USPTO Fees are changing at the end of the month. PCT Fees are changing on October 1, 2020; US National fees are changing on October 2, 2020. In general, the fees are going up, not down.  Beat the fees – file by September 30, 2020.

Bozeman Financial LLC v. Federal Reserve Bank of Atlanta, et al. (Supreme Court 2020)

The question in this case is whether the Federal Reserve Banks are people.  The Patent Act allows any “person” to file a petition for covered-business-method review (or IPR/PGR). Return Mail, Inc. v. United States Postal Serv., 139 S. Ct. 1853 (2019) held (1) the U.S. Gov’t is not a person under the statute and (2) consequently the USPS (a branch of the US gov’t) is not permitted to petition the USPTO for review of a patent.  The question before the Supreme Court is whether these banks are part of the government.

Whether the regional Federal Reserve Banks—the “operating arms” of the Federal Reserve System, which is the central bank of the United States—are “distinct” from the Federal Government, and qualify as “persons” permitted to seek post-issuance patent review under the America Invents Act, when the Federal Government may not under the Court’s holding in Return Mail, Inc. v. United States Postal Serv., 139 S. Ct. 1853 (2019).

Question presented.

Alexander Hamilton was instrumental in the creation of the First Bank of the United States.  That Bank’s charter ended in 1811, but the foundation served for future national banks and eventually for creation of the Federal Reserve in 1913. The Federal Reserve system includes twelve regional Federal Reserve Banks that are largely controlled by private banking interests. The twelve are self-described “instrumentalities of the United States that, collectively, make up the operating arm of the Federal Reserve System, the central bank of the United States.” (Bank Complaint).  The system as a whole is controlled by the Board of Governors of the Federal Reserve System. The Board members are presidential appointees.

Bill Bozeman’s patents cover what he calls “Universal Positive Pay” for fraud detection and check clearing. Back in 2017, the 12 Federal Reserve Banks (but not the Board) sued Bozeman seeking a declaratory judgment of non-infringement.  The banks then also filed for Covered Business Method (CBM) review of the patents at the USPTO.  The PTO instituted review and concluded that the claims were ineligible under Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014).  In its decision, the Federal Circuit affirmed and also held that the banks are “persons” under the statute because they “are distinct from the government for purposes of the AIA.”

In other contexts, courts have found a very close link between the Banks and the Gov’t.

• Fed. Reserve Bank of Bos. v. Comm’r of Corps. & Taxation of Com. of Mass., 499 F.2d 60, 62 (1st Cir. 1974) (Bank is a “public governmental body” whose “interests seem indistinguishable from those of the sovereign”)
• Jet Courier Servs., Inc. v. Fed. Reserve Bank of Atlanta, 713 F.2d 1221 (6th Cir. 1983) (Banks are not “persons” under the Sherman Act because they are part of the Federal Reserve System, “an agency of the federal government.”)
• Schroder v. Volcker, 864 F.2d 97, 99 (10th Cir. 1988) (no antitrust action against defendants “affiliated with the Federal Reserve System”, including individual banks)
• United States v. Hollingshead, 672 F.2d 751 (9th Cir. 1982) (Fed Reserve Bank employees are public officials for purposes of anti-bribery statute).
• Berini v. Fed. Reserve Bank of St. Louis, 420 F. Supp. 2d 1021, 1028 (E.D. Mo. 2005) (“[C]ontrol and supervision of the federal reserve banks is vested in a Board of Governors appointed by the President with the advice and consent of the Senate”)

This case is not huge for the patent system — although there are hundreds of federally-created entities that might be “people.”  In addition, the CBM program has sunset and is unlikely to be revived.

The case is still a big deal as our country discusses the role of socialist governmental policies providing a safety net for Americans. The US system is already ripe with “private” entities designed to serve a public good: Federal Reserve banking system; Fannie Mae; Freddie Mac; Highly regulated utilities (that are given the power of eminent domain); etc.  For over 100 years, this approach has been a form of back-door socialism that becomes palatable because of paperwork showing a separation from government. This case would shine some interesting light on the field with the simple question — Are the Federal Reserve Banks part of the U.S. Government?

By Jason Rantanen

Last week we released version 1.16 of the Compendium of Federal Circuit Decisions, which is a publicly-available dataset containing information about all documents published by the Federal Circuit on its website since 2004 (which includes all opinions and, since 2007, all Rule 36 summary affirmances).  The Compendium was designed from the ground-up to be used for empirical research rather than as a conventional legal research tool.

Generally, there haven’t been any striking changes in the statistics for the court’s opinions and Rule 36 summary affirmances so far in 2020.  The below two graphs are the basic ones that I usually show: opinions and Rule 36 affirmances by the Federal Circuit in appeals arising from the PTO and district courts.

The Federal Circuit’s decision output for appeals arising from the USPTO and District Courts for the first eight months of 2020 looks similar to the last few years.  Currently, the court is on track to write few more opinions in cases arising from the district courts and a few less in cases arising from the PTO, but both numbers are similar to last year (so far).  It’s worth noting that COVID-19 hasn’t really affected the court’s decision output.

One noteworthy shift is the relative drop in Rule 36’s.  So far in 2020, the court has decided more appeals via the mechanism of nonprecedential opinion and fewer through summary affirmance–especially in appeals arising from the PTO.

Affirmance rates continue to be in line with the past: the vast majority of decisions result in the affirmance of the lower tribunal.*  Over the last few years, the court has consistently affirmed the PTO outright about 80% of the time, and affirmed-in-part another 7% of the time.  The district courts have been affirmed a bit less often: about 70% of the time the court is affirmed entirely, and another 13% of the time it has been affirmed-in-part.  The court’s decisions in 2020 have been consistent with these metrics.

Who’s written the most majority opinions in patent case so far this year?  For appeals arising from the PTAB, it’s been Chief Judge Prost at 14, followed by “Per Curiam” at 12.  This isn’t a new development: panels have been issuing opinions Per Curiam at a rate of about 8-16 per year for the past five years.  For appeals arising from the district courts, Judge Lourie has written the most at 16 opinions so far this year; Judge Moore has written the second-most at 11 (also joined by the panel writing Per Curiam.)

You’re welcome to play around with the data on your own here: https://empirical.law.uiowa.edu/compendium-federal-circuit-decisions.  Keep in mind that with any empirical data project, it’s important to be mindful of what the data means, as well as its limitations (many of which I discuss here and here).

*For those wondering how this data relates to the statistics on the Federal Circuit’s webpage, the Federal Circuit reports reversal rates based on Financial Year (10/1 – 9/30) rather than Calendar Year, only considers complete reversals as reversals (i.e.: an affirmance-in-part is not a reversal), and calculates its reversal rate as a function of appeal docket numbers rather than decisions (for example, a single decision can, in rare instances, involve 10 or more appeal docket numbers).  See id. at 260, 263, 278.

Thanks to Meddie Demmings IV, Dan Kieffer, Lindsay Kriz, Ryan Meger, and Madison Murhammer Colon for assistance in collecting this data.

Guest post by Paul R. Gugliuzza & J. Jonas Anderson.  Paul Gugliuzza is Professor of Law at Temple University Beasley School of Law. Jonas Anderson is Associate Dean for Scholarship and Professor of Law at American University Washington College of Law.

Move over Marshall. The new capital of American patent litigation is Waco, Texas. Waco’s sole federal judge, Alan Albright—who took the bench less than two years ago—now hears more patent cases than any other judge in the country.

It’s all happened quickly. As recently as 2018, the Western District of Texas, which spans from Waco, Austin, and San Antonio in the central part of the state to El Paso in its far western reaches, received only 90 patent cases, a mere 2.5% of patent cases filed nationwide. Two years later, the Western District is on pace to receive 850 patent cases by year’s end, roughly 22% of patent cases filed nationwide and more than any other district in the country.

Practically all of those cases are on Judge Albright’s docket. As the figure below shows, the Waco Division received a mere 28 patent cases in 2018, the year he took the bench. If current trends hold, Judge Albright alone will receive 779 patent cases in 2020, an increase of 2682%!

The explosion of patent cases in Waco—the vast majority of which are filed by non-practicing entities—is fueled by Judge Albright’s concerted efforts to attract patent plaintiffs. He has been explicitly advertising his district—through presentations to patent lawyers, comments to the media, procedures in his courtroom, and decisions in patent cases—as the place to file your patent infringement lawsuit.

In a draft article, now available on SSRN, we identify five reasons why the Western District is attractive to patentees and explain why they are problematic:

1. The Western District’s case assignment practice enables plaintiffs to predict—with absolute certainty—that Judge Albright, not any of the 16 other judges sitting in the district, will hear their case. All they have to do is select “Waco” from the drop-down menu on the court’s electronic filing system and the case is automatically assigned to Judge Albright.

2. Judge Albright has adopted a fast-track scheduling order that sets deadlines useful to patentees seeking to elicit quick settlements and avoid PTAB review.

3. Venue transfer decisions: Judge Albright rarely transfers cases out of the Western District of Texas (only 3 of 14 inter-district transfer motions have succeeded to date), a practice also used by judges in the Eastern District of Texas during its heyday as the go-to district for patent litigation. More remarkably, Judge Albright regularly transfers cases filed in the Western District’s Waco Division to its Austin Division while retaining the case on his own docket (50 cases and counting so far).

It’s worth pausing to emphasize what this means: patentees are filing in Waco to guarantee Judge Albright is assigned to the case. But they do not actually have to litigate in Waco to keep the case in front of Judge Albright. Rather, they can ask him to transfer the case to the more desirable locale of Austin and he will do it as a matter of course—even though, if the case had been filed in Austin originally, there is zero chance Judge Albright would have been assigned to it.

4. Judge Albright seems reluctant to stay litigation pending related disputes in other forums, such as the PTAB, not just because of the aggressive schedule he sets but also because of a normative belief that patentees have a constitutional right to have a jury decide patent validity.

5. Judge Albright has never invalidated a patent on eligibility grounds (10 motions, 10 denials), even though many of the patents being asserted are the “do it on a computer” patents at which the Supreme Court’s Alice decision was most directly targeted.

Though many reforms could help solve these problems, we focus on two.

First, there’s surprisingly no law that requires cases to be randomly assigned among judges of a particular district. Mandating random assignment would curb the judge shopping that incentivizes judges to distort procedures and the law for the specific purpose of attracting litigation.

Second, venue in patent cases should be tied to geographic divisions within a judicial district, not just the district as a whole. As applied to the Western District of Texas, that reform would thwart the tactic of using a defendant’s activities in Austin to establish venue in Waco for the sole purpose of shopping for the Waco division’s only judge.

Read the full article at https://ssrn.com/abstract=3668514.

 Edit: updated with a more recent graph.

by Dennis Crouch

Once a patent issues, it is presumed valid. “A patent shall be presumed valid.” 35 U.S.C. 282(a). In patent litigation, this has traditionally meant that a complaint for infringement need not re-establish the patent’s validity. Rather, validity challenges arise as affirmative defenses as part of the answer.

That traditional approach is no longer followed by the courts in the Post-Alice patent eligibility era.  Courts now regularly dismiss patent cases upon finding that the patentee failed to state a claim because the patent is invalid under Section 101.  In response to that potential, patentees are have begun preemptively bulking-up their complaints with factual allegations to support the patent’s validity.

A new petition for writ of certiorari in Whitserve LLC v. Donuts Inc. (2020) highlights this issue.  Back in 2018, Whitserve sued Donuts for infringing the claims of its two patents covering a method for managing due-date reminders for clients of professional-services.  U.S. Patent Nos. 5,895,468 and 6,182,078.  On a R. 12(b)(6) motion, the district court dismissed the complaint – finding that the patent was invalid as a matter of law and that – therefore – the complaint failed to state a legally cognizable claim for relief. On appeal, the Federal Circuit affirmed – explaining again that “patent eligibility can be determined at the Rule 12(b)(6) stage if there are no plausible factual allegations to impede such a resolution.” (Quoting Aatrix).  The suggestion here is that plaintiffs really do need to be making their validity case within the pleadings.

Now, the case is up before the Supreme Court on Whitserve’s recently filed petition. Question presented:

If a patentee makes factual assertions that its claimed invention is directed to patent eligible subject matter under 35 U.S.C. § 101, including assertions that the claimed invention does not consist of well understood, routine, or  conventional activity and that the claimed invention is supported by evidence of commercial success, is a district court permitted to overlook the patentee’s assertions, find that the claimed invention is directed to patent ineligible subject matter, and dismiss the patentee’s complaint under Rule 12(b)(6) given the requirements of Rule 12(b)(6) analyses and the statutory presumption of § 282(a)?

[Petition].

When I read the question presented, I instantly wanted to make some amendments — in particular, I wanted to focus not on bar “factual assertions that” but rather on “non-conclusory factual assertions showing that patent is plausibly eligible.”  My transformation focuses on the plausibility standard from Iqbal and Twombly.  In those cases, the Supreme Court raised the standard for “showing that the pleader is entitled to relief” under R.8(a).  On my second time through, however, I began to really question this approach.

We are talking here about a pleading that attempts to preempt a potential affirmative defense — normally the plaintiff does not even need to plead a response to an affirmative defense.

[E]ven after the defendant has pleaded an affirmative defense, the federal rules impose on the plaintiff no obligation to file a responsive pleading.

Fernandez v. Clean House LLC, 883 F.3d 1296 (10th Cir. 2018).  And, when a Reply to an affirmative defense is ordered, it is sufficient to simply deny the allegations of the defense rather than explain or offer competing factual allegations.  In that situation, the non-conclusory / plausibility standard of Iqbal does not apply.

All this leads me to say that – for 12(b)(6) purposes, even conclusory factual allegations regarding eligibility may be sufficient to overcome a motion to dismiss. Of course, at that point, the court can jump quickly to a R.56 Summary Judgment question — allowing special early discovery on the eligibility issue to see whether there is any evidence to support the allegations.

* Note, the image above comes from a design patent owned by Krispy Kreme parent company HDN Development.

Is anyone working hard on a Covered-Business-Method (CBM) Review petition?  The program is ending soon. I believe the last day to file your petition is September 15, 2020.

by Dennis Crouch

I previously wrote about the case of Bank v. Al Johnson’s Swedish Rest., Docket No. 19-01880 (Fed. Cir. 2019).  The dispute is over whether the USPTO should cancel Al Johnson’s registered trademark for goats on a green roof. To be clear – the mark is not the image of goats on a roof, but instead is an actual building with live goats walking around on the roof. [Goat Cam]

Bank challenged the registration on several grounds, including improper functionality and disparaging (toward the goats and their human friends).  The problem in the case for Bank is that he is not a competitor or customer. Banks is not injured by the mark in any concrete way other than being offended by its existence.

The TTAB dismissed the opposition for lack of standing. That decision was then affirmed on appeal since Bank provided neither a real interest nor a reasonable basis for his belief of damage.  The court noted that the “offense” injury was substantially undermined by Tam.

• Discussion of the Federal Circuit Decision;
• Discussion of the Supreme Court Petition, subsequently denied.

In its original decision, the Federal Circuit also awarded attorney fees to Swedish Restaurant under Fed. R. App. P. 38:

If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.

Id. The court found that the Banks appeal was frivolous. Banks is an attorney and represented himself in the appeal. Usually pro se parties are given more leeway because of their lack of training and experience in the system. However, an attorney representing himself is not given such leeway:

Even though Mr. Bank appears pro se before us, he is an attorney and bears the commensurate obligations. Accordingly, we grant Swedish Restaurant’s motion for costs and attorney fees, including the costs and fees incurred in relation to the parties’ sanctions motions, and
deny Mr. Bank’s motion for sanctions.

Costs and attorney fees to Swedish Restaurant.

Federal Circuit Original Opinion.

Following the court’s decision, there was some debate on attorney fees. In particular, Swedish Restaurant requested that the court clerk enter the attorney fee award. Banks protested — arguing that attorney fee awards must be calculated and awarded by the court, not the clerk.  The Federal Circuit agreed on that point and today awarded all of Swedish Restaurant’s requested fees of $28,523.00.  (The Clerk separately taxed the costs at $241.54.)

by Dennis Crouch

The decision in this case is short and non-precedential, but raises an interesting Arthrex issue on Unconstitutional Appointments. 

Snyders Heart Valve LLC v. St. Jude Medical, LLC (Fed. Cir. 2020) (SnydersStJude)

Snyders’ US Patent No. 6,821,297 covers a collapsible artificial heart valve that can be attached through a blood vessel rather than open-heart surgery.

After being sued for infringement, St. Jude filed an IPR petition and won a determination that the claims would-have-been-obvious at the time of the invention. Snyders appealed.

Rather than addressing the merits of the obviousness case, the Federal Circuit has followed its precedent set by Arthrex and has has vacated the PTAB’s judgment because the judges were appointed in an unconstitutional manner. On remand, a reconstituted–and now magically constitutional–PTAB panel will re-do the trial (unless the Supreme Court intervenes before then).

In its argument, Snyders suggested that it should receive some particular treatment from the court because of a potential conflict of interest with Dir. Iancu.  Prior to joining the USPTO, Iancu was in private practice and represented St. Jude in a parallel proceedings.  Although Dir. Iancu has recused himself from the case, Snyders argues that the Director’s conflicts are not so easily erased.  Rather, an attorneys conflicts regularly extend to subordinate employees as well.  Here, the Arthrex remedy comes into play because the court in that case gave more direct authority supervisory to the PTO Director. The following argument comes from Snyders’ brief:

The concept that disqualification of an attorney may extend to that attorney’s subordinate employees is well established. For example, the American Bar Association’s Model Rules of Professional Conduct recognize a conflict where representation of a client is materially limited by an attorney’s personal interest. See Model Rules of Prof’l Conduct R. 1.7(a)(2) (2016). Those rules also recognize that disqualification of an attorney due to a personal conflict may be imputed to fellow employees where the employees would be materially limited due to their loyalty to the attorney.

Snyders Brief.

The Federal Circuit found the argument here “without merit . . . the Deputy Director’s role sufficiently removes any potential taint of the Director’s conflict.”  The Court did not address the particular issue here regarding the heightened supervisory authority of PTAB judges coming-out-of Arthrex.

by Dennis Crouch

Thousands of patents claims have been cancelled by the PTAB in inter partes review proceedings.  These are cases where a third party was willing to pay hundreds-of-thousands-of-dollars to cancel a set of claims.  A good number of those patents would have been enforced by a district court. In fact, a good number of those patents have been enforced in Federal Court.

Personal Audio, LLC v. CBS Corporation (Supreme Court 2020) again builds a montage of competing patent tribunals — a district court that enforces and an administrative court that undermines.  This case adds an important third tribunal to the story — the jury.  The disappointing climax is usually the same — spent on the Federal Circuit who sides with the administration.

In this case, the jury sided with Personal Audio — finding the asserted claims of its US8112504 both valid and infringed. (Verdict excerpt below from September 2014).  The jury awarded $1.3 million.

By the time of the jury verdict, the IPR petition filed by the non-profit EFF had already been instituted by the PTAB. Tthe district court allowed post-judgment motions to flounder for months and by April, the PTAB had released its final judgment finding the same claims invalid.  (Note, the PTO no longer institutes IPRs on patents that are close to trial).

The IPR was affirmed on appeal, and the district court relied upon that determination to cancel the jury verdict and enter a final judgment in favor of the Defendant.  The Federal Circuit then affirmed based upon its prior precedent of XY, LLC v. Trans Ova Genetics, 890 F.3d 1282, 1294 (Fed. Cir. 2018); Dow Chemical Co. v. Nova Chemicals Corp. (Canada), 803 F.3d 620, 628 (Fed. Cir. 2015); ePlus, Inc. v. Lawson Software, Inc., 789 F.3d 1349, 1358 (Fed. Cir. 2015); Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330 (Fed. Cir. 2013).

Now, Personal Audio is up before the U.S. Supreme Court with a few interesting questions. The basic argument is that collateral estoppel (issue preclusion) is not an open-and-shut business. Rather, any time a prior judgment of invalidity is invoked, the “patentee-plaintiff must be permitted to demonstrate, if he can, that he did not have a fair opportunity procedurally, substantively and evidentially to pursue his claim the first time.” Blonder-Tongue Laboratories, Inc. v. U. of Illinois Found., 402 U.S. 313, 332–33 (1971).  The Restatement of Judgments § 29 further walks through a series of reasons and factors for issue preclusion might not apply to a later case.

Blonder-Tongue was a very big case for defendants supporting non-mutual issue preclusion. The point here, though is that it set limits and provided a contextual analysis while the Federal Circuit has moved to an if-then rule-based approach post-IPR.

Here, the patentee argues against estoppel because (1) the PTAB judges were unconstitionally appointed (via Arthrex); and (2) the PTAB determination overturns a prior jury’s finding of facts in a case protected by the 7th Amendment Right to Trial.

The trouble – as usual – is that the claims are pretty bad: Personal Audio’s patent claims a system for distributing “a series of episodes represented by media files via the Internet.”  The new portion appears to be updating a compilation file of currently available episodes.  The list of new episodes (and their links) are downloaded by a client computer that can then use the links to request the actual media files.

The other big difficulty here is a question of when does the jury verdict stick.  Is it worthless until the judge enters final judgment?

The Supreme Court will rule on the petition later this Fall.

by Dennis Crouch

Baxalta Inc. v. Genentech, Inc., 2020 WL 5048435 (Fed. Cir. Aug. 27, 2020)

Although not en banc, this case was picked-up by five different Federal Circuit judges with two separate opinions and one recusal.

Sitting by designation as a D.Del. district court, Judge Dyk sided with the accused infringer Genentech by narrowly construing Baxalta’s US7033590.  Although perhaps most jury members would need some help with definitions, the disputed terms are incredibly basic and fundamental to anyone involved with biotech. Disputed terms:

• Antibody; and
• Antibody fragment.

Following claim construction, the parties stipulated to non-infringement.

On appeal, the Judges Moore, Wallach, and Stoll took up the claim construction question.  However, after oral arguments Judge Stoll recused herself and Judge Plager stepped-in.  The new panel rejected Judge Dyk’s claim construction and consequently vacated the non-infringement judgment.

The patent is directed to a treatment for hemophilia and claims “an isolated antibody or antibody fragment” that binds to FactorIXa and increased its procoagulant activity.

Judge Dyk explained that the term antibody might have various potential meanings.  But here, the patentee expressed a narrower definition within its specification with the following statement:

Antibodies are immunoglobulin molecules having a specific amino acid sequence which only bind to antigens that induce their synthesis. . . . Each immunoglobulin molecule consists of two types of polypeptide chains. Each molecule consists of large, identical heavy chains (H chains) and two light, also identical chains (L chains).

‘590 at Col. 5.  Applying this portion of the patent, the district court limited the scope of antibody to molecules having one set of identical H-chains and a set of identical L-chains.

Genentech’s product uses an antibody organized with a variety of H- and L- chains (not all the H-chains are identical to one another). Thus, Judge Dyk’s requirement of identical chains led to the admission of non-infringement.

On appeal, the Federal Circuit took Judge Dyk to task — finding that the patent did not suggest such a narrow definition of the term. Dependent claim 4, for instance, identifies the antibody as being selected from “the group consisting of … a chimeric antibody, a humanized antibody, … [and] a bispecific antibody.”  The court explains that none of these antibody types in the dependent claim conform with the narrow definition of the term as used in claim 1.

The district court’s construction which excludes these explicitly claimed embodiments is inconsistent with the plain language of the claims. . . . The plain language of these dependent claims weighs heavily in favor of adopting Baxalta’s broader claim construction.

Slip Op.  The court then looked at the definition discussed by Judge Dyk and concluded that it was a “generalized introduction” rather than a “definitional statement.” In this process, the court noted the lack of patent-profanity such as “the present invention is … ”  The court’s conclusion is supported by other aspects of the specification that refers to the bispecific and other forms of antibodies that do not conform to Judge Dyk’s definition. The result: “The claim construction excluding these disclosed and claimed embodiments is therefore incorrect.”

The case also included some prosecution history. In particular, the patentee amended its claims from “antibody derivative” to “antibody fragment.” On appeal, the court found no clear statement from the prosecution history regarding how that amendment modified the scope. Without a ‘clear statement’ there is no prosecution disclaimer leading to disavowal of scope.

by Dennis Crouch

Facebook v. Windy City (Fed. Cir. 2020) [WindyCity Original OP] [WindyCity Revised OP][WindyCity Mark-up Showing Changes]

This was an important PTAB JOINDER case when it was decided by the Federal Circuit back in March 2020.  (Panel of Chief Judge Prost with Judges Plager and O’Malley).  The en banc court has now denied rehearing, but the original panel has also revised its opinion to take into account the the Supreme Court’s intervening decision in Thryv.

In Civil Procedure, joinder is typically divided into distinct area: joinder of claims and joinder of parties.  The AIA statute provides only for joinder of parties, but the PTAB allowed Facebook to join itself to a pending IPR in order to add additional claims. Facebook had wanted to do this type of joinder, because its later-filed IPR petition would have otherwise been time-barred under § 315(b) — and the patent act particularly notes that the 1-year 315(b) time-bar “not apply to a request for joinder”.  In its first decision, the appellate panel held that the self-joinder approach was not permitted by the statute.

Since March, the Supreme Court decided Thryv — and overturned a set of Federal Circuit cases reviewing various petition-stage decisions by the PTAB.  In Thryv, the court held that the USPTO’s interpretation of the § 315(b) one-year time-bar was not reviewable on appeal based upon the “no appeal” provision of § 314(d).

Now the original panel has revised its opinion in Windy City to take into account Thryv.  In its decision, the court explained that 315(c) joinder requires two decisions: (1) determination of whether the joinder-applicant’s petition warrants institution (including whether it is time-barred); and (2) determination of whether joinder should be allowed.  Under Thryv, the first portion of the test is not reviewable on appeal, but the second portion is appealable.

The statute requires the Director (or the Board on behalf of the Director) to make a “joinder decision.”  The statute makes clear that the joinder decision is made after a determination that a petition warrants institution, thereby affecting the manner in which an IPR will proceed.

Thus, the joinder decision is a separate and subsequent decision to the intuition decision.  Nothing in § 314(d), nor any other statute, overcomes the strong presumption that we have jurisdiction to review that joinder decision. . . .

Accordingly, we have jurisdiction to review the Board’s joinder decisions in this case to determine whether the Board (on behalf of the Director) acted outside any statutory limits under § 315(c).

Revised Opinion. Thus, the holding:

Because joinder of the new claims was improper, we vacate the Board’s final written decisions as to those claims, but because we lack authority to review the Board’s institution of the two late-filed petitions, we remand to the Board to consider whether the termination of those proceedings finally resolves them.

Id. I expect that on remand, the PTO will dismiss the late-filed petitions.

In its revised opinion, the court maintained its unanimous secondary opinion offering “additional views” on deference to Precedential Opinion Panels at the PTO.

Guest post by Saurabh Vishnubhakat, Professor at the Texas A&M University School of Law and College of Engineering.  Professor Vishnubhakat was formerly an advisor at the USPTO, but his arguments here should not be imputed to the USPTO or to any other organization.

This week, four iconic Silicon Valley technology companies—Apple, Cisco, Google, and Intel—sued the USPTO under the Administrative Procedure Act.  The lawsuit challenges the USPTO’s so-called NHK-Fintiv rule, named after a pair of inter partes review decisions in the PTAB that the agency previously designated as precedential.

The 23-page complaint, docketed as Case No. 5:20-cv-06128 in the Northern District of California, is worth reading in full.  Yet what is especially striking about the lawsuit, and worth considering more deeply, is a particular pair of arguments at the heart of the challenge.  One is that the NHK-Fintiv rule is contrary to the policy and text of the AIA and therefore exceeds the Director’s authority.  The other is that the NHK-Fintiv rule is procedurally infirm because it was not promulgated through APA notice-and-comment rulemaking.

The NHK-Fintiv Rule

The disputed USPTO policy allows the PTAB to deny institution of an inter partes review petition based on how far a parallel U.S. district court proceeding on the same patent has already gone.

NHK Spring v. Intri-Plex

The policy was first articulated in NHK Spring Co. v. Intri-Plex Techs., No. IPR2018-00752, Paper 8 (Sept. 12, 2018).  There, a panel of the PTAB declined to institute NHK Spring’s petition against an Intri-Plex patent where a parallel infringement suit was already pending between the same parties in the Northern District of California.

In denying institution, the panel cited its discretion under 35 U.S.C. § 325(d) as well as under § 314(a).  First came § 325(d), which empowers the Director to “determine the manner in which the post-grant review or other proceeding or matter may proceed, including providing for the stay, transfer, consolidation, or termination of any such matter or proceeding.”  Here, the panel applied the nonexclusive factors of the PTAB’s prior informative opinion in Becton, Dickinson and concluded that the art and arguments now asserted in the PTAB were already considered (and overcome) during examination.

Though it found this analysis sufficient on its own, the panel then also went on to exercise its discretion under § 314(a), which makes a “reasonable likelihood” of invalidating at least 1 of the challenged claims a necessary—but not sufficient—condition for instituting review.  Where review is permissible, the Director may still decide in his discretion to deny review, and the NHK panel found it compelling that the parallel proceeding in U.S. district court was “nearing its final stages”—with a five-day jury trial already set for six months before the PTAB’s own proceeding would conclude.

The principle of NHK—that the “the advanced state of the district court proceeding is an additional factor that weighs in favor of denying the Petition under § 314(a)”—forms the first part of the policy now being challenged.

Apple v. Fintiv

That policy was further elaborated in Apple Inc. v. Fintiv, Inc., No. IPR2020-00019, Paper 11 (Mar. 20, 2020).  There, a panel of the PTAB ordered supplemental briefing at the institution stage of Apple’s petition against a Fintiv patent where a parallel infringement suit was pending between the same parties in the Western District of Texas.  Fintiv had already argued in its preliminary response that the “advanced state” of the parallel proceeding warranted discretionary denial under NHK, as the same issues were before the district court and trial there had already been set.  (The setting of a trial date had come after Apple’s petition but before Fintiv’s response, making additional briefing appropriate.)

The panel then set out a number of factors to consider when evaluating whether the state of a parallel proceeding warrants discretionary denial under NHK:

• whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted;
• proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision;
• investment in the parallel proceeding by the court and the parties;
• overlap between issues raised in the petition and in the parallel proceeding;
• whether the petitioner and the defendant in the parallel proceeding are the same party; and
• other circumstances that impact the Board’s exercise of discretion, including the merits.

NHK was designated as precedential in May 2019 and Fintiv in May 2020.  Taken together, the NHK-Fintiv rule represents a policy of denying institution where a parallel district court proceeding is so far along and so substantially similar in art and argumentation that it would be best to conserve USPTO resources rather than undertake a largely or entirely duplicative review.

The Policy and Text of the AIA

That policy choice is firmly rejected in the opening argument of the APA challenge.  The plaintiffs identify the inter partes review system as a “centerpiece of Congress’s efforts to strengthen the U.S. patent system” through post-grant error correction.  By their account, the system of PTAB adjudcation responded to an environment where “questionable patents were too easily obtained and too difficult to challenge through existing procedures”—and, indeed, this language aptly cites the AIA House Judiciary Committee Report.  Thus, to deny institution under the NHK-Fintiv framework weakens the very purpose of PTAB review through artificial limits that are “found nowhere in the AIA.”  However, though there is much to agree with in the line of argument that follows, it suffers from at least two important weaknesses.

PTAB Review as an Alternative to the Courts

One weakness is that while the PTAB is desirable over the baseline of Article III courts, there are important and under-appreciated limits to this desirability.  It is certainly true that the PTAB was intended as “an improved alternative to litigation” on questions of patent validity.  Indeed, my coauthors and I have similarly argued that the PTAB offers a number of important advantages over the Article III courts, including lower barriers to standing, lower cost, lower delay, and lower rates of error.

However, it does not follow that PTAB review remains preferable regardless of what happens in the Article III courts.  By the time court litigation has reached a stage advanced enough that the NHK-Fintiv doctrine would apply, much of the cost of litigation has already been sunk, especially by the close of discovery and the scheduling of trial, as in NHK itself.  Meanwhile, the problem of delay is turned on its head, as it is the court that will now likely finish before the PTAB would.  The problem of Article III standing is largely irrelevant, as the defendant can point not merely to the threat of suit but the actual suit itself.  Much, though not all, of the marginal benefit from PTAB review relative to the federal courts is already dissipated.

Moreover, while it is true that decision making in the PTAB is done by administrative judges who have relevant technical as well as legal expertise, this benefit is also dissipated to some degree by a late-stage federal court proceeding.  By that time, considerable effort and investment has already been sunk into educating the judge or jury.  This, after all, is where much of the cost of litigation goes, and what makes expert administrative judges an attractive value proposition is that they do not require nearly so much education in each case.  The more that such investments have been made anyway, the less that PTAB review is a clear cost-saving.

Finally, there is the problem inherent to error correction, a problem starkly highlighted by the legislative design of PTAB review.  It is true, as the plaintiffs point out, that “while bad patents can be held unpatentable in IPR by a preponderance of the evidence . . . those same patents will survive litigation unless the challenger proves invalidity by clear and convincing evidence.”  But as I have pointed out in testimony before the FTC, the same is also true of good patents—and there is no way to distinguish the good from the bad up front.  If there were, error correction itself would be unnecessary.

Agency Discretion to Deny Review

The second weakness is that agency discretion carries not only significant structural benefits when protecting agreeable outcomes but also substantial obstacles when the outcomes go the other way.  The crux of the case against discretionary denials under the NHK-Fintiv rule is that “no provision in the AIA expressly requires or even permits the Director (or the Board as his delegee) to deny IPR petitions based on pending litigation involving the same patent claims.”

It is repeated throughout the argument, too, that the principle of NHK and the additional factors enumerated in Fintiv are to be found “nowhere in the AIA” and are, for that reason, outside the Director’s authority.  In this telling, what discretion the Director does have is limited to § 325(d), which is concerned more with managing multiple proceedings inside the agency itself than with doing so across an interbranch court-agency divide.  This matters because the NHK-Fintiv framework is an elaboration of institution authority specifically under § 314(a), not of case management authority under § 325(d).

However, the principle that § 314(a) gives the Director discretion—broad discretion—to deny otherwise meritorious petitions is, by now, fairly well established in Federal Circuit and Supreme Court case law.  For example, the two most significant cases involving the judicial unreviewability of the Director’s institution power—Cuozzo v. Lee in 2016 and Thryv v. Click-to-Call earlier this year—take just this view.  The Court in Cuozzo held explicitly that “the agency’s decision to deny a petition is a matter committed to the Patent Office’s discretion” and cited § 314(a) with an explanatory parenthetical that there is “no mandate to institute review.”  Likewise, the Court in Thryv expanded the scope of that unreviewable discretion to include conditions on institution as well—there, the condition in dispute was the one-year time bar of 35 U.S.C. § 315(b).

Indeed, some of the plaintiffs who now seek to cabin the Director’s institution-related discretion previously endorsed those very same positions before the Court.  In Cuozzo, Apple submitted a brief as amicus curiae supporting the USPTO Director’s assertion of unreviewable discretion in matters of institution.  Intel did the same in Thryv, arguing that a “decision not to institute review is committed to agency discretion.”

These complications in the case against the NHK-Fintiv rule cast serious doubt on the view that the policy choices embodied in that rule contradict the AIA.

The Choice of Rulemaking vs. Adjudication

Beyond the substance of the USPTO’s policy of sometimes denying inter partes review based on the status of parallel court litigation, there also lies an alternative argument that the policy is procedurally defective.  Here, the challenge springs from the familiar APA values of public input and transparency, which are traditionally accomplished by notice-and-comment rulemaking.  By contrast, the disputed USPTO policy was adopted “by designating the NHK and Fintiv decisions as precedential through a unilateral, internal process that involved no opportunity for public comment and no consideration by the Director of any public input.”

In this regard, the challenge to NHK-Fintiv certainly has merit as a matter of desirable administrative practice, but it is not at all clear that this makes the USPTO’s approach legally deficient.  For over 70 years, the Supreme Court has left the form of policymaking up to agencies themselves.  The Court’s 1947 opinion in SEC v. Chenery Corp. (Chenery II) explained that “the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.”

In Chenery II, the Court recognized that “problems may arise in a case which the administrative agency could not reasonably foresee, problems which must be solved despite the absence of a relevant general rule.”  The Court also pointed to a touchstone of agency practice that is especially important to the PTAB—expertise—and noted that “the agency may not have had sufficient experience with a particular problem to warrant rigidifying its tentative judgment into a hard and fast rule.”  Both of these considerations point to adjudication as an acceptable mechanism for making policy.

To be sure, rulemaking offers significant benefits, and not only the public participation and transparency that the present APA challenge cites.  Rulemaking also fosters greater predictability, both by specifying rules more fully in advance and by raising the agency’s own political costs from visibly changing course.  For these reasons, I have argued in my own recent work about Patent Office policymaking that setting PTAB policy through rulemaking, such as the USPTO’s 2018 change to the PTAB’s claim construction standard, will often be preferable to shifting and incrementalist adjudications.

Still, a well advised preference is not the same thing as a legal requirement.  Moreover, though notice-and-comment rulemaking is a direct and well established way of securing public input, it’s not as if PTAB adjudication does not allow for meaningful public input.  The plaintiffs themselves note that members of the public are entitled to nominate PTAB opinions for designation as precedential.

Beyond this, the PTAB has accepted and, at times, even invited amicus curiae briefs in cases of public importance, such as whether tribal sovereign immunity defeats inter partes review.  Similarly, under the current USPTO Standard Operating Procedure No. 2 (Rev. 10), cases before the agency’s Precedential Opinion Panel may also be opened for amicus curiae briefing.  In short, where the USPTO exercises its prerogative to make policy through adjudication, it need not ignore public input to do so.

Conclusion

The APA challenge to the NHK-Fintiv rule, like much of the USPTO’s own recent policymaking, balances a range of important considerations and reaches a position that is coherent and reasonable.  The weakness—if it can be called that—of the challenge is that it represents merely one reasonable position among several, especially given the Supreme Court’s views on agency discretion in general and USPTO discretion in particular.  If the challenge eventually fails to dislodge the disputed policy, then the reason will likely be that, like most agencies, the USPTO enjoys wide latitude that is difficult to paint as unreasonable.

Egenera, Inc. v. Cisco Systems, Inc. (Fed. Cir. 2020)

Egenera’s network system architecture patent (US7231430) lists eleven inventors.  Back in 2016, Energa sued Cisco for infringement, and Cisco responded with an IPR petition.  At that point, Egenera “realized that all claim limitations had been conceived before one listed inventor, Mr. Peter Schulter, had started working there.”  Egenera’s underlying concern in the case was its ability to prove an early pre-filing invention date.

It is apparent that at least part of Egenera’s motivation to remove Mr. Schulter was to facilitate swearing behind  “Grosner,” a piece of prior art asserted against Egenera in the IPR.

Slip op.  The PTAB declined to institute the IPR, but the PTO did grant the petition to remove Shulter.

Back in the district court, Cisco argued that Shulter was actually an inventor (of the claimed tripartite structure) and that the patent was therefore invalid under pre-AIA 102(f).  At that point, Egenera suggested that Shulter be conditionally re-listed as an inventor:

The [district] court … rejected Egenera’s argument that if the trial showed Mr. Schulter to be an inventor, the patent’s inventorship should be corrected under 35 U.S.C. § 256(b). The court reasoned that judicial estoppel precluded Egenera from “resurrect[ing]” Mr. Schulter’s inventorship.

Slip Op.  The district court did subsequently determine that Shulter had conceived of the claimed structure, that Egenera was judicially estopped from adding him back as an inventor, and that the patent claims were therefore invalid.

Section 256 of the Patent Act was modified in the AIA (2011) to remove “deceptive intent” from the inventor-correction provision. The statute now allows correction of an “error” of omitting a named inventor and does not require that “such error arose without any deceptive intention on his part“.   The statute goes on to explain that the error “shall not invalidate the patent in which such error occurred if it can be corrected.”  Although Energa’s patent is a pre-AIA patent, the modification here applies to old patents.

The district court found that the removal of Mr. Shulter was a strategic and deliberate decision — and therefore not an error.  In addition, the district court found that the inventorship “tactical ploy” created an estoppel to present the second Shulter from being added back.

Regarding Error: Deliberate and calculated acts are often in error.  And the law of inventorship allows for correction of those errors — even if they were “dishonest” errors. Thus, the removal of Shulter counts as an “error” under the statute that may be corrected.

Judicial Estoppel: Judges are given some discretion in applying judicial estoppel regarding changing of arguments during litigation. However, there is a usual three-element test:

1. Are the two positions clearly inconsistent with one another?
2. Did the party succeed in persuading the court to accept the first position?
3. Would the party receive an unfair advantage if not estopped?

1. Clearly Inconsistent: Originally Egenera listed Shulter as an inventor of the claims; Later they argued he should not be listed as an inventor of the same claims; finally they argued that he should be relisted as an inventor, still the same claims.  At first (and second) glance, these appear clearly inconsistent.

In reviewing these elements, the Federal Circuit found no clear inconsistency. In particular, the court explained that the district court’s claim construction and development of inventorship facts. In particular, the court had, over Egenera’s objection, interpreted a certain claim term as means-plus-function. That interpretation tied the claim to embodiments in the specification conclusively linked Shulter to the invention.  The court notes that changes in “the law” excuse inconsistency.  Since claim construction is a question of law, then it apparently serves as an excuse.

2. Acceptance of the First Position: Although the PTO accepted the change in inventorship, the Federal Circuit held that the PTO’s actions here do not serve as judicial action. Rather, the PTO did not truly examine the facts of the situation — instead it simply “agreed that all the signatures and fees were in order.”  As such, the second requirement of “persuading the court to accept” was not met.

3. Unfair Advantage: The court here could also find no unfair advantage taken by the inconsistent positions.  In particular, although Shulter was dropped in order to gain some advantage in the IPR, the IPR was actually denied before the change in inventorship was approved. Although arguments were made regarding the issue in the petition, the PTAB apparently denied the petition “without addressing Egenera’s priority arguments.”  The appellate panel writes that “Things might be different had Egenera succeeded in swearing behind the prior art. . . . But that is not this case.”

Since none of the factors point toward estoppel, the appellate panel found that it was improperly applied. On remand, the district court will need to allow inventorship to be amended and then reconsider validity and infringement.