Federal Circuit Upholds PTAB’s Entry of Adverse Judgment Before Its Institution Decision

In a split precedential decision, the Federal Circuit ruled that 37 C.F.R. § 42.73(b) permits the Patent Trial and Appeal Board to enter an adverse judgment when a patent owner cancels all claims at issue after an IPR petition has been filed, but before an institution decision.

Therefore, the Federal Circuit upheld the Board’s decision to do just that. However, the Federal Circuit noted that it was not addressing whether the regulation is authorized by statute or whether the regulation was properly promulgated.

Arthrex, Inc. v. Smith & Nephew, Inc., et. al, stems from an inter partes review on which the Board entered an adverse judgment.  No. 2017-1239, slip op. at 5-6 (Fed. Cir. Jan. 24, 2018). An IPR petition was filed challenging claims 1-9 of U.S. Patent No. 8,821,541 (“the ‘541 patent”), which is owned by Arthrex. Id. at 2. Within three months of the IPR being filed, Arthrex disclaimed claims 1-9 of the ‘541 patent and filed a Preliminary Response arguing that no IPR should be instituted because per 37 C.F.R. § 42.107(e) “[n]o inter partes review will be instituted based on disclaimed claims. Id. Arthrex specifically stated in its response that it was not requesting an adverse judgment. Id. at 3.

Nonetheless, the Board entered an adverse judgment against Arthrex pursuant to 37 C.F.R. § 42.73(b) because, according to the Board, the regulation “permit[s] the Board to construe a statutory disclaimer of all challenged claims as a request for adverse judgment, even when the disclaimer occurs before the Board has entered a decision on institution.” Id. Section 42.73(b) states in relevant part that “[a] party may request judgment against itself at any time during a proceeding. Actions construed to be a request for adverse judgment include: . . . (2) Cancellation or disclaimer of a claim such that the party has no remaining claim in the trial.” Entering the adverse judgment created an estoppel effect that attached per 37 C.F.R. § 42.73(d)(3)(i), which precludes a patent owner “from taking action inconsistent with the adverse judgment, including obtaining in any patent . . . [a] claim that is not patentably distinct from a finally refused or canceled claim.” Id. Arthrex appealed because at the time the adverse judgment was entered it had two appending continuation patent applications that the estoppel provision would impact.

On appeal, the Federal Circuit first addressed whether the adverse final judgment was appealable. Id. at 4. The petitioner, Smith & Nephew, argued that the adverse judgment was not appealable because 35 U.S.C. § 319 only permits review of final written decisions of the Board and the adverse judgment did not contain any written decision. The Federal Circuit was unpersuaded by Smith & Nephew’s argument, however, and found that “[b]ecause § 319 does not on its face provide the exclusive means for appeal over IPR decisions not subject to the appeal bar, and § 1295(a)(4)(A) on its face provides a right to appeal, . . . a final decision that disposes of an IPR proceedings in the form of an adverse judgment is a ‘decision’ from the Board with respect to IPRs under title 35 and that § 1295 provides a right to appeal a final adverse judgment.” Id. at 6.

The Federal Circuit next turned to whether the Board’s entry of an adverse judgment was proper under 37 C.F.R. § 42.73(b). Id. Arthrex argued that the regulation was inapplicable because (1) it specifically stated that it was not requesting an adverse judgment and (2) the regulation only applied to cancellation of claims after an IPR proceeding has been instituted. Id. at 7. The Federal Circuit rejected both arguments. First, the Federal Circuit reasoned that the application of the regulation did not turn on the patentee’s characterization of its own request but that the Board was given authority to itself characterize the patentee’s actions. Id.

Second, the appellate court agreed with the Board’s interpretation of § 42.73(b) that its ability to enter an adverse judgment was not limited by the “no remaining claim in the trial” language to after initiation of IPR proceedings. Id. More specifically, the appellate court noted that a request for an adverse judgment could be made at any time during a “proceeding” and that the PTO’s rules defined “proceedings” as a trial or preliminary proceeding, which begins with the filing of a petition for instituting a trial. Id. at 7-8. Furthermore, the Federal Circuit pointed out that no other provision of § 42.73(b) turned on whether an IPR proceeding had been instituted supported this decision, as did the purpose of the regulation’s estoppel provision to stop claims that are patently indistinct from those claims that were lost. Id. at 8-9. Accordingly, the Federal Circuit upheld the Board’s decision to enter an adverse judgment when after a patent owner cancels all claims at issue after an IPR petition has been filed but before an institution decision.

Interestingly, while Circuit Judge O’Malley agreed with the overall decision, as written by Circuit Judge Dyk, she wrote separately to raise her doubts about whether the Director had the authority to issue the regulation at issue or whether the regulation was properly promulgated. Judge O’Malley explained that she believed that because the Board lacked authority to institute review based on statutorily disclaimed claims, it also likely lacked authority to take any other action with respected to disclaimed claims, especially prior to institution. Id. at 2. Judge O’Malley further questioned the PTO’s expansive definition of “proceedings” and application of that expansive definition by the Board in light of other case law out of the Federal Circuit.  Finally, she raised her skepticism about whether the America Invents Act provides the Board with the authority to issue adverse judgments based on statutory disclaimers prior to an IPR being instituted.  However, in the end, she noted that Arthrex had affirmatively disclaimed any such statutory or administrative law challenges to the Board’s authority or the regulation so the appellate court could not reach those issues in the case at hand.

Circuit Judge Newman, on the other hand, dissented noting that § 42.73(b)(2) as written only permitted construing a cancellation or disclaimer of a claim as a request for an adverse judgment when there is “‘no remaining claim in the trial’ and, in the case before it, there was no trial, and no trial was possible.” Id. at 4 (dissent)(emphasis in original).  Judge Newman explained that there can be no “in the trial” unless an IPR is instituted.  She further explained that the majority and the Board had read “in the trial” out of the regulation. Id. at 8.

While this Federal Circuit opinion leaves open whether in the future the Board will be found to have the authority to enter an adverse judgment before an IPR is instituted but after is filed if a patentee disclaims the claims asserted for IPR, currently such a course of the events will result in estoppel attaching to the disclaimed claims under the adverse judgment.

Other Notable Decisions – Week Ending January 26, 2018

Maxlinear, Inc. v. CF Crespe, LLC, No. 2017-1039 (Fed. Cir. Jan. 25, 2018):  In Maxlinear, Inc., the Federal Circuit vacated the Patent Trial and Appeal Board’s decision and remanded the case to the Board to consider the patentability of dependent claims because the Federal Circuit had ruled in another case that the patent-in-suit’s independent claims were unpatentable.  In the IPR below the Board had addressed only the patent-in-suit’s independent claims and had found them nonobvious and patentable over the prior art asserted.  However, in two other separate IPRs involving the same patent-in-suit, the independent claims were found unpatentable in light of the prior art asserted there.  The Federal Circuit explained that the finding of the independent claims unpatentable in other IPRs was collateral estoppel to finding them patentable in the case at hand.  Accordingly, the Board’s decision was vacated and the case remanded to consider whether the dependent claims were also unpatenable in light of the independent claims being unpatentable.

In re Janssen Biotech, Inc., 2017-1257 (Fed. Cir. Jan. 23, 2018): In In re Janssen Biotech, the Federal Circuit affirmed the Board’s rejection of claims as unpatentable under the doctrine of obviousness-type double patenting.  The Federal Circuit found that the safe-harbor provision of 35 U.S.C. § 121 did not apply to protect against invalidation because patents issued on “continuation in part” applications are not within the scope of § 121 as by its literal terms § 121 protects only division applications (or the original application).  Additionally, the Federal Circuit held that a patent owner cannot retroactively bring its challenged patent within the scope of the safe-harbor provision by amendment in a reexamination proceeding.  Because the patent at issue had resulted from a continuation in part application, the safe-harbor provision did not apply even though the patentee now argued that the remaining claimed subject matter made the application more a divisional application than a continuation in part.

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