituted on a subset of unpatentability grounds presented in the petition. For example, IPR is currently granted on a claim-by-claim basis.  That is, petition grounds can be accepted or denied based upon the Patent Trial & Appeal Board’s (PTAB) conclusions as to whether a reasonable likelihood of prevailing is shown for a given patent claim.

In the case of partial PTAB trial institutions, Patentees will often employ a strategy to formally object to the aspects of the preliminary record that include reference to prior art of the denied grounds.  The thinking here is that the objection will preserve the right to exclude this seemingly irrelevant art from the record at the close of trial. 37 C.F.R. § 42.64. Yet, art of a denied petition ground can be (and usually is) highly relevant at trial.
The Federal Circuit recently considered the relevance of denied ground prior art in Novartis v. Torrent Pharmaceuticals (here).  In this appeal from multiple IPRs, the Court considered the PTAB’s decision to cancel all claims of U.S. Patent 8,324,283, which claimed oral administration of a pharmaceutical compound for treating multiple sclerosis.

The PTAB’s Institution Decision in Novartis denied grounds including a prior art reference known as “Sakai.”   The PTAB found that while Sakai showed that certain ingredients could be predictably combined in liquid form, it did not teach a solid formulation as claimed.   But, other grounds were accepted for trial that addressed the solid formulation feature.  For these grounds, Sakai was nevertheless relied upon for demonstrating the knowledge in the art as to the predictability of the combination of key ingredients.  In the Final Written Decision (FWD) following the trial, the claims were cancelled, and the Board referenced the rationale of Sakai as supporting its conclusion.

Novartis argued the Board violated the Administrative Procedure Act (APA) when it relied on Sakai in the Final Written Decision without affording Novartis proper notice and a chance to be heard.  In essence, Novartis took the position that Sakai was effectively “ruled out” of the trial when the grounds including it were denied.

The Federal Circuit rejected this argument, explaining:

[T]he Board found that Sakai merely reinforced its finding that the person of ordinary skill in the art would have expected [compatible ingredients] because Sakai discloses a stable combination of these two ingredients suitable for long-term preservation. The Board’s discussion of Sakai in the Final Written Decision was not inconsistent with its review of Sakai in the Institution Decision

Thereafter, the Court pointed out that Sakai was the subject of much of the briefing at trial and there was no “surprise.”  It also faulted Novartis for a boilerplate Motion to Exclude in which it might have made its argument more artfully to the PTAB (footnote 2).

Still, even had Novartis’s Motion to Exclude been more focused, however, it is unlikely that such would have made a difference.  Independent of whether Sakai was explicitly relied upon in the accepted trial grounds as documentary evidence of motivation/predictability, assuming trial would have gone forward on the accepted grounds without it, its introduction to the trial record would have been a fair rebuttal exhibit under the Court’s Belden decision.

Technical Findings of PTAB Increasingly Leveraged in Parallel Court Proceedings

Patent challenge proceedings of the USPTO’s Patent Trial & Appeal Board (PTAB) are designed to provide a low cost, expedited option to district court litigation. Of course, if a patent challenger is unsuccessful at the PTAB, the district court or International Trade Commission (ITC) is left to make the ultimate resolution on validity. Yet, as I discussed last year, closed AIA trial records are being leveraged by the courts to aid in resolving a number of disputed issues — from claim construction to summary judgement invalidity determinations.

More recently, the International Trade Commission (ITC) has followed suit.

In Certain Composite Aerogel Insulation Materials & Methods for Manufacturing the Same (here), a complaint filed by Aspen Aerogels, Inc. (“Aspen”) alleging violation of Section 337 of certain composite aerogel insulation materials that infringe one or more claims of U.S. Patent Nos. 7,078,359; 7,399,439; 6,989,123; 7,780,890; and 9,181,486 by Nano Tech Co., Ltd. (“Nano”) and Guangdong Alison Hi-Tech Co., Ltd. (“Alison”).

During the ITC investigation, Alison filed two IPRs: one against four claims of U.S. 6,989,123 and one against eight claims of U.S. 7,780,890.  The claims challenged in the IPRs are a subset of the claims Alison and Nano are asserting to be invalid in the ITC investigation.
After the ITC proceedings closed, the PTAB issued decisions denying institution in each of the IPRs. Because the Initial Determination in the ITC investigation had not yet been issued, Aspen filed a motion to reopen the proceedings for receipt of these decisions as evidence, or in the alternative, a request for the administrative law judge (“ALJ”) at the ITC to take judicial notice of these decisions. Not surprisingly, Alison and Nano opposed the motion.
The ALJ granted the motion, and also took judicial notice of the decisions, noting that “the PTAB decisions discuss at length multiple pieces of prior art that Respondents have relied upon in this Investigation” and that therefore “these decisions are relevant and may inform the issues in this Investigation.”  That being said, the ALJ also recognized that the PTAB decisions are based on a different evidentiary standard, and stated that these differences would be considered accordingly.

But, the differences here actually hurt the respondents.

Where prior art does not satisfy the PTAB’s preponderance of the evidence standard for demonstrating unpatentability, by definition, the same art should fail to meet the heightened clear and convincing standard of the courts. Indeed, some courts have dismissed such art on summary judgement for this same rationale.

This case was brought to my attention by the great Docket Navigator.

Symposium to Assess Trade Secrets

In tomorrow’s Federal Register, the USPTO is announcing a public symposium on issues relevant to the protection of trade secrets, and to assess recent developments such as the Defend Trade Secrets Act (DTSA). The symposium will be held on May 8, 2017, from 9 a.m. to 4 p.m. EDT.

Under U.S. law, trade secrets comprise commercially valuable information not generally known or readily ascertainable to the public, that are subject to reasonable measures to maintain confidentiality. In May 2016, the Defend Trade Secrets Act of 2016 (DTSA) established a federal private civil cause of action for the misappropriation of a trade secret, with the aim to provide businesses with a uniform, reliable and
predictable way to protect their valuable trade secrets anywhere in the country. Given this legislation and the continuing domestic and international attention to trade secrets, the USPTO symposium will discuss: (1) Measuring the Value of Secrecy; (2) Use of the DTSA in Practice; (3) Differences in Trade Secret Protection in Foreign Jurisdictions; and (4) Considerations of Business Owners in International Cases. Experts from academia, private legal practice, international organizations, and industry will serve as panelists.

PTAB Procedural Reform Initiative

Today the USPTO announced its PTAB Procedural Reform Inititative. The initiative seeks feedback on the nearly five years of historical data and user experiences to further shape and improve Patent Trial and Appeal Board (PTAB) trial proceedings, particularly inter partes review (IPR) proceedings. The purpose of the initiative is to ensure that the proceedings are as effective and fair as possible within the USPTO’s congressional mandate to provide administrative review of the patentability of patent claims after they issue.

This initiative will examine procedures including, but not limited to, procedures relating to multiple petitions, motions to amend, claim construction, and decisions to institute. It will evaluate the input already received from small and large businesses, startups and individual inventors, IP law associations, trade associations, and patent practitioners, and will seek to obtain more feedback regarding potential procedural enhancements.

Members of the public may submit their ideas regarding PTAB procedural reform to: PTABProceduralReformInitiative@uspto.gov (link sends e-mail).

Excess of Jurisdiction vs. Agency Discretion

Earlier this week, the CAFC denied en banc rehearing in Google v. Unwired Planet.  While the denial was largely expected, Judge Hughes’ concurrence foreshadows the debate to come in WiFi One.

That debate, at least for Judge Hughes, is separating matters of agency discretion from questions of constitutionality and/or ultimate statutory authority.

As a reminder, WiFi One presents the following issue:

Should this court overrule Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) and hold that judicial review is available for a patent owner to challenge the PTO’s determination that the petitioner satisfied the timeliness requirement of 35 U.S.C. § 315(b) governing the filing of petitions for inter partes review?

In his concurrence Judge Hughes takes the position that the appeal bar of 314(d)/324(e) should control in all but an unconstitutional act or an unambiguous disregard of a statutory mandate.  And, that the Federal Circuit in Versata Development Group Inc. v. SAP America Inc. established a precedent of disagreeing with agency discretion under the auspices of a check on ultimate statutory authority.

Judge Hughes explained (here):

An exception [to the appeal bar] does not apply in instances where the court disagrees with the agency’s discretionary exercise of its explicit statutory authority. As I pointed out in Versata, if an agency can be said to be acting without statutory authority whenever this court disagrees with the board’s decision on any of the statutes related to institution, then the bar on judicial review is essentially eviscerated and is morphed into a bar on interlocutory review of the institution decision and nothing more.

Indeed, where Congress intended to convey final agency authority over a given decision, the statute must express that discretion; arguably this is the role of of 314(d)/324(e). See 5 U.S.C. § 701(a)(1) of the Administrative Procedure Act (APA)

Nevertheless, 5 U.S.C. § 706(2)(C) of the APA also provides that a reviewing court shall consider whether an agency acted in excess of statutory jurisdiction. So, the court must balance its policing role relative to statutory jurisdiction without over reaching to disturb otherwise lawful decisions left to agency discretion. In Versata, the threshold question presented (paraphrased) was: When does a patent qualify for CBM review, and is “financial product or service” language of Section 18(d)(1) of the America Invents Act (AIA) limiting in this regard?  This analysis would seem to be fair game as a question of the metes and bounds of ultimate agency jurisdiction, despite the appeal bar.

On the other hand, once a patent is deemed to qualify under the CBM statutory standard, Congress gave the agency an exception. This exception, “technological Invention,” gave the agency complete discretion to exclude otherwise qualifying CBM patents. AIA Sec. 18(d)(2). To the extent that the application of this exception is disputed to the CAFC, that aspect of CBM eligibility would seem to be barred as a matter left entirely to agency discretion. In my view the distinction in reviewability of these two sections speaks to the concern of Judge Hughes.  Therefore CBM reviewability in Versata may be more appropriately considered review of Sec. 18(d)(1) jurisdiction issues, but probably not 18(d)(2) discretionary issues.  (As I pointed out previously, the technological invention analysis creates a risk for petitioners seeking to preserve 101 challenges for the district court).

So where does this leave WiFi One?

35 U.S.C. § 315(b) does not present the same fundamental, definitional exercise as Versata’s Section 18(d)(1) jurisdictional dispute.  Yet, at least the PTAB rules appear to label 315(b) as a jurisdictional issue (37 C.F.R. § 42.3(b))  Previously the Achates decision found that 315(b) issues were sufficiently distinguishable from the fundamental jurisdiction questions of Versata— that is, 315(b) is party specific. This case-by-case analysis seemed less a fundamental jurisdictional issue, and more a matter best left to the discretion of the PTAB fact-finders.

Matters common to 315(b) disputes, such as privity and real-party-in-interest, are certainly not within the PTAB’s specialized expertise.  Congress probably didn’t intend for the 315(b) bar to preclude such matters (or even dream such would be a commonly debated issue). Nevertheless, it may be difficult for the Federal Circuit to reconcile Versata with a reversal of Achates without struggling with the discretion vs. jurisdictional dichotomy emphasized by Judge Hughes. The more likely outcome would seem to be a WiFi One holding that restricts the 314(d)/324(e) appeal bar to underlying patentability disputes as implied in portions of the High Court’s Cuozzo decision.

Guest Post: SCA v. First Quality

With TC Heartland still on deck a the Supreme Court, a look back at the Court’s most recent patent decision SCA v. First Quality by guest poster, Gary Cohen. Some of my thoughts, are posted on IPwatchdog (here).  Back to PTAB news/notes next week.

SCA v. First Quality: Limiting the Application of Laches

By Gary Cohen1

On March 21, 2017, the U.S. Supreme Court (“SCOTUS”), in SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, No. 15-927 (2017), reversed an en banc opinion from the Federal Circuit holding that laches could be asserted against a claim for damages incurred within the Patent Act’s 6-year limitations period of 35 USC §286.  The SCOTUS asserted that the en banc opinion impermissibly invoked laches to bar legal relief, with such invocation being unwarranted in view of both the SCOTUS’ holding in Petrella v Metro-Goldwyn-Mayer, Inc., 572 U.S. _____ (2014) and the caselaw preceding the Patent Act of 1952.

The facts of the case are fairly straightforward: On October 31, 2003, SCA asserted that a First Quality product infringed U.S. Patent No. 6,375,646 (“’646 Patent”), and, on November 21, 2003, First Quality responded, indicating that the ‘646 Patent was invalid in view of U.S. Patent No. 5,415,649.  Subsequently, First Quality ceased communication regarding the ‘646 Patent, while SCA requested reexamination of the ‘646 Patent on July 7, 2004.

The original claims of the ‘646 Patent were confirmed on March 27, 2007 and, on August 2, 2010, SCA filed a complaint, alleging infringement by First Quality of the ‘646 Patent.  After some discovery and the issuance of a claim construction order, First Quality moved for Summary Judgement on the basis of noninfringement as well laches and equitable estoppel.  The SJ motion, as to laches and equitable estoppel, was granted and the motion for noninfringement dismissed as moot.

First Quality sought to distinguish the copyright statute of limitations §507 from 35 USC §286 by contending that “a true statute of limitations runs forward from the date a cause of action accrues, whereas §286’s limitations period runs backward from the filing of the complaint.”  However, this distinction was neither persuasive with the SCOTUS nor the Federal Circuit, with the latter indicating:

[B]ecause patent infringement is a continuous tort, there is no relevant functional difference between a damages limitation and a statute of limitations. We therefore see no substantive distinction material to the Petrella analysis between § 286 and the copyright statute of limitations considered in Petrella2.

Probably the most significant distinction between the en banc and SCOTUS holdings is found in their differing views of the significance of the caselaw preceding the 1952 Patent Act.  Both the majority of the en banc Federal Circuit decision and First Quality argued that the lower court cases decided prior to the 1952 Patent Act strongly supported an unambiguous consensus that the rule of Petrella, precluding the invocation of laches to bar a claim for damages incurred within a limitations period, should not be followed in patent cases – the SCOTUS disagreed.

More particularly, the majority of the en banc opinion determined that Congress, by way of the 1952 Patent Act, codified a laches defense in §282(b)(1)3, and that application of that defense would be controlled by the common law established prior to the enactment of the 1952 Patent Act4.  The SCOTUS, however, rejected the position that enough pre-1938 caselaw (preceding the merger of equity and law) or post-1938 caselaw (where, at least conceivably, laches could, as a result of the merger of equity and law, be applied to damages claims) existed to “. . . constitute a settled, uniform practice of applying laches to damages claims5.”

Moreover, the SCOTUS rejected First Quality’s argument that Congress implicitly ratified post-1952 Court of Appeals decisions holding that laches can be invoked as a defense against a damages claim since Congress amended §282 without altering the “unenforceability” language.  It is this language which is said to incorporate the laches defense6.

While the SCOTUS has clearly rejected the interposition of laches as a defense against damages where infringement occurred within the period prescribed by §286, it does not appear to preclude application of equitable estoppel to limit damages, when the circumstances are appropriate:

We note, however, as we did in Petrella, that the doctrine of equitable estoppel provides protection against some of the problems that First Quality highlights, namely, unscrupulous pa­tentees inducing potential targets of infringement suits to invest in the production of arguably infringing products.572 U. S., at ___ (slip op., at 19)7.

In conclusion, while the SCOTUS has clearly eliminated laches as one tool for limiting damages in copyright or patent infringement matters, it appears, for the time-being, to have left equitable estoppel, as a damages limiting tool, intact.

1 Cohen, formerly Senior Patent Counsel with Xerox Corp. is currently Of Counsel at Basch & Nickerson in Rochester, NY
2 SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 807 F.3d 1311, 1321 (2015) (en banc).
3 Id. at 1321-22.
4 Id. at 1326-28.
5 SCA v. First Quality, No. 15-927, slip op. at 11-15 (2017).
6 Id. at 15-16.
7 Id. at 16.

Preliminary Responses Accompanied by Declaration Evidence: Updated Results

Back on May 1st, the Patent Trial & Appeal Board (PTAB) began to accept new testimonial evidence with patentee preliminary responses.  The PTAB implemented this change to address complaints that patentees were disadvantaged by previous rules precluding such evidence from accompanying a preliminary response to the petition. It was argued that the previous rules were especially imbalanced as almost all petitions were accompanied by petitioner declaration evidence.  I had my doubts.

Now that we are approaching a year removed from the rule modification, some updated results.
To date, the ability to introduce new evidence during the preliminary proceeding seems to have done little for patentees.

In the below chart the start date of August 15th was chosen to capture those Institution Decisions having preliminary responses due on or after May 15th.  In this 8 month window of Board decisions, only 30% of filers availed themselves of the new option (this is a slight drop from the initial percentage of 38% I found last fall.)  Of those 144 patentees availing themselves of the new rule, 69 of the Institution Decisions failed to mention the new evidence.

In 65 of the Institution Decisions, charted below in orange, the Board found that the evidence created an issue of material fact (likely disputing petitioner declaration evidence, the dispute construed in favor of petitioner for institution purposes).  The new evidence was cited approvingly in only 21 decisions (charted in red).  Of course, it is hard to gauge the value of these submissions in the the 69 decisions which did not reference the evidence.  For example, although unreferenced, the evidence may have nevertheless reinforced a Board determination one way or the other.

While the data is still early, clear trends are emerging as to efficacy.  That said, it appears these spotty results still militate in favor of continued caution for patentees.

prelimstats

As to the those cases in which the new evidence was cited, it is interesting to note that there appears to be some difference in efficacy based on technology.  Petitions in the unpredictable arts (Bio/Pharma) seem more likely to result in stalemate (contested fact). This may be due to the narrow focus of these disputes/claims and the high level of skill typical of declarants in this space.

How Long is the Rehearing Wait?

A Petition for Rehearing may be filed in an AIA Trial Proceeding to challenge an Institution Decisions (ID) or a Final Written Decision (FWD) of the Patent Trial & Appeal Board (PTAB). Of course, a successful Petition for Rehearing is a rare occurrence. Fewer than 5% of cases to date have seen a successful Petition for Rehearing.

A Petition for Rehearing pursued after an ID is often deemed to have the longest odds of success given the 314(d) bar to appealing such decisions (now pending review in WiFi One). On the other hand, given the ultimate appeal of FWDs to the Federal Circuit, it may be that such filings inherently enjoy closer scrutiny, and hence, slightly better odds of success.

In any event, both patentees and petitioners alike sometimes find it necessary to pursue rehearing for any number of strategic goals. But, given the lack of a mandated deadline for such decisions, the question becomes: “How Long is the Wait?”

Taking a snapshot of the last 30 such decisions for petitions filed after ID & FWD, the average pendency for each is noted in the chart below.FWD Rehearing Pendency = 89 days*
ID Rehearing Pendency = 66 days
rehearingstats
*Two proceedings (one of which a group of related proceedings) in this timeframe had pendencies over 300 days, if counted this would raise the average to 139 days. These delays appear to have been anomalies, and as such, are omitted.

Given the statutory deadline on open AIA trial proceedings, which would not apply to rehearing requests of FWDs (i.e., statutory clock stops at final written decision), these requests pend, on average a month longer than those rehearings pursued after ID. One downside to such pendencies after FWD is that a party may file rehearing for the sole purpose of securing delay of the appeal. Likewise, overall pendency of AIA trials to a final CAFC resolution will be correspondingly extended, providing fodder for PTAB critics.