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IP Alert: Federal Circuit Sets Stringent Standard for Appeal of PTAB Institution Decisions

September 28, 2016

The U.S. Court of Appeals for the Federal Circuit recently issued a significant opinion delineating the court’s own authority to review the Patent Trial and Appeal Board’s (PTAB’s) decisions to institute inter partes review. In Husky Injection Molding Systems Ltd. v. Athena Automation Ltd., the court set forth a two-part test that appellants must pass before the court will entertain an appeal of an institution decision. The test imposes a high standard that is typically difficult for appellants to meet.

Husky and Athena are competitors in the injection molding market. Husky’s former owner and president, Robert Schad, is a co-inventor of U.S. Patent 7,670,536. In 2007, Schad assigned the ’536 patent to Husky. Shortly thereafter, Schad sold Husky to a private equity group, and left to form Athena. In 2012, Athena filed a petition for inter partes review at the PTAB, challenging the patentability of all 22 claims of Husky’s ’536 patent.

Before the PTAB, Husky argued that assignor estoppel barred Athena from filing a petition for review. The doctrine of assignor estoppel is a non-statutory equitable doctrine that in the patent infringement context can prohibit an assignor, or those in privity with the assignor, from challenging the validity of the patent. Husky argued that Athena is in privity with Schad, the assignor of the ’536 patent, and, as such, is estopped from challenging the claims of the ’536 patent. The PTAB rejected Husky’s assignor estoppel argument and instituted review, ultimately concluding that some of the patent claims challenged by Athena were invalid.

Both parties appealed. Husky’s appeal focused exclusively on the assignor estoppel issue, arguing that the PTAB acted outside of its statutory authority when it instituted review. Athena argued that the PTAB should have invalidated additional claims of the ’536 patent.

Considering first Husky’s appeal, the Federal Circuit determined that it was jurisdictionally barred from hearing this appeal, and dismissed Husky’s appeal for lack of jurisdiction. Under 35 U.S.C. § 314(d), “the determination by the Director whether to institute inter partes review under this section shall be final and nonappealable.” The Federal Circuit explained that the “nonappealable” language of this statute is consistent with Congressional intent to allow the USPTO broad authority to efficiently review issued patents. Section 314(d) prohibits most appeals of decisions to institute, and the Federal Circuit may only review a challenge to the decision to institute an inter partes review if the challenge relates to the PTAB’s ultimate authority to invalidate a particular patent. That ultimate invalidation authority is tied to the patent challenged and the nature of the review requested. For example, in an appeal from covered business method (CBM) review, the Federal Circuit can review whether the challenged patent satisfies the criteria for institution of CBM review, because that question necessarily relates to the PTAB’s authority to invalidate the patent.

The Federal Circuit articulated a two-part inquiry for determining whether it may review a particular challenge to the decision to institute. In the first step, the Federal Circuit will 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,” in which case section 314(d) forbids review. If instead the challenge “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,” the Federal Circuit has “unfettered” authority to review the decision to institute.

At the second step of the inquiry, the Federal Circuit will 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, the Federal Circuit will review the challenge on appeal.

Applying this test to Husky’s assignor estoppel argument, the Federal Circuit first held that the assignor estoppel argument required interpreting section 311 and its prescription of “a person who is not the owner of a patent may file” to either include or foreclose assignor estoppel. The court concluded that this decision is very “closely related” to the PTAB’s decision to initiate inter partes review. Therefore the Federal Circuit could not hear Husky’s appeal under step one of the test.

Applying the second step of the test, the Federal Circuit also determined that Husky’s appeal did not relate to the PTAB’s ultimate invalidation authority. The court reasoned that because assignor estoppel is different from the statutory limits placed on the PTAB’s authority, this doctrine does not prevent a tribunal from evaluating the validity of any challenged claims generally. Rather, the doctrine of assignor estoppel simply limits certain parties from invoking the authority of the tribunal for such an evaluation. The court reasoned that Husky’s assignor estoppel argument did not relate to whether the PTAB is a tribunal with proper authority to declare Husky’s claims to be invalid. For this reason, the Federal Circuit determined that it could not review the PTAB’s institution decision.

The court then turned to Athena’s cross-appeal. After deciding that the PTAB erred in making a decision about incorporation by reference, the court vacated its decision on that issue and remanded for further proceedings at the PTAB.

Husky is an important case that sets the standard that will be used in analyzing the Federal Circuit’s jurisdiction to review the PTAB’s decision to institute inter partes review. For more information, please contact Fitch Even partner Alison Aubry Richards, author of this alert.

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