Denial on trial

Change is afoot at the US Patent Trial and Appeal Board (PTAB) and—to the chagrin of petitioners—the pendulum has swung decidedly in favour of patent owners.

Over the past seven years, the number of patents that have been subject to inter partes review (IPR) at the PTAB at the US Patent and Trademark Office (USPTO) has fallen dramatically.

In 2013, the board instituted reviews in 87% of all filed petitions during the first year of the PTAB’s review process, as an LSPN Connect session exploring trends at the board discovered on March 18.

But fast-forward to 2020, this rate had sunk to an all-time low of 56%, according to research carried out by Unified Patents.

The decline in reviews over the past year has been particularly marked—falling by 63% in 2020 compared to the previous year. This decrease can be attributed to the PTAB’s wide application of the NHK-Fintiv rule, which has ignited controversy within the IP sector and sparked widespread opposition and lawsuits from technology companies and generic drug makers.

Established under former USPTO director Andrei Iancu, the NHK-Fintiv rule emerged 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.

During the LSPN Connect session, Nathaniel Browand, partner at Milbank, explained: “The vast majority of IPRs take place with a parallel district court proceeding involving the same parties. The basis for a lot of the denials is put down to the scheduling, with the PTAB using district trial dates as grounds for denying the IPR trial phase.”

According to an analysis of 2020’s IPR petitions by law firm Womble Bond Dickinson, the PTAB had applied NHK-Fintiv factors in determining whether to exercise its discretion to deny reviewing at least 24 patents by September 2020.

Jury trials an inadequate substitute

Joseph Matal, partner at Haynes and Boone, argues that jury trials are not an adequate substitute for PTAB reviews, pointing to the decision in VLSI v Intel (2020).

Intel was hit with a $2.18 billion damages verdict after a federal jury in Texas ruled that the chipmaker had infringed two patents owned by VLSI Technology. The PTAB had declined to review the patents, citing the NHK-Fintiv rule.

“That case upheld a manifestly weak patent to impose a $2 billion damages award against the nation’s premier chip manufacturer. If we want businesses to continue to invest in making advanced products in the US, we need to provide them with reliable access to expert review at the PTAB,” says Matal.

He adds that it is hard to reconcile this rule with the decisions handed down by Federal Circuit in cases such as Facebook v Windy City (2020) and Aqua Products v Matal (2017), which hold that the USPTO cannot make policy through PTAB adjudications.

“If the agency cannot even assign the burden of proof for amendments in this way, how can it impose the extra-statutory restrictions of Fintiv without at least going through notice-and-comment rulemaking?” queries Matal.

Opposition from tech giants and pharma generics

The PTAB’s widespread application of the NHK-Fintiv rule has drawn opposition from technology companies including and generic drug-makers, which argue that the rule unfairly restricts the ability to seek IPR of patents under the America Invents Act (AIA).

In August 2020, Apple, Google, Cisco, Intel and Edwards Lifesciences filed the lawsuit against the USPTO, after the PTAB declared its 2018 decision in NHK and its March 2020 decision in Fintiv to be precedential.

In the complaint filed at the US District Court for the District of California, the companies held that the rule was a violation of the AIA.

In the same month, the USPTO issued a notice of proposed rulemaking seeking codification of policies and precedential opinions, requesting public comment related to three topics. Since the announcement, the board has received more than 800 comments on its rule-making procedures, including the NHK-Fintiv rule.

“This connection does not seem like coincidence and suggests that the rulemaking exercise was a direct response to the lawsuit, potentially to try and lessen its blow,” said Sean Hyberg, partner at Milbank, during the LSPN Connect session.

In February, the US Court of Appeals for the Federal Circuit also heard an unrelated challenge to the NHK-Fintiv rule, in which generic drug-maker Viatris claimed the rule was unconstitutionally applied to its petition for review of a Janssen Pharmaceutical patent. Earlier this month, the Federal Circuit suggested critics of the rule confront significant challenges in getting the courts to reverse the rule, and that Congress may have to intervene.

SK hynix: diligence wins a bypass

Not all petitions that fall under the rule’s parameters have met with failure at the PTAB, however. Semiconductor company SK hynix has persuaded the board to review a memory module patent held by a competitor, Netlist, even though the parallel infringement suit is set for trial on July 6.

Kara Specht, associate at Finnegan, explains that the South Korean company’s petition succeeded largely because it held that if a review was instituted, it would not raise any arguments that could have been raised at the PTAB in the district court.

“Like in the recently designated precedential opinion Sotera Wireless v Masimo (2020), SK hynix offered a broad stipulation that, if instituted, it would not assert any grounds that could reasonably have been raised in its petition before the district court.

“The SK hynix decision highlights the importance of petitioners seeking institution to prepare petitions diligently and eliminate overlap with invalidity positions raised before the district court,” explains Specht.

She argues that the incident is unlikely to herald a U-turn at the PTAB when it comes to applying the rule.

“SK hynix does not appear to be an exception to the NHK-Fintiv rule. In granting institution, the board focused heavily on petitioner’s diligence, filing the petition as early as reasonably possible, and petitioner’s stipulation to remove overlap with the district court,” says Specht.

“I think it’s fair to say the PTAB applied the NHK-Fintiv rule,” echoes Saurabh Vishnubhakat, professor at the school of law at Texas A&M University.

“I see the rule as a framework for guiding the PTAB’s discretion, and the PTAB in this case properly observed that the factors ‘weigh on both sides’. It seems likely, in turn, that SK hynix will be a useful template for future petitioners to navigate the timing of parallel court-agency proceedings,” predicts Vishnubhakat.

Others take a less positive view of the PTAB’s stance. “Some recent decisions have mitigated the effect of Fintiv, but the fact remains that an early scheduled trial date—which some courts are more than happy to provide—will frequently cut off access to PTAB review,” argues Matal.

Finnegan’s Specht noted that the future recourse for petitioners who wish to challenge patents hangs in the balance.

“There are several factors in play right now that possibly have an impact on policy going forward. The USPTO is currently under the leadership of an interim acting director, and the next director could push for policies that change the NHK-Fintiv landscape. Several companies have filed suit against the USPTO challenging the NHK-Fintiv rule. Either of these could result in changes,” she says.

“At a strategic level, we have seen petitioners pushing to file their petitions much more quickly or accept estoppel at the institution stage,” she says.

Specht adds: “We have also seen patent owners filing litigations with forums that set a fast pace and pursuing quick case schedules. These trends are likely to continue until there is a significant policy change.”

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