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The Recent Rise of Discretionary Denials at the Patent Trial and Appeal Board

November 19, 2020

The rate at which the Patent Trial and Appeal Board (“PTAB” or “Board”) institutes Petitions for Inter Partes Review (“IPR”) has been in steady decline since the introduction of the IPR procedure in 2013, and is expected to reach a new low this year. In 2013, the first year of institution decisions, the PTAB instituted 87% of all filed petitions.1 Thus far in 2020, the institution rate has fallen to 56%, down from 63% a year ago.2

One of the reasons for the declining institution rate could be that with experience, the Board has become better able to anticipate, at the institution stage, whether a petition will ultimately be successful. One might expect then, based on a declining institution rate, and improving success rate for petitions reaching a final written decision, that the Board is denying more petitions based on their merits. Surprisingly, that is not the case. In 2016, merit-based denials accounted for approximately 28% of all institution decisions.3 In 2019, the percentage was relatively unchanged, at 27%.4 Thus far in 2020, approximately 25% of all institution decisions are denials on the merits.5 But while merit-based denials have held steady, procedural denials have rapidly increased, driven primarily by a surge in discretionary denials under §314(a), which gives the Board nearly unreviewable discretionary authority to institute review or deny institution.6

In total, the PTAB is likely to have issued three times as many procedural denials in 2020 as it did in 2016 (up from 5% of all institution decisions in 2016, to approximately 17% of all institution decisions today), and the vast majority of these procedural denials will have been discretionary under §314(a).7 In 2016, the Board denied just 5 petitions citing §314(a) as authorizing a discretionary denial; in 2017, that number increased to 15; by 2018, it was 45; in 2019, it was 75, and by the end of 2020, the number of §314(a) denials will likely exceed 150.

There are three common types of discretionary denials, resulting from i) multiple petitions challenging the same patent, ii) parallel litigation, and iii) petitions that fail with respect to only some of the challenged claims. Each of these three types is described in greater detail below.

Procedural Denials Resulting From Serial Petitions

Procedural denials first came into the spotlight in October, 2017, when the PTAB designated portions of the decision in General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha as precedential.8 General Plastic enumerated a series of non-exclusive factors that the Board could consider on a case-by-case basis for exercising discretion to deny institution for “follow-on” or “serial” petitions against a previously challenged patent. The General Plastic factors focus primarily on whether the same petitioner previously filed a petition challenging the same patent, the length of time between filing dates of multiple petitions, and the explanation of the need for multiple filings, including whether petitioner knew or should have known of the prior art asserted in a later petition at the time the first petition was filed. The factors do not consider the merits of the petition. The “precedential” designation made the General Plastic analysis binding on all future PTAB panels.

More recently, the Board has attempted to further limit the number of petitions challenging the same patent through informal guidance. In July, 2019, the PTAB published an updated “Trial Practice Guide” which, for the first time, required petitioners filing multiple petitions to rank their petitions “in the order it wishes the Board to consider the merits, if the Board uses its discretion to institute any of the petitions.”9 The Board explained that “one petition should be sufficient to challenge the claims of a patent in most situations” because two or more petitions against the same patent “may place a substantial and unnecessary burden on the Board and the patent owner.”10 In some cases, depending on circumstances, such as the assertion of a large number of claims in a related litigation, the Board reasoned that “two petitions by a petitioner may be needed, although this should be rare.”11 Based on prior experience, the Board concluded that it is “unlikely that circumstances will arise where three or more petitions by a petitioner with respect to a particular patent will be appropriate.”12

Depending on the technology at issue, the complexity of the claims, the complexity of the prior art, and similarity between the challenged claims, it can be difficult to challenge even a small number of claims in a single petition of 14,000 words or less. This is particularly true in light of recent decisions such as the Precedential Opinion Panel (“POP”) Hulu decision, holding that the petition must identify, with particularity, all evidence necessary to establish a reasonable likelihood that the relied upon prior art was publicly accessible.13 A petitioner also needs to address why the Board should not exercise its discretion to deny the petition under §§314(a) and 325(d), which further reduces the word count available to address the merits in a petition.

Procedural Denials Resulting From Parallel Litigation

No other precedential opinions have impacted recent IPR practice as much as the decisions in NHK and Fintiv. In NHK Spring Co. v. Intri-Plex Techs., Inc., designated precedential on May 7, 2019, the Board authorized the use of discretionary denials based in part on the advanced stage of parallel district court proceedings involving the same invalidity arguments raised in the petition.14 One year later, on May 5, 2020, Apple Inc. v. Fintiv, Inc. was designated precedential.15 In Apple v. Fintiv, the Board summarized the non-exclusive factors it considers when a patent owner requests discretionary denial based solely on the stage of parallel proceedings:

  • whether the other proceeding granted a stay or is likely to grant one;
  • the proximity of the trial date in the other proceeding to the statutory deadline for a written decision;
  • investment in the parallel proceeding by the court and the parties;
  • overlaps in issues between the petition and the parallel proceeding;
  • whether the petitioner is a party in the parallel proceeding; and
  • other circumstances, including the merits of the petition.

Under NHK/Fintiv, the Board can decide not to institute a timely, meritorious petition that fully complies with all statutes and regulations, simply because of the “advanced” stage of a parallel proceeding. The possibility that a petition filed in connection with a parallel litigation could be rejected through no fault of the petition or petitioner, resulting in a significant lost investment for the challenger, is a new and material consideration that weighs against today’s IPR practice (although the PTAB refunds half of the initial filing fee after a denial, the costs associated with the preparation of an IPR Petition(s) are also significant).

Despite the Fintiv factors, balancing the merits of a petition against the investment by the parties in another forum, and the likely trial date in that forum, is an inherently subjective analysis. Moreover, many of these considerations are not under the control of the petitioner. For example, in IPR2020-440, the Board discretionarily denied Mylan’s petition because of parallel litigation initiated by an earlier ANDA filer Teva, whose own Hatch-Waxman litigation was at a more advanced stage.16 At the time of the Board’s institution decision denying Mylan’s petition, Teva’s district court case was scheduled to go to trial in two weeks, and would decide the same obvious arguments raised by Mylan’s petition.17 Because of the timing difference between the two litigations, it would not have been possible for Mylan to have filed a petition (after being sued) that would have been decided prior to Teva’s trial.

Also troubling is the fact that statistics suggest the Board’s application of the Fintiv factors is not venue neutral. For example, one analysis of discretionary denials under §314(a) found a dramatic increase in denials of petitions associated with district court litigation in so-called “rocket dockets” such as the Western District of Texas, Eastern District of Texas, and Eastern District of Virginia.18 If such a trend continues, it would further incentivize “forum shopping” by plaintiffs looking for initial scheduling orders with trial dates that precede a parallel patent office schedule (for now, it appears that the Board does not give much credence to arguments that aggressive scheduling orders will not survive without modification and delay).

Procedural Denials Resulting From Partial Institutions

Since the 2018 decision in SAS Institute Inc. v. Iancu, the Board is not permitted to institute a proceeding on fewer than all of the challenged claims.19 The July update to the “Trial Practice Guide” explains that the Board retains the discretion to deny a petition as a whole under 35 U.S.C. §§ 314(a) and 325(d), “in the interests of efficient administration of the Office and integrity of the patent system,” even when the petition includes at least one claim that is reasonably likely to be unpatentable, thereby justifying institution.20

Status of Recent and Current Challenges to the PTAB’s Authority to Issue Discretionary Denials

Many aggrieved parties have appealed to the Federal Circuit, challenging the PTAB’s authority to discretionarily deny otherwise meritorious petitions. Thus, far none have been successful, largely because Congress prohibited such appeals by statute: “The determination by the [PTO] Director whether to institute an inter partes review under this section shall be final and nonappealable.”21

For example, in July, 2020, Google appealed the Board’s decision to discretionarily deny institution of its IPR petition under §314(a),22 and in the alternative, sought a writ of mandamus. Google had unsuccessfully petitioned the Board for rehearing, arguing that the district court case pending in Texas would not proceed to trial in 2020, because of a pending motion to transfer, and because of the ongoing COVID-19 pandemic.23 Ultimately, the district court did transfer the case, and all pending deadlines were vacated. On appeal, Google argued that the PTAB does not have the authority to deny institution of timely petitions based on the progress of parallel district court proceedings.24 First, Google argued that the PTAB’s designation of NHK and Fintiv as precedential violated both the Patent Act and Administrative Procedure Act, because it circumvented the process for formal rulemaking, including public notice and comment.25 Second, Google argued that the NHK/Fintiv standard are substantively improper, because Congress already decided the appropriate timing for an IPR petition: “§ 315(a) specifies when a pending lawsuit bars institution of IPR, § 311(c) specifies when an IPR petition is too early, and § 315(b) specifies when an IPR petition is too late.”26

The Federal Circuit dismissed the appeal on October 30, 2020, in a short non-precedential opinion27 citing a pair of similar cases decided the same day. These decisions leave no doubt that, for now, if “the Director decides not to institute, for whatever reason, there is no review.”28

In another example of ongoing legal challenges, Apple, Google, Cisco, and Edwards Lifesciences filed an amended complaint in October 2020, against PTO Director Iancu, arguing that the NHK/Fintiv precedent exceeds the Board’s authority, violates the AIA and APA, and is arbitrary and capricious.29 The complaint argues:

  • The NHK-Fintiv rule requires the Board to make institution decisions based on its speculation about the likely course of parallel litigation, producing irrational and inconsistent outcomes. For example, if no stay has been entered in the district court, the Board must guess whether “one may be granted” if IPR is instituted.
  • The Board inconsistently applies the second factor, which concerns the proximity of a district court trial date to the Board’s projected statutory deadline for a final written decision, and must guess at the trial date, which is inherently unpredictable.
  • The Board has inconsistently concluded in some cases that overlap in issues favored institution, while in other cases, the Board has treated overlap as disfavoring institution.
  • The Board’s attempt to justify the NHK-Fintiv rule, on the ground that it avoids “duplicative costs” by denying IPR when “the court and the parties have invested” substantially in the lawsuit, focuses on the past investment made in the litigation rather than the future investment needed to resolve the dispute.

The district court has not issued any substantive rulings in the Apple case.

On October 20, 2020, likely in response to mounting legal challenges against the application of the NHK/Fintiv rule without formal rulemaking, the PTAB solicited comments on all three forms of discretionary denial discussed above.30 Thus, the agency is belatedly engaging in the type of formal rulemaking alleged to have been absent in the Google and Apple challenges. The public comment period ends on December 3, 2020. The rulemaking process could well result in the codification, through regulation, of the NHK/Fintiv factors and analysis, allowing the Board to justify discretionary denial based solely on the advanced stage of parallel litigation.

Conclusion

Historically, only 21% of all petitions are completely successful (all challenged claims are invalidated).31 Despite this relatively low success rate, petitioners have at least been able to enter the IPR arena with their eyes wide open. A petitioner could weigh the risks, costs, and benefits of preparing and filing an IPR petition against the objective merits of the petition, before deciding on an appropriate course of action. Discretionary denials upset this analysis; it is no longer sufficient to have an objectively meritorious claim of unpatentability.

The risk of a discretionary denial is very real, and increasing; discretionary denials under §314(a) now account for nearly 30% of all denials, or roughly 13% of all institution decisions.32 Thus, prudent petitioners must plan for the possibility that the patent owner will request discretionary denial. Now, more so than ever before, a petitioner should consider filing an IPR petition months in advance of the one-year statutory deadline, perhaps even before the plaintiff in a parallel litigation has disclosed all of the asserted claims (potentially forcing the petitioner to expand the challenge beyond what was needed, adding to the cost and complexity of the proceeding). And the initial scheduling order in a parallel proceeding becomes relevant to the IPR, as it could impact the Board’s decision to institute.

Until the status quo changes, PTAB practitioners and patent litigators alike should realize that the risks associated with filing IPRs have now increased relative to the prior half-decade. At the same time, plaintiffs have new opportunities to further reduce the risk of associated IPRs by filing complaints for patent infringement in jurisdictions with the fastest moving dockets.

1Trial Statistics IPR, PGR, CBM from the Patent Trial and Appeal Board September, 2020, slide 6
https://www.uspto.gov/sites/default/files/documents/trial_statistics_20200930.pdf
2Id.
3Data from Unified Patents: https://www.unifiedpatents.com/insights/2020/7/27/ptab-discretionary-denials-in-the-first-half-of-2020-denials-already-exceed-all-of-2019
4Id.
5Id.
635 U.S.C. § 314(a); Thryv, Inc. v. Click-to-Call Techs., 140 S. Ct. 1367 (2020) (“The determination . . . whether to institute an inter partes review under this section shall be final and nonappealable.”); Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131, 2141 (2016) (institution decisions are not reviewable if “closely tied to the application and interpretation of statutes related to the Patent Office’s decision to institute inter partes review.”)
7Data from Unified Patents:
https://www.unifiedpatents.com/insights/2020/7/27/ptab-discretionary-denials-in-the-first-half-of-2020-denials-already-exceed-all-of-2019
8IPR2016-01357, Paper 19 (P.T.A.B. Sept. 6, 2017)
9Trial Practice Guide Update (July 2019) at 27: https://www.uspto.gov/sites/default/files/documents/trial-practice-guide-update3.pdf?MURL=
10Id. at 26
11Id.
12Id.
13Hulu, LLC v. Sound View Innovations, LLC, IPR2018-01039, Paper 29 (P.T.A.B. Dec. 20, 2019)
14No. IPR2018-00752 (Paper 8) at 20 (P.T.A.B. Sept. 12, 2018)
15No. IPR2020-00019 (Paper 11) (P.T.A.B. Mar. 20, 2020)
16Mylan Labs v. Janssen Pharms., No. IPR2020-00440 (Paper 17) at 20 (P.T.A.B. Sept. 16, 2020). Mylan filed a Notice of Appeal to the Federal Circuit last month, however, as noted below, such appeals have not fared well thus far.
17Id. at 17, 20
18Proposed Alternative PTAB Discretionary Denial Factors In View of Co-Pending Parallel Litigation, National Law Review Volume X, Number 316.
19138 S. Ct. 1348, 1359–60 (2018)
20Id. at 32
2135 U.S.C. § 314(d); see Thryv, Inc. v. Click-to-Call Techs., 140 S. Ct. 1367 (2020)
22IPR2020-00115
23Google LLC, v. Uliloc 2017 LLC, CAFC-20-2040, Google’s Response to the Court’s August 27, 2020 Order to Show Cause at 5 (ECF No. 10)
24Id. at 6
25Id. at 6-7
26Id. at 7
27Google, CAFC-20-2040, ECF No. 21
28In re Cisco Systems, Inc., No. 2020-148, at 4 (Fed. Cir. Oct. 30, 2020) (ECF No. 17)
29Apple Inc. et al. v. Andrei Iancu, No. 20-cv-6128 (N.D. Cal.) (ECF No. 54)
3085 FR 66502
31From Trial Statistics IPR, PGR, CBM from the Patent Trial and Appeal Board September, 2020, slide 11
https://www.uspto.gov/sites/default/files/documents/trial_statistics_20200930.pdf
32Unified Patents, PTAB Discretionary Denials: In the First Half of 2020, Denials Already Exceed All of 2019