Companies subject to allegations of patent infringement have a strong interest in the outcome and review of post-grant patent challenges. Docket Navigator reports that the number of challenges at the Patent Trial and Appeal Board (“PTAB”) is projected to increase significantly from 1290 last year to 1741 this year. [1]

The PTO Director’s discretionary denial of post-grant petitions has been a contentious issue that has been in flux since their inception. For example, in Cuozzo Speed Techs., LLC v. Lee, the Supreme Court explained that the America Invents Act (“AIA”) precludes judicial review of a Director’s decision to institute an inter partes review (“IPR”) “where the grounds for attacking the decision to institute [an IPR] consist of questions that are closely tied to the application and interpretation of statutes related to the [PTO]'s decision to initiate [the IPR].” 579 U.S. 261, 274–75 (2016) (emphasis added). Four years later, in Thryv, Inc. v. Click-To-Call Techs., LP, the Supreme Court held that judicial review of a Director’s decision to institute an IPR based on an alleged untimely petition was also improper. 140 S. Ct. 1367, 1368 (2020). Several Federal Circuit decisions have followed, but the issue has remained controversial.

Plaintiffs’ Challenge to the Director’s Instructions

Each Director has taken a different tact in this area. Director Iancu designated two past PTAB decisions as “precedential” and binding for future panels: NHK Spring Co. v. Intri-Plex Techns., Inc., IPR2018-00752, 2018 WL 4373643 (P.T.A.B. Sept. 12, 2018) (designated precedential on May 7, 2019), and Apple Inc. v. Fintiv, Inc., IPR2020-00019, 2020 WL 2126495 (P.T.A.B. Mar. 20, 2020) (designated precedential on May 5, 2020). Fintiv is infamous for laying out broad factors for deciding whether to institute an IPR in view of a parallel district court litigation, the interpretation of which has changed over time.

Recently, Apple, Cisco, Google, Intel, and Edwards Lifesciences’ (“Plaintiffs”) challenged the Fintiv factors under the Administrative Procedure Act (“APA”) because: (1) the Director acted contrary to the IPR provisions of the AIA; (2) the Fintiv factors are arbitrary and capricious; and (3) the Fintiv factors did not comply with notice-and-comment rulemaking requirements in Apple Inc. et al v. Iancu, Case No. 5:20-CV-06128 (N.D. Cal.). The government successfully moved to dismiss for lack of standing and, in the alternative, that APA review was unavailable both because (1) judicial review of the Director’s decision to institute an IPR is precluded by statutes and (2) the PTO is an agency and “agency action is committed to agency discretion” by law. Apple, 2021 WL 5232241, at *1–6. The district court cited Cuozzo and Thryv, among others, and held that the Director’s actions were unreviewable. Id. at *6.

More recently, Director Vidal issued an additional precedential decision adding another Fintiv factor, requiring the PTAB to institute an IPR if the petition demonstrates “compelling merits.” [2] She then issued a memorandum providing “several clarifications” to the Fintiv factors “under the Director’s authority to issue binding agency guidance to govern the PTAB’s implementation of various statutory provisions,” without publication in the Federal Register. [3] 

The Director’s Memo announced, among other things, that the new “clarifications” would apply to all pending PTO proceedings. Id. at 2–3. It also stated that the PTO “expects to replace this interim guidance with rules after it has completed formal rulemaking.” Id. at 9. Accordingly, Plaintiffs also challenged the Director’s Memo in their Federal Circuit appeal.

On March 13, 2023, the Federal Circuit affirmed the dismissal that the challenges to the Director’s instructions violated the AIA and are arbitrary and capricious. Apple Inc. v. Vidal, No. 2022-1249, at 13 (Fed. Cir. Mar. 13, 2023). The facts were found distinguishable from Thryv and Cuozzo, which involve challenges to a Director’s decision to review an individual petition, because the challenge here was to the Director’s instructions to the PTAB, as delegatee, about how to decide whether to review all petitions. Id. at 17. Quoting Ethicon Endo-Surgery, Inc. v. Covidien LP, the Federal Circuit confirmed the “inevitability and congressional expectation of the Director’s delegation” of its decision to review petitions. Id. (citing Ethicon, 812 F.3d 1023, 1031–32 (Fed. Cir. 2016)). “For the IPR system to function with the delegations that are inevitable and congressionally expected, the same conclusion must follow for the instructions given by the Director to the [PTAB] as delegate.” Id. at 18.

The Federal Circuit also held that the APA does not bar review of the challenge concerning the absence of notice-and-comment rulemaking, finding that at least Plaintiff Apple Inc. had standing to pursue its challenge. Id. at 13. Substantive judicial review to determine whether the action is contrary to statute, or arbitrary and capricious is distinct from a review of whether notice-and-comment rulemaking procedures apply under the APA. Id. at 19. Notably, the Federal Circuit allowed challenges to “the Director’s choice of whether to use notice-and-comment rulemaking to announce instructions for the institution decision.” Id. at 20. The Federal Circuit remanded the case to the district court to decide whether the PTO was required to use notice-and-comment rulemaking before changing instructions with respect to decisions to institute IPRs. Id. at 25.

The Impact of Apple v. Vidal

Apple v. Vidal shows that challenging a PTAB decision under the APA for failure to issue rules is a viable strategy, as is filing a collateral action under the APA against the Director for her failure to promulgate rules. This can be advantageous because there are so few rules on PTAB items such as the Motion to Amend Pilot Program, requests for Director review, replies to patent owners’ preliminary responses, and other areas where the PTAB relies on discretion.

As shown by the Director’s Memo, articulating a loosened discretionary standard has led to more IPRs being instituted that would have otherwise been denied previously. There have also been complaints about the lack of notice-and-comment rulemaking on issues including discretionary denial and the uncertainty caused by shifting interpretations. The PTO answered these complaints by issuing requests for comments and received more than 800 comments. However, no rulemaking has been completed. While Direct Vidal mentioned her intent to complete formal rulemaking in the Director’s Memo, the rumor is that an advanced notice of proposed rulemaking (“ANPRM”) is imminent. [4] Apple v. Vidal makes the ANPRM all the more urgent for the Director.

Interested parties will likely soon have an opportunity to provide comments on the contentious issue of discretionary denials. Please reach out to Dentons if you have interest in this issue.

[1] Docket Navigator, Omnibus Report, Patent Litigation Activity Over Time, accessed on March 28, 2023.

[2] CommScope Techs. LLC v. Dali Wireless, Inc., IPR2022-01242, Paper 23 (February 27, 2023).

[3] Memorandum from PTO Director to PTAB, Interim Procedure for Discretionary Denials in AIA Post-Grant Proceedings with Parallel District Court Litigation at 2–3 (June 21, 2022) (“Director’s Memo”).

[4] "https://www.managingip.com/article/2begbb2msp1ag6dq5yygw/uspto-lays-ground-for-review-of-fintiv-rules">https://www.managingip.com/article/2begbb2msp1ag6dq5yygw/uspto-lays-ground-for-review-of-fintiv-rules.