In recent years, the US Patent Trial and Appeal Board has survived challenges to its legitimacy, weathering the storm posed by US v Arthrex alongside increasing opposition to its widespread application of the controversial NHK-Fintiv rule.

But these issues continue to cast a shadow.

The NHK-Fintiv rule continues to draw the ire of technology companies and generic drug makers, which argue that it unfairly restricts the ability to seek inter partes reviews (IPRs) of patents under the America Invents Act (AIA).

Apple, Google, Cisco, Intel, Mylan and Edwards Lifesciences have all challenged the rule in US courts, arguing that it promotes the existence and continuation of poor quality patents.

But the US Supreme Court has so far spurned these challenges, meting out a series of denials to Intel in March and Mylan and Apple in January.

Unveiled in 2020, the controversial rule dictates that the existence of a parallel district court lawsuit should preclude an IPR by the Patent Trial and Appeal Board (PTAB), promoting a sharp rise in denials of IPR petitions of patents over the past two years.

Background

Established under former US Patent and Trademark Office (USPTO) director Andrei Iancu, the rule derived from NHK Spring v Intri-Plex (2018) in which the PTAB held that the existence of a parallel district court lawsuit should preclude an IPR.

In May 2020, Apple v Fintiv outlined six scenarios for PTAB to consider before instituting a review, including the trial date in the parallel case, whether the court has stalled its case for the PTAB review, and any overlap between the issues in both proceedings.

The rule has exerted a marked effect: the board instituted reviews in 87% of all filed petitions during the first year of the PTAB’s review process in 2013, but this sunk to an all-time low of 56% in 2020, according to research carried out by Unified Patents.

Intel’s battle against the rule arose when it petitioned for the PTAB to conduct IPRs of patent claims that VLSI Technology had asserted in infringement litigation against Intel.

The board denied 12 of those IPR petitions based on the rule’s scenarios. Intel appealed the denials to the Federal Circuit and alternatively requested mandamus, arguing that the rule exceeds the director’s statutory authority and violates the Administrative Procedure Act.

But the Federal Circuit dismissed the appeal on the ground that 35 U.S.C. §314(d) bars judicial review of the PTAB’s IPR decisions and denied mandamus relief.

In its petition to SCOTUS filed on March 1 this year, Intel argued that: “Given the role Congress intended IPR to play in rebalancing the patent system, the Federal Circuit’s decision threatens the patent system’s ability to promote innovation and economic growth, as well as courts’ ability to enforce the legal boundaries of PTO actions and rules.”

It added that research has confirmed the harmful effects of the USPTO’s unlawful effort to constrict the availability of IPR, and that the Federal Circuit “continues to sanction that effort, to the patent system’s detriment”.

In October, Perkins Coie released findings showing that the PTAB’s references to the rule’s dictate of parallel litigation precluding reviews are often derived from inaccurate data as the trial dates are “almost always pushed back”.

Patent ‘rocket dockets’

Intel also contended that the rule has encouraged “abusive forum-shopping” by patent-infringement plaintiffs.

“Since the rule was adopted, the number of infringement suits filed in the Western and Eastern Districts of Texas—two jurisdictions widely recognised as patent ‘rocket dockets’—has increased dramatically, and correspondingly those suits have accounted for a whopping number of denials of IPR petitions under the rule,” argued the tech company in its petition. But SCOTUS rejected these arguments and refused to review the decisions.

At the start of the year, the court also dashed the hopes of both Apple and Mylan to secure a reversal of PTAB’s refusal to review patents owned by Optis Cellular Technology and Janssen Pharmaceutica, respectively.

Chris Israel, executive director of US Startups and Inventors for Jobs, welcomed the decisions as a boon for inventors and rights owners.

“The Supreme Court has indicated, for the second time this year, that the USPTO’s Fintiv rule is clearly within the statutory authority that Congress gave the office when enacting the America Invents Act (AIA) and is consistent with its intent,” he said.

IPRs, he argued, were intended to be an alternative to district court litigation to review a patent’s validity, not a duplicative tool for Big Tech companies to continuously attack valid patents held by their smaller competitors.

“Companies such as Intel are fighting the Fintiv rule because this is exactly how they exploit the system. Their efforts not only drive up litigation costs, but undermine investment in US innovation and weaken the patent system,” said Israel.

According to Gary Abelev, partner at Hunton Andrews Kurth, SCOTUS’ refusal to take on these cases was unsurprising, as the AIA is clear that institution decisions should not be appealed.

“It is difficult to contest the USPTO’s denial of institution, due to the high standard of the Administrative Procedure Act (APA) regarding decisions rendered by federal agencies,” he explained.

This is because the act authorises courts to review such decisions only if the agency action, finding, and conclusion are found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law, emphasised Abelev.

SCOTUS ‘not the final word’

But as Brent Babcock, partner at Loeb & Loeb, pointed out, the problematic issues posed by the rule are “far from dead”, and the courts, the USPTO, and PTAB practitioners should expect further kickbacks by disgruntled petitioners.

“The Supreme Court’s denial of certiorari did nothing to resolve the ongoing controversy regarding the USPTO’s invocation of the NHK-Fintiv factors to discretionarily deny IPR petitions. The denial simply kicks the can down the road,” noted Babcock.

The level of resistance against the rule, its existence and application will continue to be a source of rancour, agreed Teague Donahey, partner at Holland & Hart, adding that this would “not be the last word on this still-controversial issue”.

The onus for clarification may eventually fall to Congress, he said.

“Congress will also continue to face pressure to make legislative changes and, ultimately, that may well be how this issue gets resolved,” noted Donahey.

A change in fortunes for petitioners?

There are signs, however, that the pendulum could swing once again in favour of IPRs at the PTAB.

Brent Babcock, chair of Loeb & Loeb’s PTAB Trials Practice Group, predicted that the controversial influence of the Fintiv rule could soon be on the wane.

He noted: “The institution rate of IPRs will level out at around 60%, a slight increase from 2021 as discretionary denials under Fintiv decrease slightly.”

This prediction may well be borne out. According to PTAB statistics, the board granted two-thirds of all petitions for review in the first two months of fiscal year 2022, a 7% increase over the institution rate for the previous fiscal year.

“The PTAB panels will continue to invoke the NHK-Fintiv factors to discretionarily deny petitions on occasion, but likely less frequently than at their peak in 2020,” emphasised Babcock.

The steady decline in discretionary denials can be attributed to the PTAB’s response to the extensive criticism levelled at the NHK-Fintiv factors, he added.

Meanwhile, PTAB practitioners may also be more successful, due to their increasing familiarity with the discretionary denial issues.