Guest Post: Silicon Valley’s APA Challenge to PTAB Discretion

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.

24 thoughts on “Guest Post: Silicon Valley’s APA Challenge to PTAB Discretion

  1. 7

    It’s well established PTO has both rule making and decision making authority over it’s statutory scheme. Indeed, the doctrine of administrative estoppel comes to mind. Administrative estoppel being a form of res judicata wherein an admin court will not re-litigate an issue already decided by an Art III court. Tax court, claims court, postal court, etc etc all have adopted via court decision a form of administrative estoppel. Indeed, one could say the PTAB is actually the outlier here because it does not go far enough to act in harmony with the Art III courts. Ergo, determining a legal framework wherein the gateway function of the IPR (pure discretion) will act somewhat more in harmony with the Art III branch would appear not only authorized but the right thing to do. The next shoe should be for the PTAB to harmonize with ALL the other administrative courts and determine when administrative estoppel should apply. See In re Perne and Wichardly (sp?) Maybe someone with USPQ access can post those interesting cases establishing administrative estoppel in the context of the original ex parte reexamination statute . Decided by Mossinghoff as I recall.

    1. 7.1

      As Dennis noted, the PTAB denies IPR institutions where the patent is really about to go to trial on the same issues. But note as to estoppel that a D.C. decision that the subject claim is not invalid is not even binding on a D.C. in another trial against another defendant, whereas a final IPR decision is – it is an in rem statutory cancellation of the claim.

  2. 6

    I think the ultimate goal of the lawsuit is not necessarily to win, but to call public attention to a discretionary practice of denying IPR petitions based on a supposedly upcoming trial date. Even before COVID 19, trial dates in most district courts were unreliable; today, they’re little more than aspirational. The lawsuit points out numerous instances in which IPR institution was denied because trial was scheduled to occur in district court before the Final Written Decision (FWD) could issue, but the district court after the PTAB denial ended up delaying the trial date, often repeatedly and in many case well beyond when a Final Written Decision would have issued. When that happens, obviously, the factual justification that PTAB relied upon for discretionary IPR denial, evaporates.

    Most PTAB judges have little district court litigation or trial experience, so I suspect they probably didn’t understand how slippery district court trial dates are when they issued those earlier decisions supporting discretionary denial. After all, the timetable in a PTAB proceeding is far more strict and you an set your watch to the deadline of final written decisions.

    I suspect the the problem here might end up taking care of itself as the PTAB learns more about the vagaries with respect to district court trial dates, and recent decisions in the past few weeks suggest they’re walking back on reliance on trial dates as a single factor for denying IPR. From the standpoint of the plaintiffs, if this lawsuit merely accelerates the PTAB’s learning curve on this point, and results in fewer denials based on unreliable trial dates, the plaintiffs will probably consider the lawsuit a success even if it ultimately fails on the merits of the APA claim.

    1. 6.1

      The goal if the law suit is obviously to give the serial infringers back their unlimited access to that abomination the PTAB privy court. A privy court that renders Art III decisions mere advisory opinions in violation of Hayburn’s case and is an affront to the 7th Amendment. We fought a revolution to get that one. Since we are now forced to live with this anomaly, i.e., Oil States, the very least the PTAB can do to mitigate it’s existence as Constitutional molecular acid is to promulgate decisions wherein the PTAB will act in harmony with the Art III courts. The ‘pull up the ladder behind you’ tech companies love their Star Chamber, hey it cost them a lot of money to log roll Congress on this, plus creating the echo chamber of patent hate wasn’t cheap either to condition the battle field for the Oil States decision passing on this monster. What’s another couple tens of millions to take a run at PTAB attempting to act at least somewhat in harmony with the Art III department? It’s at least 50/50 SCOTUS will continue to beat on it’s red headed step child patent law.

  3. 5

    No patent owner consents to IPR review, that would be nonsensical. Not sure why the relative sizes of the businesses are relevant but Intri-Plex is hardly a small business and retained one of the most expensive law firms. Intri-Plex is a subsidiary of a multi billion dollar corporation and ultimately owned by a mega private equity (or at least was at the time).

    Unwanted interference from the PTAB? In every IPR petition filed, the petitioner wants the “interference” and the patent owner does not.

    I am interested in the author’s thoughts on the following points:
    1. The unreliability of frequent moving trial dates as a factor for determining institution, and
    2. The interplay between the nhk-fintiv rule and the string of 2019- precedents that seem to expand the board’s discretion to deny multiple petitions including follow ons to address claims asserted after the one year bar. Seems the PTAB is demanding both prudence in filing the petition and also expeditious filings to beat out a trial date.

  4. 4

    “By the 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 the NHK case itself.”

    I disagree and would like to know the author’s response to the Complaint’s note that trial dates are a traditionally unreliable factor. I also suggest reviewing the docket in the NHK District Court case itself. After the PTAB issued its decision, discovery was substantially extended and trial delayed multiple times, ironically as a result of on-sale bar invalidating prior art produced by Intri-Plex after the PTAB’s decision and after the original fact discovery deadline.

    As a side note, I would also question the PTAB’s determination that the arguments presented in the NHK petition were previously considered (full disclosure: I wrote the NHK petition).

    1. 4.1

      PTAB adds 3 years and a half a million dollars to the litigation. If the case is not stayed, it is more efficient to deny institution. If the judge needs help from the PTAB he will stay the case. Unwanted interference by the PTAB is unnecessary and inefficient.

      NHK is a $6 billion corporation while Intri-Plex is a $30 million small business. If PTAB were more efficient then Intri-Plex would have consented to jurisdiction there.

      1. 4.1.1

        Josh,

        Unfortunately, you are using the word “efficient” here is a FAR too limited manner.

        You are viewing “efficiency” ONLY from the vantage point of the smaller entity.

        This myopia discounts the very real (albeit VERY BAD) efficiency that is at the root of the problem: the very much Rational Actor aspect of Efficient Infringement.

        Turn the hallowed property right from the Quid Pro Quo that is the fuel for innovation into a mere ‘business trinket’ and instead of ‘property’ (which in its Lockean nature, ALWAYS had an elevated and even ‘sacred’ position), you have a much more ‘convenience’ aspect of ‘Contracts” in which breach of which is viewed in terms of “meh, it’s not that big of a deal.

        Focusing on these two very radical different viewpoints of BOTH innovation and property provides a very clear litmus test.

        If ANYONE wants clarity – start with that litmus test.

  5. 3

    Given that APA review is explicitly not available where “agency action is committed to agency discretion by law,” 5 U.S.C. § 701, this challenge will have to reckon with the Supreme Court’s indication in Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016) that “the agency’s decision to deny a petition is a matter committed to the Patent Office’s discretion.” Id. at 2140 (citing 5 U.S.C. § 701(a)(2)).

  6. 2

    Has anyone questioned the personal “standing” of all these APA suit plaintiffs for this relatively rare IPR denial reason, and is NDCA rather than NDVA is the proper forum?
    An underlying unexpressed issue here is that its “sometimes denying inter partes review based on the status of parallel court litigation” PTAB rationale depends on a realistic conclusion of that status, and the W.D.TX judge in question is accused of setting unrealistically early trial dates in advance.
    The part of this suit based on the PTAB rationale being contrary to the IPR patent statute is in effect arguing that this PTAB reason to refuse IPRs forces existing and future defendants to go through multimillion dollar patent suit trials on every possible issue even on clearly invalid patents that could have been easily disposed of for a tiny fraction of such legal costs and no court burdens, which is the opposite of what Congress clearly intended.

    1. 2.1

      Note that some of this subject matter may get decided much faster in the related August 13 Sand Revolution LLC petition for writ of mandamus to the Federal Circuit, if granted. The petition asks the Federal Circuit to find that U.S. District Judge Alan D. Albright of the Western District of Texas abused his discretion to deny a motion to stay his district court proceedings pending completion of an instituted IPR of the patent in suit. It is an IPR delayed by being originally denied based on a then-alleged WDTX D.C. early trial date, not on absence of sufficient invalidity proof, i.e., the subject of the subject APA suit. [Mandamus was recently granted against this same judge for venue transfer refusals.]

      1. 2.1.1

        BTW, one can argue either side of other issues in this case and yet take a different position on the argument that: “the NHK-Fintiv rule is procedurally infirm because it was not promulgated through APA notice-and-comment rulemaking”(selecting “PTAB opinions for designation as precedential”). That has been a hot topic in some prior blogs comments.

        1. 2.1.1.1

          Not just some prior blog comments — see the Boundy paper from ‘x’ number of practitioners, or more generally ANY of the Boundy views of transgressions by the Patent Office when it comes to his balliwick of Admin. Law.

          The implied notion of “mere sum” is substantially off.

          1. 2.1.1.1.1

            Yes, Dave Boundy’s articles cites in particular was what I was referring to.

  7. 1

    Thanks Saurabh — nice explication.

    After this hypocritical Big Tech cabal loses at the Dist Ct and the Appeal Court, SCOTUS will deny their petition.

    Discretion is discretion is discretion.

    1. 1.1

      I am reminded of Sir Thomas More (and this situation here being after all the laws were mowed down, and the devil be turning)

    2. 1.2

      This is not to predict any outcomes here. But note that the Sup. Ct. in “Click to Call” follows its Cuozzo Speed Technologies LLC v. Lee decision. The Director’s discretion to refuse or grant IPR initiation is not totally absolute if outside of its statutory authority and contrary to Congressional intent, as argued by the plaintiffs in this suit.

      1. 1.2.1

        Thryv/Click-to-Call concerned a case where PTO action was being challenged as contrary to not just Congressional intent, but statutory directive that “An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.” 35 U.S.C. § 315(b).

        This is pretty much the definition of action that is “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706. Despite this, the institution decision was still held to be unreviewable.

        1. 1.2.1.1

          Worth emphasizing (given as this sharply contrasts with the typical cheerleading):

          Despite this, the institution decision was still held to be unreviewable.

        2. 1.2.1.2

          As noted, I was not predicting any outcomes of this suit, and your Thryv/Click-to-Call argument is certainly persuasive for that part of this APA suit, with the one distinction I see offhand being that these are all NON-institution decisions, which does not apply to some of the rationale therein.
          But 2.1.1 is a whole separate issue not decided in Click-to-Call.
          Also, so far no one has responded to the two other questions about this suit in the first paragraph of 2?

          1. 1.2.1.2.1

            Per 2 and 2.1 above I also wonder how big is the problem for the issues actually being addressed in this APA suit?* That is, how many D.C. judges other than that one in W.D.TX, or maybe a few others with “rocket dockets,” are receptive to increasing rather than potentially decreasing their jury trial backlogs and other burdens these days, and thus refusing stays for promptly filed IPRs based on setting early trial dates?
            *Which is not the issue another blog thinks is going to be decided.

          2. 1.2.1.2.2

            Also, so far no one has responded to the two other questions about this suit in the first paragraph of 2?

            Does one even reach those if J. Doerre’s point is first reckoned with?

            And for the other musings of yours, can you please put down the pom-poms?

            1. 1.2.1.2.2.1

              2. As noted in 1.2.1.2 and the blog itself, there are two separate grounds raised in this suit and the second [PTAB rulemaking] is “a whole separate issue NOT decided in Click-to-Call.”
              1. If the Court can find an easier way to dispose of this case, as I was asking, it can avoid addressing either ground.

              1. 1.2.1.2.2.1.1

                Yes, but the discussion in the thread is on a different point.

                You may suggest sua sponte points all the live long day, but those are not at point to the discussion.

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