Duck horse - Bizarre Facts Beget Bizarre Result

Before the Federal Circuit’s recent decision in In re Vivint, Inc., Appeal 2020-1992 (Fed. Cir. Sept. 29, 2021), the Patent Trial and Appeal Board affirmed a reexamination examiner’s final rejection of Vivint’s patent claims as unpatentable over prior art. In due course, the Patent Office would have issued a certificate canceling those claims. But Vivint appealed the Board’s decision, not because the examiner’s/Board’s decisions were substantively incorrect, but because the Office should not have ordered reexamination. The AIA’s revisions to the Patent Act give the Board discretion to deny inter parties review and deny requests for ex parte reexamination that present “the same or substantially the same prior art or arguments previously … presented to the Office.” 35 U.S.C. § 325(d). Because the Board exercised that discretion to deny an earlier inter partes review, the court held the examiner had no authority—much less discretion—to later grant and conduct a reexamination of the same patent based on the same substantive attacks. The court therefore vacated the Board’s decision the Office would have applied to cancel the claims, and instructed the Office to dismiss the reexamination. Patent claims the Office concluded are not patentable remain enforceable. This bizarre result has an equally bizarre litigation history.

It all began, quietly enough, when Vivint sued (“Alarm”) for allegedly infringing some patents. Thereafter, Alarm serially petitioned the Board to institute inter parties review (“IPR”) of one of those patents. The Board denied the first two petitions on their merits. The Board exercised its discretion, under Section 325(d), to deny the third petition “as an example of ‘undesirable, incremental petitioning.’” Slip Op. at 3 (quoting the Board). Alarm used the earlier denials of its first two petitions as a roadmap to better ensure a grant of its third petition. According to the court, this type of petitioning often “risks harassment of patent owners and frustration of Congress’s intent in enacting the [AIA].” Id.

Zooming along, undeterred, Alarm later requested ex parte reexamination of the same patent with the same arguments it presented in its denied, third petition. Notwithstanding these similarities, the examiner determined Alarm’s request raised a substantial new question of patentability relative to the patent’s prosecution and, therefore, ordered reexamination. Id. at 4–5. Vivint petitioned the Patent Office to apply Section 325(d) and dismiss the reexamination. But about eight months later, instead of dismissing the reexamination, the Office dismissed Vivint’s petition as untimely, noting it lacked authority to dismiss an ordered reexamination, and warning the Office would expunge any further requests by Vivint to exercise Section 325(d) discretion. In denying Vivint’s subsequent rehearing petition (and expunging it from the record), the Office doubled-down on its dismissal stating further that “granting ex parte reexamination was not inconsistent with denying IPR” because the threshold unpatentability showings for each is different, and reasoning “the differences between [the two proceedings] could justify” the different outcome here. Id. at 6. Reexamination proceeded on the merits and through an appeal to the Board, resulting in a conclusion that the challenged claims are not patentable.

Alarm’s reexamination appeared to have succeeded. On Vivint’s appeal, the Federal Circuit even concluded a reexamination request could present a substantial new question of patentability even though it presents the same questions as an earlier, denied IPR petition, stating that “a question of patentability is new until it has been considered and decided on the merits.” Id. at 8. Here, the Patent Office never previously considered the merits of Alarm’s patentability arguments; instead, the Office ignored them due to the Section 325(d) discretion it exercised to deny the third IPR petition. Id. at 9-10. Thus, the court “h[e]ld the ex parte reexamination in this case was based on a substantial new question of patentability.” Id. at 10.

Regardless, however, of Alarm’s substantial new question of patentability, the reexamination here was all for naught. You see, the court read Section 325(d) to apply not just to the Board’s consideration of IPR petitions but, as its text specifies, also to the Patent Office’s deliberations in deciding whether to order reexamination. Further, Vivint’s opening Federal Circuit brief appended its Office-expunged rehearing petition, and complained that the Office should have exercised that discretion to deny Alarm’s reexamination request. The Office unsuccessfully countered that its exercise of discretion under Section 325(d) is plenary. In disagreeing with the Office, the court noted the exception to judicial review of the Office’s exercise of discretion is narrow and does not apply here. Id. at 11 (citing Honeywell Int’l Inc. v. Arkema Inc., 939 F.3d 1345, 1348 (Fed. Cir. 2019) (discussed here)). Accordingly, the court considered—and then determined—under the Administrative Procedure Act, that the Office behaved arbitrarily and capriciously in exercising discretion to deny Alarm’s third IPR petition yet granted Alarm’s later, substantively-similar reexamination request. In support, the court explained that nothing in the statute or regulations prevented the Office from reconsidering its order granting reexamination. Thus, when the Office refused to reconsider its reexamination order in view of Vivint’s petitions, the Office abused its discretion. Slip Op. at 12–14.

Rarely, perhaps, should a case with similar facts arise again. The court nevertheless emphasized its holding is “narrow,” that Section 325(d) can apply to both IPR institution decisions and reexamination orders, and rejected the government’s argument that there is any meaningful difference in the two proceedings sufficient to justify its exercise of discretion to deny one proceeding yet permit another on the same attacks. Id. at 16. The court also said its ruling is “limited,” acknowledging “a public interest in reexamination that goes beyond the interests, or propriety of behavior, of a particular challenger,” id. at 17, an interest advanced by a Director-initiated reexamination under 35 U.S.C. § 303(a). But the Director, here, did not initiate the reexamination—it rarely ever does, by the way—and his delegates (i.e., the examiner, the Board, and the Office of Patent Legal Administration) offered no reasoned basis for exercising the Director’s discretion to order reexamination.

Even if the court’s decision is “narrow” and “limited,” it offers a bizarre result. Vivint’s unpatentable claims remain enforceable to redress past infringement (because the patent expired during reexamination). But the court did not hold the Director or anyone other than Alarm cannot challenge Vivint’s patent in reexamination. And what the court did not hold may speak louder than anything else when assessing the value of this particular patent’s claims, which the Patent Office, in its vacated reexamination, concluded are not patentable. Separately, the court’s decision may raise the specter of Director-initiated reexamination following the Office’s discretionary denials of otherwise meritorious IPR petitions, especially because the Central Reexamination Unit is far less busy today than it was before the AIA.