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June 21, 2016Client Alert

Supreme Court Issues Opinion in Cuozzo Speed Technologies, LLC v. Lee

Supreme Court Issues Opinion in Cuozzo Speed Technologies, LLC v. Lee

On June 20, 2016, the Supreme Court issued its highly anticipated opinion in Cuozzo Speed Technologies, LLC v. Lee, addressing two key aspects of inter partes review (IPR) practice before the Patent Trial and Appeal Board (Board): the extent to which appellate courts can review IPR institution decisions and the standard of claim construction that applies in IPR proceedings. The Court maintained the status quo on both issues, confirming that institution decisions cannot be reviewed absent unusual circumstances and upholding the Board’s application of the broadest reasonable interpretation for disputed claim terms.

Institution Decisions by the Board Remain Unreviewable

On the first issue, the Court held by a 6-2 majority that the Board’s decision to institute IPR is not appealable because “that is what § 314(d) says,” highlighting the plain language of 35 U.S.C. § 314(d), which states that the Board’s decision whether to institute IPR “shall be final and nonappealable.” In the Court’s view, the strong presumption favoring judicial review of agency decisions was overcome by clear language of § 314(d), its context within the America Invents Act’s (AIA’s) statutory framework granting broad powers to the U.S. Patent and Trademark Office (USPTO) for conducting IPRs, the presence of analogous “no appeal” provisions in the reexamination statutes, and the overarching Congressional objectives in creating IPRs. Responding to Cuozzo’s argument that § 314(d) bars only interlocutory review of institution decisions, the Court noted that the Administrative Procedure Act (APA) already limits judicial review to final agency decisions, such that Cuozzo’s narrow reading of § 314(d) would render that statute redundant.

Nevertheless, exceptions may apply to allow appeals from IPR institution decisions in limited circumstances. The Court left open the possibility that judicial review might be available under the APA to consider constitutional questions or questions that reach beyond the statutes closely related to institution, or in cases where the Board oversteps statutory limits on its authority.

The Broadest Reasonable Interpretation Governs Claim Construction in IPRs

Regarding claim construction, the Court unanimously upheld the Board’s continuing application of the broadest reasonable interpretation standard set forth in 37 C.F.R. § 42.100(b) as a valid exercise of delegated agency authority under 35 U.S.C. § 316(a)(4).

In crafting the AIA, Congress gave the USPTO authority to issue “regulations . . . establishing and governing inter partes review” under § 316(a)(4). The Court contrasted this IPR-specific provision with other statutes that have been interpreted as granting the USPTO only procedural, rather than substantive, rulemaking authority. Accordingly, the USPTO has the power to fill in gaps in the AIA. Because the AIA did not specify which claim construction standard should apply, the broadest reasonable interpretation represented a viable and reasonable effort by the USPTO to fill that gap.

In addition, the Court rejected Cuozzo’s argument that because IPRs mirror district court litigation in certain respects—such as their adversary nature, the availability of discovery, and the ability to cancel issued claims—the claim construction standards used in those contexts should be aligned. The Court noted, however, that IPR differs from litigation in other significant respects, noting the lack of a standing requirement, the USPTO’s ability to proceed to final decision after settlement by an adverse party, and the lower burden of proof to invalidate claims during IPR. The Court also looked to longstanding past practice in the USPTO using the broadest reasonable interpretation standard, including in adversary proceedings, such as interferences and reexamination.

Finally, recognizing that different claim construction standards in IPR and district court proceedings could lead to inconsistent outcomes, the Court noted the possibility was already “inherent to Congress’ regulatory design” because the patent laws expressly provide for different standards of proof in those parallel forums.

Conclusions

With its Cuozzo decision, the Supreme Court has definitively settled two fundamental and much-debated questions at the heart of IPR practice, and similarities between the IPR statutes and those governing covered business method and post-grant review indicate that Cuozzo is likely to apply across the spectrum of AIA trial proceedings.

The Federal Circuit will continue to dismiss challenges to the Board’s institution decisions in all but the most unusual circumstances, again highlighting the importance of careful strategy and preparation for petitioners and patent owners alike during the preliminary phase of an AIA proceeding. Absent legislative action, the Board will continue using the broadest reasonable interpretation to construe the claims of unexpired patents in AIA trials. In that sense, the Court’s decision may generally favor petitioners, although there is reason to question whether the formal distinction between stated claim construction standards before the Board and the district courts actually leads to a practical difference in claim construction results.

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