Federal Circuit Divided: AIA & 3 Categories of PTAB Review By Jennifer J. Jedra
Two Federal Circuit decisions have now set the stage for the Court to directly confront important procedural and institutional questions arising from review of issued patents by the Patent Trial and Appeal Board, presenting potentially conflicting views on Executive and Judicial Branch authority. Versata Development Group, Inc. v. SAP America, Inc., Fed. Cir., No. 2014-1194, 7/9/2015; In re Cuozzo Technologies, LLC, Fed. Cir., No. 2014-1301, 7/08/2015.
The pair of decisions address (1) the scope of the judicial review bar at 35 U.S.C. 314(d) and 324(e) for PTAB decisions to institute inter partes and post grant review, (2) the scope of “financial product or service” that qualifies for “covered business method” (CBM) review under Section 18 of the AIA, and (3) patent eligibility under 35 U.S.C. 101 as grounds invalidation in PTAB post-grant review.
The America Invents Act, among other things, created three categories of PTAB review for issued patents:
- post grant review, available in the first nine months after the patent issues and “on any ground that could be raised under paragraph (2) or (3) of section 282(b) (relating to invalidity of the patent or any claim)” 35 U.S.C. 321(b);
- inter partes review, available nine months after the patent issues and “only on a ground that could be raised under section 102 or 103 based on patents or printed publications (35 U.S.C. 311(b); and
- “covered business method,” like post grant review, available for any ground covered by Section 282(b)(2) and (b)(3). Section 18 of AIA.
None of the scope provisions of the statute explicitly refers to Section 101 or patent eligibility as permissible grounds for PTAB review.
Last February, a Federal Circuit panel decided that it has no jurisdiction to review a PTAB decision to institute an IPR, even if it is raised in an appeal of a PTAB final decision. 778 F.3d 1271 (Fed. Cir. 2015). The 2-1 decision (Judges Dyk for the Court, joined by Judge Clevenger, Judge Newman dissenting) also approved of the PTAB’s use of the “broadest reasonable interpretation” (BRI) standard for claim construction, and agreed that the three claims in suit were invalid for obviousness.
On July 8, 2015, the Court denied en banc review of the panel decision by either a 5-5 or 6-5 vote (the votes of two judges were not disclosed). Judge Dyk wrote a concurring opinion, joined by Judges Lourie, Chen, Hughes; Chief Judge Prose wrote a dissenting opinion, joined by Judges Newman, Moore, O’Malley, and Reyna; and Judge Newman wrote a separate dissenting opinion. On the same day, the opinions of the Cuozzo panel were reissued with substantial revisions, mostly adding arguments to reinforce original positions. Fed. Cir., No. 2014-1301, 7/08/2015. Judge Dyk’s revisions seek to refute arguments that opportunities to amend claims in IPR proceedings are limited (pp. 14-16), and that this decision endorses USPTO substantive rulemaking (p. 18). Judge Newman also revised her panel dissenting opinion with arguments to reinforce her previously stated position.
On July 9, 2015, a Federal Circuit panel held 2-1 in Versata that “Issues that are part of or a predicate to the ultimate Patent Trial and Appeal Board decision on the merits are reviewable by the Federal Circuit, even if they first arose as part of the Director’s decision to institute the PTAB proceeding.” (Judge Plager for the Court, joined by Newman, Judge Hughes concurring/dissenting). This was the first appellate decision in a “covered business method” (CBM) case under Section 18 of the Leahy-Smith America Invents Act.
Judicial review Issues
The Court rejected the argument of the USPTO, as intervenor, that it lacks jurisdiction to decide whether the patent is a CBM patent because that questions since that was initially decided by the PTAB at the institution stage.
The restriction of Section 18 to CBM patents is a statutory limit on the PTAB’s ultimate authority to invalidate a patent, Judge Plager wrote. The language of Section 324(e) does not apply to limits on PTAB authority to enter a ‘final written decision’ invalidating a patent, he explained, pointing out that “[i]nstitution and invalidation are two distinct actions by the PTAB.”
“In addition to being deeply embedded in federal administrative law, the distinction is built into the structure of this particular AIA statute, as explained above, and §324(e) applies only to the decision to institute.
“The distinct agency actions do not become the same just because the agency decides certain issues at both stages of the process. Nor do they become the same just because the agency chooses, or even follows a congressional directive, to decide an issue determining final-action authority at the initiation stage and then does not revisit the issue later. Early-stage decision of a basic authority question can make sense as an efficiency matter. There is no good reason to launch a proceeding if it is clear that the agency will have no authority to act at its conclusion. On the other hand, some determinations normally made at the initiation stage may not affect authority to render a final decision whenever made.”
One limit on Section 18 invalidation authority is that the patent at issue must be a CBM patent, the Court continued. Judge Plager pointed out that Congress created Section 18 review as a procedure over and above any other authority that the PTAB might have for reviewing and invalidating patents, imposing qualifying definitions and time limits. These limits define the PTAB’s authority to invalidate under Section 18, he added. In so concluding, the Court said it does not consider all of the determinations the PTAB may make to initiate proceedings. “It is enough for us to determine here that the defining characteristic of a patent as a CBM patent, subjecting it to a special PTAB power to invalidate, is such a limit,” Judge Plager wrote.
“In short, we do not find that the Government’s arguments approach meeting the “heavy burden” of persuasion needed to overcome the “strong presumption” of judicial review. Congress, by limiting the scope of the review bar in §324 as we have described, struck a balance between Congress’s desire for a prompt and efficient review process at the USPTO, on the one hand, and, on the other, review of final agency action. We find that balance carefully crafted and consistent with the roles the Constitution assigns to the Judicial and Executive Branches.
The Court also saw no conflict in its Versata decision with the Cuozzo decision. Judge Plager pointed out that Cuozzo did not decide whether CBM status was a limit on invalidation authority under § 18, and did not decide whether the final decision can be reviewed for compliance with a limitation on invalidation authority. Rather, Cuozzo only considered review of the initiation decision at the time the final is appealed, he explained, not whether the final decision breached a limit on invalidation authority.
Judge Hughes strongly disagreed with this conclusion, although he agreed with the result of the case. Section 324(e) unambiguously bars judicial review, and the majority’s conclusion is in direct conflict with Cuozzo, he wrote.
CBM Patent and Patent Eligibility Issues
On the merits, the Court agreed with the PTAB that Versata patent satisfied the definition of a “covered business method” patent as directed to method used in a “financial product or service.” Reviewing the text and legislative history of the statute, the Court concluded that the scope of Section 18 is not limited to products and services of only the financial industry. Judge Plager noted particularly the general concern in Congress regarding litigation abuses over business method patents as a factor that led to the creation of a special program for these patents in the first place.
Nor did the Court find the patent to come under the statute’s exception for “technological inventions.” Judge Plager acknowledged that the statute provides no definition of the term and that the agency’s rules offer little help in that they provide a circular definition. Instead, the Court accepted the PTAB’s understanding of the invention as basically a method of determining a price, which could be done in any computer with no special software or equipment. This was sufficient to conclude that the patent does not solve a technical problem using a technical solution, the Court concluded.
Finally, the Court agreed with the PTAB that patent eligibility under Section 101 is a permissible ground for invalidation in a post grant and CBM proceeding. While that ground is not specifically mentioned in the statute, Federal Circuit and Supreme Court opinions have established that Section 101 challenges constitute validity and patentability challenges. Any other conclusion would require “a hyper-technical adherence to form rather than an understanding of substance,” Judge Plager wrote.
The PTAB’s decision of patent ineligibility was affirmed.
How will these two Federal Circuit decisions affect your Patents?
Note: The Cuozzo and Versata Decisions are a courtesy of American Intellectual Property Law Association (AIPLA).