The Dwindling Usefulness of AIA Post Grant Review

By Peter Schechter

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Recent changes to procedures of the Patent Trial and Appeal Board of the USPTO, coupled with decisions of both the United States Supreme Court and the Court of Appeals for the Federal Circuit, have diminished both the usefulness and desirability of challenging patent validity in a Post Grant Review (PGR) proceeding.  PGR’s usefulness has dwindled due to: (1) increased legal fees, out-of-pocket costs, and complexity; (2) greatly increased scope of litigation estoppel; (3) PTAB’s increasing use of “discretionary denials” of institution of “trial” of the challenged patent claims; (4) PTAB’s virtually unappealable denials of institution of trial on any basis, whether or not legally correct or authorized by the AIA; and (5) increasing prevalence of dual-track validity challenges pending simultaneously in the PTAB and federal district courts.

The Post Grant Review (PGR) proceeding implemented in 2012 by Congress’ enactment of the America Invents Act (AIA) was a response to concerns that USPTO was allowing and issuing too many “weak” patents and the frustration with characteristics of patent validity challenges in United States federal court litigation including nearly unlimited fact and expert discovery, increased time and legal fees and out-of-pocket costs.  In the last few years, changes to administrative rules and procedures of the Patent Trial and Appeal Board (PTAB) of the USPTO, coupled with decisions of both the United States Supreme Court and the Court of Appeals for the Federal Circuit (CAFC), have diminished both the usefulness and desirability of challenging patent validity in a PGR.

More specifically, PGR’s usefulness has dwindled in recent times due to: (1) increased legal fees, out-of-pocket costs, and complexity of the PGR proceeding; (2) the greatly increased scope of litigation estoppel; (3) PTAB’s increasing use of “discretionary denials” of institution of “trial” of the challenged patent claims; (4) PTAB’s virtually unfettered and unappealable denials of institution of trial on any basis, whether or not legally correct or authorized by the AIA; and (5) the absence of an “automatic stay” of federal court patent litigation during PGR and the district courts’ increasing refusal to grant discretionary stays of litigation, resulting in dual-track validity challenges pending simultaneously in the PTAB and federal courts.

Increased legal fees, costs, and complexity

Originally envisaged as a faster, simpler, less complex, and less costly procedure for ridding the landscape of poor quality and otherwise invalid patents, a series of rules changes and court decisions have undercut this notion in a number of important ways.  Most directly, the number of papers filed throughout the PGR proceeding, both required and optional, has increased over time and every paper that is filed incurs additional attorneys’ fees.  Permitted reply briefs and sur-reply briefs (all typically accompanied by submission of additional expert declarations), additional procedures of increased complexity concerning patent owners’ proposed claim amendments, increased possibilities for additional deposition discovery, heightened requirements for reliance on NPL (non-patent literature) prior art, and additional requirements for filing multiple petitions, just to name a few, all have contributed to a substantial increase in the overall cost and complexity of current PGR proceedings when compared with the process as first implemented in 2012.

Scope of litigation estoppel

If a PGR results in a final written decision, litigation estoppel applies to prevent the petitioner from subsequently asserting in federal court litigation “that the [patent] claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review.”  35 U.S.C. § 325(e)(2).  The possible grounds of validity challenge are those based on 35 U.S.C. §§ 101 (statutory subject matter), 102 (novelty), 103 (obviousness), 112 (written description, enablement, definiteness), and also rely on public use prior art — the same invalidity grounds that are available in federal court litigation.

In 2016, the CAFC decided that the scope of litigation estoppel following the related AIA validity challenge of Inter Partes Review was limited to grounds and challenged claims actually litigated in an instituted proceeding.  Stated differently, estoppel did not extend to “non-instituted grounds” of challenge.  This precedent had the effect of limiting the negative impact statutory AIA estoppel on petitioners.  In 2016, however, it was PTAB’s practice to pick and choose which one or ones of the petitioner’s asserted grounds of challenge it would institute for trial.

In 2018, the U.S. Supreme Court decided that the PTAB could not continue its practice of “partial institution.”[1]  This has been subsequently interpreted as requiring “all or nothing” institution, meaning that PTAB must either address all challenged patent claims on all grounds raised in the petition, or deny the petition in its entirety.  As a result, a majority of federal district courts that have since considered the scope of AIA estoppel have concluded that, in view of the SAS case and its implications, the statutory phrase “or reasonably could have raised” must refer to non-instituted, including non-asserted, grounds of challenge, if it is to have any meaning at all.

Because a PGR petitioner may raise grounds of challenge under any of the same legal theories as are available in federal district court litigation, the necessary consequence is that the petitioner essentially forfeits all of the same defenses in federal court after the PTAB issues a final written decision in the PGR.  While this may make some superficial sense with respect to challenges under Sections 101 and 112, it makes far less sense under Sections 102 and 103, both of which are highly fact intensive and best presented to a factfinder or tribunal after at least some discovery has been conducted.

Another issue concerns whether a challenger “could have” known of a prior art reference when it filed its PGR petition.  In a recent district court decision, the court held that the fact that the defendant found a prior art reference after conclusion of the PGR is evidence nearly rising to the level of “proof” that the prior art reference could have been discovered before the PGR petition was filed.  The circumstances that might support a contrary conclusion are narrow and disappearing over time.

Given the strict requirements of the content of a PGR petition, and the prohibition of incorporation by reference into the petition from other documents (such as expert reports), and the petition word-count limit of 18,700, one must carefully weigh whether it is even possible, let alone desirable, to present every available patent challenge in such a restricted and limited document, in view of the near-complete post-PGR estoppel consequences.

Discretionary denials of institution

The PTAB has always had discretion to deny institution of AIA PGR petitions, as 35 U.S.C. § 324(a) states that “[t]he Director may not authorize a post-grant review to be instituted unless …,” but does not state that the Director must grant institution under any circumstances, even including a petitioner’s filing of an entirely proper petition.  The PTAB has used this discretionary authority to deny institution in a variety of circumstances including so-called “follow-on” petitions filed by the same petitioner, or when multiple petitioners challenge the same patent.

In the case of multiple proceedings, the PTAB considers: (1) whether the court granted a stay of litigation, or evidence exists that one may be granted if a proceeding is instituted; (2) proximity of the court’s trial date to PTAB’s projected statutory deadline for a final written decision; (3) investment in the parallel proceeding by the court and the parties; (4) overlap between issues raised in the petition and in the parallel proceeding; (5) whether the petitioner and the defendant in the parallel proceeding are the same party; and (6) other circumstances that impact the PTAB’s exercise of discretion, including the merits of the petition.

The PTAB further has discretion to deny institution of a petition under 35 U.S.C. § 325(d) by taking into account whether “the same or substantially the same prior art or arguments previously were presented to” the USPTO.  In this situation, PTAB weighs the following non-exclusive factors: (a) the similarities and material differences between the asserted art and the prior art involved during examination; (b) the cumulative nature of the asserted art and the prior art evaluated during examination; (c) the extent to which the asserted art was evaluated during examination, including whether the prior art was the basis for rejection; (d) the extent of the overlap between the arguments made during examination and the manner in which the petitioner relies on the prior art or the patent owner distinguishes the prior art; (e) whether the petitioner has pointed out sufficiently how the examiner erred in its evaluation of the asserted prior art; and (f) the extent to which additional evidence and facts presented in the petition warrant reconsideration of prior art or arguments.

By all accounts, discretionary denials under both 35 U.S.C. §§ 324(a) and 325(d) have been increasing in recent years, leading some observers to ask whether the PTAB is actively looking for ways to deny institution of otherwise proper petitions.  In any event, the number of possible bases for denial, and the list of factors to be considered, continue to grow.

Lack of appeal of denial of institution on any basis

In a series of cases decided in the last few years,[2] the U.S. Supreme Court (and CAFC following the Supreme Court rulings) has held that virtually no aspect of the PTAB’s institution decision is subject to appeal, whether administratively within the USPTO or in any court of law.  Even plainly incorrect institution denials holding that, for example, the petition is time-barred when it is clearly not, or that an incorrectly PTAB-determined “real party in interest” was not named, are not subject to appeal.  At least there is no statutory estoppel in this situation, as there is no final written decision issued after conclusion of the administrative proceeding.

Increasing prevalence of dual-track validity challenges

As already discussed, the PTAB has discretion to deny institution in view of pending district court litigation involving a validity challenge to the same patent.  District courts also have discretion to stay patent litigation pending the outcome of PGR proceedings.  The number of discretionary stays of litigation granted by district courts is declining, however.  One reason for this is the publicly stated position of United States District Judge Alan D. Albright of the U.S. District Court for the Western District of Texas, that a stay of litigation will rarely be granted in favor of a pending AIA proceeding because his court can adjudicate patent validity faster than can the PTAB, coupled with the growing percentage of new cases filed in that court.  (It should be noted that Judge Albright does not consider important the fact that in district court litigation, patent invalidity must be proven by clear and convincing evidence, while in PGR (and IPR) unpatentability is determined by a preponderance of the evidence, which is a significantly lower burden for the challenger.  “Faster” does not necessarily mean “better.”)  Thus, a stay of litigation pending the outcome of PGR (or any other AIA procedure, for that matter) is practically unavailable in the approximately twenty percent of all patent infringement cases filed in the United States in 2020, to date, as that is the percentage of all new infringement lawsuits filed in the Western District of Texas.  The percentage of new infringement cases filed in that one federal district court continues to rise and that increase is not expected to slow anytime soon.

Additional reasons to avoid use of PGR

In addition, the USPTO has proposed a rule change that, if adopted, will further diminish the desirability of filing a petition for PGR.  Specifically, under the current rule, 37 Code of Federal Regulations § 42.208(c), ‘‘a genuine issue of material fact created by [conflicting] testimonial [expert] evidence [submitted in the pre-institution phase] will be viewed in the light most favorable to the petitioner solely for purposes of deciding whether to institute [a] review.’’  In this way, PTAB ultimately decides which expert’s view should be adopted only after all parties have conducted appropriate discovery and briefing, after institution of the PGR trial phase.  The USPTO has proposed revising the rule to state: “The Board’s decision will take into account a patent owner preliminary response where such a response is filed, including any testimonial evidence.’’  In this situation, any opinion or statement made by a patent owner’s expert is essentially immune from challenge or critique by the petitioner or its expert at the institution stage, and such opinions and statements of the patent owner and its expert may be accepted and relied upon to deny institution of the PGR trial in its entirety, including any procedures for testing the veracity of such statements and opinions.  Such a denial of institution is, of course, completely immune from appeal.

Comments by interested members of the public have been submitted to the USPTO in response to the May 27, 2020 “Notice of proposed rulemaking” and opinion is divided on whether this change is wise or unwise.  Parties tending to side with patent owners like it, and parties tending to align with patent challengers do not, as would be expected, generally speaking.  The USPTO’s decision on this proposed amendment of 37 C.F.R. § 42.208(c) is expected soon, and if recent history of the USPTO’s shift toward favoring patent owners over patent challengers is any indication, the rule will be amended as proposed.

Conclusion

There are increasingly few scenarios in which filing a petition for Post Grant Review still makes sense for a potential patent challenger.  The known risks outweigh the potential benefits in nearly all circumstances except those in which the invalidity challenge is “a guaranteed winner” – which circumstances are as common as a unicorn or a “leprechaun’s pot of gold at the end of the rainbow.”

[The views expressed in this article are those of the author and do not necessarily reflect the views of Osha Liang LLP, generally.]

[1] SAS Inst., Inc. v. Iancu, 138 S.Ct. 1348, 1354 (2018).

[2] Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016); Thryv, Inc. v. Click-To-Call Technologies, LP, 140 S.Ct. 1367 (2020).

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