Arthrex, Inc. v. Smith & Nephew, Inc.
880 F.3d 1345 (Fed. Cir. 2018)
Authored by Franchiny M. Ovalle
Statement of Facts: Smith & Nephew filed an inter partes review (“IPR”) petition to challenge claims 1–9 of U.S. Patent No. 8,821,541 (“the ’541 patent”) before the United States Patent and Trademark Office, Patent Trial and Appeal Board (“PTAB”). Arthrex owns the ’541 patent and disclaimed claims 1–9 under 37 C.F.R. § 42.107(e). Arthrex filed a preliminary response stating that no IPR should be instituted based on disclaimed claims under 37 C.F.R. § 42.107(e).
Procedural History: The PTAB entered an adverse judgment against Arthrex under 37 C.F.R. § 42.73(b) because the PTAB can construe a statutory disclaimer of all claims that are challenged as a request for adverse judgment, regardless of whether the disclaimer happened before the PTAB entered a decision on the case. The PTAB entered an adverse judgment and an estoppel effect attached. Arthrex argued that an adverse judgment would affect their three pending continuation patent applications. Arthrex appealed to the Federal Circuit. Smith & Nephew moved to dismiss the appeal, arguing that under 35 U.S.C. § 319 an appeal is allowed only when there is a final written decision and, in this case, the PTAB did not issue a final written decision. The Federal Circuit denied this motion.
Questions Presented: First, whether the adverse final judgment by the PTAB is appealable. Second, whether the PTAB properly entered an adverse judgment under 37 C.F.R. § 42.73(b).
Holdings: First, yes. The adverse judgment by the PTAB is final and terminated the IPR proceeding, therefore, it is appealable. Second, yes. The PTAB is permitted under 37 C.F.R. § 42.73(b) to enter adverse judgments. The Federal Circuit affirms the PTAB.
Reasoning: The Federal Circuit approached the first question by stating the general rule that “judicial review is presumed to be available with respect to final agency action.” 880 F.3d 1345, 1348. The Federal Circuit found that there is language in 28 U.S.C. § 1295 that provides for an appeal when the PTAB enters an adverse final judgment. The decision by the PTAB to enter an adverse judgment against Arthrex with respect to an IPR review is final and such a final decision terminated the IPR proceeding. The Federal Circuit rejected Smith & Nephew’s argument that § 319 must govern because § 319 does not exclusively govern the means for an appeal over IPR decisions and § 1295(a)(4)(A) provides a right to appeal for Arthrex. On the second question, the Federal Circuit found that the judgment by the PTAB was consistent with the language of 37 C.F.R. § 42.73(b). Arthrex argued that § 42.73(b) is inapplicable and “stated that it was not requesting an adverse judgment.” 880 F.3d at 1349. The Federal Circuit responded that it would make no sense for the PTAB to enter an adverse judgment only when requested by the patent owner. Allowing patent owners to avoid an adverse judgment through requests would nullify the rule. Arthrex argued that subsection 2 of § 42.73(b) refers to the cancellation of claims when there is no claim remaining in the trial, and that it only applies to an IPR proceeding that has been instituted. The Federal Circuit found this argument flawed because the claims were cancelled and there is no “meaningful distinction between claims that are cancelled before an IPR proceeding is instituted and claims that are cancelled after an IPR proceeding is instituted . . .” 880 F.3d at 1355. The decision by the PTAB is appealable and the interpretation was consistent with the language of the § 42.73(b).
Concurring Opinion: Judge O’Malley agreed with the majority opinion that the Federal Circuit has jurisdiction under § 1295(a)(4)(A) to review the PTAB adverse judgment against Arthrex and with the interpretation of § 42.73(b) by the PTAB. However, Judge O’Malley pointed out that she has doubts that the Director of the PTAB has the authority under 35 U.S.C. § 316 to issue that type of regulation or even if “[t]he regulation was properly promulgated.” 880 F.3d at 1351. The authority of the PTAB to issue an adverse judgment prior to institution of disclaimed claims is questioned. 37 C.F.R. § 42.73(b) states that parties can request a judgment against itself any time during a proceeding, but PTAB defines proceeding broadly enough to cover the trial and preliminary proceeding. The broad definition of a proceeding and PTAB’s application of proceeding to adverse judgments prior to institution conflicts with the court’s conclusion in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293, 1300 (Fed. Cir. 2016) holding that an IPR cannot begin until it is instituted. Judge O’Malley also found the framework of the Leahy-Smith American Invents Act “does not address procedural actions before institution beyond the filling of a petition . . .” therefore, the law does not allow PTAB to make patentability determinations with estoppel effect before institution. 880 F.3d at 1352.
Dissenting Opinion: Judge Newman dissented, stating that the majority incorrectly found the action by the PTAB in conformity with the statute and its regulation. In this situation, Judge Newman found that because Arthrex disclaimed all the challenged claims and IPR was not available, the PTAB could not have entered an adverse judgment on the claims. There was no review of claims 1–9 by Smith & Nephew. 880 F.3d at 1352. Rule 37 C.F.R. § 42.73(b) allows for a request of an adverse judgments, but this must be during the trial. In this case, there was no trial because of the disclaimer of claims 1–9 by Arthrex and the PTAB could not have entered an adverse judgment when no trial took place. 37 C.F.R. § 42.107(e) provides that no IPR can take place based on disclaimed claims. For that reason, Judge Newman concluded that the PTAB could not have instituted an IPR, no trial took place, no written final decision by PTAB, and no adverse judgment could have been entered into based on § 42.73(b). Therefore, the decision of PTAB to enter into an adverse judgment against Anthrex was in direct conflict with § 42.73(b) and § 42.107(e).