NHK-Fintiv Frustration: Status of the Current Challenges and the Uncertain Fate of the PTAB’s Discretionary Denial of IPRs

Several challenges have been made recently to the Patent Trial and Appeal Board’s (“PTAB’s or Board’s”) controversial practice of denying inter partes review (IPR) petitions based on the status of parallel infringement litigation involving the same claim. The so-called NHK-Fintiv rule, resulting from Board-designated precedential cases in 2018 and 2020, allows the PTAB to decline review of a patent based on several discretionary factors, including whether the patent is being asserted in ongoing parallel district court litigation, presumably to prevent the inefficient use of the Board’s resources. The challenges to the NHK-Fintiv rule have been unsuccessful to date, with appellate courts holding that they lack jurisdiction to review institution decisions, and the Supreme Court in January 2022 denying certiorari with respect to two of those challenges. We examine below the current status of the various challenges, and the uncertain fate of the NHK-Fintiv rule.

NHK-Fintiv Framework:  Established under former USPTO director Iancu, the NHK-Fintiv rule resulted from the Board’s precedential opinions in NHK Spring Co. v. Intri-Plex Techs.¹ and Apple Inc. v. Fintiv,² which set forth the circumstances under which the Board may exercise its discretion to deny institution of IPRs. The PTAB considers the following six factors for discretionary denials under 35 U.S.C. § 314(a): (1) whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted; (2) proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision; (3) investment in the parallel proceeding by the court and the parties; (4) overlap between issues raised in the petition and in the parallel proceeding; (5) whether the petitioner and the defendant in the parallel proceeding are the same party; and (6) other circumstances that impact the Board’s exercise of discretion, including the merits.³

NHK-Fintiv Challenges: The NHK-Finitiv rule has been the subject of numerous challenges from technology and pharmaceutical companies.

On August 31, 2020, Apple, Cisco, Google and Intel (“plaintiffs”) filed a lawsuit in the Northern District of California, arguing that the NHK-Fintiv rule violated the Leahy-Smith America Invents Act (“AIA”), which created the IPR regime, and the Administrative Procedure Act (“APA”), which governs the process by which federal agencies develop and issue regulations.⁴

Plaintiffs argued that by applying the NHK-Fintiv rule, the Director exceeded his statutory authority and thus violated the AIA, since nothing in the AIA authorizes the Director to deny IPR petitions based on perceived overlap with pending infringement litigation involving the same patent claims.⁵ According to the plaintiff, the fact that AIA requires IPR petitions to be filed within a year of a company being sued reflects that Congress carefully calibrated the one-year limit to ensure that IPR is not used for purposes of delay, while also giving infringement defendants an adequate opportunity to investigate the claims asserted against them in litigation.⁶

Plaintiff also argued that the NHK-Fintiv rule should be overruled because it is arbitrary, capricious, and violates the AIA with inconsistent outcomes in different cases that make it hard to know how the factors will be applied.⁷ Finally, Plaintiffs argued that the NHK-Fintiv rule should be held unlawful and set aside because it is a final, binding rule that substantially alters the rights and interests of IPR petitioners without any notice-and-comment rulemaking.⁸ USPTO (“defendant”) argued that the plaintiffs’ claims are not justiciable under the APA.

The California Court granted defendant’s motion to dismiss, finding that the case is precluded by an AIA provision stating that decisions on whether to institute IPR are “final and nonappealable.” ⁹ The court reasoned that the Supreme Court in Cuozzo determined that issues closely related to the Director’s decision to institute an IPR petition are non-appealable under 35 U.S.C. § 314(d), and that a court will lack jurisdiction to review such cases.¹⁰ The court also relied on the Supreme Court’s decision in Thryv, which held that the USPTO’s decision to implement the time bar provision of the IPR regime under 35 U.S.C. § 315(b), so as to refuse institution of an IPR, was also not reviewable since the “time limitation is integral to, indeed a condition on, institution,” and a lawsuit challenging the time bar was merely “an ‘ordinary dispute about the application of’ an institution-related statute.”¹¹

Relying on Cuozzo and Thryv, the court found that the NHK-Fintiv rule establishes factors that are “closely related to [the Director’s decision] whether to institute [IPR],”¹² and that it “cannot deduce a principled reason why preclusion of judicial review under § 314(d) would not extend to the Director’s determination that parallel litigation is a factor in denying IPR” under § 314(a).¹³  The court did note that the Supreme Court in Cuozzo stated that § 314(d) may be reviewable if it implicated “constitutional questions . . . of interpretation that reach, in terms of scope and impact, well beyond [§ 314(d)],”¹⁴ and that institution decisions that implicate due process concerns or jurisdictional violations are not “categorically precluded” from judicial review under § 314(d).¹⁵  Nevertheless, the court found that plaintiffs’ challenges did not rise to the level of a constitutional violation warranting review. An appeal is currently pending before the Federal Circuit.

While the case was still pending, the USPTO requested comments on discretion to institute trials in IPR and post grant review (PGR) proceedings, and specifically solicited comments on whether rulemaking was necessary and the type of rules it should adopt.  The USPTO did not itself propose any rules.¹⁶  The USPTO received over 800 submissions, and published a summary in January 2021.¹⁷

On July 28, 2021, Apple Inc. petitioned the Supreme Court for relief after the Federal Circuit refused to review the Board’s discretionary denial of an IPR.¹⁸ Apple had argued that it should be able to appeal the denial of institution based on the Fintiv factors, and that, in the alternative, the Federal Circuit should grant mandamus to review the denials. Apple also contended that the language of § 314(d) is not an absolute bar that prevents arguments that the PTAB’s denial of an IPR petition rested on grounds that exceed the agency’s statutory authority, are arbitrary and capricious, or fail to comply with basic procedural requirements of the APA.¹⁹ The government had argued that Apple cannot establish the “clear and indisputable right” to a different outcome that the mandamus standard requires. The Federal Circuit held that it lacks jurisdiction to hear the case.²⁰

On August 9, 2021, Mylan Laboratories urged the Supreme Court to strike down the NHK-Fintiv rule and argued, amongst other things, that the rule is unlawful and renders Congress’s one-year period for seeking IPR illusory.²¹ Mylan’s IPR had been denied by the USPTO based on the status of pending litigation against a different Hatch-Waxman litigant, not Mylan. In its petition, Mylan also took issue with Federal Circuit’s position that PTAB institution decisions are not subject to appellate review, which it said “effectively handed the director and the board carte blanche to deny IPR petitions for any random (and potentially unlawful) reason they can dream up.”²² Mylan also highlighted that the rule has encouraged patent owners to file suits in districts that promise a fast time to trial, such as Waco in the Western District of Texas, partly to avoid PTAB review of the patents.²³

The Supreme Court denied both Mylan’s and Apple’s petitions on January 18, 2022.

On, November 29, 2021, US Inventor Incorporated, a non-profit, filed an appeal with the Fifth Circuit arguing that the district court wrongly concluded that the group does not have standing to bring an action challenging the lack of agency rulemaking, seeking formalizing of NHK-Finitiv rule through notice and comment rulemaking.²⁴  The district court had ruled that US Inventor did not face any injury and was generally complaining about the system which Congress had established.²⁵

On December 15, 2021, Intel filed a petition at the Supreme Court arguing that the NHK-Fintiv rule is arbitrary and capricious and requires the Board to deny IPR petitions after speculating when the infringement trial will conclude, the calculation of which is mostly incorrect considering trials are often rescheduled.²⁶ In its appeal, Intel states that “by treating such decisions as if they are immune from judicial review, the Federal Circuit’s position endangers a tool that Congress determined to be essential to the integrity of the patent system.”²⁷ Unified Patents, the Alliance for Automotive Innovation and Cable Television Laboratories have filed an amicus brief supporting Intel’s petition. The petition is currently pending.

Fate of NHK-Fintiv rule: While the Supreme Court has thus far not taken up any of the challenges to the rule, there has been proposed legislation from senators that would nullify the NHK-Fintiv rule altogether. Last year, Senators Patrick Leahy and Republican Senator John Cornyn introduced a new bill, the Restoring the America Invents Act, arguing against the use of discretionary denials at the PTAB.

The new nominee to lead the U.S. Patent and Trademark Office, Kathi Vidal, has promised to look into the PTAB’s practice of discretionary denials and engage with stakeholders. In her written response to Senate Judiciary Committee members, Ms. Vidal stated “PTAB decisions are not themselves rules within the meaning of the APA and the decision to deem a PTAB decision as precedential is not a rule within the meaning of the APA, so notice-and-comment rulemaking is not required to make the precedential designation.”²⁸ Recently, a group of legal executives from companies like Intel, Fresenius Kabi, Hyundai Motors, Netflix and several others collectively wrote to the Secretary of Commerce, Ms. Raimondo, urging her to immediately repeal the NHK-Finitiv rule because it unfairly denies access to IPR proceedings and effectively wrote out vital protections out of the law without any public notice or comment.²⁹

For its part, the PTAB has designated as precedential two decisions where review was instituted despite co-pending litigation.³⁰ In Sotera Wireless, Inc. v. Masimo Corporation, the Board instituted review and noted that Sotera had filed a stipulation that it “will not pursue in [the District Court] the specific grounds [asserted in the IPR], or on any other ground … that was raised or could have been reasonably raised in an IPR.³¹ According to the Board, filing such a stipulation “mitigates any concerns of duplicative efforts between the district court and the Board, as well as concerns of potentially conflicting decisions… ensur[ing] that an inter partes review is a ‘true alternative’ to the district court proceeding.”³² Since the issuance of this decision, there has been a reported drop in discretionary denials under Fintiv.³³

Amidst all these moving pieces, the fate of NHK-Fintiv rule remains uncertain. However, the mounting pressure from companies like Apple, Intel, Mylan, and others may ultimately lead Congress to eliminate the rule altogether or introduce stronger estoppel provisions that would, for example, prevent petitioners from relying on an actual system as prior art before a district court if they had previously relied on a manual for that same product before the PTAB. ³⁴

In the meantime, recent data indicates that defendants have increasingly shifted toward ex parte reexamination in an attempt to seek a process to challenge patent validity that is not subject to discretionary denials under the NHK-Fintiv rule.³⁵