U.S. Supreme Court Validates Inter Partes Review, Eliminates PTAB’s “Partial” Institution Practice

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By: Peter Schechter


The Supreme Court issued two decisions on April 24, 2018 that significantly affect litigation strategies for both patent owners and accused infringers in the United States.

In Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, the Court approved constitutionality of inter partes review (IPR) and, by implication, the entire system of post-grant validity challenges, including post-grant review (PGR), and covered business method review (CBMR).  All of these procedures were created by The Leahy-Smith America Invents Act (AIA), which became law on September 16, 2012.  By further implication, the decision even validates more traditional USPTO reexamination as a valid exercise of administrative agency authority.  The Supreme Court held that, unlike ordinary private property rights, patent rights may be revoked by an administrative agency, namely, the US Patent and Trademark Office.

To the relief of many practitioners, the USPTO’s remedial mechanisms for challenging validity of patents will remain available as an alternative to much more expensive US federal court litigation.  The Oil States decision is rightly viewed as a victory for accused infringers and other patent challengers.

The Court reasoned that the grant of a patent falls within the public-rights doctrine of US law, and further that patents are “public franchises” according to controlling mid-19th century Supreme Court precedent.  Thus, patents are not treated as ordinary private property, and are not accorded the same constitutional protections and safeguards as private property.  Consequently, government bodies other than constitutional Article III courts may revoke US patents.

The Supreme Court’s decision was not unanimous.  Its newest member, Justice Gorsuch, filed a dissenting opinion asserting that the USPTO does not have the authority to revoke patents after it has decided to grant them.  The dissenting opinion was joined by Chief Justice Roberts, resulting in a 7-2 decision.  In addition, the majority opinion left open many other possible avenues of constitutional challenge to the entire post-grant review system, particularly noting that “retroactive” application of such procedures to patents granted before enactment of the AIA was not raised as a potential violation of constitutional Due Process.  It can be expected that this and other grounds of constitutional challenge will someday be presented to, and decided by, the US Supreme Court.

In SAS Inst. Inc. v. Iancu, the Supreme Court eliminated the Patent Trial and Appeal Board’s (PTAB) current practice of “partial institution” of an IPR “trial.”  Until SAS, the PTAB limited the scope of an IPR “trial” and, more importantly, the scope of its final written decision to only the challenged patent claims for which the PTAB previously decided – in a “partial institution” decision—that a threshold showing of unpatentability had been presented by the petitioner.  The portion of the AIA establishing IPR states that the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” The Supreme Court ruled that this plain language is mandatory and cannot be read as allowing partial institution at the discretion of the PTAB, and accordingly that a final written decision must deal with every claim challenged by the petitioner.

While many practitioners also hail this decision as a victory for accused infringers and other patent challengers, it is far from clear how the PTAB will modify its procedures to comply with the decision.  It is possible that the SAS decision will be a good example of the saying “be careful what you wish for.”  As we pointed out in a previous newsletter article, a requirement that all claims challenged in an IPR petition must be included in a final written decision would make IPRs both more and less attractive to potential petitioners, at the same time and for different reasons.  While the IP media world is abuzz with reasons why the SAS decision is bad for patent owners, we do not share those views, generally speaking, at Osha Liang, as now explained.

First, some assert that in the absence of partial institution decisions, patent owners will have more difficulty having stays of district court litigation lifted during IPRs.  In our experience, it was the extremely rare exception rather than the rule that a partial institution decision convinced a US district judge to lift a stay.  One thing federal court judges dislike even more than patent litigation is piecemeal patent litigation.  This supposed harm to patent owners is completely and solely theoretical, in our view, and not borne out by real world litigation events.

Second, it is being asserted that the binary “yes/no” institution decision now required by the Supreme Court’s SAS decision creates a disincentive a patent owner’s submission of testimonial evidence along with the optional Patent Owner Preliminary Response (POPR) to the challenger’s petition.  However, the PTAB’s rules already provide an even stronger disincentive: any material disputes (such as between competing expert opinions) are automatically resolved in the petitioner’s favor, at the institution stage of the proceeding under 37 CFR § 42.108(c) (“a genuine issue of material fact created by such testimonial evidence will be viewed in the light most favorable to the petitioner solely for purposes of deciding whether to institute an inter partes review.”)  PTAB statistics on institution rates clearly demonstrate that IPR trial institution rates have not been significantly affected by patent owners filing testimonial evidence with the optional POPR.  This supposed “loss” for patent owners as a result of the SAS decision is illusory, as well, in our experience.

Another asserted negative consequence for patent owners is that a PTAB institution decision may now rest on analysis of a single (and presumably the broadest) challenged claim.  While this is true, it substantially increases the post-institution workload for both parties to the IPR proceeding and, more importantly, for the PTAB itself.  It is not yet known how the PTAB’s institution practice will be modified to comply with SAS decision, and it is certainly possible that not much at all will change, at least as far as the substantive analysis of the institution decision is concerned.

There are at least several possible ways that the PTAB might modify its rules and procedures, and not all will be viewed as a loss for patent owners or a victory for petitioners.  First, it is now clear that every patent claim challenged by a petitioner will be included in the PTAB’s final written decision, giving maximum effect to the AIA’s estoppel provisions limiting or precluding subsequent validity challenges in federal district court litigation.  Until the SAS decision, challenged claims for which IPR trial was not instituted were not subject to any estoppel, according to case law that has been more fully developed during the pendency of the SAS litigation, and which is now essentially irrelevant.  In our view, this is the single most important consequence of the Supreme Court’s SAS decision, applicable to every single IPR proceeding, and it is a clear victory for patent owners.

Second, there is nothing in the SAS decision that compels the PTAB to substantively examine every challenged claim beyond the petition stage of the proceeding.  Thus, the post-institution phase may well continue to be limited to only those patent claims for which the PTAB decides that a threshold showing of unpatentability has been presented during the preliminary phase of the IPR proceeding, with the final written decision merely stating that the petitioner did not meet its burden of proof as the other challenged claims.  This approach would greatly expand the estoppel effect of IPRs, would provide the petitioner with an appropriate avenue of appeal of the PTAB’s institution order, would satisfy the Supreme Court’s requirements set forth in the SAS decision, all the while not requiring much change to the PTAB’s current way of handling IPRs.  If this approach is adopted, patent challengers will need to think long and hard about asserting any but the strongest validity challenges in IPR proceedings, notwithstanding all of the benefits and advantages of challenging validity in the PTAB rather than in federal district court litigation.

The SAS decision was also not a unanimous one either, and in fact was decided 5-4 by the Court.  The split decision reflects an ideological divide among and between the nine Supreme Court justices as to the proper role of agency rulemaking and the deference owed, if any, to the agency’s interpretation of the federal statutes under which it operates.


BREAKING NEWS: The USPTO has just issued a document titled “Guidance on the impact of SAS on AIA trial proceedings (Release date: April 26, 2018).”  Beyond stating that PTAB will comply with the holding of SAS and that every challenged claim will be addressed in any IPR trial in which trial of one claim has been instituted, very little in the way of actual guidance is provided.  Substantive and scheduling adjustments to pending cases already instituted will be made on a case-by-case basis, with heavy reliance on the parties themselves to negotiate how best to do so.  Left unanswered are important questions including, but not limited to: (1) will institution decisions continue to address all challenges raised by the petitioner; (2) if the answer to question 1 is “yes,” will PTAB make any distinctions between the various challenges raised, including any that are clearly insufficient or even frivolous; and (3) if the answer to question 1 is “no,” will patent owners be forced to expend valuable “word count” dealing with every frivolous challenge raised by a petitioner, at the expense of adequately and effectively dealing with challenges that are at least reasonable?  The Guidance document may be found on the USPTO’s website.