The U.S. Supreme Court ruled on June 20, 2016 in Cuozzo Speed Techs., LLC v. Lee that: (1) the statutory authority of the Patent Trial and Appeal Board (“Board”) in instituting an inter partes review (“IPR”) proceeding is final and non-appealable, thereby not being subject to judicial review, and (2) it is appropriate for the Board to construe claims in an issued patent according to their broadest reasonable interpretation, rather than their plain and ordinary meaning as in district court litigation.

Procedural Background

The Patent Office awarded U.S. Patent No. 6,778,074 to Cuozzo Speed Technologies, LLC, (“Cuozzo”) for a speed limit indicator that, upon receiving signals from a GPS, changes color of a display when the speed of a vehicle exceeds the speed limit at the vehicle’s present location. Garmin petitioned for inter partes review of all claims of the Cuozzo patent, asserting that claim 17 in particular would have been obvious based on three prior art patents – Aumayer, Evans and Wendt – in combination.  The Board instituted trial on claim 17 based on this combination, as well as with respect to claims 10 and 14, even though these claims were not challenged by Garmin on this basis.  Construing the claims according to their broadest reasonable interpretation, the Board deemed claims 10, 14 and 17 unpatentable.  Cuozzo appealed to the Federal Circuit, alleging that: (1) the Board improperly instituted inter partes review of claims 10 and 14 on a ground that Garmin did not assert against such claims, and (2) the Board improperly used the “broadest reasonable construction” to interpret the claims instead of the “plain and ordinary meaning” standard used by district courts.  The Federal Circuit denied both these assertions here.

The Board’s Institution Decisions Remain Judicially Unreviewable

The Supreme Court first addressed whether the Board’s decision to institute the IPR proceeding was judicially reviewable in light of the fact that 35 U.S.C. § 314(d) provides that the Board’s decision “to institute an inter partes review … shall be final and non-appealable.” 35 U.S.C. § 314(d).  The Court held by a 6-2 majority that absent any constitutional question, this “No Appeal” provision bars judicial review.  Writing for the majority, Justice Breyer explained that, “[f]or one thing,” §314(d) expressly states that the “determination by the [Patent Office] whether to institute an inter partes review under this section shall be final and nonappealable.”  The majority reasoned that, because the legal dispute at issue relates to the application of certain relevant patent statutes—specifically 35 U.S.C. § 312, which states that an IPR must be pleaded “with particularity”—it falls under § 314(d).  Justice Breyer also found that the legislative history suggests that Congress intended to give the Patent Office significant power to reevaluate earlier patent grants and that holding that the Board’s decision to institute an IPR is judicially reviewable would undermine this important congressional objective. The Court further recognized that a “strong presumption” favoring judicial review is overcome by “clear and convincing” indications that Congress intended to bar review, i.e., the explicit language—“final and nonappealable” in § 314(d)—and the § 312-based legal dispute clearly and convincingly indicates that Congress intended to bar judicial review of the Board’s decision as whether to institute an IPR.  Importantly, however, Justice Breyer made clear that the majority holding was a complete bar to judicial review of a Board institution decision: “we need not, and do not, decide the precise effect of § 314(d) on appeals that implicate constitutional questions, that depend on other less closely related statutes, or that present other questions of interpretation that reach, in terms of scope and impact, well beyond ‘this section.’”

Justice Alito, joined by Justice Sotomayor, dissented. In their view, “nonappealable” in §314(d) is ambiguous when the precedents have used the term to mean not immediately or independently appealable.  Justice Alito explained that  § 314(d) means that a court cannot stop the IPR proceeding from moving forward, but the question whether it was lawful to institute the proceeding must be subject to judicial review.

The Broadest Reasonable Construction Standard Remains Valid in IPRs

The Court also addressed whether the broadest reasonable construction standard to interpret patent claims is a reasonable exercise of the rulemaking authority granted to the Patent Office by statute. The Court unanimously upheld the Board’s application of the broadest reasonable construction 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).

Writing for the Court, Justice Breyer reasoned that where a statute leaves a gap or is ambiguous, Congress’s grant of rulemaking authority is interpreted as granting the agency “leeway to enact rules that are reasonable in light of the text, nature, and purpose of the statute” – and the statute here contains such a gap because no statutory provision unambiguously directs the agency to use one claim construction standard over the other. The Court noted that the statute indeed allows the Patent Office to issue rules governing inter partes review and the broadest reasonable construction regulation is a rule that governs inter partes review.

In addition, the Court reasoned that the nature and purpose of inter partes review does not unambiguously require the Patent Office to apply one particular claim construction standard.  The Court rejected Cuozzo’s argument that the alleged purpose of inter partes review – namely, to establish trial-like procedures for reviewing previously-issued patents – supports the application of the ordinary meaning standard.  Justice Breyer explained that such contention ignores the fact that inter partes review differs in other significant respects from trial-procedures, for example, the lack of a standing requirement, the Patent Office’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 concluded that the purpose of inter partes review is not only to resolve patent-related disputes among parties, but also to protect the public’s “paramount interest in seeing that patent monopolies… are kept within their legitimate scope.”

The Court also reasoned that the broadest reasonable construction standard helps ensure precision in drafting claims and “prevent a patent from tying up too much knowledge,” which, in turn, helps members of the public draw useful information for the disclosed invention and understand the lawful limits of the claim. The Court noted that the Patent Office has used this standard for more than 100 years in past adversary proceedings, such as interferences and reexamination.

Takeaways

This decision by the U.S. Supreme Court is expected to favor the patent challengers. Patent challengers will now have a choice of forum between the Board and the federal courts and will need to strategize accordingly.  Due to the difference in claim construction standards used by the Patent Office and district courts, the patentability of claims is expected to differ in both tribunals.  It is worth noting that the Board has already been statistically favorable to patent challengers due to the historically high cancellation rate of claims in IPR proceedings, and to many of them due to an expedited decision on patentability of the challenged claims and thus generally a lower cost.  The Cuozzo decision has arguably now made the landscape even more appealing to patent challengers by affirming the Board’s use of the broadest reasonable construction of claims and  confirming that patent holders cannot (at least in large part) appeal the Board’s decision to institute an IPR trial.

Cuozzo provides insight for patent prosecutors as well.  Due to an IPR being a bigger hurdle for patent holders now, patent prosecutors should consider drafting and amending claims while interpreting them broadly, as per the Board’s claim construction standard.  Even though Patent Office examiners are already required to construe claims broadly, it may be best to use extra caution to avoid any unforeseeable errors by the examiner in applying the broadest reasonable interpretation standard.  Patent prosecutors may also consider performing a detailed prior art search during prosecution of the patent application and narrowing broadly-worded claims to overcome any relevant art as well as its combination with the references on record.