IP Law Daily, PATENT—Fed. Cir.: Apple can challenge validity of ‘Fintiv rule’ for lack of notice-and-comment rulemaking, (Mar 13, 2023)

By Thomas Long, J.D.

Although substantive aspects of the Director’s instructions on IPR institution decisions were not reviewable, the asserted failure to follow APA rulemaking requirements was.

Apple Inc. had standing to challenge instructions issued by the Director of the USPTO guiding the Patent Trial and Appeal Board’s decision-making process for inter partes review (IPR) institution decisions, on the ground that those instructions were not issued in compliance with the notice-and-comment rulemaking requirements of Section 553 of the Administrative Procedure Act (APA), 5 U.S.C. § 553. The Federal Circuit held that, although issues concerning substantive aspects of IPR institution decisions—including assertions by Apple and other companies that the Director’s instructions were contrary to statute or arbitrary and capricious—were unreviewable in court, the challenge regarding APA procedure was reviewable. The dispute concerns the much-maligned NHK-Fintiv rule, which guides the Board as to when to deny institution of IPR when there is pending parallel litigation in civil court. A district court’s dismissal of challenges brought under the APA by Apple and four other companies was affirmed in part, reversed in part, and remanded for further proceedings (Apple Inc. v. Vidal, March 13, 2023, Taranto, R.).

APA claims. Five companies that frequently find themselves defending against patent infringement lawsuits—Apple Inc.; Cisco Systems, Inc.; Google LLC; Intel Corp.; Edwards Lifesciences Corp. and Edwards Lifesciences LLC—brought a multi-pronged challenge under the APA of instructions issued by the Director of the USPTO to the Patent Trial and Appeal Board to inform it how to exercise, under delegation by the Director, the Director’s discretion whether to institute a requested IPR (known as the Fintiv instructions). In general, the companies contended that the instructions were likely to produce too many denials of institution requests, making them contrary to the aims of the Patent Act, as well as arbitrary and capricious.

Delegation of IPR institution authority. The America Invents Act gives the Director the authority to decide whether to institute IPR or not (that is, whether to grant or deny petitions to institute IPR). From the beginning of the IPR program, the Director has delegated the institution authority to the Board. The Federal Circuit has upheld that delegation, largely because it would be impractical to require the Director to personally review every petition.

NHK-Fintiv rule. In NHK Spring Co., Ltd. v. Intri-Plex Techs., Inc., No. IPR2018-00752, September 12, 2018, the PTAB determined that it would defer to court proceedings that were in an “advanced state.” Two years later, in Apple Inc. v. Fintiv, Inc., No. IPR2020-00019, March 20, 2020), the PTAB clarified its earlier decision by setting out six factors it would consider in determining whether to defer to ongoing court proceedings. Those factors are:

1. whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted;

2. proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision;

3. investment in the parallel proceeding by the court and the parties;

4. overlap between issues raised in the petition and in the parallel proceeding;

5. whether the petitioner and the defendant in the parallel proceeding are the same party;

6. other circumstances that impact the Board’s exercise of discretion, including the merits.

In June 2022, the Director issued a memorandum updating the instructions. Among other adjustments, the Director instructed the Board that it should not “rely on the Fintiv factors to discretionarily deny institution in view of parallel district court litigation where a petition presents compelling evidence of unpatentability.” The Federal Circuit explained that its decision in the current case was not affected by the changes made to the Fintiv instructions in the memorandum.

Challenges to Fintiv instructions. The companies filed suit in the Northern District of California, challenging the instructions. They asserted (1) that the Director acted contrary to the IPR provisions of the patent statute; (2) that the Fintiv instructions are arbitrary and capricious; and (3) that the Fintiv instructions were issued without compliance with the notice-and-comment rulemaking requirements of Section 553 of the Administrative Procedure Act (APA), 5 U.S.C. § 553. The district court determined that the companies had standing to press the APA claims, but then it concluded that their challenges were to Director actions that were not reviewable. The district court dismissed the case, and the companies appealed to the Federal Circuit.

Reviewability. The Federal Circuit affirmed the unreviewability dismissal of the companies’ challenges to the instructions as being contrary to statute and arbitrary and capricious. Those two challenges had institution as their direct, immediate, express subject, and the Federal Circuit pointed out that the Supreme Court had made it clear that the nonreviewability principle “bars judicial resolution of even run-of-the-mill statutory interpretation issues inherent in an institution determination by the Director as long as the statutory provision is one sufficiently focused on institution itself.”

Although the companies’ contentions did not involve a petition-specific challenge, but instead a challenge to the Director’s instructions to the Board regarding how to exercise the Director’s institution discretion, the Federal Circuit concluded “that the IPR statute’s preclusion of review, as now settled by the Supreme Court based on statutory text, legislative history, and structure, must encompass preclusion of review of the content-focused challenges to the instructions at issue here.” In the court’s view, the practical need for the Director to delegate her institution authority to the Board meant that she had to be able to give instructions about how to make institution decisions on her behalf. “Such guidance is crucial for ensuring that such determinations will overwhelmingly be made in accordance with the policy choices about institution she would follow if she were making the determinations herself,” the court explained, “and, relatedly, for minimizing the number of occasions on which she has to reverse such determinations, as she may do [citation omitted]. If the congressional preclusion of review of the decision to institute is to be respected in the inevitable system of delegation, it must extend to the substance of such instructions.”

The court noted that, if the Director personally made an institution decision accompanied by an explanation containing the same reasoning as appears in the instructions here at issue, that decision would be unreviewable for purportedly being contrary to statute or arbitrary and capricious. “For the IPR system to function with the delegations that are inevitable and congressionally expected, the same conclusion must follow for the instructions given by the Director to the Board as delegate,” said the court.

Absence of notice-and-comment rulemaking. However, the appellate court reversed the unreviewability dismissal of the challenge to the instructions as having been improperly issued because they had to be, but were not, promulgated through notice-and-comment rulemaking under 5 U.S.C. § 553. This challenge presented a matter “quite apart” from the question of substantive reviewability of an action for being contrary to statute or arbitrary and capricious. Nothing in the IPR statute supplied clear and convincing evidence that there was to be no judicial review of the choice of announcement procedure, the court said. In addition, although the general rule was that non-enforcement choices are committed to agency discretion by law, that didn’t mean that the choice of announcement procedure for issuing instructions for the making of choices is also committed to agency discretion by law. Section 553 provided “meaningful standards” under which to judge the procedural choice. Section 553, as the rulemaking provision of the APA, may itself provide law to apply for reviewing agency procedures, even if there is otherwise no jurisdiction to review the substance of the Director’s decision.

Standing. The court also held that, at least with respect to the procedural claim, at least Apple had standing to sue. “Apple is non-speculatively threatened with harm to a legally protected interest from the challenged instructions,” the court said. “We may take judicial notice that Apple is a repeat player, in the relevant respect, on a very large scale. On a regular basis, for many years, it has been sued for infringement (giving it a concrete stake) and then petitioned for an IPR of patent claims at issue in that suit. Some of the petitions have been denied—for Apple, at least in Fintiv itself—based on the institution instructions at issue.” This sequence of events could be repeated in the future. Moreover, the court explained, “There is a genuine possibility that the instructions would be changed in a way favorable to Apple in a notice-and-comment rulemaking.”

The case is No. 2022-1249.

Attorneys: Catherine Carroll (Wilmer Cutler Pickering Hale and Dorr, LLP) Apple Inc., Cisco Systems, Inc., Google LLC; Intel Corp., Edwards Lifesciences Corp., and Edwards Lifesciences LLC. U.S. Department of Justice, for Katherine K. Vidal.

Companies: Apple Inc.; Cisco Systems, Inc.; Google LLC; Intel Corp.; Edwards Lifesciences Corp.; Edwards Lifesciences LLC

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