Contributors: Akin Gump
Strauss Hauer & Feld LLP
Statements in Form 10-K Lead to Successful Discovery Motion of Product Sales Before PTAB
by Jonathan James Underwood & Rubén H. Muñoz
Patent Trial and Appeal Board, Inter Partes Review
June 14, 2021
Following institution of inter partes review, the Patent Trial and Appeal Board granted a patent owner’s motion for additional discovery directed to objective indicia of non-obviousness. The patent owner sought the production of sales and revenue data for the petitioner’s product that, according to the patent owner, was an embodiment of the invention claimed in the challenged patent. The board found that patent owner had shown that the discovery was in the interests of justice upon analyzing and weighing the five Garmin factors. Garmin Int’l, Inc. v. Cuozzo Speed Techs. LLC, IPR2012-00001 (Mar. 5, 2013) (Paper 26) (Precedential).
Under the first Garmin factor, the board found that the patent owner had provided evidence showing that it was “more than a possibility and mere allegation” that the request sought documents “favorable in substantive value to” the patent owner’s contention regarding commercial success of the invention. The board found that statements in the petitioner’s 10-K adequately linked the launch and sales of the petitioner’s product to the overall sales of a business segment that the 10-K stated “continues to excel.” The board explained that the 10-K provided only undifferentiated sales figures for the segment, but there was no dispute that the information about the product existed and would address commercial success.
Regarding nexus, the board rejected the petitioner’s argument that the patent owner had not yet “fully demonstrated” that the product was an embodiment of the claimed invention. The board explained that at the early stage of the proceeding, the patent owner had adequately established a presumption of nexus through its element-by-element mapping of exemplary claims to publicly available information about the product.
Turning to the second Garmin factor, the board agreed with the patent owner that the request did not seek the petitioner’s litigation positions or the underlying basis for those positions.
For the third Garmin factor, the board found that the patent owner could not generate information equivalent to the petitioner’s sales documents. The board explained that even if market reports and other competitive intelligence provided some information that is generally relevant to commercial success, such information would still not be the equivalent of the actual information sought. The board also rejected the petitioner’s argument that the information could be obtained through discovery in co-pending district court litigation between the parties. The board explained that the information could not be considered reasonably available from that source because the patent owner was due to file its patent owner response shortly and the petitioner had refused to provide the discovery in that litigation based on a pending motion to stay the litigation.
Finally, when considering the fourth and fifth Garmin factors, the board found that the patent owner had provided easily understandable instructions and that the request was not overly burdensome. The board rejected the petitioner’s argument that the request was “vague and unbounded.” Rather, by defining the product as including “prototypes, releases, iterations, versions, and models,” the request simply avoided being limited to a specific trade name. Moreover, the board explained that the request was not vague and unbounded by seeking documents showing revenue “derived from” sales of the product. Rather, if necessary, the parties could meet and confer to address the scope of the requests.
Practice tip: The grant of additional discovery in IPR proceedings requires a showing that such a request is in the interests of justice. To meet that burden, a party should already be in possession of evidence tending to show beyond speculation that something useful will be uncovered. As such, parties are well advised to scour the pubic record, including mandatory filings with government agencies. Where discovery pertains to objective indicia of non-obviousness, such as commercial success, parties should bear in mind the required showing for nexus.
Brunswick Corp. v. Volvo Penta of the Americas, LLC, IPR2020-01512, Paper 25 (PTAB May 12, 2021).
Supreme Court Rules PTAB Decisions Subject to Discretionary Review by PTO Director and Vacates Federal Circuit Decision in Arthrex
by Rachel J. Elsby, Z.W. Julius Chen, Michael P. Kahn, Rubén H. Muñoz & Pratik A. Shah
Supreme Court, Inter Partes Review, Patent Trial and Appeal Board
June 22, 2021
The Supreme Court issued its decision in United States v. Arthrex, Inc., which considered whether Administrative Patent Judges’ (APJs) authority to issue decisions in inter partes reviews on behalf of the executive branch is consistent with the Appointments Clause of the Constitution. In a fractured decision, the Court held:
▪ As to the merits, the unreviewable executive power exercised by APJs conflicts with the design of the Appointments Clause “to preserve political accountability,” and is incompatible with their appointment by the Secretary to an inferior office.
▪ As to remedy, the statutory provision providing that only the Patent Trial and Appeal Board (PTAB) may grant rehearing cannot constitutionally be enforced to the extent that its requirements prevent the Director from reviewing final decisions. Accordingly, final written decisions from the PTAB will be subject to review by the Director, who need not review every decision.
This decision may have important implications for pending appeals in which the Arthrex issue has been preserved—it is likely that those cases will be subject to remand, as is the case here, for the Acting Director to consider rehearing. However, the Court made clear that parties are not entitled to rehearing before a new panel of APJs.
Arthrex sued Smith & Nephew Inc. for infringing its U.S. Patent No. 9,179,907. Smith & Nephew subsequently filed a petition for inter partes review of the ’907 patent, and a panel of three APJs ultimately found the relevant claims of the ’907 patent anticipated.
On appeal to the Federal Circuit, Arthrex challenged whether APJs are principal officers, and as a result, their appointment by the Secretary of Commerce was unconstitutional. The Federal Circuit held that APJs are principal officers, not inferior officers, and invalidated the tenure protections available to APJs in an effort to remedy the constitutional infirmity. The Federal Circuit reasoned that, by making APJs removable at will by the Secretary, they were rendered inferior officers. The Federal Circuit also remanded the case to be heard by a new panel of APJs who no longer enjoyed removal protection.
More on the Court’s Decision
The Court’s controlling decision today authored by Chief Justice Roberts holds that the appointment of APJs by the Secretary of Commerce is unconstitutional. Yet the Court addressed that Appointments Clause violation by holding that, as inferior officers, APJs must be directed and supervised at some level by someone who was appointed by the President with the advice and consent of the Senate—specifically, by subjecting PTAB decisions to discretionary review by the United States Patent and Trademark Office (USPTO) Director.
Chief Justice Roberts explained that no principal officer at any level of the executive branch directs and supervises APJs when it comes to their power to issue decisions on patentability: “APJs have the ‘power to render a final decision on behalf of the United States’ without any such review by their nominal superior or any other principal officer in the Executive Branch.” In short, “[i]n all the ways that matter to the parties who appear before the PTAB, the buck stops with the APJs, not with the Secretary or Director.” Consequently, the President can neither oversee the PTAB nor attribute its determinations to someone he can oversee, meaning that APJs exercise unreviewable executive power that is incompatible with their status as inferior officers.
In reaching its conclusion, the Court rejected the government’s argument that the Director has the ability to stack APJ panels to rehear a case and indirectly influence the outcome of an inter partes review, stating “That is not the solution. It is the problem.” By stacking a panel to procure a specific result, the Director would continue to evade responsibility for the decision, while depriving parties of an impartial panel of experts. Thus, it is not enough that the Director can remove an APJ without cause because such action does not address any errors in final written decisions issued by that APJ.
In fashioning a remedy, the Court rejected Arthrex’s request to hold the inter partes review regime unconstitutional. Instead, the Court took a “tailored approach.” Namely, the Court held that “[d]ecisions by APJs must be subject to review by the Director.” According to the Court, this adjustment to the statutory scheme cures the Appointments Clause problem, consistent with the fact that Congress vested the Director with the power and duties of the USPTO. The Court then remanded the case to the Acting Director to consider whether to rehear the inter partes review petition filed by Smith & Nephew, but denied Arthrex’s request to a hearing before a new panel of APJs.
Additional Opinions of the Court
Justices Thomas, Breyer, and Gorsuch authored separate opinions.
Justice Thomas dissented, finding no Appointments Clause violation. He “would simply leave intact the patent scheme Congress has created.”
Justice Breyer, joined by Justices Sotomayor and Kagan, concurred in part in the judgment and dissented in part. Those Justices joined Justice Thomas’s dissent in part, also finding no constitutionality infirmity because “the Court should interpret the Appointments Clause as granting Congress a degree of leeway to establish and empower federal offices.” Nevertheless, Justice Breyer’s opinion (unlike Justice Thomas’s decision) reluctantly agreed with the Court’s remedial holding subjecting APJ decisions to review by the Director.
Justice Gorsuch agreed that the lack of reviewability between APJs and a superior officer violates the Appointments Clause, but disagreed regarding the remedy. Instead, Justice Gorsuch would have stopped at setting aside the PTAB decision in this case.
If you have any questions concerning this alert, please contact:
Rachel J. Elsby
Z.W. Julius Chen
Rubén H. Muñoz
Michael P. Kahn
Pratik A. Shah
Timing is Everything: Accused Infringer’s IPR Victory Estops Its Own Prior Art Invalidity Defenses, but Does Not Estop Plaintiff from Asserting Infringement
by Andy Rosbrook, Daniel L. Moffett & Rubén H. Muñoz
Patent Trial and Appeal Board, Inter Partes Review, Prior Art, 35 U.S.C. § 315(e)(2) estoppel
July 09, 2021
Inter partes review (IPR) proceedings can give rise to statutory and collateral estoppel. But these two bases for estoppel attach at different times, which can lead to asymmetrical outcomes in related district court proceedings. One such situation arose in a recent pre-trial ruling in the District of Delaware, where a plaintiff was permitted to continue asserting patent claims that were found unpatentable in an IPR while the defendant was prevented from asserting prior art to defend itself at trial.
While litigation was pending in TrustID, Inc. v. Next Caller Inc., the defendant challenged the asserted patent claims in a parallel IPR proceeding. The defendant won and the Patent Trial and Appeal Board (PTAB) issued a final written decision finding the asserted claims unpatentable. The plaintiff appealed and, while the appeal was pending, the parties filed motions in limine in the district court litigation based on the PTAB’s decision.
The plaintiff’s motion in limine sought to bar the defendant from raising six prior art references at trial based on IPR estoppel under 35 U.S.C. § 315(e)(2), which bars an IPR petitioner from raising invalidity grounds in district court that it raised, or reasonably could have raised, in the IPR proceeding. Importantly, IPR estoppel attaches as soon as the PTAB issues a final written decision. The court granted plaintiff’s motion, finding that estoppel applied because a final written decision had been entered in the IPR and because the references were either known to the defendant or could have been found by a diligent searcher.
At the same time, the defendant moved to apply traditional collateral estoppel to preclude the plaintiff from asserting the patent claims that the PTAB found unpatentable. The court denied the defendant’s motion. For collateral estoppel to apply, there must be a final judgment in place; according to the court, an unaffirmed final written decision in an IPR is not sufficiently final to trigger collateral estoppel. Drawing on the Federal Circuit’s rationale across multiple cases, the district court explained that “an IPR decision does not have preclusive effect until that decision is either affirmed or the parties waive their appeal rights.” Thus, because the plaintiff had not yet exhausted its appellate rights, collateral estoppel did not bar the plaintiff from asserting claims that the PTAB found unpatentable. The court also included a footnote detailing an alternate basis for refusing to apply collateral estoppel, explaining that because the burden of proving unpatentability in an IPR is not as high as the “clear and convincing evidence” standard applied in district court, the issues in the two proceedings were not identical.
The court acknowledged that it seems counterintuitive that a PTAB finding of unpatentability could result in a plaintiff continuing to assert infringement while barring the defendant from raising prior art invalidity defenses. Nevertheless, according to the court, because different types of estoppel attach at different times, “it is a permissible result that follows from the statute and relevant case law.” Moreover, while the court recognized that any perceived asymmetry could be resolved by staying the case pending the appeal of the PTAB’s decision, the court declined to do so given the late stage of the long-pending case and the “significant inefficiencies” that a stay might cause.
Practice Tip: Multi-venue patent disputes carry with them the inherent potential for issues of estoppel to arise. Thus, parties involved in patent litigation should take into account the timing and the effect that any given ruling from one venue may have on a parallel proceeding. Accused infringers, in particular, should recognize the triggering points for statutory and collateral estoppel to plan and time their challenges at the PTAB in the most effective manner.
TrustID, Inc. v. Next Caller Inc., C.A. No. 18-172 (D. Del. Jul. 6, 2021) (Noreika, J.).