Fifth Circuit Panel Questions Appellate Jurisdiction of US Inventor’s APA Claims Over Fintiv’s Lack of Notice and Comment Rulemaking
“Inventors see this world, or this framework, as if you have a bonfire in the middle of a stadium and there’s a blindfolded bureaucrat who throws paper patents at the bonfire.” – Robert Greenspoon, Counsel for US Inventor
On July 6, the U.S. Court of Appeals for the Fifth Circuit heard oral arguments in US Inventor v. Hirshfeld, an appeal from a lawsuit first filed in February 2021 to challenge the U.S. Patent and Trademark Office’s (USPTO’s) development of the Fintiv framework for discretionary denials of petitions for Patent Trial and Appeal Board (PTAB) proceedings. Although the appeal comes 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.
Eastern Texas Finds No Concrete Interest in PTAB’s Exercise of Discretion
In their original complaint, plaintiffs including US Inventor, Tinnus Enterprises, Stragent, 360 Heros, Ramzi Maalouf, Larry Golden, World Source Enterprises and E-Watch, sued under provisions of the Administrative Procedures Act (APA) alleging that the USPTO’s discretionary denial framework, which was developed through a series of precedential decisions at the PTAB, should have instead been developed through notice and comment rulemaking. The plaintiffs, patent owners whose business prospects have suffered significantly due to the mere prospect that petitions filed for America Invents Act (AIA) validity trials on their patents could be instituted, argued that proper rulemaking would have provided clearer guidance to both petitioners and administrative patent judges (APJs), providing patent owners with less expensive dispute resolution and ensuring that weaker petitions for AIA trials aren’t filed in the first place.
Last July, U.S. District Judge E. Rodney Gilstrap of the Eastern District of Texas granted the U.S. government’s motion to dismiss US Inventor’s lawsuit for lack of subject matter jurisdiction. Judge Gilstrap held that US Inventor and patent owner plaintiffs did not demonstrate a legally cognizable injury in fact as required for Article III standing. Because US Inventor alleged a procedural injury caused by the lack of notice and comment rulemaking, Judge Gilstrap ruled that plaintiffs had to show a concrete interest in discretionary denials of inter partes review (IPR) and post-grant review (PGR) proceedings. Judge Gilstrap ultimately found that plaintiffs had no “concrete right or interest in having the PTAB panels exercise their discretion in Plaintiffs’ desired manner.” The Eastern Texas district court also dismissed arguments that US Inventor had organizational standing to pursue the APA claims on behalf of its members.
Although appellate counsel for both sides argued the merits of plaintiffs’ Article III standing to the Fifth Circuit, the judicial panel hearing arguments questioned both sides regarding the threshold issue of appellate jurisdiction. Robert Greenspoon, counsel for US Inventor, told the Fifth Circuit that regional courts of appeal routinely accept appeals in cases against the U.S. Patent and Trademark Office or the agency’s Director, including in cases like the present appeal which implicate the agency’s practices in following its own rules. While the appeal involved procedural aspects of PTAB trials governed by provisions of the AIA, Greenspoon contended that plaintiffs’ APA claims targeting the PTAB’s use of Standard Operating Procedure 2 (SOP 2) to evade notice and comment rulemaking through ad hoc decision making did not rely on any interpretation of the AIA creating a substantial question of patent law, which would give the U.S. Court of Appeals for the Federal Circuit exclusive jurisdiction over the appeal.
Giving the PTAB a Better Bouncer to Keep Patents Out of the Bonfire
Weili Shaw, counsel representing the U.S. government on appeal, told the Fifth Circuit that the plaintiffs’ claims in the case and the injunctive relief they seek go to the very heart of the U.S. patent system and how it functions. Shaw pointed to 28 U.S.C. § 1295(a), which gives the Federal Circuit exclusive jurisdiction over any “civil action arising under… an Act of Congress relating to patents.” According to Shaw, although plaintiffs’ claims stem from the AIA, they rely on interpretations of how “[t]he Director shall prescribe regulations” for IPRs under 35 U.S.C. § 316(a) and for PGRs under 35 U.S.C. § 326(a).
Judge Jennifer Walker Elrod asked Shaw whether the Fifth Circuit’s precedent in Scherbatskoy v. Halliburton Co. (1997) gave the appellate court the ability to decide both the jurisdictional and standing issues without having to transfer the case to the Federal Circuit:
“In [Halliburton], we said that even if a case has patent law elements, we have inherent jurisdiction to consider our own jurisdiction… So why can’t we consider jurisdictional questions like Article III standing on appeal from the district court regardless of whether it has patent law elements? Because what we’re being asked in this particular appeal is to decide Article III standing, which is right smack dab in our wheelhouse and we do every day.”
Greenspoon did not mince words when speaking to the Fifth Circuit appellate panel about the importance of ensuring that the PTAB’s discretionary denial framework was developed with input from the inventor community:
“Inventors see this world or this framework as if you have a bonfire in the middle of a stadium and there’s a blindfolded bureaucrat who throws paper patents at the bonfire. One out of six doesn’t get burned, that’s great, but the issue in this case is about the bouncer at the front door of the stadium. The issue in this case is: who is that bouncer, is that bouncer strong enough, is that bouncer… going to adequately remove from the process, through notice and comment, the types of patents that shouldn’t go into it.”
US Inventor: Patent Owner Plaintiffs Have a Concrete Procedural Right Under Lujan
Judge Leslie H. Southwick asked Greenspoon about the likelihood that any particular patent would get caught up in the IPR or PGR process. Greenspoon contended that basically any valuable patent faces a strong likelihood of having to endure an AIA trial as well-resourced infringers often file multiple petitions to drag out proceedings and add to the patent owner’s legal bill. Of the patents that have AIA validity trials instituted against them, Greenspoon noted that 84 percent of those patents have challenged patent claims invalidated. Citing footnote 7 from the U.S. Supreme Court’s landmark Article III standing decision in Lujan v. Defenders of Wildlife (1992), which noted that a plaintiff asserting a procedural right to protect concrete interests can satisfy Article III standing without meeting normal standards for redressability and immediacy, Greenspoon argued that US Inventor and the other plaintiffs meet every prong required for standing.
Arguing for the government’s position that the US Inventor plaintiffs do not have standing, Shaw argued that the 84% of patents having claims invalidated at the PTAB figure is misleading as these patents have already passed a high merits threshold before an IPR or PGR proceeding can be instituted. When looking at the total universe of petitions, Shaw argued that only 23% of patents facing AIA trial petitions have any claims invalidated and only 16% of patents facing such petitions have all challenged claims invalidated. Noting that between 40% to 50% of patent cases filed in U.S. district court lead to the invalidation of one or more claims at issue in those cases, Shaw argued that PTAB invalidation rates were actually lower than those experienced in district court.
In rebuttal, Greenspoon noted that the U.S. government’s own briefing in the present case conceded that the contemplation of more effective rules through notice and comment rulemaking would provide a better off-ramp toward the PTAB exercising discretion to deny a particular petition. Greenspoon also noted that Fifth Circuit precedent from Xitronix Corp. v. KLA-Tencor Corp. (2019), which, although the appellate court transferred to the Federal Circuit Walker Process antitrust claims regarding the fraudulent obtaining of patent rights from the USPTO, held that the Fifth Circuit could decide cases involving the USPTO when non-patent theories of relief are asserted. Because the present appeal was not about the validity of any particular patents but rather the patent owners’ procedural right to compel the agency to deal fairly with its stakeholders, Greenspoon urged the Fifth Circuit that it had proper appellate jurisdiction in the case and should reverse the district court’s dismissal for lack of standing.
Steve Brachmann
Steve Brachmann is a graduate of the University at Buffalo School of Law, having earned his Juris Doctor in May 2022 and served as the President of the Intellectual Property […see more]
