Proposed PTAB Rules up for Comment

The USPTO on April 21, 2023 proposed a variety of changes to the pre-institution requirements and briefing process for post-grant proceedings, including both IPRs and PGRs. Among the proposed changes are broad amendments to the discretionary denial frameworks, which are intended to provide clarity, curb abusive litigation tactics, and generally align procedure with the objectives of the AIA. The deadline for submitting comments and suggestions related to these rules is June 20, 2023. The proposed rules provide valuable insight into the future of post-grant proceedings before the PTAB. An overview of these changes is outlined below, and additional details follow.

• Parallel Proceedings – The USPTO is considering changes to the Fintiv framework, including the elimination of current factors 1, 2, and 5, a requirement for a Sotera stipulation, and a grace period that would exempt petitions filed within 6 months of service of the complaint from being discretionarily denied under this rule.
• 325(d) Framework – The USPTO is considering a rule that would reign in the application of discretionary denial under 325(d) by limiting its application to art or arguments that had been “previously addressed,” or actually evaluated by the patent office as articulated on the record, such as in a rejection, notice of allowance, or examiner interview. Mere citation in an IDS will no longer meet the standard. Prior art will only be considered “substantially the same” where it contains the same teaching relied upon in the petition, and that teaching was addressed by the patent office. 
• Serial Petitions – The USPTO is considering replacing the existing framework for serial petitions with a rule that will deny any serial or follow-on IPR petition filed by: (1) the same petitioner; (2) a real party in interest to that petitioner; (3) a party with a significant relationship to that  petitioner; or (4) a party who previously joined an instituted IPR filed by that petitioner. There will be an exception where the earlier petition was not resolved on the merits of the petition, or where exceptional circumstances are shown.
• Prior Adjudications – The USPTO is contemplating stricter requirements where a prior final adjudication by a district court or in a post-grant proceeding upheld the validity of claims that substantially overlap the challenged claims, essentially requiring the petitioner (1) either has standing to challenge the validity of the patent in district court or intends to pursue commercialization, (2) was not a real party in interest to the party who unsuccessfully challenged the claims, and (3) meets the heightened burden of compelling merits.
• Micro and Small Entities – The USPTO is mulling changes that would protect under-resourced entities by denying institution where the patent owner (1) claimed micro or small entity status at the time of filing; (2) did not exceed a gross income cap in the calendar year preceding filing of the petition; and (3) was commercializing a product covered by the challenged claim at the time of filing.
• For-Profit Entities – The USPTO is contemplating a rule that would deny any IPR or PGR petition by a for-profit entity that has not been sued or threatened with infringement of the challenged patent, is not otherwise practicing in the field of the challenged patent, and is not in “substantial relationship” with an entity to which the rule would not apply.

The USPTO has also proposed changes to the disclosure requirements, what constitutes compelling merits, and termination by settlement filing requirements. An in-depth discussion of each suggested change is included below.

Before addressing the proposed changes in detail, the proposed changes outline several definitions used throughout the proposals. These include:

• “Substantial Relationship” – parties are said to be “substantially related” when: (1) they are in privity; (2) they are a real party in interest; (3) they have an ownership interest in the petitioner or patent owner; or (4) they fund the petitioner or patent owner in either the PTAB or related district court litigation.  This is intended to be a “broadly construed” relationship, and could include co-defendants in related litigations/parallel proceedings as well as parties who joined already instituted IPRs.
• “Substantial Overlap” – the USPTO has proposed defining “substantial overlap” between claim sets as occurring when “at least one challenged claim is ‘substantially the same’ as a claim in a set to which the claim is being compared.” Claims are “substantially the same” when “any differences between the claims are not material to patentability.”
• “Compelling Merits” – Building off the Director’s decision in OpenSky, the merits of a petition are “compelling” when “the evidence of record before the Board at the institution stage is highly likely to lead to a conclusion that one or more claims are unpatentable by a preponderance of the evidence.”  OpenSky Indus., LLC v. VLSI Tech. LLC, IPR2021-01064, Paper 102 at 49 (PTAB Oct. 4, 2022). Essentially, if the Petitioner has presented evidence at the institution stage that leaves the Board with a “firm belief or conviction that it is highly likely” the merits are deemed compelling. As the Director expressed in OpenSky, if, after evaluating the relevant discretionary denial issues, the Board finds the merits compelling, the petition will not be discretionarily denied.

Parallel Proceedings

In recognition that PGRs are subject to broader statutory estoppel limitations than IPRs and therefore less susceptible to conflicting decisions between the PTAB and district courts, the USPTO is considering formalizing a rule that discretion will not be used to deny institution of a PGR based on parallel district court litigation. The USPTO also suggests retaining the current ITC rule, where institution of an IPR or PGR will not be denied based on a parallel ITC proceeding.

For district court proceedings and corresponding IPRs, the USPTO has suggested sweeping changes. First, Boards analyzing when a trial is likely to occur would be able to consider median time-to-trial statistics (a statistic some Boards already point to), “the number of cases before the judge[,] and the speed and availability of other case dispositions.” These changes (corresponding to Fintiv factor 2) could be accompanied by a streamlined Fintiv test, which evaluates current factors 3, 4, and 6: (1) past and future expected investment in the parallel proceeding by the district court and the parties; (2) the degree of overlap between the issues in the petition and the parallel district court proceeding; and (3) any other circumstances that the parties contend are relevant to the Board’s exercise of discretion. 

Regarding Fintiv factor 5, the Board is suggesting modifying the factor to consider substantially related parties, as opposed to only the specific litigants in the parallel proceeding examined now. This change would effectively eliminate current factor 1.

The proposed changes also provide a variety of “safe harbors” or exceptions to the discretionary denial based on a parallel proceeding framework. These include:

• Exempting petitions filed within six months of service of a complaint for infringement from this discretionary denial scrutiny. This would not change the one-year bar, but is instead aimed at promoting prompt filing of the petition after the parallel proceeding begins.
• Not denying institution when a Sotera stipulation is entered (and potentially requiring proof that the stipulation is also entered in the district court proceeding). See Sotera Wireless, Inc. v. Masimo Corp., IPR2020-01019, 2020 WL 7049373, at *7 (PTAB Dec. 1, 2020).

The USPTO is also considering less stringent stipulations, such as the Sand Revolution stipulation. See Sand Revolution, II, LLC v. Cont’l Intermodal Grp. – Trucking LLC, IPR2019-01393, 2020 WL 3273334, at *5 (PTAB June 16, 2020). Alternatively, the USPTO may require a Sotera stipulation, and may replace the entire Fintiv framework with a bright-line rule where Sotera prevents discretionary denial and failure to include a Sotera stipulation results in discretionary denial.

The 325(d) Framework

The USPTO is considering changes to the framework outlined in 35 U.S.C. § 325(d). Specifically, the proposed changes would clarify what constitutes “previously considered art.” To qualify, “previously considered art” would be prior art referenced on the record, such as in a rejection, notice of allowance, or examiner interview. This would except prior art that was merely included in an IDS, on a Notice of References Cited, or in search results. 

The proposed rule also clarifies that prior art applied to parent or related applications would also be considered if the claim limitations in those related applications were substantially the same as the challenged claims. The limitations would be considered ”substantially the same” when the prior art is considered for the same teaching (i.e., for the same limitation and in the same manner) as the petition. 

Finally, the proposed rule clarifies if the patent owner meets the burden of showing substantially the same art was previously addressed by the office, the Board will not institute unless the petitioner establishes material error.

Parallel Petitions

The USPTO proposes a stricter handling of parallel petitions, that is, proceedings involving multiple petitions filed against the same patent in parallel (i.e., the petitions are filed before any POPR is filed). Under the proposed rule, the Board will not institute parallel petitions unless a showing of good cause is made. The USPTO recognizes splitting different theories into different petitions would benefit all parties because only meritorious challenges would be considered under SAS Institute Inc. v. Iancu, 138 S. Ct. 1348, 1359-60 (2018).

The USPTO outlined eight “good cause” factors that would assist the Board in determining whether to institute multiple parallel petitions. These factors include:

• Whether the patent owner has asserted a large number of claims in the parallel litigation;
• Whether the petitioner is challenging a large number of claims;
• whether there is a dispute about a priority date requiring arguments under multiple prior art references;
• Whether there are alternative claim constructions that require different prior art references or mutually exclusive grounds;
• Whether the petitioner lacks sufficient information at the time of filing the petition, e.g., the patent owner has not construed the claims or provided specific information as to the allegedly infringed claims;
• Whether there are a large number of claimed embodiments challenged, e.g., composition claims, method of making claims, and method of use claims;
• The complexity of the technology in the case; and
• The strength of the merits of the petition.

In submitting parallel petitions, petitioners would be required to file a 5-page explanation (1) ranking their preference of which, if any, petition is instituted if good cause is not found, and (2) explaining the differences between the petitions and why the differences are material. 

Finally, to avoid parallel petitions altogether, the USPTO is considering an additional fee (50% or 100%) to get a proportional additional word count (50% or 100%). This would apply to the petition, POPR, POR, Reply, and Sur-reply.

Serial/Follow-on Petitions

The USPTO is considering outright replacing the General Plastic serial petition framework with the following test: “the Board will discretionarily deny any serial IPR or PGR petition (with at least one challenged claim that is the same as a challenged claim in a previously filed IPR, PGR, or CBM petition) that is filed by one of the following: the same petitioner, a real party in interest or privy to that petitioner, a party with a significant relationship to that petitioner, or a party who previously joined an instituted IPR or PGR filed by that petitioner.” This stricter test is more straightforward than the current factor-based test and would result in more denials.  The USPTO is also considering applying the rule to all parties with a substantial relationship to the earlier petitioner.

Notably, the USPTO has outlines two exceptions to this strict rule: (1) the earlier petition was not resolved on the merits (e.g., institution was discretionarily denied), or (2) exceptional circumstances are shown—such as a change in the claim scope, previously unknowable prior art was found after the earlier petition was filed, or the follow-on petition raises a new statutory challenge (e.g., §§ 101, 102/103, or 112) that was not in the prior petition and presents an explanation of why the new challenge was not raised earlier. 

Semi-Automatic Denials

For-Profit, Non-Competitive Entities

“To curb potential abusive filings,” the USPTO is considering rules that “would discretionarily deny any petition for IPR or PGR filed by an entity that:” (1) is a for-profit entity; (2) has not been sued or threatened with a lawsuit (under the declaratory judgment standard) for infringement of the challenged patent; (3) could not be alleged to practice in the field of the challenged patent; and (4) is not in “substantial relationship” with an entity that does not meet these criteria. 

The purpose of this proposed change is to eliminate the practice of using “for-profit, non-competitive entities that in essence seek to shield the actual real parties in interest and privies from statutory estoppel provisions.” One other contemplated method for achieving this is discretionarily denying institution if the patent owner covenants not to sue a for-profit petitioner and its customers prior to initiating litigation against those entities. These changes would advance the USPTO’s mission of promoting innovation, and would accord with the intent of the AIA to provide a less-expensive alternative to district court litigation.

Under-Resourced Patent Owners

To assist under-resourced patent owners, the USPTO is considering denying institution (absent compelling merits) where the patent owner (1) claimed micro or small entity status and timely requests discretionary denial under this new rule, (2) did not exceed eight times the micro-entity gross income (roughly US$1.7 million under the current rule) in the calendar year preceding the petition, and (3) was commercializing (or licensing to a commercializing licensee) the subject matter of the challenged claim. 

To fully consider whether a patent owner is in fact “under resourced,” and in order to take advantage of this rule, the USPTO may require patent owners to disclose government or litigation funding.

Prior Final Adjudication of Validity

Under the proposed changes, a prior final adjudication of validity would result in discretionary denial, except where the petitioner (1) either has standing in district court (i.e., is not estopped from challenging the patent and/or has declaratory judgment standing) or intends to commercialize a product or service in the field of the challenged claim, (2) was not a real party in interest or privy to the party who previously challenge the claims, and (3) meets the compelling merits standard. This inquiry is independent of that for parallel/serial petitions and parallel proceeding frameworks (see above) where applicable.

Proposed Changes to the Briefing on Discretionary Denials

There are two proposed changes applicable to briefing on discretionarily denying institution of a petition for a post-grant proceeding. First, the USPTO is considering making it a condition for avoiding discretionary denial, that the petitioner file a stipulation that it is not involved in multiple challenges of the challenged claims. In this stipulation, the petitioner would represent that neither they nor their privy have filed prior post-grant proceedings on the challenged claims, and that if instituted, neither they nor their privy would file a petition for review of the challenge claims in a subsequent post-grant proceeding. Unless this stipulation was entered, the USPTO would discretionarily deny institution even under the compelling merits carve out.

Second, to afford petitioners and patent owners space to address the merits in their papers, the USPTO is considering dedicated briefing on discretionary denial issues. The USPTO has proposed that a patent owner would separately request briefing on discretionary denial before the deadline for the POPR, at which point they would be afforded a 10-page brief addressing these issues. In response, the petitioner would be allowed a 10-page opposition, followed by a 5-page patent owner reply.

This change may also require the patent owner to disclose all parties with which they are in substantial relationship, including litigation funders.

Other Proposed Changes

Disclosure of Substantially Related Parties

A couple of the proposed rules above have disclosure requirements above and beyond the current real party in interest requirement, specifically, that disclosure of substantially related parties. The USPTO is also considering making that an outright requirement even beyond the specific provisions addressed above. That is, the USPTO is considering making the initial disclosure requirement broader by requiring disclosure of all substantially related parties, which notably includes litigation funders for both PTAB proceedings as well as funders for related district court litigations.

Settlement Agreements

The USPTO also seeks to clarify the rule that currently requires submission of a settlement agreement post-institution would also apply to settlement agreements pre-institution. Under this change, pre-institution settlement agreements need to be “in writing and filed with the Board prior to termination of the proceeding.” According to the USPTO, this is a part of their obligation to police anticompetitive behavior.

The suggested rules also seek to clarify that term sheets would be acceptable to effectuate termination of a post-grant proceeding, so long as the parties certify that (1) there are no other agreements with respect to termination of the proceeding, and (2) they will file a true copy of the subsequent settlement agreement within one month of the settlement being executed.

The proposed changes present a variety of changes to the format and substance of pre-institution briefing and are certainly worth keeping an eye on. The USPTO is still accepting comments on the suggestions outlined above. If you have any questions, our post-grant team is ready and willing to discuss the proposed rules and their impact on future post-grant proceedings.

By Jason A Engel, Katherine L. Allor, Benjamin E. Weed, Jonah B. Heemstra, Austin R. Rossi, and Adam S. Berlin