Supreme Court Tells the Patent Office That IPR Proceedings Are “All-or-Nothing” Affairs

4/27/2018 Articles

On April 24, 2018, the same day that the Supreme Court upheld the constitutionality of inter partes review (IPR) challenges to issued patents in one decision (Oil States Energy Services v. Green’s Energy Group), it also issued a decision in SAS Institute, Inc. v. Iancu addressing a far more discrete procedural point that may ultimately have a more profound impact on these types of Patent Office proceedings. 

In a decision that was unusually close for a patent case, the 5-4 majority opinion authored by Justice Gorsuch rejected the Patent Office practice of instituting IPRs on some, but not all, of the claims challenged by the petitioner.  The IPR procedure has been heavily used by parties accused of patent infringement, and this decision may substantially increase the workload on the Patent Office—or lead to significant changes in other Patent Office rules and practices to limit the impact of the Court’s decision.

The SAS Institute Decision

No More Partial Institutions:  The IPR procedure implemented in 2012 has been a route of choice for many defendants sued for patent infringement.  The procedure allows a party to petition the Patent Trial and Appeals Board (PTAB) to invalidate some or all of the claims in an issued patent based on one or more different grounds.  To manage its workload, the PTAB commonly institutes review on claims where it sees a solid argument, but not on other claims where the argument appears to be weaker.  The SAS Institute decision rejected this “partial institution” practice and held that when an IPR is instituted, the PTAB must review all of the challenged claims.

While the decision addressed a nuts-and-bolts issue of patent law, it turned on the more general law of statutory construction.  The majority took a highly textual approach, finding that when the relevant statute says that the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner,” that means all claims challenged by the petitioner – not just the ones the PTAB decides to review.  The majority analogized an IPR proceeding to a district court lawsuit, saying the petitioner is the “master of its complaint” and therefore is entitled to judgment on all issues it raises.  The majority further noted that Congress knows how to draft a statute to permit patent review on a “claim-by-claim and ground-by-ground basis” (as in the pre-existing patent reexamination process), but it did not do so for IPRs. 

No Deference Under the Chevron Doctrine:  The majority noted specifically that the SAS Institute decision does not overrule the Chevron doctrine, which directs courts to defer to an agency’s interpretation of a statute when its meaning is unclear.  Instead, the majority sidestepped Chevron by finding the relevant statutory language—and Congress’ intent in adopting it—to be “clear.”  While the majority declined the patent owner’s invitation to simply do away with the Chevron doctrine, the majority did state suggestively that “whether Chevron should remain is a question we may leave for another day.”

The Dissent:  The four dissenting justices provided two opinions criticizing the majority decision.  Justice Ginsburg referred to the majority approach as a “wooden reading” of the relevant statute and suggested it is incorrect because the Patent Office can continue to selectively review patents but will have to apply cumbersome new procedures to do so, which cannot be what Congress had in mind.  Justice Breyer authored the other dissent and took a more holistic approach to the statutory language, viewing the IPR procedure as a whole to provide context for his contrary statutory construction.  He also identified ambiguities in the statutory scheme and would apply the Chevron doctrine to defer to the Patent Office’s reading of the statute.

Practical Impact of SAS Institute

IPRs Will Address All Challenged Claims:  Under the SAS Institute decision, the PTAB can no longer “prune” IPR petitions to focus on some, but not all, of the patent claims challenged in the petition.  The decision was less clear about the PTAB practice of excluding invalidity theories it finds redundant.  IPR petitioners commonly challenge a given patent claim based on multiple grounds, and the PTAB has often exercised its discretion to institute a review based on one ground of invalidity but not another.  While not specifically addressed in the decision, the binary nature of institution decisions described in SAS Institute (i.e., institute vs. don’t institute) suggests that the PTAB practice of selecting specific invalidity grounds for review is also at an end.  Indeed, the PTAB issued “guidance” just two days after the decision issued stating that going forward it “will institute as to all claims or none” and that, at least for the time being, if an IPR is instituted, “the PTAB will institute on all challenges raised in the petition.”

This new all-or-nothing approach to IPRs will certainly lead to additional work for the patent judges, at least in the near term, and may significantly impact the overall speed of the process.  It is more difficult to predict other less direct consequences of the increased workload.  For instance, the PTAB could begin issuing institution decisions that address only one claim without discussing the strengths or weaknesses of any other challenged claims.  This would be a major departure from the current practice in which the institution decision frames the overall review with regard to each claim under review.  It is also possible that the PTAB will begin to exercise its discretion to reject petitions when it concludes that some threshold portion of the petition is weak, even if one or more of the claims is otherwise subject to review.  Time will tell.

The SAS Institute decision may also incentivize petitioners to “prune” their own petitions to leave out marginal arguments.  Previously, there was little harm in adding a somewhat weaker claim to an otherwise solid petition.  But under the new “all-or-nothing” regime, the petitioner risks having an IPR instituted on all claims—including the marginal one—and having some of the claims survive a full review.  And, as noted above, the petitioner may also run the risk of the PTAB concluding that some portion of the petition is weak and deciding to reject the petition in its entirety.

More Appellate Review:  The PTAB’s institution decision on a particular IPR petition is not appealable.  Previously, the PTAB could decline to institute a review of specific claims and that decision was not subject to appeal.  Now, under SAS Institute, all of the challenged claims will be addressed in an IPR and therefore the final decision on all claims—whether canceling or upholding them—will be subject to appellate review. 

The Road Ahead:  Even before SAS Institute issued, newly confirmed PTO Director Andre Iancu had already expressed a desire to revamp and rebalance the regulations governing IPRs.  Now, the Supreme Court’s SAS Institute decision gives him both the opportunity and the obligation to do so, because it requires immediate and potentially dramatic changes in how the Patent Office handles IPRs.