Inventors Sound Off in Reply to Big Tech NHK-Fintiv Suit

By Eileen McDermott
October 29, 2020

“Without rules, US Inventor is temporarily forced to advise its members that not participating in the U.S. patent system, reducing investments in inventing, and/or to keeping their inventions secret may now (solely because of AIA trial reviews) be the best way forward for their situation.” – Josh Malone

In August, Apple, Google, Cisco and Intel filed a lawsuit against the U.S. Patent and Trademark Office (USPTO) in the Northern District of California challenging the Patent Trial and Appeal Board’s (PTAB’s) adoption of the NHK-Fintiv discretionary denial framework as procedurally invalid under the Administrative Procedures Act (APA), and arguing that the PTAB’s application of them violates the America Invents Act (AIA). Shortly after, a number of “Small Business Inventors” (US Inventor; 360 Heros, Inc.; Larry Golden; World Source Enterprises, LLC; Dareltech LLC; Tinnus Enterprises, LLC; Clearplay, Inc.; and E-Watch, Inc.) filed a Notice of Motion and Motion to Intervene and related Complaint in the case. Now, US Inventor has filed its reply brief, in which it contends that “AIA trial reviews have stifled innovation, crushed inventor morale, and created a lopsided process whose use alone (irrespective of individual merits) can destroy innovative businesses”. The organization is asking the court to enter a temporary restraining order and preliminary injunction in order to preserve “the one lifeline giving any hope of escaping this ongoing catastrophe for American innovation and fair competition.”

Duty Unfulfilled

The reply explains that USPTO Director Andrei Iancu has not fulfilled “his statutory mandate to preserve that lifeline through APA rulemaking.” While a “Request for Comments” was published in the Federal Register on October 20, US Inventor says that “is not even a half-measure.” The brief adds:

It does not start rulemaking under the APA. History shows that Requests for Comment are often on topics that die on the vine without publication of regulations for notice-and-comment. E.g., https://www.uspto.gov/ippolicy/patent-policy/public-comments-patent-small-claims proceedings-united-states (2013 comments on a small claims court for patents).

While the tech companies are arguing that adoption of the discretionary denial factors is in violation of the APA, US Inventor is seeking to enhance the ability of the Director to deny institution, in part by promulgating rules preserving and enhancing NHK-Fintiv discretion, rather than eliminating it. The proposed intervenors are therefore requesting relief in the form of a preliminary and permanent injunction against the Director “from granting institution in any AIA patent trial pending completion of compelled rulemaking (at which point properly promulgated rules will govern Board panel institutions and adjudications).”

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Likelihood of Success

The Director and the Plaintiffs both argue against US Inventor’s likelihood of success. The Director argues that US Inventor’s Petition for Rulemaking remains pending and it therefore has not exhausted administrative remedies; that US Inventor’s motion is outside the six-year statute of limitations to bring a claim under the APA; that the Director already complied with the statutory obligation to promulgate rules eight years ago; and that “notice-and-comment rulemaking does not apply to discretionary factors for institution because of the exception under 5 U.S.C. § 553(b)(3)(A).” This section sets out what a notice of proposed rulemaking must include, but indicates that the relevant subsection does not apply to “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.”

The plaintiffs cite many of the same arguments as the Director, and also claim that the Small Business Inventors’ success “depends on the unfounded assumption that any rulemaking would yield the specific rules US Inventor favors.”

US Inventor attacks each of these arguments, explaining that they misstate or misunderstand the grounds for the motion. Section 316(a)(2) of the patent code says that the Director shall prescribe regulations “setting forth the standards for the showing of sufficient grounds to institute a review under section 314(a),” which the reply brief argues the Director has not done. The existence of US Inventor’s Petition for Rulemaking merely shows “how low the burden will be on the Director to complete prompt rulemaking once the Court issues preliminary relief,” adds the brief.

US Inventor also argues that the statute of limitations for bringing an APA claim runs from “the later of final adoption of an agency action, or the adverse application of the action against the claimant” and that discretionary “standards” did not come into existence until the Director began making “precedential” designations in October 2017. Additionally, “an adverse application of the failure to promulgate notice-and-comment rules renews each time a US Inventor member is served with an AIA trial petition,” and there are four examples from this year of such petitions.

As to the Director’s argument that the rulemaking from eight years ago satisfied his obligations under 37 C.F.R. § 42.108, US Inventor explains that this rulemaking only addressed part of what is required—namely, the reasonable likelihood standard. Discretionary factors are not addressed, and therefore the rulemaking is incomplete.

The brief also rejects the notion that the discretionary factors constitute “general statements of policy” that are non-binding. The precedential designation represents “binding Board authority in subsequent matters involving similar facts or issues” under the Standard Operating Procedure 2 and therefore are not subject to the exception under 5 U.S.C. § 553(b)(3)(A), says the brief.

As to the plaintiffs’ contention that US Inventor is seeking rules only in the sense that they would favor US Inventors’ members, the brief explains:

US Inventor seeks lawful rules (whatever their content might be) because the notice-and-comment process will take into account statutory factors for the first time under 35 U.S.C. § 316(b). US Inventor also seeks lawful rules (even if they simply repeat what is in the current precedential decisions) because today’s precedential designations are unstable. A Director can remove or de-designate at any time without notice. By contrast, after notice-and-comment promulgation of APA rules, no present or future Director could lawfully rescind them by fiat. In short, US Inventor’s Count I carefully seeks properly-confined relief—compelling the withheld agency action to happen, without the Court dictating what the final result will be.

Irreparable Harm

As to the Director’s and the Plaintiffs’ arguments that US Inventor has not proven irreparable harm, the brief says that patentee members of US Inventor cannot “predictably rely on the present binding discretionary factors to seek a non-institution outcome, or alternatively to recognize unavailability of discretionary denial,” and cites US Inventor Policy Director Josh Malone, who explained that “[w]ithout rules, US Inventor is temporarily forced to advise its members that not participating in the U.S. patent system, reducing investments in inventing, and/or to keeping their inventions secret may now (solely because of AIA trial reviews) be the best way forward for their situation.” While the Director argues that being compelled to participate in adjudication does not constitute irreparable injury, US Inventor notes that the injury to its membership “includes imminent preliminary response deadlines where the patentees stand ready to explain why discretion should lead to denial, but lack necessary tools to do so absent notice-and comment rules.”

The tech companies further argue that the irreparable harm to US Inventor is speculative, and that US Inventor unduly delayed seeking equitable relief. But it is the existing rules against which irreparable harm should be measured, says the brief, and the plaintiffs have not attempted to counter US Inventor’s evidence that the current framework results in unfavorable outcomes for its membership. As to delay, US Inventor explains that “the tipping point” for the present motion was with the Federal Circuit’s decision in Facebook v. Windy City Innovations:

Before then, no one knew whether the Federal Circuit would leave intact the original panel ruling that the Director’s “precedential” decisions did not constitute notice-and-comment rulemaking, and that “[t]here is no indication in the statute that Congress . . . intended [the Director] to engage in any rulemaking other than through the mechanism of prescribing regulations….” This hot-off-the-presses reaffirmation was an essential argument point in US Inventor’s motion. [citations omitted]

This was the breaking point after years of Board decisions that resulted in “injurious inconsistency and unclarity over time,” which is in line with Ninth Circuit precedent that “when alleged injuries result from acts taken ‘over a period of time and having a cumulative impact . . ., the magnitude of the potential harm becomes apparent gradually, undermining any inference that the plaintiff was ‘sleeping on its rights….’ Thus, “waiting to file for preliminary relief until a credible case for irreparable harm can be made is prudent rather than dilatory [such that] a prudent delay in determining irreparable harm may become so small as to disappear.”

Pre-AIA Status Quo

Ultimately, US Inventor’s reply calls for a nationwide injunction on AIA trials—i.e. that the Director “engage solely in denials of new petitions (absent consent), to preserve the status quo” prior to AIA trial reviews being conducted in the absence of proper rulemaking on discretionary factors—pending the promulgation of lawful rules, and argues that “injury to US Inventor’s membership is representative of the injury all patent owners sustain from having to argue against AIA trial institution without the critical information Congress said the Director must provide to enable fair access to the patent system.”

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The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 6 Comments comments. Join the discussion.

  1. CHARLES ROSCOE October 29, 2020 2:53 pm

    PTAB is illegal because it denies Due Process under the law. PTAB must be eliminated and all patents voided and stolen restored with triple damages to the original inventor(s)!

  2. CHARLES ROSCOE October 29, 2020 2:54 pm

    Where is my comment?

  3. Pro Say October 29, 2020 3:19 pm

    U.S. Inventor has the better argument — by far.

    In the name of the Rule of Law — and for the sake of all of American innovation — may the Court agree.

  4. CHARLES ROSCOE October 29, 2020 4:03 pm

    Why am I notified about comments that do not appear here?

  5. Anon October 29, 2020 7:50 pm

    Mr. Roscoe – please be aware that comments on this site – especially for new posters — are not instantaneous.

    Welcome to the blog. But let’s please not make over the top statements that indicate that you do not understand the legal terms that you are using.

  6. Martin Nguyen October 30, 2020 12:52 pm

    As I made my comment on a recent IPWatchdog post that AIA must be removed immediately. it only helps foreign companies and troubles or slows down the US economy.

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