USPTO Guidance Reduces PTAB Discretionary Denials, Signaling Potential Uptick of IPRs in 2023

“In the short term, we have seen a dramatic drop off in discretionary denials and we should expect that trend to continue, which could result in an increase in the number of PTAB trials in 2023.”

The appointment of USPTO Director Kathi Vidal in April 2022 and her introduction of interim guidance in June 2022 has spurred changes at the Patent Trial and Appeal Board (PTAB) that may result in an increase in instituted inter partes reviews (IPRs) due to a dramatic decline in discretionary denials.

Under the reign of former U.S. Patent and Trademark Office (USPTO) Director Andrei Iancu, the number of discretionary denials of IPR petitions had steadily increased over the last five years, in part due to the application of the PTAB’s 2020 precedential decision in Apple Inc. v. Fintiv, Inc. The Fintiv decision laid out six non-dispositive factors that guide the PTAB’s discretionary denial of an IPR or post grant review (PGR) in view of a parallel district court action involving the challenged patent. Specifically, the Fintiv factors required the PTAB to consider whether district court proceedings involving the challenged patent would be resolved more quickly than PTAB proceedings and, if so, to deny review on that basis. As a result, patent challengers that had been sued in district courts that set aggressive trial dates frequently faced denial of an IPR if they did not file their petition early enough. Prior to Fintiv and other related decisions that set forth factors to consider in making discretionary denials, accused infringers could wait to file their IPR petitions within the one-year deadline from when they were sued. Post Fintiv, patent challengers struggled to get their IPRs on file as soon as possible to minimize the chance of a Fintiv denial. Patent challengers criticized PTAB’s frequent denial of petitions under Fintivas being at odds with the statutory deadline of one year for filing an IPR and for rejecting otherwise meritorious petitions on non-substantive grounds, including those outside the control of the patent challenger, such as the district court’s trial schedule.

Discretionary denials reached a five-year high in 2020 at 167, but since the arrival of Director Vidal in April 2022, denials have dropped dramatically from 123 in 2021 to only 34 in the first three quarters of 2022.

What the Guidance Says

Director Vidal’s interim procedures set out three scenarios in which the PTAB will not deny patent challenges under Fintiv:(1) when the petitioner stipulates that it won’t pursue in district court the same invalidity grounds that are raised or could have been raised in the petition; (2) when the parallel proceeding is at the U.S. International Trade Commission (which cannot invalidate patents); or (3) when the petition presents compelling evidence of unpatentability.

This memo provides concrete guidelines that practitioners can rely on and use to reduce the risk of a discretionary denial.

For example, under the guidance, the PTAB may not refuse to institute review if there is “compelling evidence of unpatentability…even where district court litigation is proceeding in parallel.” Compelling evidence according to the memo is a higher standard than the standard for IPR institution (reasonable likelihood of unpatentability) and instead is one “in which the evidence, if unrebutted in trial, would plainly lead to a conclusion that one more claims are unpatentable by a preponderance of the evidence.” How this standard will be applied by the PTAB in practice remains to be seen, but in the interim, challengers will likely highlight their strongest facts in an effort to meet this heightened standard. Patent owners, on the other hand, should consider including a substantive rebuttal of Petitioner’s strongest arguments in their Patent Owner Preliminary Response (POPR) in addition to asserting technical grounds for denial to reduce the likelihood that the PTAB will find “compelling evidence of unpatentability.” Regardless, in contrast to Fintiv, which allows for discretionary denial without regard to the substance of the petition, the new guidance gives weight to the merits of a petition regardless of other factors.

Under the Vidal guidance, a stipulation that the petitioner won’t pursue the same invalidity grounds that have been raised in the petition or could have been raised in the district court is also a way for petitioners to avoid discretionary denial. The practice of offering such stipulations to reduce the likelihood of discretionary denial predates the new guidance. However, prior to the guidance Petitioners attempted to defeat discretionary denials with two types of stipulations. The first, is a “Sand stipulation” where the petitioner agrees not to pursue the same grounds in district court litigation as those raised in an IPR and the second is a “Sotera stipulation” where the petitioner agrees not to pursue any ground raised or that could have been reasonably raised in an IPR. The Vidal guidance adopts the Sotera stipulation, which means that if a petitioner offers such a stipulation, the PTAB cannot deny institution on discretionary grounds.

The guidance also states that when analyzing how quickly a district court may bring a case to trial, the PTAB will consider the median time-to-trial statistics for the district in question as compiled by the Administrative Office of the U.S. Courts, rather than the trial date set by the individual judge in the case. According to the memo, if the statistics indicate that the trial will take place around the same time or after the PTAB’s decision is due, the Board will weight that factor against denying review under Fintiv. .

Under the most recent statistics, the median time to trial is 33.8 months across all districts, with New Jersey having the longest median time to trial of 50.2 months and the Eastern District of Virginia at 18.1 months. Meanwhile, so-called rocket docket jurisdictions like the Eastern District of Texas and Western District of Texas are 24.5 and 28.3 months, respectively. The PTAB will weigh this factor against exercising discretion to deny institution under Fintiv if the median time-to-trial is around the same time or after the projected statutory deadline for the PTAB’s final written decision.

Along with time-to-trial statistics, the PTAB will consider additional factors, such as the number of cases before the judge hearing the parallel proceeding and the speed of other case dispositions. That said, even if the PTAB does not deny institution under Fintiv, it retains the right to deny institution for other reasons under 35 U.S.C. §§ 314(a), 324(a), and 325(d). For example, the PTAB may deny institution if other pertinent circumstances are present, such as abuse of process by a petitioner. The USPTO expects to replace this interim guidance with rules after it has completed formal rulemaking.

Practical Effects

What are the implications of this guidance? In the short term, we have seen a dramatic drop off in discretionary denials and we should expect that trend to continue, which will likely result in an increase in the number of PTAB trials in 2023.

Patent challengers will see this guidance as a welcome development because it provides considerably more certainty about how to avoid discretionary denial and it may encourage patent challengers who have already been sued in district court to file IPRs even where they are close to the one-year deadline. We should also expect to see IPR petitions crafted to maximize the chance of institution by including a Sotera stipulation and/or by spotlighting the strongest arguments. Meanwhile, patent owners will likely craft strategies designed to defeat such petitions by filing suit in districts with shorter time-to-trial statistics, where possible, and by attacking head on the substance of petitioner’s strongest invalidity arguments in their POPR rather than merely raising non-substantive grounds for denial.

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Author: realinemedia

Emer Simic

Emer Simic is a partner in the Intellectual Property practice group at Neal Gerber Eisenberg. A registered patent attorney, she is an accomplished litigator with substantial experience successfully representing both […see more]

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