Review of Institution Decision Barred Unless Board Exceeds Its Authority -- A Tale of Two Decisions, In Re: Cuozzo Speed Technologies and Versata v. SAP America

This past week, the Court of Appeals for the Federal Circuit (CAFC) issued two decisions regarding when the court may review PTAB decisions in an inter partes review (IPR) or post grant proceeding.

After denying en banc review, on July 8, 2014, the CAFC issued its panel rehearing decision in In re Cuozzo Speed Technologies, LLC, 14-1301 (Fed. Cir. Jul. 8, 2015), concluding that not only does 35 U.S.C. § 314(d) prohibit interlocutory review of the decision to institute IPR, it prohibits review of the institution decision even after a final written decision. Slip Op. at 6. In Cuozzo, the PTO instituted IPR of claims 10 and 14 on grounds not in the Petition. The Patent Owner argued that, according to § 312(a)(3), a Petition for IPR must identify “with particularity. . . the grounds on which the challenge to each claim is based,” and § 314(a) states that the Director may not institute an IPR unless the “information presented in the petition . . . shows there is reasonable likelihood that the petitioner would prevail.” Slip Op. at 5. Together, the Patent Owner argued, these two statutes preclude institution on grounds not presented in the Petition, and the institution decision should be reviewed.

The Cuozzo Court majority (Clevenger and Dyk) disagreed, concluding that § 314(d) prohibits all review of the institution decision, even if it was wrong. Slip Op. at 5. The Cuozzo Court explicitly stated that it was not deciding the question of whether an aggrieved party could seek mandamus review of an institution decision if the Board “clearly and indisputably exceeded its authority.” Slip Op. at 9.  Instead, the Court reviewed the merits of the final decision and found nothing in the IPR statutes that expressly limits the Board’s authority at the final written decision stage to the grounds alleged in the IPR petition, since § 318(a) authorizes the Board to issue a final written decision relating to the patentability of “any patent claim challenged by the petitioner.” Slip Op. at 7. Even if the Board wrongly instituted on grounds not presented, the Court reasoned that the final written decision should not be set aside for this error. Finding that the Board had not erred in construing the claims under the broadest reasonable interpretation standard, finding the claims obvious, or denying Cuozzo’s motion to amend, the Court affirmed the Board’s final determination that the claims were invalid. Slip Op. at 26. Notably, Judge Newman dissented from the Cuozzo Court majority and, on the subject of review, opined that “[t]he statute [§ 314(d)] does not preclude judicial review of whether the statute was applied in accordance with its legislated scope.”

One day later, the CAFC appeared to reach a different and potentially contradictory conclusion in Versata Development Group v. SAP America, Inc., 14-1194 (Fed. Cir. July 9, 2015). The Versata Court majority (Judges Newman and Plager) held that although it cannot review the institution decision per se, the Court can review the USPTO’s threshold determination that a patent is a covered business method in an appeal from a final written decision in a post grant review. The majority reasoned that 35 U.S.C. § 324(e) does not apply to “limits on the authority to enter a ‘final written decision’ invalidating a patent” because “institution and invalidation are two distinct actions by the PTAB.” Slip Op. at 22. Citing the “long tradition of judicial review of government actions that alter the legal rights of an affected person,” and that “[a]n agency may not finally decide the limits of its statutory power,” the majority concluded that § 324(e) provided no persuasive reason to believe that Congress intended to preclude judicial review of the PTAB’s “invalidation authority under § 18.” Id.

In his dissent-in-part, Judge Hughes criticized the majority as contradicting the “plain language of the statute,” which says that “[t]he determination by the Director whether to institute a post-grant review under this section shall be final and nonappealable,” and the Court’s “precedential decision in In re Cuozzo Speed Technologies, LLC, No. 14-1301, slip op. at 5-10 (Fed. Cir. July 8, 2015).” Dissent at 7, 10. To distinguish Cuozzo, the majority explained that Cuozzo addressed no “question of whether . . . a final written decision can be reviewed for compliance with a limit on the PTAB’s invalidation authority.” Slip Op. at 28-29. The dissent disagreed that the cases could be so-distinguished, explaining that Cuozzo addressed a similar “predicate question of authority,” where according to 35 U.S.C. § 314(a), the Board may only institute review if “the information presented in the petition . . . and any response . . . shows that there is a reasonable likelihood that the petition would prevail,” and the appellant there argued that the basis was not “presented in the petition.” Dissent at 10.

While the law is clear that there is no immediate appeal of an institution decision in either an IPR proceeding (per § 314(d)) or a post grant proceeding (per § 324(e)), these decisions tell us that some aspects of an institution decision may be appealable from final written decision if the Board exceeds its authority. As noted in the SAP v. Versata decision, the Court did not “consider all of the various determinations the PTAB may make to initiate proceedings and which may constitute limits on ultimate invalidation authority.” Slip Op. at 26. It would appear this decision leaves open the possibility that other issues, such as statutory bars (e.g., 35 U.S.C. §§ 325(a)(1) or 324(e)) and related determinations of real-parties-in-interest, may be appealable once a final written decision has issued. Further, these decisions raise questions about the fairness of the process between Patent Owner and Petitioner. After all, if the institution decision may only be appealed after final written decision, then the Petitioner necessarily prevailed at institution and only Patent Owners would want to appeal certain aspects of an institution decision. Petitioners continue to have no right to appeal institution denials.