Industry Reaction: Supreme Court upholds Federal Circuit in Cuozzo

On June 20th, the U.S. Supreme Court handed down a decision in Cuozzo Speed Technologies, LLC v. Lee, which may not have wide-reaching implications on the U.S. patent landscape but will nonetheless be troubling to patent owners. In a unanimous 8-0 decision, the court upheld the ability of the Patent Trial and Appeal Board (PTAB) to apply the broadest reasonable interpretation (BRI) of patent claims during an inter partes review (IPR) proceeding. It also declared that PTAB’s use of the IPR system was not judicially reviewable.

As Cuozzo has taken the road towards the Supreme Court, we here at IPWatchdog have been following the story with expert opinions on the matter both prior to oral arguments and after oral arguments were presented to the court. Today, we look to take an account of reactions to the day’s decision from many experienced voices from across the patent industry.

From the highest echelons of the U.S. patent system, the day’s decision was heralded for keeping the legal administrative duties of PTAB intact. An official statement from Michelle Lee, director of the U.S. Patent and Trademark Office, reads: “The USPTO appreciates the Supreme Court’s decision which will allow the Patent Trial and Appeal Board (PTAB) to maintain its vital mission of effectively and efficiently resolving patentability disputes while providing faster, less expensive alternatives to district court litigation.

In truth, the Supreme Court’s decision does lend some clarity to the role of PTAB and how it is implementing its duties since it was established by the America Invents Act of 2011. This was noted in a statement made by Gerard Donovan, senior associate of the Intellectual Property Group at Reed Smith: “In the almost four years that the Cuozzo IPR wound its way to the Supreme Court, the unresolved questions over the application of the broadest reasonable construction standard loomed large over pending reviews. With its ruling today, the Supreme Court has given stakeholders valuable certainty by clarifying that claims should be given their broadest reasonable construction in IPRs.”

The question of which stakeholders stand to gain the most, however, leads to an answer that may be troubling to those who have seen PTAB activities as negatively affecting the American patent system. “This is obviously a victory for some who challenge a patent’s validity in IPR proceedings since broadly construed claims are more vulnerable to attack than narrowly construed claims,” remarked Scott Daniels, partner at Westerman Hattori Daniels & Adrian, LLP. “Still, the great majority of IPR decisions do not turn on claim construction and for those cases Cuozzo simply makes no difference.”

To recap some important information involved in Cuozzo v. Lee with which some readers might be unfamiliar, inventor Giuseppe Cuozzo was issued U.S. Patent No. 6778074, entitled Speed Limit Indicator and Method for Displaying Speed and the Relevant Speed Limit, in August 2004. It protects a speed limit indicator for an automobile which can determine speed limits on local roads and display that speed limit on a speedometer overlay so that a driver can obey local speed limits without having to search for signs, increasing distractions on the road. In 2012, a petition for IPR proceedings on the ‘074 patent was filed by multinational tech company Garmin (NASDAQ:GRMN) which specifically challenged claim 17 of the ‘074 patent as unpatentable under prior art. PTAB extended this review to claims 10 and 14 of the ‘074 patent, arguing that they were related to claim 17 and thus implicitly challenged by Garmin. All three claims were cancelled.

Cuozzo’s argument on appeal to the U.S. Court of Appeals for the Federal Circuit (C.A.F.C.) was that PTAB improperly instituted the IPR based on the implicit challenge claim. Cuozzo also argued that using BRI when construing claims was an improper interpretive standard. Both C.A.F.C. and the Supreme Court held that PTAB decisions to initiate IPR proceedings were final and non-reviewable, and that PTAB’s use of broadest reasonable construction regulations were lawful.

There’s no doubt that the Supreme Court’s decision in Cuozzo v. Lee strengthens the underpinnings of PTAB’s authority in the U.S. patent world. The decision proves the finality of PTAB decisions on the basis of Section 314 of U.S. patent code, the section which regards IPRs. This area of U.S. patent code clearly states that “the determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.” In the words of Adam Floyd, former PTAB judge and current partner at Dorsey & Whitney, “it is business as usual for AIA practitioners. This decision coupled with the PTAB’s high affirmance rate with the Federal Circuit (approximately 80 percent) suggest that the PTAB’s holdings are nearly untouchable.” Floyd did note that the Supreme Court’s Cuozzo decision leaves open the questions as to whether institution decisions could be appealed on constitutional grounds for lack of due process or for violations of the Administrative Procedure Act which could be argued if PTAB acted outside of its statutory jurisdiction.

That the Supreme Court’s decision suggests an utter finality to PTAB decisions to institute IPR proceedings must be seen as a negative result by many patent owners leery of the administrative review board. As we’ve covered in the past, 80 percent of all IPR petitions are instituted by PTAB and only three percent of IPR petitions which are instituted result in the patent remaining intact without any claims being cancelled.

The majority opinion penned by Supreme Court Justice Stephen G. Breyer did not share the same sentiment regarding ease of amendment in an IPR proceeding. Indeed, Justice Breyer’s writings demonstrate that he is under a couple of misunderstandings, albeit slight ones, of current U.S. patent law. In the opinion, Breyer states that the initial examination process before a patent is granted affords multiple opportunities for the amendment of claims: “But if the patent examiner rejects the claims… the applicant has the right to amend and resubmit the claim. And the examiner and applicant may repeat this process at least once more.” It could be argued that this statement misunderstands the patent prosecution process in which an examiner issues non-final rejections on claims and the applicant has one chance to amend before a final rejection might be issued. Of course, many patents go through multiple final rejections before issue, so Justice Breyer isn’t wrong that the process can be repeated but it is slightly misrepresented in his comments.

Breyer also seems to conflate the initial examination period with the IPR process, noting that amendments to claims can be made in either process. It’s not impossible to pursue claim amendments as the owner of a patent application during examination, as noted above. It is, however, very difficult to pursue claim amendments during IPR. In arguments reflected in Breyer’s written opinion, Cuozzo argued that only five of 86 motions to amend had been granted by PTAB have been granted through the end of June 2015. Compared to patent prosecution at the USPTO, a final rejection can be overcome by filing a request for continued examination and paying the appropriate fees; continue paying the fees, and you can continue amending the patent. At PTAB, the administrative board has the power to nix a patent owner’s ability to amend claims altogether, so to conflate IPR with initial examination is further proof of the Supreme Court’s misunderstanding of the patent landscape created by PTAB. Of course, in Breyer’s eyes, “these numbers may reflect the fact that no amendment could save the inventions at issue, i.e., that the patent should never have issued at all.” So it would seem that the “too many weak patents exist” argument still holds sway with SCOTUS.

“The Justices today showed awareness that constitutional challenges to IPRs are in play,” said Robert Greenspoon, founding member of Flachsbart & Greenspoon, LLC. This could have implications for appeals on a couple of court cases recently decided at the C.A.F.C., including Cooper v. Lee and MCM Portfolio LLC v. Hewlett-Packard Company, both of which question the constitutionality of review proceedings initiated after a patent has issued. The acknowledgment of a patent as “a valuable property right” in a dissent written by Justice Samuel Alito is at least some indication that the highest court in America wants to uphold patents as a property right. “The next thing to look for is whether Cooper v. Lee… now gets redistributed for conference before June 30th.”

“Cuozzo is a remarkable opinion for how narrow it is,” Greenspoon added, noting that the majority named two specific exemptions to the rules preventing appeal: constitutional challenges and ultra vires Section 112 challenges. “Namely, parties can appeal challenges to an institution decision going to the authority of the USPTO to conduct AIA proceedings at all, at least once appeal from a final written decision ripens.” The court’s ruling on BRI comes as very little shock to Greenspoon, who believes that an opposite ruling wouldn’t have changed matters after the federal government conceded during oral arguments that PTAB uses prosecution history within its BRI analysis. “Practitioners already knew this to be the reality on the ground,” he said. “So that part was underwhelming, and perhaps even unimportant.”

Brad Olson of Barnes & Thornburg in Washington, DC believes that the Cuozzo opinion will place a higher burden on all patentees who intend to attempt to enforce their patent rights and find themselves defending that same patent in an inter partes review (IPR) procedure. Olson also noted that, while SCOTUS upheld the finality of PTAB’s decisions on instituting IPRs, “the majority had to take a light touch in finding that Mead/Chevron applies by its affirmance of the substantive rulemaking authority of the Patent Office in its use of the BRI standard to claims under review in an IPR,” Olson said. Of more importance to Olson was the majority’s belief that the ability of a patent owner to file a single motion to amend was sufficient to permit an otherwise examination-based claim standard to be used in a procedure intended as a substitute to U.S. district courts. “Going forward, it will be much more difficult for patentees to maintain meaningful patent claim scope in view of the application of the BRI standard in IPRs, CBMs, and likely in PGR proceedings,” he said. “Perhaps a legislative solution seems warranted to address the building tension between applying the BRI standard to patent claims in an IPR setting in direct contrast with the ‘plain and ordinary meaning’ of the Phillips standard applied patent claims in the Article III courts and before the ITC.”

Meanwhile, Robert Stoll, former Commissioner for Patents at the USPTO and current partner with Drinker Biddle, was not surprised by the decision but did say that he thinks at least one amendment should be ordinarily granted as a matter of right. “The Office should more liberally allow for amendments in IPRs as intended by the AIA,” Stoll explained.  “The first amendment should usually be entered if it further limits the claims and doesn’t introduce 112 issues.”

Regardless of the ability (or lack thereof) to amend, the use of BRI in PTAB trials creates a situation in which two very different standards are in use in trial proceedings regarding patent validity. In U.S. district courts, a very narrow interpretation of the claims is in use. Although claim construction isn’t a major issue in most cases regarding patent validity, it does raise an issue of possible venue shopping in those cases where claim construction is at play.

“My take from the time of cert. was that, much like the Microsoft v. i4i case, the BRI aspect of the case was just about the Court weighing in on an issue that was long debated,” said Scott McKeown, partner at Oblon, McClelland, Maier & Neustadt, LLP. To McKeown, the major backdrop to the case was whether forty years of patent reexamination or one hundred years in patent interference was too significant to sweep under the rug, a point which he said was brought up in an amicus brief filed by Unified Patents in this case. “I was pleased to see Justice Breyer walk down all of these issues in a like manner,” he said, noting that BRI is not a new subject in adversarial PTO proceedings. “Despite the best efforts of Cuozzo and his amici to advance their ‘alternative to litigation’ mantra, the Court shrugged that off as baseless,” McKeown said. “With this favorite attack platform gone, any significant modification to PTAB practice will have to come from Congress.” It is worth noting that McKeown has all along accurately predicted the outcome of the Cuozzo decision.

At the end of the day, the Court’s decision in Cuozzo v. Lee has less to do with patent law than it does with administrative law. “I think that the Court’s opinion shows how dangerous it is to be blinded by patent law,” said Matt Levy, patent counsel at the Computer & Communication Industry Association (CCIA). He noted that more general areas of law, like administrative law, still apply to these cases. “In the end, as I predicted, the Court treated this as a fairly straightforward law case,” Levy added. “Even if one thinks the PTO should have used a different standard of claim construction, it’s very difficult to argue that they chose an unreasonable one.”

Levy, who was similarly dead on accurate with his predictions, raises an important point that so many in the patent community who were rooting for Cuozzo failed to keep in mind. Those challenging the action of an agency face a substantial uphill battle when they seek a judicial determination overriding agency rulemaking and statutory implementation.

Perhaps the best summary of the days events from the patent owner perspective came from Finjan Holdings President and CEO Phil Hartstein. Hartstein expressed unease by the fact that two conflicting standards will continue to exist depending upon whether the forum of the challenge is a federal courtroom or in the PTAB at the USPTO, but noted “for our licensing program it means that there can be no secondary challenges to more than 40 IPRs on a statutory grounds.” So for those who have prevailed in an IPR the Supreme Court decision will not open up a can of worms, which is undoubtedly good news for patent owners like Finjan that have been so successful in IPR proceedings.

Now we wait to see if the Supreme Court accepts Cooper v. Lee and MCM Portfolio v. HP, both which ask the court to consider the constitutionality of inter partes review.

UPDATED Monday, June 20, 2016, at 9:49pm ET, adding comments by Phil Hartstein. 

UPDATED Monday, June 20, 2016, at 9:52:pm ET, to properly reflect that McKeown filed a brief on behalf of Unified Patents.