Should the Federal Circuit Be Reviewing Any Part of the Decision to Institute? -- The Versata Dissent-in-part

By Andrew Williams --

As we reported earlier, the Federal Circuit recently affirmed the PTAB's Final Written Decision in the Versata Development Group v. SAP America, Inc. case -- the first appeal under the covered business method ("CBM") patent review procedure.  In so doing, the Court made several ancillary determinations, such as whether the PTAB properly concluded that the patent-at-issue was a "CBM" patent, and if so, whether it was a technological invention (which would have excluded it from review).  Judge Hughes agreed with the majority that the '350 patent claims in that case were invalid under 35 U.S.C. § 101, so he agreed that the Court should have affirmed the Board's ultimate decision.  However, Judge Hughes believed that the AIA took away the Court's jurisdiction to review any aspect of the decision to institute, including the determination whether the patent falls within the scope of CBM patent review.  Moreover, he found the majority's attempts to distinguish the case from In re Cuozzo to be unpersuasive.  Nevertheless, Judge Hughes' dissent highlights a division that now exists at the Federal Circuit regarding PTAB post-grant-review-proceeding appeals that do not directly address the merits of the Final Written Decision.  Patent Owners would be well-advised to frame such appeals as a question of the Board's "ultimate authority to invalidate," rather than a question of the Board's authority to institute.

In explaining his position, Judge Hughes logically started with the wording of the statute.  35 U.S.C. § 324(e) states: "The determination by the Director whether to institute a post-grant review under this section shall be final and nonappealable."  As such, he explained, there is an unambiguous bar to judicial review at any time.  This is supported by 35 U.S.C. § 329, which provides that:  "A party dissatisfied with the final written decision of the [Board] under section 328(a) may appeal the decision [to the Federal Circuit.]" (emphasis added).  This position is also supported by the structure for the PTAB patent trials established by the AIA, by which the decision to institute is considered to be final, and therefore is not revisited during the merits phase of review (the trial).  Finally, Judge Hughes noted that his interpretation is also supported by the purpose behind these post-grant review proceedings.  Congress intended them to be a quick and cost-effective alternative to district court litigation, but if the Federal Circuit was able to second guess every decision to institute, especially after the parties and the Board had expended significant resources to reach the Final Written Decision, this goal would be frustrated.

The majority, however, would not have necessarily disagreed with this analysis by Judge Hughes.  Instead, the majority made a distinction between the decision to institute and the Board's "invalidation authority under § 18" (which would fall outside the scope of § 324(e)).  In other words, the majority essentially said (at least according to Judge Hughes) that if a patent is not properly subject to CBM review, that patent should not have been ultimately invalidated, and because of that we can review that issue.  Of course, the dissent points out that this would eviscerate § 324(e), because properly viewed, every institution decision would look this way.

The crux of the distinction would appear to be found in the Cuozzo decision itself.  Even though Judge Hughes believes that this prior case controls here, the majority pointed to an important distinction found in that decision.  In Cuozzo, the Board instituted a ground of obviousness that was not present in the filed petition.  All of the invalidating art was present in the petition, but the Board crafted its own obviousness rejection based on its selection of this art.  The Federal Circuit noted that they could not review this institution, in part, because the alleged defect was cured.  In other words, the petitioner could have drafted a proper obviousness ground.  In the present case, if the patent was not subject to CBM review, the defect could not be cured -- or put another way, it would not have been possible for the petitioner to have crafted a valid ground of rejection.  Even though Judge Hughes did not agree with this reading of the Cuozzo decision, he did highlight the fact that this is now a valid mechanism to challenge an issue that might otherwise be framed as one related to institution.  Instead, a patent owner wishing to appeal such an issue related to the decision to institute would be wise to frame that question as one of the Board's ultimate authority to invalidate if they wish to have any success at the Federal Circuit.  Of course, unfortunately, that advice does not run both ways.  If a petitioner wishes to appeal a Final Written Decision upholding the validity of a patent, or some of its claims, the petitioner will most likely not want to argue that the trial should not have been instituted in the first place.

Comments

[EG]

Hey Andrew,

As I've noted in my article posted Monday on IPWatchdog, as well as David Boundy's article posted on Patently-O much earlier relating to the Cuozzo Speed Technologies cases, the Federal Circuit needs to consider not only what is reviewable in view of the AIA, but also the overriding appellate review command of the APA which is not specifically excluded by the AIA. If the PTAB institutes a CBM or IPR proceeding that is clearly not in compliance with the PTAB's own regulations for such procedures (as allegedly occurred in the Cuozzo Speed Technologies situation), or which is "not in accordance with law" in terms of what is defined as a CBM under the AIA, the APA (not the AIA) controls such appellate review.