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US: PTAB – What’s in store for the rest of the year?

In this post we examine how Section 101, IPRs and sovereign immunity defences are set to shape the board’s procedures and strategies over the coming months. The article was first published in Intellectual Property Magazine, March 2018.

Before projecting the future, it is important to reflect on the past. The US Patent Trial and Appeal Board (PTAB) in 2017 saw roughly the same number of filings as the two preceding years (ref. 1). The institution rate in 2017 remained similar as compared to 2015 and 2016 (ref. 2). The relatively consistent numbers for filings and institutions suggests that America Invents Act (AIA) proceedings have normalised and transitioned into a permanent fixture for the resolution of patent disputes.

And yet, upcoming events at the PTAB and in the courts appear ripe to further shape the board’s procedure and strategies moving forward. This article discusses the following questions and how they might shift PTAB dynamics over 2018.

  • Will 2018 be the last year for IPRs?
  • How liberal will the PTAB be in allowing amendments after Aqua Products?
  • Will ‘sovereign immunity’ continue to be a viable shield against PTAB proceedings?
  • How will the PTAB’s evaluation of patent eligible subject matter continue to evolve?

Summary

SCOTUS’ impending decision in Oil States looms large. The decision could, if IPRs are found unconstitutional, present the largest shake-up to the US patent landscape since the AIA was enacted. If IPRs survive, it can be expected that the PTAB will continue to shape its procedures and processes to address some of the due process issues raised in Oil States.

Easing the requirements on patent owners to amend claims during IPRs could be one step in this direction. The burden shift under Aqua Products may have laid the foundation for this. The PTAB’s sceptical handling of sovereign immunity defences should be expected to continue. Given its apparent limited authority, however, it will be interesting to see how the PTAB may curtail the viability of that defence. Perhaps this issue prompts further patent reform. Finally, the PTAB will continue to refine how it evaluates patent eligible subject matter. Once destined for immediate invalidation, software-based patent claims are finding a new life at the PTAB. It can be expected that more patents with these types of claims survive AIA challenges, provided such claims are sufficiently detailed and supported by explanation of their benefits to the technology space. 2018 will certainly be a critical year in shaping PTAB procedure and strategies. Continue reading for a full analysis:

Will 2018 be the last year for IPRs?

Short answer: maybe, but probably not. In June 2017, the Supreme Court of the US (SCOTUS) granted a petition for certiorari in Oil States v Greene’s Energy Group on the following question: whether inter partes review (IPR) – an adversarial process used by the US Patent and Trademark Office (USPTO) to analyse the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury. The court’s decision to address this issue was monumental in the patent community, if for no other reason than it established the possibility that IPRs might be abolished or otherwise dramatically altered, just six years after their inception.

The court’s decision is expected in early 2018, and it looms large given the wide adoption of IPRs and their marked popularity among patent challengers. While there is no way to predict the outcome with certainty, the November 2017 oral arguments provided some insight as to the justices’ leaning.

The core constitutional issue is derived from the fact that Congress created an adversarial forum and gave an administrative agency – not an Article III court – the power to make final determinations on patent validity. The oral argument spun a web of underlying constitutional issues, but prominently featured was whether IPRs provide patent owners “due process”, given the different PTAB standards and procedures as compared to courts. Several of the justices appeared to latch on to the PTAB’s more lax standards (eg, no presumption of patent validity, broadest reasonable interpretation for claim construction, requiring only a preponderance of the evidence to find invalidity, limited discovery, and limited ability to amend claims) to support a potential finding that IPRs are unconstitutional. Notwithstanding the due process concerns, other justices appeared hesitant to dispatch with IPRs. These justices seemed receptive to the proposition that the USPTO has the authority to reconsider and correct its prior decisions to grant patents, pointing to the fact that USPTO procedures (eg, reexaminations) have long been in place for doing just that.

The oral arguments indicated that there is at least some potential split among the justices. A large contingent of commentators seems to think that IPRs will ultimately stand. But some have suggested that the court may seek to strike a compromise by requiring some changes to PTAB procedures to ensure a stronger compliance with the due process concerns raised. If the court institutes changes, it is possible it could address things like (alleged) “judge stacking” by the USPTO for rehearings, discovery procedures, and whether IPRs have limited applicability to only those patents issued after the AIA was enacted.

How liberal will the PTAB be in allowing amendments after Aqua Products?

Last October, the US Court of Appeals for the Federal Circuit (CAFC) issued an en banc decision in Aqua Products, Inc v Matal, holding that the patent owners bears the burden of persuasion at all times during an AIA proceeding, including in proving that amended claims are unpatentable (ref. 3) The splintered court lacked a clear majority opinion – five separate opinions were issued – and, as a result, the court explicitly advised that the “judgment is narrow”. The narrow ruling ran counter to previous CAFC panel decisions, which held that patent owners who submitted proposed amended claims during AIA trials had the burden to show that such proposed amended claims were patentable. The wake of the decision still ripples (and may not settle until SCOTUS weighs in), but an apparent takeaway is the CAFC’s signalling that the PTAB must be more liberal in allowing amendments during AIA proceedings.

The PTAB took notice, and just a month after the Aqua Products decision, the chief administrative patent judge (APJ) issued a memorandum to the PTAB providing guidance on how to handle motions to amend claims. Consistent with Aqua Products, the chief APJ made clear that patent owners no longer have the burden to prove patentability of proposed amended claims. Instead, “if a patent owner files a motion to amend… the board will proceed to determine whether the substitute claims are unpatentable by a preponderance of the evidence based on the entirety of the record, including any opposition made by the petitioner.” The memo affirmed that the petitioner still has to comply with other motion-to-amend prerequisites, such as proposing a reasonable number of claims and explaining how the proposed amended claims do not enlarge the scope of the original claims or present new matter.

While it is still too early to see its full effect, Aqua Products seems like a win for patent owners. Prior to the Aqua Products decision, motions to amend claims at the PTAB were rarely successful. In fact, in the past, fewer than around ten motions to amend claims had been successful at the PTAB. Now, the burden of persuasion has flipped. Moreover, the CAFC’s decision liberates patent owners from the restrictive page allotment to some extent. Before Aqua Products, patent owners had to utilise more of their page allotment on arguments to persuade APJs that the proposed amended claims were patentable over a wide variety of prior art. Now, because they no longer have the burden of showing patentability, patent owners can focus more on presenting a higher volume of proposed amended claims (though still limited to presenting a “reasonable amount”), with a variety of substantive distinctions compared to the original claims and the cited prior art. Accordingly, Aqua Products should offer patent owners more opportunity to establish multiple contingency options in case the original claims are found invalid.

On the flip side, Aqua Products creates not only a legal burden on petitioners to show proposed amended claims are unpatentable, but also new logistical burdens. Post-Aqua Products, petitioners may want to anticipate potential claim amendments before filing a petition, as it will ultimately be their burden to prove invalidity of those claims too. Petitioners should therefore think about selecting prior art and proposed grounds of invalidity that are broad and flexible. This could be done by, for example, analysing the specification – not just the original claims – to make sure proposed grounds of invalidity could be extended to unclaimed embodiments.

Will ‘sovereign immunity’ continue to be a viable shield against PTAB proceedings?

Last September, Allergan and the Saint Regis Mohawk Tribe (tribe) entered into an agreement under which Allergan transferred certain patents directed to an eye treatment drug to the tribe, which in turn licensed the patents back to Allergan. The tribe then filed motions to dismiss IPRs relating to six of these patents, arguing that the parties’ arrangement shielded the patents from AIA challenges under the doctrine of sovereign immunity. This is not the first attempt to defend against IPRs on the basis of sovereign immunity. The PTAB dismissed multiple IPRs last year pursuant to sovereign immunity defences where the patent owners were state universities (ref. 4) But, this deal with the tribe appears to be the first example of transferring a patent portfolio to a sovereign entity seemingly for the purpose of defending against PTAB patent challenges.

The PTAB appears to be addressing sovereign immunity with increasing scrutiny as a result. It has not ruled on the tribe’s motions to dismiss. Instead, in light of the unique posture of the patent transfer, it has solicited amicus briefing from “any interested party” on the tribe’s sovereign immunity defence. Overall, 15 amicus briefs were submitted: seven sided with the tribe, favouring granting the motions to dismiss; eight favoured denying the motions. The time for filing amicus briefs has passed, and the PTAB is scheduled to render its decision this spring. Other recent orders from the PTAB suggest further scepticism of the defence. In December, for example, a PTAB panel denied a state university’s motion to dismiss an IPR based on a sovereign immunity defence (ref. 5) The PTAB decision acknowledged that state entities are generally immune from adjudicatory proceedings by federal agencies – like IPRs – but nevertheless found that the university had waived its immunity by filing a lawsuit in federal court for infringement of the same patents at issue in the IPR.

Notwithstanding this, it seems the fundamentals of the legal strategy (ie, using a sovereign entity to shield a patent portfolio from AIA challenges) may continue to hold. The PTAB has confirmed the viability of the defence, at least in the most generic circumstances and absent an earlier offensive assertion of the patents. Moreover, SCOTUS has affirmed that Native American tribes enjoy sovereign immunity absent explicit statutory qualification or Congressional disavowal to the contrary, and there are questions as to what extent tribunals have the authority to scale back that immunity (ref. 6) That said, this developing area of the law should be monitored closely. Even if the tribe’s motions to dismiss are granted, look for the PTAB – particularly in light of its recent scepticism – to continue to explore ways, through its regulations, procedures, and rulemaking authority, to curtail the effectiveness of sovereign immunity defences moving forward.

How will the PTAB’s evaluation of patent eligible subject matter continue to evolve?

It has been three and a half years since SCOTUS’ Alice Corp v CLS Bank decision, which confirmed the framework for evaluating whether patent claims are directed to patent eligible subject matter under 35 USC section 101. Over that time, the PTAB and federal courts have added to the jurisprudence by deciding more and more cases on the issue, and a clearer picture of the landscape is emerging.

In 2016, the USPTO issued multiple memoranda providing specific guidance on subject matter eligibility based on developing case law decisions (ref. 7) These documents advised, among other things, that claims directed to improvements in computer-related technology may not be abstract (clearing the first hurdle of Alice’s two-step test). The USPTO guidance further advised careful avoidance of oversimplifying and overgeneralising claims into their core principles; instead, the proper analysis requires diligent evaluation of claims as a whole, which includes considering the specific requirements of the claims. As a further supplement, the USPTO published this January an ‘Eligibility Quick Reference Sheet’ that summarises cases that have found claims directed to abstract ideas (thus, invalid), claims not directed to abstract ideas (thus, valid), and claims directed to abstract ideas but that recite an inventive concept (thus, valid) (Ref. 8)

In view of the recent case law decisions and the PTO guidance, projections can be made about how the PTAB might handle section 101 issues in 2018. Software-based patent claims will likely continue to be one of the most heavily scrutinised classes of claims. Post-Alice, software-based claims were some of the most rejected types of claims on section 101 grounds, particularly when directed to electronic commerce and business methods. Computer-implemented methods that simply recite processing steps while failing to improve computer technology will likely continue to be more susceptible to invalidation. On the other hand, patent claims that incorporate a combination of software and hardware features might be more likely to be found patent eligible if it can be shown that the software features improve the functionality of the hardware features.

Notwithstanding higher scrutiny, software-specific patents should not be per se doomed at the PTAB. Indeed, within the last six months, the CAFC issued three precedential decisions finding patent eligible subject matter in this space, directed to the following technologies:

  • A graphic user interface for mobile devices that displays commonly accessed data on a main menu.
  • A computer virus scan that generates a security profile identifying both hostile and potentially hostile operations.
  • An enhanced computer memory system (Ref. 9).

A takeaway from these cases is that software claims that are accompanied by detailed explanation in the written description as to how the claimed method provides benefits over conventional methods may have a higher chance of surviving a section 101 challenge. In this vein, software claims that are supported in the written description by pseudo code, flow charts, or other illustrations that articulate the algorithms underlying the claimed processing steps are also more likely to be found patent eligible. Section 101 challenges will continue to be obstacles for patents in the computer technology space, but the CAFC’s recent decisions appear to signal that the pendulum may be swinging back slightly in favour of subject matter eligibility.


References 

  1. In 2017, there were a total of 1,787 petitions for AIA review filed at the PTAB. This compares to 1,758 in 2016 and 1,797 in 2015. Source: Lex Machina.
  2. 68% of all petitions filed in 2017 were instituted for review. This is down from the 72% institution rate in 2016 and 75% rate in 2015. Source: Lex Machina.
  3. 872 F.3d 1290 (Fed Cir 2017).
  4. NeoChord, Inc v Univ of Md. Baltimore, IPR2016- 00208, Paper 28 (PTAB, 23 May 2017); Covidien LP v Univ of Florida Research Found. Inc, IPR2016-01274, -01275, -01276 (PTAB 25 Jan 2017).
  5. Ericsson Inc v Regents of the Univ of Minnesota, Case No. IPR2017-01186 et al., Paper 14 (PTAB 19 Dec 2017).
  6. See, eg, Michigan v Bay Mills Indian Community, 134 S Ct. 2024 (2014).
  7. Memoranda available at https://www.uspto.gov/ patent/laws-and-regulations/examination-policy/ subject-matter-eligibility-examination-guidancedate.
  8. https://www.uspto.gov/sites/default/files/ documents/ieg-qrs.pdf
  9. Core Wireless Licensing v LG Elec Inc; Finjan, Inc v Blue Coat Systems, Inc; Visual Memory LLC v Nvidia Corp.