Imperfect Pleading v. Limits on Invalidation Authority: Federal Circuit Attempts to Clarify the Scope of Judicial Review

Wright_print_highres2Pelletier_Print HiResGuest Commentary

By Jon E. Wright & Pauline M. Pelletier, Sterne, Kessler, Goldstein & Fox*

A hot topic in post-grant proceedings before the Patent Trial and Appeal Board (PTAB) is whether determinations made by the PTAB at the institution stage are reviewable on appeal by the Federal Circuit. In SightSound Techs., LLC v. Apple Inc., 2015 WL 8770164 (Fed. Cir. Dec. 15, 2015), the Federal Circuit held that it lacked jurisdiction to review the PTAB’s decision to consider issues not raised in the petition, but confirmed that it did have jurisdiction to review whether a patent was eligible for covered business method (CBM) review. The difference between these two issues, it noted, is that the petition could be “cured by a proper pleading” whereas CBM review eligibility constitutes a limit “on the Board’s authority to issue a final decision.”

Apple challenged two patents owned by SightSound under the CBM review provision of the America Invents Act (AIA), Section 18, on grounds that the claims were anticipated. While Apple did not specifically allege obviousness, the PTAB found that SightSound’s petitions nonetheless supported the institution on that basis. So the PTAB exercised its discretion to try an issue that Apple did not expressly set forth in its petitions. The PTAB also found that the patents were CBM-eligible because their claims were directed to the electronic movement of money between financially-distinct entities, an activity it found to be “financial in nature.” It also found that SightSound’s patents did not claim a “technological invention,” which would have exempted them from CBM review. After conducting a trial, the PTAB issued a final written decision finding the claims unpatentable as obvious. The PTAB also reaffirmed its decision to institute CBM review based on obviousness, notwithstanding the lack of an explicit assertion of obviousness in the underlying petitions. SightSound appealed the decision to the Federal Circuit. The Patent Office intervened to argue that the trial institution decision was unreviewable on appeal.

Incidentally, SightSound filed its opening brief three weeks before the Federal Circuit issued its opinion in In re Cuozzo Speed Technologies, LLC, 778 F.3d 1271 (Fed. Cir. 2015), which held that the court lacks jurisdiction to review institution decisions in view of the “broadly worded” appeal bar of 35 U.S.C. § 314(d). Also in the interim, the Federal Circuit decided Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306 (Fed. Cir. 2015). Versata held that the court does have jurisdiction to review an institution decision with respect to whether a patent is eligible for CBM review. SightSound’s appeal implicated both decisions, giving the Federal Circuit a unique opportunity to distinguish these two lines of precedent.

First, the Federal Circuit addressed whether it had jurisdiction to review whether the PTAB improperly initiated trial on a ground not explicitly raised in Apple’s petitions. The court held that, under Cuozzo, the corresponding provision of the statute applicable to CBM review, 35 U.S.C. 324(e), barred review of such a determination because SightSound’s challenge is “based on a defect in the initiation that could have been cured by a proper pleading.” The court clarified that “[o]nly limitations on the Board’s authority to issue a final decision are subject to review.” Put simply, failure to include a ground in the petition does not limit the PTAB’s authority to issue a final decision on such ground. As a result, the Federal Circuit could not disturb the PTAB’s exercise of discretion to institute trial on obviousness.

Second, the Federal Circuit addressed whether it had jurisdiction to review the PTAB’s determination that the challenged patents were CBM-eligible. The Court determined that Versata had answered that question, explaining: “[T]he question of whether a patent falls within the scope of the Board’s authority under AIA Section 18 as a CBM patent is a limitation on the Board’s authority to issue a final decision and may be reviewed on appeal from a final written decision of the Board.” Put simply, unlike issues that could be cured by proper pleading (e.g., inclusion of a missing ground, inclusion of a missing piece of prior art, timely filing), the issue of whether a patent is eligible for CBM review constitutes a limit on the PTAB’s ultimate invalidation authority. Therefore, the Federal Circuit has jurisdiction over such an appeal.

In sum, the Federal Circuit affirmed the PTAB’s decision in every respect based largely on its interim decisions in Cuozzo and Versata. Nonetheless, this opinion provides additional and valuable insight into why some issues decided at the institution stage are reviewable on appeal and others are not. This remains a hot topic, as litigants going forward are likely to explore the boundary between “imperfect pleading” and “invalidation authority.”

*Mr. Wright is a Director at Sterne, Kessler, Goldstein & Fox. He chairs the firm’s appellate practice and co-chairs its Patent Office Litigation practice.  Ms. Pelletier is an associate at Sterne, Kessler, Goldstein & Fox. She focuses her practice on patent litigation, post-grant trial and reexamination practice, and appeals.

 

 

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