Apple v. Vidal: APA Compliance in IPR Discretionary Denial Rules

by Dennis Crouch

I have written several times about the Chestek case regarding notice-and-comment requirements under the APA.  A second notice-and-comment case is also pending before the Federal Circuit, potentially having a much greater impact on patent practice.  The case, Apple v. Vidal, focuses on IPR discretionary denials, which the USPTO implemented as policy without any formal rulemaking notice-and-comment. In Apple, the Federal Circuit is being asked to consider:

Whether, by adopting the NHK-Fintiv Rule without notice-and-comment rulemaking, the Director violated (1) the APA, 5 U.S.C. § 553, and (2) the AIA, 35 U.S.C. § 316(a)(2), (4)

In my view, the discretionary denial rules are clearly substantive and binding on PTAB judges — putting the district court’s decision likely in the error column.  Although Apple is the first-named appellant, other parties seeking to overturn the rule include Cisco, Google, Intel, and Edwards LifeSciences.  This appeal represents the latest development in a coordinated effort by these companies to curtail the USPTO’s discretion in denying IPR institution.

• Apple v. Vidal Appellant Brief
• Apple v. Vidal NRF CCIA Amicus
• Apple v. Vidal Askeladden Amicus
• Apple v. Vidal Unified Amicus

Some Background: The IPR statute includes a critical threshold requirement under 35 U.S.C. § 314(a), which states that the Director may not institute an IPR unless there is “a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.” By grammatical implication, the provision does not require institution simply because the threshold has been met and rather has been interpreted as granting the Director discretion to deny institution in such cases.   In Cuozzo, the Supreme Court confirmed this interpretation — writing that “the agency’s decision to deny a petition is a matter committed to the Patent Office’s discretion.”  Cuozzo Speed Technologies, LLC v. Lee, 579 U.S. 261 (2016). 35 U.S.C. § 314(d) renders the Director’s determination as to whether to grant or deny institution “final and nonappealable,” a clause that adds to the discretion by significantly limiting judicial review.

The NHK-Fintiv rule, as it has come to be known, emerged from two precedential PTAB decisions decided under Director Andrei Iancu: NHK Spring Co. v. Intri-Plex Technologies, Inc., 2018 WL 4373643 (P.T.A.B. Sept. 12, 2018) and Apple Inc. v. Fintiv, Inc., 2020 WL 2126495 (P.T.A.B. Mar. 20, 2020). These decisions articulated a multi-factor test for the PTAB to consider when deciding whether to exercise the Director’s discretion to deny institution of an IPR based on the advanced state of a parallel district court proceeding.  The basic idea here is that IPR proceedings are designed to serve as an efficient alternative to district court litigation, but  the PTAB should defer to district courts if there is ongoing parallel litigation at an advanced stage.

Apple v. Vidal: In 2020, Apple, Google, Cisco, and Intel filed suit in the Northern District of California challenging the NHK-Fintiv rule on three grounds under the APA: (1) that it is arbitrary and capricious; (2) that it exceeds the USPTO’s statutory authority; and (3) that it was improperly adopted without notice-and-comment rulemaking. The district court initially dismissed all three claims as unreviewable under 35 U.S.C. § 314(d), which makes IPR institution decisions “final and nonappealable.”  On appeal, the Federal Circuit affirmed dismissal of the first two claims but reversed on the notice-and-comment claim. Apple Inc. v. Vidal, 63 F.4th 1 (Fed. Cir. 2023). The appellate court held that while the substance of institution decisions may not be reviewable, the procedures used to adopt general policies governing those decisions can be challenged. It remanded for the district court to consider the merits of whether notice-and-comment was required.  Back on remand, the district court granted summary judgment to the USPTO, holding that the NHK-Fintiv rule is a general statement of policy exempt from APA notice-and-comment requirements. Apple Inc. v. Vidal, No. 20-cv-06128-EJD (N.D. Cal. Mar. 31, 2024).

IPRs and the APA: Review of Director’s Discretion to Initiate IPRs

Meanwhile, in recent years Director Vidal has modified the rule to make it substantially less effective, and recently completed a notice-and-comment for a proposed rulemaking. If it happens, implementation of the final rules would largely render the appeal moot.  However, it is possible that the parties could still maintain the action to address residual harms caused by implementation of NHK-Fintiv without proper procedures.  We have also had a major change on the ground through diminution of Judge Albright who was clearly gaming the system to trigger discretionary denial for infringement cases filed in his court. 

Back to the District Court Decision and the Appeal: In its decision, the district court applied a framework considering whether the rule:

1. affects individual rights and obligations;
2. operates prospectively;
3. leaves the agency free to exercise discretion; and
4. has binding effects or establishes a binding norm.

It concluded the NHK-Fintiv factors do not alter any individual rights or obligations, as there is no “right” to IPR institution. The court found the rule operates prospectively and leaves the PTAB with discretion to weigh the factors and reach different outcomes in individual cases. Critically, it determined the rule is not outcome-determinative, as the PTAB retains authority to institute review even if the factors point toward denial.

Pending Appeal: Apple and the other plaintiffs have now appealed to the Federal Circuit, arguing the district court erred in classifying NHK-Fintiv as a general statement of policy rather than a substantive rule requiring notice and comment.  The new brief was filed by WilmerHale attorney Catherine Carroll. Carroll is an administrative law appellate specialist and was joined by Gary Fox, Mark Selwyn, and Alyson Zureick on the brief.   As I read it, three key arguments emerge from the brief that push against NHK-Fintiv as a statement of policy rather than a substantive rule:

1. NHK-Fintiv affects private interests by restricting access to IPR. The district court ignored the Federal Circuit’s prior holding in the case that plaintiffs included plausible allegations that the rule causes “harm in the form of denial of the benefits of IPRs linked to the concrete interest possessed by an infringement defendant.”
2. NHK-Fintiv is outcome-determinative in practice. The brief argues the district court erred in focusing solely on the rule’s text rather than its practical binding effect.  Discretionary denials significantly increased when NHK-Fintiv was adopted. In addition, the Board itself has stated that PTAB judges lack authority to assert their own policy choices. E.g., Supercell Oy v. GREE, Inc., 2020 WL 3455515 (PTAB June 24, 2020).
3. Notice-and-comment is required under the AIA. 35 U.S.C. § 316(a) requires the Director to “prescribe regulations,” which appellants argue is a statutory mandate  to follow the notice-and-comment requirements of the APA.

Several amicus briefs have also been filed supporting the appeal.

Askeladden L.L.C., represented by Carter Phillips and Joshua Fougere of Sidley Austin LLP.  Askeladden argues that notice-and-comment procedures are particularly crucial in patent law, where stable legal rules are essential for fostering innovation and investment. To support this argument, they point to Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722 (2002), which warned against disrupting settled expectations in the patent community. Channeling Chestek, Askeladden also suggests that the PTO should be placed under additional APA scrutiny regarding institution rules since the statute takes away the parties right to otherwise appeal.  “Taking the further step of freeing the agency from public scrutiny during the notice-and-comment process would do serious violence to the APA’s careful balance.”

Unified Patents LLC and Zero Motorcycles Inc., represented by Mark S. Davies, Adam Greenfield, Amanda Woodall, and Yar Chaikovsky of White & Case LLP. Unified argues that the Fintiv factors are substantive in nature and thus required notice-and-comment rulemaking under the Administrative Procedure Act (APA). One interesting aspect of the brief is its the reference to Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), arguing that this recent SCOTUS ruling necessitates a fresh review of the USPTO’s statutory interpretation. “Loper Bright Enterprises makes clear that judicial scrutiny of the USPTO’s misinterpretation of Congress’ expressed intent is not merely justified, it is required.”

Joseph Matal (ClearIP) along with Debra McComas (Haynes and Boone) filed a brief on behalf of several organizations, including the National Retail Federation and CCIA. This quote is notable from their brief: “Although the current Director’s reforms have curbed the worst of [the discretionary denial] excesses, they also highlight that Fintiv continues to operate as an outcome-determinative rule in which time to trial predominates over all other factors. . . . In effect, defendants sued in districts that move quickly are almost automatically subject to Fintiv.”  The brief also includes the “High Tech Inventors Alliance” as an amicus. Despite its name, HTIA has no inventor members and rather is a lobbying organization for the high-technology industry giants, including Google, Amazon, Dell, and Microsoft.

The USPTO has not yet made an appearance in the case. In the prior appeal, DOJ attorney Weili Shaw represented the agency as lead attorney rather than members of the USPTO Solicitor’s office.