crossed fingers at handshake as a symbol of breach of contract

The Federal Circuit continues to declare aspects of the PTAB’s work to be beyond its review.  Most recently, in Husky Injection Molding Systems Ltd., v. Athena Automation Ltd., Case Nos. 2015-1726, 2015-1727 (Fed. Cir. Sept. 23, 2016), the Federal Circuit, in a 2-1 decision, concluded that it lacked authority to question the PTAB’s refusal to extend the equitable doctrine of assignor estoppel to PTAB proceedings. We previously reported on the Federal Circuit’s opinion regarding the merits of the PTAB’s Final Decision invalidating the Husky patent. The following discussion instead focuses on those aspects of the Federal Circuit’s opinion concerning appellate review of the Board’s decision to institute review.

Petitioner Athena sought by means of inter partes review to invalidate several claims of Husky’s patent directed to improvements in injection molding technology. The named inventor on the patent, who had earlier assigned his interest in the patent to his company, Husky, later sold Husky to a group of inventors.  Thereafter, he formed the petitioner, Athena.

Before the Board, Husky unsuccessfully argued that the doctrine of assignor estoppel barred Athena’s action because Athena was in privity with the individual from whom Husky had acquired its rights in the patent.  The doctrine of assignor estoppel is an equitable device that prevents “one who has assigned the rights to a patent (or [a] patent application) from later contending that what was assigned” lacks value. Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220, 1224 (Fed. Cir. 1988).

The Board observed that its statutory mandate was broad—providing that any person, not the owner of the patent, may petition for review—and that this broad mandate did not admit of the exceptions Husky advocated. In addition, the Board compared its mandate against that of the International Trade Commission (ITC), where by statute ITC investigations permitted “all legal and equitable defenses.”

On appeal from the Board’s decision to invalidate several of its claims as anticipated, Husky argued that the Board acted outside of its statutory authority in instituting the IPR.  The Federal Circuit, however, noted that Congress had restricted its review of PTAB decisions.  Section 314(d) of Title 35 provides that “the determination by the Director whether to institute inter partes review . . . shall be final and nonappealable.” The Federal Circuit reviewed its recent jurisprudence regarding the effect of this provision and concluded that there existed only narrow circumstances in which it was free to question the decision of the PTAB to institute review.

[A]any question concerning assignor estoppel necessarily implicates who may petition for review, and . . . falls outside of the narrow exceptions to the otherwise broad ban on our review . . .

The Federal Circuit offered a somewhat confusing two-part framework–inherited from the Supreme Court– for determining when it was empowered to review an institution decision:

First, we must determine whether the challenge at issue is “closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review,” or if it instead “implicate[s] constitutional questions,” “depend[s] on other less closely related statutes,” or “present[s] other questions of interpretation that reach, in terms of scope and impact,” “well beyond ‘this section.’” If the latter, our authority to review the decision to institute appears unfettered. But if the former, § 314(d) forbids our review. One further exception remains, however. At the second step of the inquiry, we must ask if, despite the challenge being grounded in a “statute closely related to that decision to institute,” it is nevertheless directed to the Board’s ultimate invalidation authority with respect to a specific patent,  If so, we may review the challenge. (Citations omitted)

Crystal clear, right?

Using this framework, the Federal Circuit addressed whether the PTAB may institute inter partes review in circumstances in which the doctrine of assignor estoppel would otherwise preclude a party from challenging the validity of a patent.  The Federal Circuit first concluded that the attack did not fall within the area of “unfettered” appellate review.  The Federal Circuit easily concluded that the question did not implicate constitutional concerns, such as due process.

The Federal Circuit then noted the attack depended upon an interpretation of Section 311 of the statute, which provides that “one not the owner” may file a petition.  Should former owners of the patent be barred from petitioning for review?  For the Federal Circuit, whether it was empowered to review the PTAB’s answer to this question hinged on whether the Section 311 was  “closely related,” or was “less closely related,” to the Director’s authority to institute in Section 314.

First defining “closely related,” the Federal Circuit  concluded that any statute that defines the “metes and bounds” of the inter partes review process is “necessarily” closely related to the institution of review.  Using this yardstick, the court characterized Section 311, the statute that defines who may petition for review, as very closely related.

Battling back, Husky argued that assignor estoppel ultimately concerns the “interpretation of an issue that reaches, in terms of scope and impact, well beyond Section 314.”  Unpersuaded, the Federal Circuit noted that Section 314 empowers the Director to initiate inter partes  review where there is a reasonable likelihood that the petitioner would prevail in its challenge.  In the view of the Federal Circuit, this statute expansively “pertains to arguments concerning patentability and the necessary strength of those arguments.” Assignor estoppel, according to the Federal Circuit, implicates those same concerns.

“How?” you may ask.  Well, if assignor estoppel applies, then any petition filed by such an assignor must fail, and any petition that fails institution is one that necessarily falls short of the “reasonable likelihood” standard that empowers the Director to institute.  Ipso facto, the impact of assignor estoppel cannot be divorced from the scope of Section 314, and review is prohibited. You can be forgiven if that made you dizzy.

But the Federal Circuit was not done with these formulaic contortions.  It now asked whether assignor estoppel nevertheless related to “the Board’s ultimate invalidation authority.”  The Federal Circuit concluded it did not.

The court recounted the history of two prior decisions in which it had grappled with its power to review PTAB institution decisions.  In Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306 (Fed. Cir. 2015), the court held that it was free to review institution where the question was whether the particular patent met the statutory definition for CBM review. There, according to the court, the question related to the Board’s ultimate authority to invalidate that patent.   In contrast, the court noted in Achates Reference Publ’g, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015), that it could not review institution where the question was whether the petition was filed beyond the statutory deadline.  [link] The court explained that there the question was merely whether a particular party would be allowed to seek review, not whether review of the patent was available to any party.  Thus, appellate review of the Board’s institution decision was unavailable because the grounds on appeal did not relate to the “Board’s ultimate invalidation authority.”

In view of this history, the Federal Circuit deemed the question of assignor estoppel to be more in line with Achates than with Versata—more a question of who could challenge the validity of the patent, not whether the patent could be challenged. As a result, the Federal Circuit declared that it was not empowered to review the Board’s institution decision on this ground.

Judge Plager dissented, and warned that “the majority’s view may contribute to the already-existing confusion regarding which matters this court can review on appeal[.]”  Judge Plager suggested that the reviewability of the Board’s decision should not depend upon the Board’s characterization of that decision as an “interpretation” of a statute (i.e. Section 311) deemed “closely related” to the statute enabling institution (Section 314).  He argued that Section 311, governing who may petition for review, could just as easily have been characterized as a statute “less closely related” to Section 314’s description of what circumstances justify institution.  Judge Plager also suggested that this equitable defense, long recognized in the law, may need to be addressed wholly apart from the two-part framework.

The Federal Circuit’s two-part “framework’ for resolving these question seems a little outcome driven, and does not appear to offer meaningful guidance.  One litmus test that emerges perhaps more clearly from the court’s decision is that any ground of attack on institution that does not affect all petitioners is unlikely to attract appellate review.  Another consequence of the Federal Circuit’s decision is mischief:  IPR proceedings are now available to assignors for value who seek to undue their deals.