US Supreme Court For AIA Proceedings, All or Nothing at All

SAS Institute Inc. v. Iancu, Director of the USPTO (No. 16-969).

In a 5-4 decision, the US Supreme Court reversed a decision by the US Court of Appeals for the Federal Circuit, holding that once the Patent Trial & Appeal Board of US Patent & Trademark Office (PTAB or Board) institutes an inter partes review (IPR) proceeding, it must review each and every claim challenged in the petition. Going forward, the PTAB will no longer be permitted to engage in the practice of “partial institution,” i.e., of only some of the claims challenged in the petition. (Gorsuch, Justice, joined by Roberts, Chief Justice. and Kennedy, Thomas, and Alito, Justices.) (Ginsburg, Justice, joined by Breyer, Sotomayor, and Kagan, Justices, dissenting.) (Breyer, Justice dissenting, joined by Ginsburg, Sotomayor, and Kagan, Justices.).

This dispute arose when SAS filed a petition for IPR challenging all 16 claims of a patent owned by ComplementSoft. The Board determined that SAS only demonstrated a reasonable likelihood of success on nine of the challenged claims, thereby declining to institute an IPR on the remaining seven claims. In declining to institute on those seven claims, the Board relied on a regulation that states that the PTO director (director) “may authorize the review to proceed on all or some of the challenged claims and on all or some of the grounds of unpatentability asserted for each claim.” 37 CFR § 42.108(a). In its Final Written Decision, the Board found all but one of the instituted claims unpatentable, and was predictably silent with regard to the seven claims on which it did not institute. SAS appealed to the Federal Circuit, which (over a “vigorous” dissent by Judge Newman) upheld the regulation. IP Update, Vol. 19, No. 12.

In reversing the Federal Circuit, the Supreme Court found that § 318(a) of the American Invents Act (AIA) supplies a clear answer to the question where it states that the Board “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” The Court found this directive both mandatory and comprehensive, analogizing it to civil litigation where a plaintiff would expect to have a decision on all the claims in the complaint and not just “those the decision maker might wish to address.” The Court also dismissed the director’s argument for partial institution because the power to do so simply does not appear in the AIA, and the text that Congress chose to utilize strongly counsels against permitting “partial institution.”

The Supreme Court next addressed the comprehensive AIA framework for IPR proceedings to show that Congress was clear when requiring institution of all claims. Justice Gorsuch cited § 312(a)(3), explaining that the petition, not the institution decision, defines the contours of the proceeding. Next, citing § 314(b), Gorsuch stated that the director’s decision to institute “pursuant to [the] petition” is simply a yes or no choice—not a piecemeal determination.

Additionally, citing § 314(a), The Supreme Court explained that the statute requires institution when a reasonable likelihood of success is shown for “at least one of the claims challenged in the petition.” As the majority explained, this requirement combined with the need to use the petition itself as the procedural contour of the proceeding suggests, if anything, a regime where reasonable likelihood of success on one claim is both necessary and sufficient to justify review of all the challenged claims.

AIA § 316(a)(8) was also informative for the Court, since it discusses the patent owner’s response “to the petition” and not their response to the instituted claims. Lastly, the Court noted that §318(a) mandates that the Board issue a final decision for “any patent claim challenged by the petitioner.”

In contradistinction to AIA proceedings, the Supreme Court looked to the provision covering a related proceeding, ex parte reexamination, where the director is explicitly granted discretion to determine, on a claim-by-claim basis, whether to review for patentability. 35 USC § 303(a).

In attempting to reconcile the statutory sections of the AIA, the director argued justification for the Board to exercise discretion in the language of §§ 314 and 318. According to the director, since § 314 is directed to claims in the petition while § 318 is directed to claims challenged in the by the petitioner, there is enough linguistic discrepancy to find the number of claims in the petition to be something less than those eventually challenged by the petitioner in the actual IPR proceeding. As Justice Gorsuch stated, “[w]e just don’t see it,” noting that whatever differences there may be are insufficient to authorize the PTO’s regulation. If anything, this discrepancy could be a result of the patent owner’s ability to either cancel, settle or amend various claims (powers specifically within the statute’s text), thereby making the claims in the petition less than those eventually challenged.

The Supreme Court dismissed the director’s final two arguments. One, a policy argument, as being in the wrong forum; and the other, an argument based on the reviewability of institution decision as being outside the scope of Cuozzo’s limitations on appellate review. As for the policy argument that investing the Board with discretion for partial institution promotes efficiency at the PTAB, thus expediting the streamlined nature of the IPR system, the Court simply noted that was a job for Congress. The Director’s argument that reviewing a decision not to institute on some challenged claims was violative of the Court’s Cuozzo decision (IP Update, Vol. 19, No. 7), was also rejected, Here, the Court noted that this was not a case where the determination of a likelihood of success is being challenged, but rather an appeal over whether the Director exceeded its statutory authority in declining to institute all claims despite finding the requisite likelihood of success for at least one challenged claim.

One dissent, authored by Justice Ginsburg, was short, yet strongly worded. Ginsburg noted that the viewing the combination of the majority’s interpretation of § 318(a) and the absence of a mandate to institute IPRs at all under Cuozzo, the Board could simply decline to institute on petitions having some challenged claims where no reasonable likelihood of success is demonstrated while simultaneously noting that other claim challenges warrant ex parte reexamination. Such a procedure would permit petitioners to file multiple petitions in order to determine which claims are most likely to be instituted and then file amended petitions that would receive institution. Justice Ginsburg finds it difficult to believe that Congress would implicitly authorize this practice while clearly precluding the more rational way of weeding out insubstantial challenges through the Board’s process of “partial institution.”

Another dissent, by Justice Breyer, noted many linguistic gaps in the statutory framework that the majority found so clear. For example, Breyer explained that the phrase “any patent claim challenged by the petitioner” is not clear as to whether those claims are from the “original petition.” Under the majority view, if 16 claims are challenged, and 15 of the challenges are found to be frivolous, the Board is nevertheless now required to issue appealable decisions on each of these claims as opposed to the PTAB’s regulatory framework where only a decision on the one non-frivolous claim would be appealable and the decision not to institute IPR on the remaining 15 claims would not be appealable.

Breyer’s dissent also focused on the need to effectuate the purpose of the statute, and avoid a “rigid” reading of the statute as was done by the majority. The dissent points to the director’s ability to institute as an authorization of discretion because some challenges are allowed and others are not. The dissent wonders why a hard line to stop at all claims or no claims is preferred over the more efficient claim-by-claim alternative.

The dissent also found the majority’s reading of the statute at odds with Cuozzo, noting that it was difficult to understand why Congress would make decisions not to institute non-appealable and wholly within the director’s discretion while simultaneously requiring institution of all challenged claims even if a likelihood of unpatentability is demonstrated for only one. In Breyer’s view, that paradigm creates appellate review of final decisions upholding the patentability of claims in cases where a petitioner, in its petition, failed to raise a reasonable likelihood that a claim(s) was invalid. This additional work for the PTAB and the Federal Circuit, argues the dissent could not have been the intent of Congress when creating a more streamlined and inexpensive procedure for patentability review.

Practice Note: Going forward, institution decisions will be based on whether the petitioner has established a reasonable likelihood that at least one challenged claim is unpatentable.