Are PTAB's Discretionary Factors for Denying Institution of IPR Legal?

Post issuance proceedings, including ex parte reexamination, inter partes review (IPR), and post-grant review, are tools in a patent owner’s or patent challenger’s tool box to have the patentability of an issued patent reviewed by the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office.  In some cases, post-issuance proceedings may be used to either avoid or support litigation proceedings.

IPR was created through the America Invents Act in 2012 as a way to challenge patentability of issued patents on grounds of anticipation or obviousness in view of prior art patents or publications.  As the U.S. Senate and House debate records make clear, Congress wanted to provide a lower cost alternative than litigation for challenging patents but also wanted to avoid overloading the PTAB with marginal challenges.  Accordingly, under 35 U.S.C. § 314(a), an IPR petition may not be “instituted” unless the PTAB finds that the petitioner has shown “that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged.”  

During deliberation over inclusion of IPR in the America Invents Act, members of Congress fully contemplated a petitioner initiating IPR during parallel litigation and set time limits for filing IPR petitions in such circumstances.  While the proposed House bill limited the time for filing an IPR petition to within 6 months from being served with an infringement complaint, Congress ultimately adopted a longer 1-year time limit, as currently recited in 35 U.S.C. § 315(b). Congress specifically noted that the longer 1-year time limit may allow the procedure to be operated fairly and not as a tool for harassment or delay.

In addition to the statutory considerations for determining whether to institute IPR, courts have agreed that 35 U.S.C. § 314 provides additional discretionary authority for the PTAB to deny institution.  The PTAB has generally exercised that discretion in view of a stated purpose to maintain efficiency and integrity of the patent system, e.g., to prevent “redundancy” in successive patent challenges.  In NHK Spring Co. v. Intro-Plex Tech., Inc.,[1] the PTAB decided that the advanced state of a parallel court proceeding may be used as a factor in exercising such discretion to deny institution of an IPR petition.  Expanding on the NHK decision, in recently decided Apple Inc. v. Fintiv, Inc.,[2] the PTAB set forth six factors governing “whether efficiency and integrity of the system are best served by denying or instituting review.”  The considerations set forth in NHK and Fintiv governing when a petition for IPR should be denied have come to be known as “the NHK-Fintiv factors.”

However, the NHK-Fintiv factors, at least in part, appear to contradict statutory provisions governing the IPR institution decision as set forth by Congress in the America Invents Act.  For example, in Fintiv, the PTAB noted that the third factor (investment in the parallel proceeding by the district court and the parties) may weigh in favor of denying institution of an IPR, “notwithstanding that a defendant has one year to file a petition” under 35 U.S.C. § 315(b).  One might conclude that Congress has already considered and determined that the court’s and parties’ investment in eighteen months of litigation (that is, twelve months from service of the infringement complaint plus six months for the preliminary proceeding during which the PTAB makes its institution decision) does not outweigh the benefits to the patent system, generally, of institution of IPR at that 18-month date.
 

A string of institution denials has followed Apple Inc. v. Fintiv, Inc. based almost entirely on the timing of filing the IPR petitions during parallel infringement litigation.  For example, in November 2020, the PTAB denied institution of four IPR petitions filed by Google against two AGIS Software Development patents.  In each of the four petitions, Google presented arguments related to the uncertainties of the co-pending litigation timing, including whether the trial court would grant a stay and if the trial date would be pushed back.  However, when discussing the third NHK-Fintiv factor, the PTAB reiterated its holding in Fintiv stating, “notwithstanding that a defendant has one year to file a petition, it may impose unfair costs to a patent owner if the petitioner, faced with the prospect of a looming trial date, waits until the district court trial has progressed significantly before filing a petition at the Office.”  It bears repeating that the question of possible imposition of “unfair costs to a patent owner” was specifically considered by Congress when it created IPR.  The PTAB’s authority to revisit this issue and decide differently than Congress has enacted is not anywhere made explicit by the PTAB’s institution denial decisions.

In its denial of institution of Google’s petitions, the PTAB further stated that the “absence of any reasonable explanation for the delay in filing the Petition is particularly problematic in this case because there is significant overlap between the subject matter and alleged grounds of unpatentability found in the Petition and those petitions previously filed,” thus indicating “that Petitioner was fully capable of filing the Petition at or around the time Petitioner was served with a complaint.”  The PTAB reasoned, because “there is strong evidence that Petitioner had everything it needed to file the Petition much earlier in the parallel District Court proceeding and Petitioner offers no explanation for why the filing was delayed, we find the timing of the Petition weighs heavily toward exercising discretion to deny institution.”  

However, the Google’s IPR petitions had all been filed less than eight months after Google was served with the AGIS infringement complaint, well within the § 315(b) statutory deadline of 1 year from being served with a complaint. By using the third NHK-Fintiv factor to deny institution of Google’s IPR petitions in this situation, the PTAB completely disregards Congress’s decision that filing an IPR petition within 1 year of being served with an infringement complaint is fair.

Big tech companies including Apple, Google, Cisco, and Intel have sued the Director of the USPTO in U.S. District Court for the Northern District of California in order to directly challenge the NHK-Fintiv factors.  The third NHK-Fintiv factor is being challenged as conflicting with the time period established by Congress for when petitions for review may be filed.  The tech companies assert that by allowing the PTAB to refuse to adjudicate patent validity challenges due to co-pending litigation, the NHK-Fintiv factor “has dramatically reduced the availability of IPR, regardless of the weakness of the patent claims being challenged, thereby undermining IPR’s central role in protecting a strong patent system.”  In their complaint, the plaintiffs explain: 

The NHK-Fintiv rule violates the AIA, which allows IPR to proceed in tandem with infringement litigation involving the same patent claims so long as the IPR petition is filed within one year after the petitioner was served with the complaint in the infringement suit.  Congress dictated in the AIA exactly when litigation should take precedence over IPR and vice versa, and the NHK-Fintiv rule contravenes Congress’s judgment.  Indeed, the NHK-Fintiv rule defeats the purpose of IPR, which is to provide a streamlined and specialized mechanism for clearing away invalid patents that never should have issued, and to do so without the substantial costs, burdens, and delays of litigation.

In other words, rather than basing a decision to deny/grant institution of an IPR petition on the likelihood of success in the challenge to the claims, as recited in 35 U.S.C. § 314(a), the NHK-Fintiv factors allow denial of an IPR petition based on nothing more than the PTAB’s own judgment that too much time that has passed between service of the infringement complaint and when the IPR petition was filed, regardless of the statutory 1 year deadline.

The PTAB says that the NHK-Fintiv factors are intended to maximize system efficiency and reduce system costs.  However, litigation is generally far more costly than IPR, and the PTAB is generally considered to be better suited to decide patentability issues in view of having more expertise in patent law than typical district courts.  If system efficiency and reduced costs were indeed the overall goal, it seems that IPR would be favored over in-court litigation whenever the petition is timely filed under 35 U.S.C. § 315(b).

Additionally, application of the third NHK-Fintiv factor may have the potential for inequitable application to different petitioners, depending on the jurisdiction in which a co-pending suit is being litigated.  For example, in courts more likely to schedule faster trial dates and/or in courts less likely to grant stays, the third NHK-Fintiv factor would make denying institution of an IPR more likely.  By maintaining the statutory 1-year time period, greater equity and predictability may be provided throughout the numerous judicial districts of the United States.  Moreover, it is hardly clear that it is PTAB’s role or function to decide how to maximize system efficiency and reduce system costs, at least where Congress has already spoken on the particular issue.

Because the suit against the USPTO over the NHK-Fintiv factors was filed in August 2020, it may be some time before this issue is fully resolved. Regardless of how the district court rules, an appeal to the Court of Appeals for the Federal Circuit seems inevitable.  In the meantime, it may be best practice for petitioners to file IPR petitions as soon as possible after being served with an infringement complaint.