IP Law Daily, PATENT—5th Cir.: Inventor group and patent holders lacked standing to challenge PTAB’s discretionary institution decisions, (Oct 5, 2022)

By Ursula Furi-Perry, J.D., MBA

The plaintiffs’ purported injuries were too speculative to create constitutional standing.

A group of several individual patent holders and US Inventor Incorporated, an organization representing patent holder interests, brought a federal lawsuit challenging the Patent Trial and Appeal Board’s discretionary decision-making, which allows the agency to decline to institute review of an existing patent. The U.S. Court of Appeals for the Fifth Circuit affirmed a Texas district court’s dismissal of the case, on the ground that the plaintiffs did not meet the requirements for Article III standing (US Inventor Inc. v. Vidal, September 30, 2022, per curiam).

A group of several individual patent holders and US Inventor Incorporated, an organization representing patent holder interests (“the plaintiffs”) brought suit in the U.S. District Court for the Eastern District of Texas against then USPTO Director Drew Hischfeld; now, Director Kathi Vidal (“the Director.”) The plaintiffs included beneficiaries of discretionary denials who sought to avoid PTAB trials. They sought a preliminary and permanent injunction against the Director.

The lawsuit was filed in February 2021 to challenge the USPTO’s development of the Fintiv framework for discretionary denials of petitions for PTAB proceedings. In June 2022, Director Vidal released a memorandum explaining circumstances under which the Patent Trial and Appeal Board (PTAB) will not deny institution of an inter partes review (IPR) or post-grant review (PGR) on the basis of a pending action in court or the International Trade Commission (ITC). The guidance memo, “Interim Procedure for Discretionary Denials in AIA Post-Grant Proceedings with Parallel District Court Litigation,” directs members of the PTAB not to deny review on the basis of parallel litigation when the IPR or PGR petition presents “compelling evidence of unpatentability.”

In the present case, the plaintiffs argued that Sections 316(a) and 326(a) mandate that the Director engage in notice-and-comment rulemaking and, thus, that the Director must go through the Administrative Procedure Act’s notice-and-comment process to issue standards for when discretionary denial is appropriate. They also asserted that the issuance of the Standard Operating Procedure reflected that the Director engaged in rulemaking without notice and comment, and thus the Standard Operating Procedure must be set aside as unlawful.

The district court, holding that the plaintiffs lacked standing, granted the Director’s motion to dismiss the case. The plaintiffs appealed to the Fifth Circuit. Although the appeal came to the Fifth Circuit following the district court’s dismissal due to the plaintiffs’ lack of Article III standing, much of the oral arguments focused on whether the Fifth Circuit or the U.S. Court of Appeals for the Federal Circuit had proper jurisdiction to hear the appeal.

Article III standing. The appellate court addressed the issue of standing, specifically constitutional standing and organizational standing, both of which were argued by the plaintiffs.

The inventor plaintiffs first argued that they had constitutional standing to bring suit because they suffered an injury in fact that was traceable to the challenged conduct of the Director, and the injury was likely to be redressed by a favorable judicial decision.

The Fifth Circuit held that the plaintiffs’ purported injury was too speculative to create standing. The court explained:

For the original procedural deficiency (Plaintiff-Appellants’ lack of notice and opportunity to comment) to result in the stated harm (an increased risk of invalidation compared to a district court challenge), the following series of events must occur: (1) a third party must challenge one of Plaintiff-Appellants’ patents; (2) after a challenge occurs, the challenger must prove that he or she is likely to succeed at blocking issuance of or invalidating a patent; 2 (3) the PTAB must decide whether to apply the current discretionary denial factors to that patent; 3 (4) the PTAB must not exercise its discretionary denial; and (5) the resulting IPR or PGR proceeding must create a significantly higher likelihood (i.e., increased risk of harm) of invalidation as compared to a district court proceeding.

The non-occurrence of a single event in that series would break the chain of causation between the alleged procedural failing and resulting harm, the appellate court stated, and the case would require the court to speculate about several of the steps listed above. To clearly connect the procedural harm to the plaintiffs’ injury, the court would need to engage in conjecture, which it declined to do. Even assuming the plaintiffs’ victory in court, speculation would still be required.

Organizational standing. U.S. Inventor next argued that it had organizational standing under a theory of resource diversion, where an organization has a cognizable injury if it exerts resources to counteract effects of an unlawful action by the government. U.S. Inventor Incorporated asserted that it was a lobbying and educational organization and expended significant resources to respond to the Director’s issuance of the Standard Operating Procedure without notice and comment, including website resources, personnel time, commentary, and petitioning for notice-and-comment rulemaking.

The Fifth Circuit held that U.S. Inventor has not suffered an injury-in-fact under a resource diversion theory because it has not expended resources outside of its ordinary course of operations. Likewise, the plaintiffs’ argument for organizational standing based on an informational injury also failed. The purpose of the statute in question was to create regulations around the PTAB review process with public comment, not to create a public right to any particular information.

Conclusion. The appellate court affirmed the lower court’s decision, holding that the plaintiffs did not meet the requirements for Article III standing. Because absence of standing precluded jurisdiction, the court did not reach the question of whether it was statutorily allowed to hear or transfer the case.

The Case is No. 21-40601.

Attorneys: Robert Greenspoon (Dunlap Bennett & Ludwig, P.L.L.C.) for US Inventor Inc., Tinnus Enterprises, L.L.C. and 360 Heros, Inc. Weili Justin Shaw, U.S. Department of Justice, for Katherine K. Vidal.

Companies: US Inventor Inc.; Tinnus Enterprises, L.L.C.; 360 Heros, Inc.

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