By Tom Engellenner
In a precedential opinion handed down last month by the Court of Appeals for the Federal Circuit, the court overruled its own prior decisions and greatly expanded the scope of estoppel applied against petitioners who are unsuccessful in challenging patents in an inter partes review proceeding (IPR) before the Patent Trial and Appeal Board (PTAB) of the US Patent and Trademark Office.  In California Institute of Technology v. Broadcom Limited, No. 20-2222 (Fed. Cir. Feb. 4, 2022), the court found that “estoppel applies not just to claims and grounds asserted in the petition and instituted for consideration by the Board, but to all claims and grounds not in the IPR but which reasonably could have been included in the petition.”

At issue in the Caltech case was section 35 U.S.C. § 315(e)(2) of the America Invents Act (AIA) of 2011, which authorized new types of administrative hearings to review the validity of issued patents.  Since 2012, thousands of trials, primarily inter partes review or IPR trials, has been held by PTAB panels of administrative judges.  While many of these trials have resulted in partial or complete victories for the petitioners that challenged patent claims, patent owners have also been successful in defending their patents some of the time.  Section 315(e)(2) of the AIA provides:

The petitioner in an inter partes review of a claim in a patent . . . may not assert either in a civil action . . . or in a proceeding before the International Trade Commission . . . that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.

Early on in the course of AIA trials, it was not clear what Congress meant by “any ground that the petitioner raised or reasonably could have raised” in an IPR.  The scope of estoppel applied against a defendant following an unsuccessful IPR challenge in parallel patent infringement cases before Federal district courts was hotly contested.  Some courts adopted a narrow approach to the scope of section 315(e)(2) estoppel, basically only precluding the re-litigation of arguments raised in any earlier IPR.  Other courts gave a broader interpretation to the “reasonably could have raised” wording of section 315 and precluded anything prior art arguments that defendant knew (or should have known) about and chose not to raise by way of an IPR proceeding.

All these views seemed to be put to rest in a 2016 Federal Circuit decision in Shaw Industries Group v. Automated Creel Systems, 817 F.3d 1293.  In the Shaw decision, the Federal Circuit noted that the rules adopted by the USPTO to govern AIA trials gave PTAB panels the authority to not only deny or institute a trial, but also to “partially” institute a trial.  The court then concluded if the PTAB can pick the arguments to be litigated in an IPR proceeding, then any argument not chosen by the PTAB for trial could not have been “reasonably” raised.  Following the Shaw decision, federal district courts seemed to fall into line with a narrow view of section 315(e)(2) estoppel.

But then came a Supreme Court decision in 2018 that essentially threw out the USPTO “partial institution” rules for PTAB trials.  In SAS Institute, Inc. v. Iancu, 138 S. Ct. 1348 (2018), the Supreme Court held that any time an IPR trial is conducted, the PTAB must render judgment on all patent claims contested by the petitioner.  Federal District courts again began to diverge in their interpretation of section 315(e)(2) estoppel in patent infringement trials.

A court decision later in 2018 in the District of Massachusetts was perhaps the bellwether for reconsideration of the Shaw case and its narrow interpretation of estoppel.  In SiOnyx LLC v. Hamamatsu Photonics K.K., 330 F. Supp. 3d 574, 601 (D. Mass. 2018) District Court Judge Saylor found a pre-SAS narrow view decision in his own district “cannot be correct” after the Supreme Court’s SAS decision and applied a broad estoppel instead.   Because partial institutions are improper after the SAS decision, Judge Saylor reasoned, “for the words ‘reasonably could have raised’ to have any meaning at all,” they must include prior art arguments that were not raised in the petition.

Indeed, last month’s decision by the Federal Circuit in the Caltech case has come to the same conclusion.  The judges of the Federal Circuit panel that decided the Caltech case further took the extraordinary step of explicitly overruling the Shaw case.  Typically, a panel decision on the same fact pattern is considered binding on other panels in the same circuit but the Caltech court relied upon an exception to the general rule when a court of last resort (i.e., the U.S. Supreme Court) takes a position that “undercuts the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable.”  In such circumstances overruling of a panel precedent is permissible.  Thus, the panel in the Caltech case held:

“Accordingly, we take this opportunity to overrule Shaw and clarify that estoppel applies not just to claims and grounds asserted in the petition and instituted for consideration by the Board, but to all claims and grounds not in the IPR but which reasonably could have been included in the petition. In a regime in which the Board must institute on all grounds asserted and the petition defines the IPR litigation, this interpretation is the only plausible reading of “reasonably could have been raised” and “in the IPR” that gives any meaning to those words.”

Thus, the Caltech case, (unless reversed by the Federal Circuit en banc or the Supreme Court – both unlikely scenarios) has ushered in a new era of broad estoppel to be applied against unsuccessful IPR petitioners.  It appears that defendants in subsequent patent infringement cases will not be able to present any prior art-based invalidity argument that they knew about – or should have been aware of based on a reasonable search for prior art – following an unsuccessful IPR challenge to the patent(s)-in-suit.

One strategy for escaping this broad estoppel, at least for well-heeled defendants, may be to concurrently present multiple IPR petitions if they choose to go the AIA administrative invalidity trial route.  Flooding the PTAB deck, so to speak, with many different petitions is unlikely to result in multiple proceedings because the PTAB rarely grant two separate trials on the same patent claims (and, in fact, PTAB rules require petitioners to rank parallel petitions in order of preference).  However, if only one trial is instituted, the grounds presented in the other denied petitions may remain available as defenses in parallel patent infringement litigation. 

The Caltech case may have an even bigger impact on another type of AIA trial, namely “post grant review” (PGR) proceedings.  This type of proceeding is available for newly issued patents during the first nine months follow the patent’s issuance.  Unlike IPR proceedings, where challenges to a patent’s validity are limited to patents and printed publications as prior art, petitioners for a PGR trial can raise virtually any ground in the patent statute as a basis for invalidating a patent, e.g., other types of prior art such as prior use or sale of the claimed invention, indefiniteness, or lack of written description – as well as prior patents and publications.  Section 325(e)(2), the section of the AIA that provides for petitioner estoppel following an unsuccessful challenge in a PGR proceeding, contains identical language to section 315(e)(2) that governs IPR proceedings.  Thus, an unsuccessful PGR determination excludes defenses on “any ground that the petitioner raised or reasonably could have raised.”  Since the scope of invalidity arguments that can be made in a PGR petition is broader, based on the Caltech decision reasoning, the unsuccessful petitioner runs of risk on being stripped of all invalidity defense in subsequent patent infringement litigation.

Post script: On February 22, 2022, The Federal Circuit panel that handed down the Caltech decision issued a clarification to its opinion.  In its original opinion, the panel stated that estoppel applies “to all claims and grounds not stated in the IPR but which reasonably could have been included in the petition” (emphasis added). The errata modified the decision by deleting the term “claims.”  The original holding failed to acknowledge that section 315(e) limits estoppel to the challenged claims that were the subject of the IPR final written decision (i.e., not other claims that could have been challenged but were not).