District Court Dismisses APA Challenge to PTAB Decision to Institute Post-Grant Review

On August 7, 2013, the United States District Court for the Eastern District of Virginia dismissed Versata Development Corp. v. Rea, Case. No. 1:13-cv-328 (GBL/IDD), a suit challenging a PTAB decision instituting a post-grant review (PGR) of U.S. Patent 6,553,350. Versata sought review under the Administrative Procedure Act (APA) to overturn the PTAB’s interpretation of the term “business method patents” under section 18 of the AIA. Our previous coverage of Versata v. Rea examined Versata’s complaint, the USPTO’s motion to dismiss, Versata’s response, and intervenor’s SAP’s memorandum in support of dismissal.

The court held that it lacked subject-matter jurisdiction under F.R.C.P 12(b)(1) to hear Versata’s APA challenge because the AIA precludes judicial review of the decision to institute PGR proceedings. In particular:

• 35 U.S.C. § 324(e) precludes judicial review by rendering a decision to institute a PGR “final and nonappealable”;
• The AIA provides “detailed procedures for post-grant review and a detailed scheme for administrative and judicial review” of PGR proceedings; and
• The AIA provides the right to appeal the PTAB’s ultimate decision on patent validity to the Federal Circuit, indicating an intent to limit other forums for challenging PGR determinations.

The court rejected the contention that § 324(e) only blocks appeal of a decision to institute a PGR, not review under the APA, noting several examples “where the word ‘appealable’ is equated with ‘review’ . . . within the Patent Act itself.” The court also distinguished Callaway Golf Co. v. Kappos, 802 F. Supp. 2d 678 (E.D. Va. 2011), in which analogous “final and nonappealable” language regarding the institution of inter partes reexamination was construed to not preclude APA review, as resting on an older statute lacking the AIA’s underlying “context and congressional intent.”

The court similarly found that Versata’s argument that the scope of preclusion under § 324(e) was limited to the PTAB’s substantive determination on patentability, and did not encompass the PTAB’s interpretation of “business method patents” under section 18 of the AIA, was contrary to a “complete reading of the AIA” and its “overarching congressional intent to streamline administrative review.”

The court alternatively held that Versata failed to state a claim under F.R.C.P 12(b)(6),finding that the PTAB’s decision to institute PGR proceedings was not ripe for review because the decision was neither a “final agency action” nor one “for which there is no other adequate remedy in a court.” The court found that institution of a PGR had no immediate legal effect on Versata’s day-to-day operations, and that even had the PTAB decision conclusively determined the scope of “business method patents” under the AIA, “an authoritative statutory interpretation is not final, as it does not affect legal rights or obligations.”

Finally, the court held that Versata’s statutory right to appeal the PTAB’s final written decision would be adequate to address the disputed statutory construction because it offers “relief of the same genre” and Versata would be able to fully raise its arguments on appeal.

Finnegan represented patent challenger SAP as intervener in this district court action and before the USPTO.