The PTAB recently issued an order applying the estoppel provision of the AIA (35 U.S.C. § 325(e)(1)) to dismiss a petitioner from covered business method (CBM) patent review proceedings a few days before a consolidated final hearing. Apple Inc. v. Smartflash LLC, CBM2015-00015, Paper 49 (PTAB Nov. 4, 2015) (common order involving CBM2015-00016 and CBM2015-00018). The order is significant because it offers guidance on how the PTAB interprets this provision and applies it to decide whether a petitioner “reasonably could have raised” a patentability challenge clarified by a Supreme Court decision that was not available during an earlier CBM proceeding involving the same parties, the same patent, and the same claims.

Apple successfully challenged claim 1 of U.S. Patent No. 8,118,221 in CBM2014-00102 and claim 1 of U.S. Patent No. 8,033,458 in CBM2014-00106. In both proceedings, the PTAB recently issued final written decisions canceling claim 1 of each patent as being obvious under 35 USC § 103. Appeals in both may be expected. Apple never challenged these claims in these CBM proceedings under 35 U.S.C. § 101. But, while the PTAB’s decisions were pending in these proceedings, Apple successfully petitioned the PTAB to institute new CBM proceedings in which Apple challenged those same claims on the basis of § 101 and the Supreme Court’s decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). After the PTAB issued its final written decisions in the earlier CBM proceedings, it ordered the parties to explain why the estoppel provision should not prevent Apple from maintaining in the new CBM proceedings its § 101 ground—a ground not raised in the earlier CBM proceedings.

The estoppel provision provides that a “petitioner in a [CBM] review of a claim …that results in a final written decision under [35 U.S.C. §] 328(a) … may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that [CBM] review.” 35 U.S.C. § 325(e)(1) (emphases added). (Note that the CBM estoppel provision for district court or ITC proceedings is more narrow, limited to grounds actually “raised” in the CBM. See AIA § 18(a)(1)(D).) Apple argued that the PTAB has applied § 101 differently in CBM proceedings after Alice—a decision that was not available when Apple sought institution of the earlier CBM proceedings. In support, Apple cited the PTAB’s institution decision in Westlake Servs., LLC v. Credit Acceptance Corp., CBM2014-00176, Paper 15 at 11-12 (PTAB Feb. 9, 2015), that acknowledged the guidance Alice introduced in the § 101 analysis and how that guidance led the PTAB to institute a proceeding where it previously refused to do so. According to Apple, Alice significantly clarified the correct standard for evaluating the patent-eligibility of computer-related inventions and, thus, Apple could not reasonably have raised the § 101 challenge earlier.

The PTAB did not agree with Apple. In related litigation between these same parties on the same patents, the Federal Circuit explained that “Alice did not create a new § 101 defense, but rather clarified § 101 jurisprudence. A party cannot wait to assert an available defense as litigation marches on ….” Smartflash LLC v. Apple Inc., Slip op. at 12 (Fed. Cir. July 30, 2015) (non-precedential) (emphases in original). Consistent with the Federal Circuit’s characterization, the PTAB stated that the estoppel provision “does not make exceptions for intervening case law that merely clarifies jurisprudence.” Accordingly, the PTAB determined that Apple “reasonably could have raised” a § 101 challenge in the earlier CBM proceedings and before the Court’s Alice decision.

The evidentiary record in the new CBM proceedings was closed and the consolidated oral hearing was scheduled to occur on November 9, 2015. Apple wanted to participate in that hearing and, thus, argued that “maintain a proceeding” in the estoppel provision means “active participation in the proceeding while the evidentiary record remains open,” but it does not encompass participation in the oral hearing. The PTAB again disagreed, concluding that the phrase includes presenting arguments at the oral hearing and, thus, decided that Apple may not present arguments at the hearing pertaining to the patentability of these claims. Further, the PTAB dismissed Apple from the proceedings, perhaps leaving Apple free to present the same § 101 arguments another day in a civil action if it is able to persuade that court the litigation estoppel provision (AIA § 18(a)(1)(D)) does not apply.

Although the PTAB dismissed Apple from the proceedings, the PTAB did not terminate the proceedings. The PTAB explained that there is “a public interest in resolving issues raised by these challenges because the record is fully developed.” Its final written decisions in these proceedings can be expected by early April of 2016. As of the end of its 2015 Fiscal Year, the PTAB reported that only 4% of its final written decisions in CBM review proceedings had confirmed the patentability of all of the challenged claims. Thus, while Apple lost this fight and has been dismissed from these proceedings, Smartflash may well lose its claims.