IP Law Daily PTAB properly issued judgment against patentee that disclaimed claims before IPR instituted
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Wednesday, January 24, 2018

PTAB properly issued judgment against patentee that disclaimed claims before IPR instituted

By Thomas Long, J.D.

An adverse judgment issued by the Patent Trial and Appeal Board, invalidating all nine claims of a medical device patent, based on the patent owner’s disclaimer of the claims prior to the Board’s decision whether or not to institute inter partes review (IPR) of them, has been affirmed by a divided panel of the U.S. Court of Appeals for the Federal Circuit. The Board correctly interpreted USPTO regulations authorizing the Board to enter an adverse judgment when a party to a proceeding disclaims all claims at issue "in the trial." The Board’s adverse judgment against the patent holder would have estoppel effect on pending applications for inventions that were not patentably distinct from the patent at issue in this case. Because the patent owner chose not to challenge the USPTO’s statutory authority to issue the rule, the court did not address that question. Circuit Judge Pauline Newman wrote a dissenting opinion arguing that the USPTO did not have the authority to issue a rule allowing the Board to make adverse judgments prior to instituting IPR (Arthrex, Inc. v. Smith & Nephew, Inc., January 24, 2018, Dyk, T.).

The patent at issue was U.S. Patent No. 8,821,541 ("the ’541 patent"), titled "Suture anchor with insert-molded rigid member." Smith & Nephew, Inc., and ArthroCare Corp. filed an IPR petition challenging claims 1–9 of the ’541 patent. Before the Board decided whether to institute review, Arthrex disclaimed all nine claims, as permitted under 37 C.F.R. §42.107(e), and then filed a preliminary response arguing that an IPR should not be instituted because that rule stated that "No inter partes review will be instituted based on disclaimed claims." However, 37 C.F.R. §42.73(b) provided that a party may request adverse judgment against itself at any time during a proceeding, and disclaimer of claims, such that the party had no remaining claims in the case, could be construed as a request for an adverse judgment. Arthrex attempted to avoid this provision by stating in its preliminary response that it was not requesting an adverse judgment.

After further briefing, the Board entered an adverse judgment against Arthrex pursuant to 37 C.F.R. §42.73(b), stating that "our rules permit the Board to construe a statutory disclaimer of all challenged claims as a request for adverse judgment, even when the disclaimer occurs before the Board has entered a decision on institution." The adverse judgment had an estoppel effect on a pending application. Arthrex appealed the Board’s decision to the Federal Circuit. Smith & Nephew, Inc., and ArthroCare Corp. moved to dismiss the appeal for lack of subject-matter jurisdiction, contending that 35 U.S.C. §319—which provided for appeal from a "final written decision"—created the only means of appeal and that the Board did not issue a "final written decision" in this case.

Appellate jurisdiction. The court first analyzed the subject-matter jurisdiction issue, in light of the general rule that judicial review was presumed to be available with respect to final agency action. The Federal Circuit noted that 28 U.S.C. §1295(a)(4)(A) gave the court jurisdiction over "an appeal from a decision of—the Patent Trial and Appeal Board of the United States Patent and Trademark Office with respect to … inter partes review under title 35." The adverse judgment against Arthrex was a decision of the Board made "with respect to" an IPR proceeding. The judgment was final because it terminated the proceeding.

Arthrex argued that 35 U.S.C. §319 should govern in this case, and that section did not provide for appeal when there was no final written decision. Section 319 stated, "A party dissatisfied with the final written decision of the Patent Trial and Appeal Board under section 318(a) may appeal the decision pursuant to sections 141 through 144." However, in the court’s view, this provision did not "cabin" the appeal rights conferred by Section 1295. Section 319 did not on its face provide the exclusive means for appeal over IPR decisions not subject to the appeal bar regarding institution decisions, the court said. Therefore, the court concluded that a final decision that disposed of an IPR proceeding in the form of an adverse judgment was a "decision" from the Board with respect to IPRs under Title 35 and that Section 1295 provided a right to appeal a final adverse judgment.

Adverse judgment. The Federal Circuit next determined that the Board properly entered an adverse judgment pursuant to 37 C.F.R. §42.73(b). The court noted that Arthrex specifically disclaimed any argument that the regulations were not authorized by the statute, so the court did not need to decide whether the USPTO had authority to adopt the regulation. Arthrex argued only that the regulation did not apply in this case because it specifically stated that it was not requesting an adverse judgment. However, application of the rule on its face did not turn on the patentee’s characterization of its own request, and such a construction would make no sense, the court said. Under Arthrex’s interpretation, a patent owner could always avoid an adverse judgment by simply stating that it was not requesting one, even with respect to the specific instances listed in the rule, thereby rendering the rule a nullity. Moreover, the language of the rule suggested that it was the Board’s characterization that was determinative, not the patent owner’s.

Arthrex also argued that the rule’s language referring to "no remaining claim in the trial" meant that the rule only applied if IPR had been instituted. The Federal Circuit disagreed, holding that the rule applied once a petition had been filed. Because the Board’s interpretation was consistent with the language of the regulation, the court affirmed the Board’s decision.

Concurring opinion. Circuit Judge Kathleen O’Malley wrote separately, concurring with the majority’s conclusion that the Board’s interpretation of 37 C.F.R. §42.73(b) was consistent with the text of that regulation, but expressing doubts about whether the Director had the authority under the Patent Act to issue that regulation or whether, if so, the regulation was properly promulgated. However, because Arthrex affirmatively disclaimed any challenge on this basis, the question would have be decided on another day.

Dissenting opinion. Circuit Judge Pauline Newman dissented. In Judge Newman’s view, because Arthrex disclaimed all challenged claims before the Board instituted IPR, the Board lacked authority to issue an adverse judgment in the case. According to Judge Newman, the language "in the trial" in the text of the rule explicitly limited the rule’s application to instances in which IPR had been instituted, because without an institution of review, there was no trial.

The case is No. 2017-1239.

Attorneys: Anthony P. Cho (Carlson Gaskey & Olds PC) for Arthrex, Inc. Nathan R. Speed (Wolf, Greenfield & Sacks, P.C.) for Smith & Nephew, Inc. and ArthroCare Corp.

Companies: Arthrex, Inc.; Smith & Nephew, Inc.; ArthroCare Corp.

MainStory: TopStory Patent FedCirNews

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