IPR Institution Guidelines Must Comply with Notice-and-Comment Rulemaking Procedures

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In Apple, Inc. v. Vidal, the U.S. Court of Appeals for the Federal Circuit recently held that the U.S. Patent and Trademark Office’s “Fintiv factors” guideline for deciding whether to institute inter partes review proceedings was not properly adopted in accordance with notice-and-comment rulemaking procedures required by the Administrative Procedure Act.   The Office is already moving toward formal rulemaking in compliance with applicable procedural requirements.

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In Apple, Inc. v. Vidal,[1] the U.S. Court of Appeals for the Federal Circuit (CAFC) recently held that the U.S. Patent and Trademark Office’s “Fintiv factors” guideline for deciding whether to institute inter partes review proceedings (IPR) was not properly adopted in accordance with notice-and-comment rulemaking procedures required by the Administrative Procedure Act, 5 U.S.C. § 553 (2018) (APA). The Office is already moving toward formal rulemaking in compliance with applicable procedural requirements.

We have previously reported on challenges to the Office’s use of the Fintiv factors when exercising its discretionary authority to deny institution of IPRs.[2] In one of the challenges, Apple sued the Office in the U.S. District Court for the Northern District of California alleging three separate grounds: (1) that the Fintiv guideline itself is contrary to the provisions of the Patent Act; (2) that the Fintiv instructions are arbitrary and capricious; and (3) that the Fintiv instructions were issued without compliance with the notice-and-comment rulemaking requirements of the APA.

In that suit, according to Apple, the Fintiv instructions issued by the Director to the Office’s Patent Trial and Appeal Board (PTAB) violated the APA because the instructions were not subject to the APA’s public notice-and-comment requirements. When a government agency such as the U.S. PTO intends to create a regulation regarding implementation of a federal statute, the APA requires the agency to publish a notice of proposed rulemaking in the Federal Register and solicit comments from general public. This process gives interested persons an opportunity to participate in rulemaking by allowing them to submit written data, views, or arguments, and may even include an opportunity for oral presentation. After the expiration of a set comment period, the agency publishes the final rule in the Federal Register accompanied by a concise statement of the rule’s basis and purpose with 30-day notice. In its lawsuit against the Office Director, Apple alleged, among other things, that the Director had not followed this required notice-and-comment procedure.

Apple also argued that the Fintiv instructions were contrary to the IPR provisions of the America Invents Act (AIA) because they encourage or even require denial of institution, and that the Director’s actions with respect to the Fintiv instructions were therefore also contrary to the Patent Statute. Additionally, Apple argued that the Fintiv instructions were not reasonable and were not reasonably explained, and that the Director’s adoption of the Fintiv instructions was therefore arbitrary and capricious in violation of the APA.

The district court dismissed Apple’s APA lawsuit, concluding that under the IPR provisions of the America Invents Act (AIA), the Director’s instructions are unreviewable. Apple appealed that dismissal to the Court of Appeals for the Federal Circuit.

During the pendency of Apple’s appeal, the Director revised the Fintiv instructions after undertaking the APA-required notice-and-comment process.  After receiving hundreds of comments, Director Vidal made several clarifications to the Fintiv instructions and effectively narrowed the scope of discretionary denial. In light of the most recent events, it is clear that those clarifications will be modified or replaced, as well.

On March 13, 2023, the CAFC reversed in part the district court’s dismissal of Apple’s complaint, holding that the Office did not comply with the rulemaking procedures required by the APA when the Director created the Fintiv factors guidance. The Court agreed with Apple that the PTO’s failure to follow the notice-and-comment requirement under 5 U.S.C. § 553 rendered the agency action procedurally defective and impermissible.

The Court of Appeals also held, however, that the Director’s instructions are substantively unreviewable on appeal and thus affirmed the district court’s dismissal Apple’s challenges that the Fintiv guidelines are either contrary to the Patent Statute or arbitrary and capricious. 

On April 20, 2023, the Office announced publication of an Advance Notice of Proposed Rulemaking (ANPRM) for potential PTAB reforms.[3] According to the announcement, the Office is soliciting comments regarding a range of proposals that relate to the rules the Director, and by delegation, the PTAB, will use in exercising discretion to institute inter partes reviews and post-grant reviews under 35 U.S.C. §§ 314(a), 324(a), and 325(d).[4] Among other things, the Office has identified the following “Key Areas of the Specific Proposals” for which comments are solicited:

-          Key Area 2: Enhance and build on existing precedent and guidance regarding exercise of Director’s discretion to determine whether to institute an AIA proceeding

-          Key Area 3: Provide threshold definitions that apply to one or more categories of petitions subject to discretionary denials, setting forth criteria used to determine “substantial relationship,” “substantial overlap,” and “compelling merits”

According to the ANPRM, and in addition to developing clearer threshold definitions as just noted, “[i]n order to create clear, predictable rules where possible, as opposed to balancing tests that decrease certainty, the USPTO is considering changes that would provide for discretionary denials of petitions in the following categories, subject to certain conditions and circumstances (and exceptions) as discussed further below:

1. Petitions filed by certain for-profit entities;

2. Petitions challenging under-resourced patent owner patents where the patentee has or is attempting to bring products to market;

3. Petitions challenging patent claims previously subject to a final adjudication upholding the patent claims against patentability challenges in district court or in post-grant proceedings before the USPTO;

4. Serial petitions;

5. Petitions raising previously addressed prior art or arguments (subject to the 35 U.S.C. 325(d) framework);

6. Parallel petitions; and

7. Petitions challenging patents subject to ongoing parallel litigation in district court.”

Finally, the Office is proposing five additional changes, as follows:

(1) absent exceptional circumstances, requiring petitioners to file a stipulation that neither they nor their privy or real parties have filed prior post-grant proceedings (PGRs, IPRs, CBMs or ex parte reexaminations) on the challenged claims; and that if their post-grant proceeding is instituted, neither they nor their privy or real parties in interest, will challenge any of the challenged claims in a subsequent post-grant proceeding (including PGRs, IPRs and ex parte reexamination);

(2) requiring petitioners to file a separate paper justifying multiple parallel petitions;

(3) allowing a potential payment of a fee to enhance the word-count limits for a petition to avoid multiple parallel petitions;

(4) providing for separate briefing on discretionary denial issues; and

(5) requiring filing of all settlement papers when the dismissal of AIA proceedings is sought, whether pre- or post-institution.

The Office is also considering creating a separate briefing process for addressing discretionary denial considerations under 35 U.S.C. 314(a), 324(a), and 325(d) so that briefing on discretionary denial does not encroach on the parties’ word-count limits for briefing on the merits.

For those interested in more background, and anyone wishing to submit comments, the Federal Register notice contains lengthy and detailed discussion of all issues raised by the proposed rulemaking. Written comments may be submitted until Tuesday, June 20, 2023. OBWB will report further developments when they happen. Should the Office adopt new rules and regulations concerning each of the areas noted in the April 21, 2023 Federal Register notice, it would constitute the most sweeping changes to AIA post-grant procedures since the initial set of rules was adopted soon after the America Invents Act was enacted.