U.S. Congress May Curtail PTAB's IPR Institution Discretion

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The U.S. Court of Appeals for the Federal Circuit recently approved PTAB’s institution of four IPRs despite an arbitration agreement between the patent owner and patent challenger that had already been enforced in a U.S. federal court as barring patent litigation between them. Despite the existence of the contractually agreed arbitration proceeding, PTAB did not even mention the non-statutory “Fintiv factors” which it routinely relies on to deny institution as a matter of discretion in view of parallel proceedings between the parties. This is yet another illustration of PTAB’s erroneous and inconsistent application of the limited discretion afforded to it by the Leahy-Smith America Invents Act when making IPR institution decisions.[1] U.S. Senator Patrick Leahy has now announced introduction of legislation called The Restoring America Invents Act to explicitly strip PTAB of its “Fintiv factors” discretion. 

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In 2007, ROHM Japan and MaxPower entered a technology license agreement (“TLA”) which, as amended in 2011, includes an agreement to arbitrate “[a]ny dispute, controversy, or claim arising out of or in relation to this Agreement or at law, or the breach, termination, or validity thereof . . . .” In 2019 and 2020, a dispute arose between ROHM Japan and MaxPower concerning whether the TLA covers ROHM’s silicon carbide RFP/RSFP products.  Ignoring the contractual arbitration agreement to which it is bound, ROHM filed a declaratory judgment complaint in the United States District Court for the Northern District of California.  The court promptly dismissed the case on the basis that the dispute must be arbitrated.

Still unhappy with the consequences of its negotiated and agreed contractual arbitration clause, ROHM filed four petitions for Inter Partes Review (“IPR”) in the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office.  PTAB held that it was not bound by the parties’ arbitration agreement and granted institution of all four IPR petitions.  MaxPower’s petition to the U.S. Court of Appeals for the Federal Circuit (“CAFC”) seeking to overturn those four institution decisions was denied in a 2-1 split decision, with one dissenting circuit judge arguing that the arbitration clause prohibits ROHM’s filing and pursuit of its patent challenges outside of the arbitration proceeding.[1]  The dissent’s reliance on 35 U.S.C. § 294, which states that “a provision requiring arbitration of any dispute relating to patent validity or infringement arising under the contract … shall be valid, irrevocable, and enforceable, except for any grounds that exist at law or in equity for revocation of a contract,” fell on deaf ears.

While PTAB has never felt itself bound in any way by arbitration clauses between the patent owner and validity challenger, its refusal to step aside in the MaxPower dispute represents a new level of arrogance indicative of a government agency drunk on its own perceived power.  Despite quoting the “any dispute” language of Section 294, PTAB then relied on its own prior refusals to honor that statute as support for failing to honor it once again: “Patent Owner does not cite, and we have not found, any Board decisions refusing to institute in view of Section 294.”  This is usually referred to as “a self-fulfilling prophecy.”

What makes PTAB’s institution of ROHM’s four IPRs even more egregious is PTAB’s complete silence regarding the equally extra-statutory “Fintiv factors” frequently used to deny institution of perfectly good IPR petitions in view of parallel proceedings between the parties!  When faced with an IPR petition filed by a defendant in on-going patent litigation in which patent validity may be determined, PTAB analyzes the following factors en route to its decision whether to exercise its discretion to refrain from institution: 1. whether the court granted a stay or evidence exists that one may be granted if an IPR proceeding is instituted; 2. proximity of the court’s trial date to the Board’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 Board’s exercise of discretion, including the merits.  As PTAB itself says, these “factors relate to whether efficiency, fairness, and the merits support the exercise of authority to deny institution in view of an earlier trial date in the parallel proceeding.

What conclusion would PTAB have been drawn in any fair analysis of the six Fintiv factors as applied to ROHM’s petitions, as it is required to do by its own stated policy? 

-          Factor 1: a U.S. district court had already dismissed ROHM’s validity challenge, and there is no reason to believe that MaxPower would agree to a stay of arbitration – FAVORS DENIAL of institution;

-       Factor 2: as the parties are in control of the arbitration schedule, there is no doubt that the arbitration could be completed before the Board’s projected statutory deadline for issuance of its final written decision – FAVORS DENIAL of institution;

-       Factor 3: the parties had negotiated and contractually agreed to the investment in arbitration proceedings – FAVORS DENIAL of institution;

-        Factor 4: the validity issues which could be raised in arbitration are broader than, and wholly encompass, those that could be raised in IPR – FAVORS DENIAL of institution;

-          Factor 5: the parties are identical – FAVORS DENIAL of institution; and

-      Factor 6: other circumstance might possibly include Section 294 of the Patent Act, Title 35, United States Code, which states that “a provision requiring arbitration of any dispute relating to patent validity or infringement arising under the contract … shall be valid, irrevocable, and enforceable, except for any grounds that exist at law or in equity for revocation of a contract” FAVORS DENIAL of institution.

PTAB is required by its own internal policy to consider the precedential Fintiv factors when faced with petitions filed by patent challengers involved in parallel proceedings, yet failed to do so here.  Instead, PTAB concluded: “Even if Patent Owner’s recitation of the facts is true, and even if the question of whether patentability falls within the scope of the agreement to arbitrate is committed to the arbiter, we nevertheless do not find a statute, rule, or policy that would preclude the Office from acting on the Petition.”  This statement is very possibly a perfect illustration of “arbitrary and capricious” agency action, as it illustrates perfectly that PTAB uses the Fintiv factors for unstated policy-based reasons only when denial of institution of IPRs furthers those secret policies.

Fortunately, help may be on the way.  U.S. Senator Patrick Leahy, co-author of the Leahy-Smith America Invents Act that established PTAB and IPRs, has had enough of the agency’s repeated “turning a blind eye” to the clear and unmistakable intent of Congress.  It has now been reported that Senator Leahy announced his intention to introduce a new bill in Congress that would explicitly strip PTAB of its non-statutory “Fintiv factors” discretion to deny institution of meritorious IPR petitions.  Moreover, restoring IPR to its intended function as an alternative to federal court patent validity litigation, the bill would encourage U.S. federal court judges to suspend court litigation when an accused infringer files an IPR petition.  This is not currently uniformly done by all district courts, and is almost never done by some judges such as U.S. District Judge Alan Albright of the Western District of Texas, the preferred venue for patent infringement law suits filed by non-practicing entities.

Because the MaxPower case illustrates that PTAB can abuse its discretionary authority to institute as well as deny institution of IPRs, Senator Leahy would do well to address the problem from all perspectives in the proposed bill.  The contents of Senator Leahy’s newly proposed corrective legislation have not yet been made public.  We are closely watching this issue and will provide additional details and comments as more becomes known.