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Monday, 27 June 2016

US Supreme Court Accepts USPTO "Death Squad (?)" "Broadest Reasonable Construction" Standard

Will Congress react?  The US Supreme Court issued the much-awaited decision in Cuozzo Speed Technologies v. Lee.  In that decision, the Supreme Court upheld the United States Patent and Trademark Office's (USPTO) use of the "broadest reasonable construction" standard in reviewing claims challenged in Inter Partes Review Proceedings (IPRs) before the Patent Trial and Appeal Board (PTAB).  This standard makes it more likely that a challenged patent will be found invalid for obviousness.  The Supreme Court also decided that the decision to institute an IPR is not appealable.

In Couzzo Speed Technologies, Justice Breyer wrote the unanimous opinion basically affirming the USPTO's power to adopt the "broadest reasonable construction" standard in IPRs.  The Leahy-Smith America Invents Act clearly provided the USPTO with rule making authority concerning IPRs.  The Supreme Court had little trouble following the statute.  The Supreme Court also rejected arguments that IPRs were more like court proceedings than specialized agency proceedings.  For example, challengers do not have to have constitutional standing, have a different burden of proof, and the USPTO can continue to hear the action without the challenger.  Justice Breyer also noted that IPRs' predecessor was reexamination--essentially a return to review the agency's decision to grant a patent. The Court notes that there is nothing in the text, purpose or history of the statute to support a differing viewpoint. Notably, Justice Breyer recognizes that there may be inconsistent results between district courts and the PTAB, but that this was "inherent" in Congress' "regulatory design."

Justice Breyer also wrote the majority opinion on whether the decision to institute an IPR is not appealable.  This may prove to be important because it essentially allows the PTAB full authority to decide whether an IPR should be instituted.  Thus, ways to critique the application for an IPR may, over time, become more limited because of a lack (or threat) of judicial review.

"Looks like a job for Congress!"
Notably, the PTAB and its handling of IPRs and other proceedings has been subject to some controversy. For example, former Chief Judge Rader of the U.S. Court of Appeals for the Federal Circuit labeled it, "the death squad killing property rights".  However, some commentators have challenged that label and its meaning.  In a study including data in 2014, the law firm Fitzpatrick, Cella, Harper & Scinto concluded that challenges under American Invents Acts procedures such as IPRs were "challenger friendly," but did not go so far as to say that the PTAB was a "death squad."  IPRs can be based on section 102 (novelty) or 103 (non-obviousness).  The authors state that the percentage of successful challenges based on section 102 (novelty) was similar in district courts and at the PTAB.  Notably, the percentage of successful challenges based on section 103 (non-obviousness) were higher at the PTAB (58%) than in district courts (28%).  The authors' theory for the difference, in part, is that the PTAB uses the "broadest reasonable construction" standard and the district courts use the "person of ordinary skill in the art at the time of the invention."  The authors also state that the PTAB relies on the preponderance of the evidence standard for proof that a patent is invalid while the district courts presume the patent is valid and apply the clear and convincing evidence standard.

In an analysis published in 2016, Harper Batts of Baker Botts explains that the "death squad" label is fiction.  He argues that the relatively early high rates of invalidity were because those challenged patents were particularly weak and that defenders have learned how to successfully critique IPRs.  Moreover, he notes that the PTAB may have received a signal from Chief Judge Rader that they may want to proceed with care.  Additionally, a study published by Corporate Counsel announced that the "PTAB is Not a 'Property Rights' Death Squad." (behind a paywall).

In a study by Arti K. Rai, Jay Kesan and Saurabh Vishnubhakat titled, "Strategic Decision Making in Dual PTAB and District Court Proceedings," the authors state that, in part, based on the high percentage of PTAB proceedings that are instituted after a district court action is filed that the PTAB and district courts should apply the same standard.  However, they do note that a substantial percentage--about 30%--do not involve proceedings at the agency and court.

The impact of In re Cuozzo Speed Technologies and IPRs remains to be seen.  IPRs were designed to improve patent quality through a relatively quick and cheap method with knowledgeable judges.  Apparently, the bio-pharmaceutical industry has been somewhat surprised at the use of IPRs against pharmaceutical patents by the generic industry.  How did they not see this coming?  It will be interesting to see if Congress moves to change the USPTO's rules.

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