In a March 13, 2023 precedential opinion in Apple Inc. et al. v. Vidal (available here), the Federal Circuit reversed in part an order from the Northern District of California (“Northern District”) dismissing the unreviewability of plaintiffs’ challenge to the U.S. Patent Office Director’s instructions as having improperly been issued without notice-and-comment rulemaking.

 

In this case, the Plaintiffs are Apple Inc. and other companies that have been sued for patent infringement and thereafter petitioned the Director of the Patents and Trademark Office to institute post-grant challenges, namely inter partes reviews (“IPRs”), on the asserted patents.  The Plaintiffs had sued the Director under the Administrative Procedure Act (“APA”) challenging instructions that the Director issued to the Patent Trial and Appeal Board (“Board”) to inform it how to exercise, under delegation by the Director, the Director’s discretion whether to institute a requested IPR, which, in Plaintiffs’ view, produce too many denials.  The underlying lawsuit was dismissed on the ground that the Director’s instructions were made unreviewable by the IPR provisions of the patent statute.

 

By way of background, in the America Invents Act (AIA), Congress authorized the filing of a petition for IPR.  The Board is responsible for IPR adjudication if a review is instituted.  But the Director was assigned by Congress with the task of determining whether to institute a review.  For institution, certain conditions must be met, including crossing of a merits “threshold.”  However, even then, the statute uses no language commanding institution:  “The Director is permitted, but never compelled, to institute an IPR[, a]nd no petitioner has a right to such institution.  Mylan Laboratories Ltd. v. Janssen Pharmaceutica, N.V., 989 F.3d 1375, 1382 (Fed. Cir. 2021).  From the beginning of the IPR program, the Director delegated the institution authority to the Board, with that delegation having been upheld by the Federal Circuit.

 

There is a one-year time limit to file an IPR after being served with a complaint for patent infringement, so it is clear that Congress recognized the likelihood of parallel proceedings in the PTO and court.  As a result, there might be issues of efficiency and interbranch relations.  With regard to this overlap, the Director designated as precedential two Board decisions denying IPR petitions, namely, NHK Spring Co. v. Intri-Plex Technologies, Inc., IPR2018-00752, 2018 WL 4373643 (P.T.A.B. Sept. 12, 2018) (designated precedential on May 7, 2019) and Apple Inc. v. Fintiv, Inc., IPR2020-0019, 2020 WL 2126495  (P.T.A.B. Mar. 20, 2020) (designated as precedential on May 5, 2020).  Both decisions address the role of the pendency of district court infringement litigation in deciding whether to institute an IPR.  “The decisions, designated as precedential, constitute instructions from the Director regarding how the Board is to exercise the Director’s institution discretion.”  Slip Op. at 8.

 

In NHK, the Board relied on “the advanced state of the district court proceeding” involving the same patent to deny institution, given the projected trial date in the district court proceeding.  In Fintiv, the Board enumerated six factors to be assessed in deciding whether to institute an IPR in parallel with an overlapping court case.

 

Here, on appeal, the Federal Circuit affirmed in part and reversed in part the district court’s dismissal.  Specifically, it affirmed the unreviewability dismissal of Plaintiffs’ challenges to the instructions as being contrary to statute and arbitrary and capricious.  But it reversed the unreviewability dismissal of Plaintiffs’ 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.

 

In so finding, the Federal Circuit stated that the Supreme Court has held that clear and convincing evidence establishes a congressional protection from judicial review of the substance of the Director’s institution discretion, but that holding does not protect the Director’s choice of whether to use notice-and-comment rulemaking to announce instructions for the institution decision.  Similarly, the Federal Circuit did not find a persuasive justification for concluding that the use or non-use of notice-and-comment rulemaking procedures is a matter “committed to agency discretion by law,” 5 U.S.C. § 701(a)(2).

 

Further, the Federal Circuit found that at least Apple has standing to press the challenge to the instructions as invalid for want of notice-and-comment rulemaking.  Specifically, the Federal Circuit found that Apple is non-speculatively threatened with harm to a legally protected interest from the challenged instructions.  “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.”  Slip Op. at 23.

 

Accordingly, the Federal Circuit, having found that Apple has standing to challenge the Director’s instructions as having been improperly issued without notice-and-comment rulemaking, reversed and remanded for consideration of this one challenge on the merits.

 

While it is difficult to tell what will happen on remand, it is quite possible that the Director will seek to formalize the Fintiv factors through formal notice-and-comment rulemaking, thus, ultimately rendering the issue moot.