Cuozzo Speed Tech, LLC v. Lee: Maintaining a Complicated Status Quo

On Monday, June 20, 2016, the Supreme Court affirmed the Federal Circuit’s ruling in In re Cuozzo Speed Techs, and signaled that certain controversial policies will continue to affect the rights of patent holders.[1] The Court held 6-2 that the Patent Office’s decision to institute an inter partes review proceeding cannot be judicially reviewed, and unanimously blessed the Patent Office’s authority to apply the “broadest reasonable interpretation” method of claim construction in inter partes review proceedings.[2] 

Case History

Cuozzo is the first case challenging inter partes review (IPR) to reach the Supreme Court. IPR was established by Congress in 2011 as a part of the America Invents Act. Anyone may file an IPR petition challenging the patentability of claims in an issued patent on the grounds of novelty or obviousness.[3] If, based on the petition, the Patent Office finds that “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged,” then an IPR proceeding may be instituted.[4] IPR has been incredibly popular, with 4,635 petitions filed in under four years.[5] Congress designed IPR to have a number of benefits over district court litigation, including faster resolution, lower cost, and limited discovery. Those challenging the validity of issued patents have also enjoyed the lower burden of proof, broader claim construction, and high claim cancellation rate.

In 2012, Garmin filed the first ever IPR petition, challenging all 20 claims of Cuozzo’s patent.[6] Particularly, Garmin alleged that claim 17 was obvious in light of three prior art references.  Garmin did not allege that claims 10 and 14 were obvious on the same grounds. Nevertheless, the Patent Office instituted an IPR on claims 17, 14, and 10 based on the same three references. The Patent Office reasoned that because claim 17 depended on claim 14 which depended on claim 10, “Garmin had ‘implicitly’ challenged claims 10 and 14” on the same obviousness grounds.[7] The Patent Trial and Appeals Board then issued its first IPR decision, cancelling claims 17, 14, and 10 of Cuozzo’s patent as obvious in light of the prior art.[8] In that proceeding, the Board gave the claim terms their “broadest reasonable construction in light of the specification,” as required by Patent Office regulations.[9]

Cuozzo appealed to the Federal Circuit, arguing, in part, that (1) the Patent Office improperly instituted an IPR on grounds not argued by the petitioner, and (2) the Patent Office should not have applied the broadest reasonable interpretation standard (BRI) to the claims. The Federal Circuit disagreed, holding that the decision by the Patent Office to institute an IPR is not reviewable under 35 U.S.C. § 314(d), even after a final decision. The Federal Circuit also found that Congress implicitly adopted the BRI standard for IPR proceedings, and the Patent Office permissibly adopted the BRI standard for IPR proceedings.[10]

The Supreme Court granted certiorari with regard to two questions:[11]

1. Did the court of appeals err in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board’s decision whether to institute an IPR proceeding is judicially unreviewable?
2. Did the court of appeals err in holding that, in IPR proceedings, the Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning?

No Judicial Review of the Decision to Institute IPR

The Supreme Court held that the Patent Office’s decision to institute IPR is not judicially reviewable in light of the language of the statute, congressional intent, and the strong presumption in favor of reviewability. First, the Court examined the language of § 314(d), which states: “No Appeal.—The determination by the Director whether to institute an inter partes review under this section shall be final and non-appealable.” The Court reasoned that this language “must, at the least, forbid an appeal that attacks a ‘determination . . . whether to institute’ review[.]”[12]  Cuozzo argued that the Patent Office did not have the authority to institute an IPR in this case, because a related provision, § 312, requires petitions to be pled “with particularity.” The Court was not persuaded by Cuozzo’s argument, noting that at its core, the argument still attacks the determination to institute an IPR. 

Next, the Court reasoned that Congress would not have given the Patent Office “significant power to revisit and revise earlier patent grants” if the “agency’s final decision could be unwound under some minor statutory technicality.”[13] Finally, the Court recognized that there is a strong presumption in favor of judicial review, but found that in this case the presumption was overcome by congressional intent, the text of § 314(d), and the overall statutory scheme, among other evidence.[14]

Justices Alito and Sotomayor dissented from this portion of the opinion, arguing that the better reading of the statute would be to prevent interlocutory appeals, but to allow review of the decision to institute an IPR after the agency’s final decision.[15] The majority countered that it is improper to read limitations into a statute, and noted that the language nowhere mentions interlocutory appeals. Additionally, the majority reasoned that if the statute were read to bar only interlocutory appeals, it would be redundant, as review is already limited to final agency decisions under the Administrative Procedure Act.[16] 

Certain “Shenanigans” May Be Properly Reviewable

The Supreme Court limited its opinion to scenarios where “the grounds for attacking the decision to institute inter partes review consist of questions that are closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review.”[17] The Court left open the possibility of constitutional challenges under § 314(d) that “depend on other less closely related statues” or “present other questions of interpretation . . . well beyond ‘this section.’” For example, the Court stated that review of a final decision is not precluded where “there is a due process problem with the entire proceeding” or where the Patent Office acts outsides its statutory limits, such as if the Patent Office cancelled a claim for indefiniteness in an IPR proceeding.[18]  The Court reasoned that “such ‘shenanigans’” may be reviewable in light of the Administrative Procedure Act, “which enables reviewing courts to ‘set aside agency action’ that is ‘contrary to constitutional right,’ ‘in excess of statutory jurisdiction,’ or ‘arbitrary [and] capricious.’”[19]

A Short Background on Two Claim Construction Standards

To understand the implications of the Court’s ruling on the second issue, it is important to understand why the selection of a claim construction standard for IPR proceedings has been so controversial. One of the most challenging aspects of the patent system is determining how to interpret claims. There are two different standards of claim interpretation: the broadest reasonable interpretation standard (BRI), which is applied to patent applications, and the “ordinary meaning,” or Phillips construction, which is applied to issued patents in the district courts.

When a patent application is filed with the Patent Office, patent examiners are instructed by the Manual of Patent Examining Procedure to give each claim the “broadest reasonable interpretation consistent with the specification” during patent examination.[20] When applied during patent prosecution, the BRI is meant to reduce the chance that “the claim, once issued will be interpreted more broadly than is justified.”[21] Many argue that this policy is justified, in part, because throughout the examination process the applicant is repeatedly allowed to amend his or her claims, or to otherwise make statements limiting claim scope. 

In contrast, in the courts claims are given their ordinary and customary meaning, which is “the meaning that the term would have to a person of ordinary skill in the art in question at the time of the invention.” This interpretation is also called a Phillips construction in reference to the set of claim construction principles articulated by the Federal Circuit en banc in Phillips v. AWH Corp.[22]

There has been some debate about how the broadest reasonable interpretation standard differs from the district court’s Phillips construction, and the answer to that question is still unclear. Nevertheless, the Federal Circuit has indicated that there are at least some cases where the difference may be determinative.[23] This possibility has led to intense debate over which of the two standards should be applied in IPR proceedings. 

The Patent Office’s Power to Institute the Broadest Reasonable Interpretation Standard

Ultimately, the Supreme Court did not opine on the policy question: whether the broadest reasonable interpretation is the right claim construction standard to use in IPR proceedings. Instead, the Court focused exclusively on whether the Patent Office had the authority to institute the BRI standard in IPR proceedings, and whether that choice was reasonable. Again, the Supreme Court began with the statute, in this case § 316(a)(4), which states that the Patent Office “shall prescribe regulations . . . establishing and governing inter partes review under this chapter.” Then the Supreme Court conducted a Chevron analysis.[24]

The Supreme Court began its Chevron analysis by determining Congress did not direct the Patent Office to use any particular claim construction standard. The Court was not persuaded by Cuozzo’s argument that Congress’s grant of rulemaking authority was limited to procedural rules. Cuozzo was also unsuccessful in arguing that because IPR proceedings and court proceedings share many common elements, Congress must have intended the two proceedings to use the same standard of claim construction. The Supreme Court instead noted that Congress created a “hybrid proceeding,” borrowing some elements from district court litigation, and other elements from proceedings at the Patent Office. The Court also determined that the Patent Office had reasonably exercised its rulemaking authority, reasoning that the BRI protects the public from overly broad claims, and that the BRI has been consistently applied at the Patent Office for over 100 years.

Finally, the Court addressed Cuozzo’s two main arguments, which go to the heart of the controversy surrounding the use of the BRI standard in IPR proceedings.  Cuozzo argued that the use of the BRI standard in IPR cannot be justified because: (1) in IPR the right to amend is so limited it is practically non-existent, and (2) the use of the BRI in IPR and the ordinary meaning standard in the district courts is likely to create inconsistent results.

 To understand Cuozzo’s first argument, it is important to remember that one justification for the use of the broadest reasonable interpretation method during prosecution is the applicant’s continued ability to amend the claims. The theory is that if the examiner interprets the claims more broadly than the applicant intended, the applicant can appropriately narrow the claims during prosecution. This process ensures that the scope of the inventors’ patent is commensurate with the scope of their contribution, and that the public is not plagued by overly broad claims. However, as Cuozzo argued, applicants are only given a single limited chance to request an amendment in IPR proceedings. As of the time Cuozzo filed his brief, only 5 out of 86 motions to amend had been granted.  The Court was not concerned by these arguments, but instead lumped together all of the opportunities to amend during prosecution with the single chance to submit an amendment in IPR to find that the process “is not unfair to the patent holder in any obvious way.”[25] The Court also dismissed the small percentage of amendment motions that had been granted, stating that “these numbers may reflect the fact that no amendment could save the inventions at issue, i.e., that the patent should have never issued at all.”[26]

The Supreme Court readily recognized that the different standards in the district court and IPR proceedings may produce inconsistent results. However, the Court was not concerned, reasoning that this possibility “has long been present in our patent system,” and “inherent in Congress’ regulatory design.” The Court further reasoned that even if the claim construction standard were the same in the two proceedings, it would still be possible to reach inconsistent results because “inter partes review imposes a different burden of proof on the challenger.”

Post-Cuozzo

For patent holders, IPR proceedings will likely continue to be a dangerous place. During the first three years, only 51 percent of the claims challenged in an IPR petition survived, and many believe the use of the broad BRI standard is a factor.[27] Additionally, under this opinion the Patent Office may institute IPR proceedings with limited oversight. This opinion precludes challenges to the Patent Office’s decisions to institute an IPR proceeding unless the challenge is on constitutional grounds, or the Patent Office has acted outside its statutory limits. The Court left open the question of when an appeal can be brought on one of these limited questions, emphasizing that they “need not, and do not, decide the precise effect of 314(d)” on these other types of challenges.[28]

Additionally, strategically navigating between IPR proceedings and district court proceedings will continue to involve complicated questions of claim interpretation. Even though the Patent Office finds a patent valid in IPR, a district court might still come to a different conclusion by applying a Phillips construction. As Justice Roberts noted at oral argument, “it’s a very extraordinary animal in legal culture to have two different proceedings addressing the same question that lead to different results,” but the Court’s ruling has done nothing to change this possibility.

Prepared with the assistance of Lydia C. Raw.

[1] In re Cuozzo Speed Techs., LLC, 793 F.3d 1268 (Fed. Cir. 2015).

[2] Cuozzo Speed Tech, LLC v. Lee, 579 U.S. ____, No. 15-446, 2016 WL 3369425, at *8 (U.S. June 20, 2016).

[3] 35 U.S.C.A. § 311.

[4] 35 U.S.C.A. § 314(a).

[5] This is the number of petitions filed between September 16, 2012 and June 22, 2016.

[6] Garmin was not involved in the Supreme Court petition.

[7] Garmin Int'l, Inc. et al. Petitioner, IPR2012-00001 (JL), 2013 WL 5947691, at *10 (Jan. 9, 2013).

[8] Garmin Int'l, Inc., 108 U.S.P.Q.2d 1852 (Nov. 13, 2013).

[9] Id. (citing 37 C.F.R. § 42.100(b) (Sept. 20, 2000); Office Patent Trial Practice Guide, 77 Fed. Reg. 48756, 48766 (Aug. 14, 2012)).

[10] In re Cuozzo, 793 F.3d at 1278–79 (Fed. Cir. 2015).

[11] Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 890 (2016) (order of questions reversed from petition).

[12] Cuozzo, 2016 WL 3369425, at *8.

[13] Id. at *9.

[14] Particularly, the Court found the presumption was overcome by “the text of the “No Appeal” provision, along with its place in the overall statutory scheme, its role alongside the Administrative Procedure Act, the prior interpretation of similar patent statutes, and Congress' purpose in crafting inter partes review[.]” Id. at *8.

[15] Id. at *15

[16] “The Administrative Procedure Act already limits review to final agency decisions.” Id. at *8 (citing 5 U.S.C. § 704).

[17] Id.

[18] Id. Recall that in IPR proceedings patents can only be challenged on anticipation and obviousness grounds.

[19] Id.

[20] MPEP § 2111 (9th Ed. R-07.2015).

[21] Id. (citing In re Yamamoto, 740 F.2d 1569, 1571 (Fed. Cir. 1984)).

[22] 415 F.3d 1303 (Fed. Cir. 2005).

[23] PPC Broadband, Inc. v. Corning Optical Commc'ns RF, LLC, 815 F.3d 747, 756 (Fed. Cir. 2016) (noting that “this case is much closer under the broadest reasonable interpretation standard given the ordinary meanings attributable to the term at issue.”).

[24] A Chevron analysis is a two-step analysis for determining whether a government agency’s interpretation of a statute should be granted deference, and comes from Chevron U.S.A. Inc., 467 U.S. 837.

[25] Cuozzo, 2016 WL 3369425, at *13.

[26] Id.

[27] 3 Years of IPR: A Look At The Stats, Law360 (Oct. 9, 2015).

[28] Cuozzo, 2016 WL 3369425, at *8.