Federal Circuit Concludes that the PTAB’s Estoppel Determinations Under 35 U.S.C. § 325(e)(1) Are Appealable

On June 9, 2017, the Federal Circuit issued a precedential decision addressing whether an estoppel determination by the Patent Trial and Appeal Board under 35 U.S.C. § 325(e)(1) is appealable. In Credit Acceptance Corp. v. Westlake Services, No. 2016-2001, slip op. (Fed. Cir. June 9, 2017), the Federal Circuit concluded that it was.

The appeal related to two parallel Covered Business Method (CBM) proceedings involving the same patent and the same petitioner. The first proceeding was instituted on certain claims prior to the Supreme Court’s decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), and the second was instituted on the remaining claims in view of the developments in 35 U.S.C. § 101 jurisprudence following that decision. The proceedings then continued in parallel until the first proceeding concluded with a final written decision finding the instituted claims unpatentable under § 101. The patent owner subsequently moved to terminate the second proceeding, arguing that the petitioner was estopped from challenging the remaining claims in the second proceeding under § 325(e)(1). The Board rejected this argument, reasoning that estoppel under § 325(e)(1) applies on a claim-by-claim basis.

Section 325(e)(1), which governs PGR and CBM proceedings, provides as follows:

Proceedings before the Office.—The petitioner in a post-grant review of a claim in a patent under this chapter that results in a final written decision under section 328(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that post-grant review.

Id. On appeal, the Federal Circuit agreed with the Board on the merits, concluding that § 325(e)(1) “does not apply in a subsequent proceeding to claims upon which the Board declined to institute review.” See Credit Acceptance Corp., slip op. at 12-15. Before reaching the merits, however, the Federal Circuit decided as a “threshold matter” whether the issue was even appealable. See id. at 7-12. The petitioner, joined by the United States Patent and Trademark Office (Patent Office), argued that it was not. The Federal Circuit disagreed.

The Patent Office, for its part, argued that “the Board’s estoppel decision is akin to a decision to institute review, which is nonappealable.” Id. at 7. Rejecting this argument, the Federal Circuit characterized the estoppel provision of § 325(e)(1) and the comparable IPR provision, § 315(e)(1), as “distinct” from the issues addressed in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), where the Supreme Court held that “Board decisions are nonappealable where the grounds for attacking the decision to institute inter partes review consist of questions that are closely tied to the application of statutes related to the Patent Office’s decision to initiate inter partes review.” Credit Acceptance Corp., slip op. at 7-8 (quotations omitted).

Section 325(e)(1), the Federal Circuit emphasized, “does not refer to ‘institution’ decisions and in fact is not limited to institution decisions”—by its terms, it can “operate to terminate a proceeding even where there existed no cause for termination at the time a petition was instituted.” Id. at 8-9. Moreover, the Federal Circuit commented, “it would be inconsistent to hold that a Board decision on estoppel under § 325(e)(1) is nonappealable but that a decision on estoppel under the parallel provision applicable to district court and ITC proceedings is appealable.” Id. at 10. Reasoning that application of “different appealability standards between the Board and district courts (and the ITC) could lead to conflicting outcomes,” the Federal Circuit found that the “practical need for uniformity weighs strongly in favor of appealability.” Id. at 10-11. The Federal Circuit thus concluded that “the estoppel dispute in this case is neither a challenge to the Board’s institution decision, nor is it closely tied to any statute related to the Patent Office’s decision to initiate CBM review.” Id. at 11 (quotations omitted).

The petitioner nonetheless further argued that the Federal Circuit, under 35 U.S.C. § 141(c), is only permitted to review a final written decision of the Board, and that the order denying the patent owner’s motion to terminate is not a final written decision. Id. The Federal Circuit quickly dispensed with the petitioner’s argument, noting that “[b]ecause the statute prohibits an estopped petitioner from maintaining a proceeding, the Board necessarily found that [petitioner] was not estopped when it issued its final written decision,” which the patent owner had properly appealed from. Id. at 12. Accordingly, the Federal Circuit concluded that it had “jurisdiction to review the [patent owner’s] estoppel argument regarding 35 U.S.C. § 325(e)(1).” Id.

Though the Federal Circuit’s holding was limited to § 325(e)(1) and the facts of the case did not involve an estoppel determination at the institution stage, the decision seems likely to provide substantial guidance regarding the appealability of other statutory estoppel determinations made in connection with post-grant proceedings under the America Invents Act. At a minimum, it is another important decision in this continually developing area of law. Cf. Husky Injection Molding Sys. Ltd. v. Athena Automation Ltd., 838 F.3d 1236 (Fed. Cir. 2016) (finding no jurisdiction to review the Board’s application of the equitable doctrine of assignor estoppel).

Other Notable Decisions – Week of June 9, 2017

New World Int’l, Inc. v. Ford Global Techs., LLC, No. 2016-2097 (Fed. Cir. June 8, 2017) (precedential): In New World, the Federal Circuit affirmed a district court’s dismissal of a declaratory judgment action for lack of personal jurisdiction. In doing so, the Federal Circuit reiterated its past holdings “that it is improper to predicate personal jurisdiction on the act of sending ordinary cease and desist letters into a forum, without more.” It also held that “the mere existence of an exclusive license does not support a finding of specific jurisdiction” absent an obligation “to defend or enforce the patent.” Though the defendant had an exclusive licensee doing business in the forum, the Federal Circuit found that the defendant retained “nearly complete control over the patent enforcement decision.” The Federal Circuit therefore concluded that the defendant’s “pertinent contacts” with the forum were “limited to . . . cease and desist letters” and insufficient to support the exercise of specific personal jurisdiction.

Rothschild Connected Devices Innovations, LLC v. Guardian Protection Servs., Inc., No. 2016-2521 (Fed. Cir. June 5, 2017) (precedential): In Rothschild, the Federal Circuit reversed a district court’s denial of a request for attorney fees pursuant to 35 U.S.C. § 285. The Federal Circuit found that the district court “clearly erred by failing to consider the [plaintiff’s] willful ignorance of the prior art” presented by the defendant in a Rule 11(c)(2) safe-harbor notice and prior correspondence, and rejected the defendant’s reliance on “conclusory and unsupported statements” from the defendant’s counsel and founder claiming a good faith belief in the validity of the patent-in-suit. It also found that the district court “erred as a matter of law when, as part of its analysis, it stated that an attorney fee award under § 285 would contravene the aims of Rule 11’s safe-harbor provision,” reasoning that “[w]hether a party avoids or engages in sanctionable conduct under Rule 11(b) is not the appropriate benchmark.”

Checkpoint Sys., Inc. v. All-Tag Security S.A., No. 2016-1397 (Fed. Cir. June 5, 2017) (precedential): In Checkpoint, the Federal Circuit reversed a district court’s award of attorney fees under 35 U.S.C. § 285. The Federal Circuit rejected the district court’s conclusion that the lawsuit was brought for an improper purpose (e.g, to interfere with the defendant’s business and to protect its own competitive advantage), finding that no “harassment or abuse” was shown. “[M]otivation to implement the statutory patent right based on a reasonable belief in infringement,” the Federal Circuit emphasized, “is not an improper motive.” The Federal Circuit also found the plaintiff’s survival of summary judgment and Daubert motions to be indicative of the objective reasonableness of the plaintiff’s claims. According to the Federal Circuit, the record showed “that the charge of infringement was reasonable and the litigation was not brought in bad faith or with abusive tactics.”

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