“Under the status quo, neither the patentee nor the public is able to rely on judicial determination of an issue that might later be taken to the PTAB.”
Knowles Electronics LLC v. Cirrus Logic, Inc. (Knowles), decided on March 1, 2018, presented the Federal Circuit with an opportunity to address whether the Patent Trial and Appeals Board (PTAB) was precluded from construing a claim term that had already been construed by the court in a prior decision. The court let the opportunity go. In the preceding inter partes reexamination, the PTAB had taken the position that based on precedent, the PTO was not bound in reexamination proceedings by claim constructions produced by a court. The majority did not contradict the PTAB, a reflection perhaps of the fact that, given the difference in the method of claim construction between the PTO and the courts, the PTAB’s position was not wholly incorrect. In effect, the decision maintains the status quo that collateral estoppel does not arise in patent cases against the PTO.
The majority opinion prompted a strong dissent by Judge Newman, who began:
“I write in concern for perpetuation of the erroneous position that the PTAB need not apply the prior final judicial decision of the same issue of the same claims [i.e., issue preclusion] of the same patent. This error not only produces an incorrect result in this case, but will further impart uncertainty to proceedings under the America Invents Act. The purpose whereby the PTAB was created as an agency tribunal, in order to provide stable law and economical determination of patent validity, is negated when final adjudication in a court of last resort may be ignored, and the issue litigated afresh in the agency tribunal.” Knowles, Dissenting Op. at 1-2.
Judge Newman clarified that while precedent had previously addressed the effect of a prior district court claim construction on a subsequent PTO proceeding, a final claim construction by the Federal Circuit had never before been held not to be preclusive. Id. at 2. It must be noted, however, that the Federal Circuit has previously held the PTO not precluded by its own ruling on obviousness. See In re Construction Equipment Company, 665 F.3d 1254 (Fed. Cir. 2011) discussed below.
Under the status quo, neither the patentee nor the public is able to rely on judicial determination of an issue that might later be taken to the PTAB. Knowles, Dissenting Op. at 10. Should the differences in standards between the courts and the PTO for proving invalidity, which contribute to the status quo in a large measure, be allowed to continue? Or, should the policy objectives of judicial efficiency and repose be given effect to preserve the finality of judgement of a court of last resort? These questions have assumed added significance post-AIA since one of the purposes of AIA was to save time and cost. As for standards, courts give claims their customary meaning and require clear and convincing evidence to prove a patent invalid. On the other hand, the PTO gives claims their broadest reasonable interpretation (BRI) and requires a preponderance of evidence to prove invalidity. In her dissent, the judge urged the court to recognize the significant legal and economic consequences of conflict between judicial ruling and agency decision, in which patent life and investment resources are consumed in duplicate litigation with no reliable finality. Id.
Issue preclusion, also known as collateral estoppel, is a judicially-developed doctrine under which once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case. Allen v. McCurry, 449 U. S. 90 (1980). Likewise, under res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action. Id. The USPTO’s policy with respect to res judicata and collateral estoppel in reexamination proceedings is that claims finally held invalid by a federal court, after all appeals, are withdrawn from consideration and not reexamined during a reexamination proceeding. MPEP § 2259. The section further explains that res judicata based on court holding in infringement litigations is not applicable in reexamination proceedings since such litigations would not have involved the Office as a party. Id.
Turning briefly to the facts of Knowles, in this case Knowles Electronics, LLC appealed the PTAB’s inter partes reexamination decision affirming an examiner’s rejection of certain claims of U.S. Patent No. 6,781,231 (“the ’231 patent”). Only the rejection of claims 1-4 for anticipation is relevant here. The ’231 patent discloses microelectromechanical system (“MEMS”) packages comprising a substrate, a microphone, and a cover accommodating the microphone. The MEMS packages shield the microphone from an interference signal or an environmental condition and improve over the prior art’s drawbacks associated with manufacturing these housings, such as lead time, cost, and tooling.
In the reexamination proceeding, the PTAB had construed the term “package,” finding that under BRI, the term “may refer to chip assemblies that possess any type of second-level connection mechanism,” and was not limited to packages produced from Knowles’s two proposed mechanisms of forming second-level connections, namely, mounting using (i) a through-hole and (ii) a surface mount. PTAB Op. at 18-20. On appeal, Knowles contended that “package” should be construed to mean an assembly that “requires a second-level connection with a mounting mechanism.” Knowles, Maj. Op. at 6-7. After a detailed analysis of both intrinsic and extrinsic evidence, the Federal Circuit found the PTAB’s construction of “package” (not requiring a mounting mechanism) to be free of error. Id. at 6-11.
Importantly, the construction of the term had previously been decided by the Federal Circuit as a matter of law in MEMS Technology Berhad v. International Trade Commission, 447 F. App’x 142 (Fed. Cir. 2011) (MEMS Technology). In MEMS Technology, the Federal Circuit, on appeal of an ITC determination, had upheld the ITC’s construction of the term “package” to mean “a self contained unit that has two levels of connection, to the device and to a circuit (or other system),” reasoning that the requirement that the components listed in the claim body come together to form a mountable package is an important characteristic of the claimed invention. Id.at 10, (internal citations and quotation marks omitted). During appeal, Knowles argued also that the PTAB should have read MEMS Technology and concluded that a ‘package’ requires a ‘self-contained unit that must be mountable as it had an obligation to evaluate a previous judicial interpretation of disputed claims and to determine whether it is consistent with the BRI of the term. Id. at 9-10, (internal citations omitted). Although the difference between the two constructions appears small, the PTAB’s construction led claims 1–4 to be invalid as anticipated while the Federal Circuit’s construction did not. Knowles, Dissenting Op. at 9. The panel majority nonetheless concluded that there was no inconsistency between the two constructions since neither definition limited the two levels of connection to surface or through-hole mounting. Knowles, Maj. Op. at 11.
To understand the Federal Circuit’s approach for determining whether issue preclusion against the PTAB applies, it is instructive to take a close look at the court’s reasoning in two prior cases, namely, In re Trans Texas Holdings Corp., 498 F.3d 1290 (Fed. Cir. 2007) (“In re Trans Texas”) and In re Construction Equipment Company.
In In re Trans Texas, the court held that issue preclusion could not be applied against the PTO based on a district court holding in an infringement proceeding because the Office was not a party to the earlier infringement proceeding. In re Trans Texas at 1298. The infringement action was brought by Trans Texas against Pimco Advisors, L.P. in the district court in the Western district of Texas. The reexamination also was requested by Trans Texas based on a substantial new question of patentability. Subjecting the Office to preclusion would have required the court to apply non-mutual collateral estoppel under which issue preclusion applied even where the parties to the subsequent suit were not the same. Appellant Trans Texas had argued during reexamination that issue preclusion bound the Board to apply the district court’s claim construction, but the Board disagreed on the ground that a different claim construction standard applied in PTO proceedings.
In In re Construction, the court affirmed the Board’s finding following reexamination that the claims at issue of U.S. Patent No. 5,234,564 (“the ’564 patent”) were obvious over the prior art. The ’564 patent is owned by Construction Equipment Company (“CEC”). The reexamination was requested by Powerscreen International Distribution Ltd. (“Powerscreen”). In re Construction Maj. Op. at 3, n. 1. CEC had previously asserted the ’564 patent against Powerscreen and obtained an injunction against further infringement. Id. Obviousness had been finally adjudicated eleven years prior, when the Federal Circuit affirmed a district court’s ruling of nonobviousness of the ’564 patent based on some of the same references cited in the reexamination request. In re Construction Dissenting Op. at 1-2 and 8. Thus, through reexamination and a successful appeal, Powerscreen was able, in the second round, to get a reversal of outcome. Judge Newman contended strongly that reexamination of the obviousness issue was both unconstitutional and against the principles of res judicata and issue preclusion. It was unconstitutional, the judge noted, because the constitution places the judicial power in the courts whose judgments are not thereafter subject to revision or rejection; and was against the principles of res judicata and issue preclusion because the principles of litigation repose are violated by the reopening in an administrative agency of issues that were litigated to finality in judicial proceedings. Id. at 3-5.
The In re Construction majority disagreed, referring extensively to In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008) (“In re Swanson”). The majority stated that in that case, the court had found no error in the PTO’s holding that reexamination could be instituted on the strength of a reference that the requesting party had unsuccessfully asserted as prior art in litigation involving the same patent, even where the court had affirmed the district court’s judgment of validity. In re Construction Maj. Op. at 5, n. 3. The Swanson court explained that the district court had not judged the patent to be valid per se; only that the accused infringer had failed to carry his burden of proving the patent invalid by overcoming the presumption of validity with clear and convincing evidence. Quoting from past decisions, the court reminded that “[c]ourts do not find patents ‘valid,’ only that the patent challenger did not carry the ‘burden of establishing invalidity in the particular case before the court.”’ In re Swanson at 1377 (internal citations omitted; emphasis original). As such, a prior holding of validity was not necessarily inconsistent with a subsequent holding of invalidity (internal citation omitted), and was not binding on subsequent litigation or PTO reexaminations, the court added. Id. (internal citations omitted).
The marked inefficiency of the process leading up to and including Knowles is best summarized by Judge Newman’s observation that when judicial determination of a question of patentability had been completed, including appeal to and decision by the Federal Circuit, and the decision was ignored and the process repeated by the administrative agency and again appealed to the Federal Circuit; and where the Federal Circuit reached a contrary decision, the purposes of efficiency, economy, and finality of patent review were lost. Knowles, Dissenting Op. at 5. As long as differences between the courts and the PTO with respect to both the standard of proof and claim construction exist, and nonmutual collateral estoppel remains unavailable, one can expect inefficiencies of the likes seen in Knowles to continue.