Apple Inc. v. Vidal, Appeal No. 2022-1249 (Fed. Cir. Mar. 13, 2023)
In our Case of the Week, the Federal Circuit allowed Apple’s challenge to the Patent Trial and Appeal Board’s (“PTAB”) Fintiv rules to proceed, at least on limited grounds regarding whether in promulgating the guidelines the USPTO failed to follow notice-and-comment rulemaking requirements under the Administrative Procedures Act. This decision is the latest installment in a long and controversial line of cases, stemming from Apple Inc. v. Fintiv, Inc., IPR2020-00019, 2020 WL 2126495 (P.T.A.B. Mar. 20, 2020). In that case, the PTAB established a six-factor test to determine whether to institute an inter partes review when there was already a parallel patent infringement lawsuit against the petitioner, which the Director of the USPTO subsequently designated as binding precedent on the Board.
IPR proceedings established under the America Invents Act in 2012 have become a common tool for defendants to attempt to defeat or limit infringement lawsuits. The Director has discretion over whether to institute any given IPR proceeding, which in practice is delegated to the Board. Under the IPR provisions of the patent statute, there are two thresholds an IPR petitioner needs to meet for the Board to institute an IPR: first, the merits threshold, whether the petitioner’s filings show a reasonable likelihood that the IPR will invalidate at least one of the challenged claims; and second, the timing threshold, whether the IPR was filed within one year following service of a patent infringement lawsuit against the petitioner. Even if a petitioner meets these threshold requirements, however, the Board (subject to the Director’s discretion) ultimately still has discretion over whether to institute a proceeding, and that decision is by statute, not judicially reviewable.
In Apple Inc. v. Fintiv, Inc., the Board built off its prior decision in NHK Spring Co. v. Intri-Plex Technologies, Inc., IPR2018-00752, 2018 WL 4373643 (P.T.A.B. Sept. 12, 2018), and laid out six factors it would use to decide whether to institute Apple’s IPR against Fintiv, given that Fintiv had already filed a patent infringement lawsuit against Apple. Among the six factors was the proximity of the court’s trial date in the parallel litigation to the Board’s projected statutory deadline for issuing a final written IPR decision. The Director then designated both Fintiv and NHK as binding precedent on the Board, and Fintiv’s six-factor test quickly became the grounds on which the Board would deny institution of numerous IPR proceedings, including other IPRs filed by Apple and the plaintiffs in the case at hand.
Apple and the other plaintiffs sued the Director in the Northern District of California, arguing that by designating Fintiv and NHK as precedential the Director had propounded a rule (the “Fintiv rule”) and that: (1) this action was contrary to the IPR provisions of the patent statute because the Fintiv rule, and its factor regarding the proximity of trial dates to a final IPR decision, conflicted with the one-year timing threshold set by the patent statute; (2) the Fintiv rule was arbitrary and capricious because the Fintiv rule was not “reasonable and reasonably explained,” especially considering the unreliability of court-set trial dates which are often moved forward; and (3) the Director had violated the APA by promulgating a rule without following notice-and-comment rulemaking requirements. At the District Court, the USPTO filed a motion to dismiss based on (i) the plaintiffs not having standing, and (ii) APA review being unavailable because (a) the patent statute precluded judicial review of IPR institutions, and (b) because the challenges were to agency action that is normally granted wide discretion by law. The District Court held that the plaintiffs had standing, but granted the USPTO’s motion to dismiss on the basis that the Fintiv rule was a Director action concerning institution of IPR proceedings and not judicially reviewable. Apple and the other plaintiffs appealed to the Federal Circuit, arguing that the District Court erred in holding that the IPR provisions of the patent statute precluded judicial review of the Fintiv rule, and that the rule was subject to APA rulemaking procedures.
Between the time the appeal was filed and the Federal Circuit’s decision, the Director issued a memorandum clarifying and softening the Fintiv rule, based on a request for public comments that elicited hundreds of submissions. The Director’s memo provided that (1) the Fintiv rule would not apply where a parallel proceeding was at the International Trade Commission; (2) the Board should not deny institution under the Fintiv rule if the petitioner put forward “compelling” evidence of unpatentability; and (3) the proximity-to-trial factor should not be enough to deny institution when other relevant factors weigh in favor of instituting an IPR or are neutral, and that rather than simply looking at the current trial schedule, which is subject to change, the Board should look at the most recent statistics regarding median time-to-trial in the relevant court to determine if the anticipated date of the IPR decision would be proximate to the trial dates. According to the Federal Circuit, its decision in the instant case would not change based on whether it looked at just the original Fintiv factors, or at the Fintiv factors with the Director’s memo.
Taking Apple’s challenges in turn, the Federal Circuit first dismissed Apple’s arguments that the Fintiv rule was both contrary to the patent statute and arbitrary and capricious. The Federal Circuit recounted numerous Supreme Court precedents that affirmed the rule that the Director’s discretion as to whether to institute an IPR is not reviewable. In finding against Apple in this case, the Federal Circuit went on to conclude that challenges to the content of instructions given to the Board by the Director on how to exercise that discretion must also be not reviewable. The Federal Circuit noted that in order to ensure Board decisions comport with USPTO policy, the Director must be able to instruct the Board as to how to carry out the Director’s delegation and make institution decisions on the Director’s behalf and that, therefore, the non-reviewability of IPR institutions must also extend to the content of instructions that the Director gives as to how to determine whether to institute an IPR proceeding. Apple’s arguments that the Fintiv rule was contrary to the patent statute and arbitrary and capricious went to the content of the Director’s instructions, and were therefore barred.
Turning to Apple’s claim that the Fintiv rule should have been subject to notice and comment under the APA, the Federal Circuit distinguished between challenging the content of an instruction, which is not reviewable, and challenging whether the instruction was given in accordance with appropriate rulemaking procedures, which is reviewable. Whereas Apple’s first two arguments went to the content of the Director’s instruction, Apple’s third simply went to whether the Director followed the correct processes in giving the instruction. Therefore, the Federal Circuit held that Apple’s claim that the Director failed to follow the notice-and-comment requirements under the APA was not barred by the non-reviewability of IPR institution decisions, and that the District Court should have considered whether the Fintiv rule comported with APA rulemaking requirements.
The Federal Circuit also found that at least Apple had standing to bring this third challenge, without considering other plaintiffs’ standing. The Federal Circuit noted that the typical “injury in fact” standing requirement can be met by an allegation of future injury, if the threatened injury is certainly impending or there is a substantial risk that the claimed harm will occur. And in the context of a plaintiff arguing that it is entitled to a rulemaking procedure, the “injury in fact” requirement is relaxed further, so that it is enough that there be “some possibility” that the requested rulemaking would prompt the agency to reconsider its decision. Under these relaxed requirements, the Federal Circuit found that Apple had standing based on (1) Apple regularly being sued for patent infringement; (2) the Fintiv rule having the “predictable effect” of leading to the denial of IPR institutions in connection with such lawsuits; and (3) the “genuine possibility” that going through the APA rulemaking process would result in the Fintiv rule being changed in a way favorable to Apple.
Thus, the Federal Circuit reversed and remanded for the District Court to consider whether the Fintiv rule had been improperly issued without notice-and-comment rulemaking, with at least Apple having standing to make that challenge.
The opinion can be found here.
By Tyler Hall
ALSO THIS WEEK
Intel Corporation v. PACT XPP Schweiz AG, Appeal No. 2022-1037 (Fed. Cir. Mar. 13, 2023)
In this case, the Federal Circuit reversed an inter partes review finding that challenged claim 5 of appellee Pact’s U.S. Patent No. 9,250,908 was not shown to be unpatentable over the prior art. The claim was directed to a multiprocessor system that maintains cache coherence (or consistency between copies of locally stored cache memory) through the use of a segmented secondary cache. The Board had found that Intel failed to show a motivation to combine two prior art references, where Intel contended it would have been obvious to replace the discrete secondary caches in one prior art reference (“Kabemoto”) with the segmented cache in another reference (“Bauman”). The Board reasoned that because Kabemoto already purported to address the problem of cache coherence, a person of ordinary skill would not “improve” it by combining it with any element of Bauman, and that Intel had thus failed to show a motivation to combine.
The Federal Circuit disagreed, explaining that the fact “[t]hat Kabemoto and Bauman address the same problem and that Bauman’s cache was a known way to address that problem is precisely the reason that there’s a motivation to combine.” The Court explained that when a known technique has been used to improve one device, and a person of ordinary skill would recognize it could improve similar devices in the same way using the prior art elements according to their established function, there is a motivation to combine. In such instances, there is no need for the challenger to show that the combination actually “improves” either device in a categorical sense—just that the elements of one reference were known to be a “suitable option” for replacing elements of the other.
The Court also reversed the Board’s finding that the prior art failed to show a limitation that both parties agreed was present. Because challenged claim 5 depended from statutorily disclaimed independent claim 4, and because the Board had not reached the additional limitations of claim 5 before rendering its decision, the Federal Circuit remanded for further proceedings.
The opinion can be found here.
Alterwan, Inc. v. Amazon.com, Inc., Appeal No. 2022-1349 (Fed. Cir. Mar. 13, 2023)
In an appeal from a stipulated judgment of non-infringement based on district court claim constructions, the Federal Circuit reversed. The patent at issue had multiple claim terms that were disputed. After the district court’s Markman hearing determining the meaning of the disputed terms, the parties entered a stipulation of non-infringement. However, the stipulation did not establish how a reversal on claim construction would impact the stipulation. For example, did the Federal Circuit need to reverse only on one claim term or both? And to what extent would a change in construction have impacted the stipulation? Alterwan appealed. The Federal Circuit reversed, holding that the stipulation was “ambiguous and therefore defective.” The Court did address one of the disputed claim terms, resolving at least one dispute about it, but noted it was unclear whether the clarification in construction was really the source of the parties’ dispute about that term.
The opinion can be found here.
By Nika Aldrich
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
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