USPTO Issues Proposed Rulemaking On Discretionary Denials of IPR Proceedings

In the first proposed rulemaking issued under Director Squires, the USPTO proposes to modify the rules of practice relating to discretionary denials to institute Inter Partes Review (IPR) proceedings. The proposed rules reflect the current administration’s concerns regarding serial and parallel challenges of the same patent and their threat to our innovation-centric economy. In addition to “promot[ing] consistency across IPR proceedings” and “limiting the circumstances in which a district court and the PTAB will consider the same or closely related issues,” the USPTO expects the proposed rules changes “will have a positive impact on the economy” by “increase[ing] the reliability of patent rights and the predictability of patent disputes” and “decreas[ing] overall expenditures of patent litigation and the transaction costs for patent licensing.”

The USPTO “invites comments from the public on whether this proposed rule strikes the appropriate balance between efficiency, fairness, and stability in the patent system.” The Federal Register Notice sets only a 30-day public comment period, so stakeholders need to act quickly to ensure their views are considered. 

Highlights of the Proposed Changes 

The USPTO’s press release highlights the following aspects of the USPTO’s proposed rulemaking, which would:

• Require an IPR petitioner to file a stipulation not to pursue invalidity challenges under 35 U.S.C. §§ 102 or 103 in other forums
• Provide that the USPTO will not institute an IPR when the USPTO or another forum already has adjudicated patentability or validity of the claims
• Provide that the USPTO will not institute an IPR when another proceeding is likely to determine patentability or validity of the claims under §§ 102 or 103 first
• Permit the USPTO to institute an IPR notwithstanding a prior adjudication or expected earlier determination on patentability or validity when exceptional circumstances exist.

According to the Federal Register Notice, the new rules would “focus [IPR] proceedings on patent claims that have not previously been challenged in litigation or where prior litigation was resolved at an early stage,” and are “intended to promote fairness, efficiency, and predictability in patent disputes.” 

Promoting Reliable Patent Rights to Support Investment in Innovation

The “Background” section of the proposed rulemaking couches them as promoting “reliable patent rights” that are essential to the commercialization of innovation, and warns that serial challenges threaten to undermine our innovation-centric economy. According to the Notice, “Approximately 54% of all IPR petitions filed since the passage of the AIA are one of multiple petitions against the same patent” and “more than 80% of IPRs have co-pending district court litigation where the petitioner is also challenging patent validity.”

Reliable patent rights encourage the inventor or others to invest in the patented technology by giving them confidence that they, not competitors, will reap the benefits of their efforts. …. [M]ultiple challenges to the same patent through IPRs jeopardize the reliability of patent rights and incentives to invest in new technologies. 

The “Background” section discusses the subjective nature of invalidity determinations and the concept that if you “roll the dice” enough times, even the strongest patents may be invalidated: 

Even extremely strong patents become unreliable when subject to serial or parallel validity challenges. Determining whether a patent claim meets the statutory requirements of patentability is frequently a matter of judgment about which reasonable minds may disagree. …. Because reasonable minds may, and frequently do, disagree about whether a particular patent claim meets the statutory requirements, patents cannot serve their economic function if they are perpetually subject to de novo review. 

Consider a hypothetical patent claim where 70% of experienced patent practitioners would conclude that the claim was properly granted, and 30% would oppose that conclusion. Such a patent claim seems reliable, because a substantial majority of practitioners believe it is patentable and was properly issued. However, if the patent is subjected to repeated de novo patentability review each time it is enforced, it will no longer be reliable. …. [A] patent with a 70% chance of surviving one de novo patentability review has less than a 50% chance of withstanding two or more de novo patentability challenges. …. 

The “Background” section discusses the legislative history of the IPR statutes, and invokes Congressionally-delegated authority “to identify the circumstances when IPR proceedings would or would not benefit the patent system.” The “Background” section also discusses the high incidence of serial and parallel patent challenges, and asserts that parallel IPR and district court/ITC litigation can increase the costs and complexity of resolving patent disputes.

Preserve Resources for Ex Parte Appeals 

According to the Notice, the proposed rule changes will permit the USPTO to devote more resources to hearing ex parte appeals of examiner rejections of pending patent applications. Prompt resolution of ex parte appeals—which may be needed to secure grant of a patent—is an important goal of the current administration, because “delayed resolution of ex parte appeals can prevent or delay business formation or capital raising which, in turn, delays releasing or launching patented technologies to market.” The USPTO notes that an ex parte PTAB appeal is the only option for challenging an examiner’s rejection, whereas “IPRs are not the only mechanism for challenging the validity of an issued patent.”

Details of the Proposed Changes 

All of the proposed changes would be to 37 C.F.R. § 42.108, entitled “Institution of inter partes review,” and would add new paragraphs (d)-(f):

(d) Required stipulation for efficiency. Inter partes review shall not be instituted or maintained unless each petitioner files a stipulation with the Board and any other tribunal where it is litigating or later litigates regarding the challenged patent, stating that if a trial is instituted, the petitioner and any real party in interest or privy of the petitioner will not raise grounds of invalidity or unpatentability with respect to the challenged patent under 35 U.S.C. 102 or 103 in any other proceeding.

According to the Notice, the “[USPTO’s] view is that this requirement would promote fairness and efficiency by channeling similar patent challenges to a single forum and ensure that IPRs should generally serve as a complete substitute for at least some phase of the litigation.” 

(e) Claims found valid in prior proceedings. Inter partes review shall not be instituted or maintained if a challenged claim or an independent claim from which a challenged claim depends:

(1) U.S. District Court Trial – Was found not invalid under 35 U.S.C. 102 or 103 by a district court or jury following a bench trial or jury trial in a decision or verdict that has not been vacated or reversed in relevant part; 

(2) U.S. District Court Summary Judgment – Was found not invalid by a district court in a summary judgement decision finding no dispute of material fact under 35 U.S.C. 102 or 103 that has not been vacated or reversed in relevant part; 

(3) U.S. International Trade Commission – Was found not invalid under 35 U.S.C. 102 or 103 in initial or final determination of the U.S. International Trade Commission that has not been vacated or reversed in relevant part; 

(4) PTAB Final Written Decision – Was found not unpatentable in a final written decision of the Board under 35 U.S.C. 318(a) or 328(a) that has not been vacated or reversed; 

(5) Ex Parte Reexamination – Was found patentable in an office action or decision by the Board following a reexamination request filed under Chapter 30 of Title 35 United States Code by someone other than the patent owner, the patent owner’s real party in interest or privy; or 

(6) Federal Circuit – Was found unpatentable or invalid under 35 U.S.C. 102 or 103 in a decision, but that decision was reversed in relevant part by the U.S. Court of Appeals for the Federal Circuit.

The Notice clarifies that this rule “would extend to dependent claims where the independent claim on which each depends has already received scrutiny.” 

(f) Parallel Litigation – Inter partes review shall not be instituted or maintained if, more likely than not, any of the following will occur, with respect to a challenged claim or an independent claim from which a challenged claim depends, before the due date for the final written decision pursuant to 35 U.S.C. 316(a)(11): 

(1) U.S. District Court – A district court trial in which a party challenges the patent under 35 U.S.C. 102 or 103; 

(2) U.S. International Trade Commission – an initial or final determination of the U.S. International Trade Commission with respect to 35 U.S.C. 102 or 103; or 

(3) PTAB Final Written Decision – issuance of a final written decision by the Board under 35 U.S.C. 318(a) or 328(a).

The Notice does not provide additional comments on this proposed new paragraph. 

(g) Institution in extraordinary circumstances. If a panel of the Board determines that extraordinary circumstances warrant institution notwithstanding paragraphs (d), (e), or (f) the Panel shall refer to matter to the Director who may personally institute inter partes review. Extraordinary circumstances may include a determination by the Director that the prior challenge barring institution was initiated in bad faith, e.g., for the purpose of preventing future challenges, or that the prior challenge is rendered irrelevant in view of a substantial change in a statute or precedent of the Supreme Court of the United States. Unusual and extraordinary circumstances shall not include new or additional prior art, new expert testimony, new caselaw (except as provided above) or new legal argument, or a prior challenger’s failure to appeal. Neither the Director nor the Board shall waive the requirements of paragraphs (d), (e), or (f) of this section except as provided in this paragraph. Frivolous or abusive petitions under this paragraph may be appropriately sanctioned, including with an award of attorneys’ fees.

According to the Notice, new paragraph (g) would “allow institution, notwithstanding paragraphs (d), (e), or (f), based on extraordinary circumstances,” but “[t]o ensure the predictability of institution decisions, this proposed section identifies specific examples of potential extraordinary circumstances and examples of circumstances that are not extraordinary.”

How Will Stakeholders Respond 

It will be interesting to see how stakeholders respond to the proposed rulemaking. No doubt there will be comments supporting and criticizing them. The proposed rulemaking already is responsive to calls for the USPTO to use the rulemaking process, but stakeholders who view IPR proceedings as an important option are likely to argue that at least some of the proposed changes exceed the USPTO’s authority.