Cuozzo v. Lee and the Potential for Patent Law Deference Mistakes

I wrote a short post on Monday's decision in Cuozzo v. Lee for Stanford's Legal Aggregate blog, which I'm reposting here. My co-blogger Michael Risch has already posted his initial reactions to the opinion on Monday, and he also wrote about deference mistakes in the context of the "broadest reasonable interpretation" standard in an earlier article, The Failure of Public Notice in Patent Prosecution.

The Federal Circuit's patent law losing streak was broken Monday with the Supreme Court's decision in Cuozzo v. Lee. At issue were two provisions of the 2011 America Invents Act related to the new "inter partes review" (IPR) procedure for challenging granted patents before the Patent and Trademark Office. IPR proceedings have been melodramatically termed "death squads" for patents—only 14% of patents that have been through completed trials have emerged unscathed—but the Supreme Court dashed patent owners' hopes by upholding the status quo. Patent commentators are divided on whether the ease of invalidating patents through IPR spurs or hinders innovation, but I have a more subtle concern: the Supreme Court's affirmance means that the PTO and the courts will evaluate the validity of granted patents under different standards of review and different interpretive rules, providing ample possibilities for what Prof. Jonathan Masur and I have termed "deference mistakes" if decisionmakers aren't careful about distinguishing them.

The first issue in Cuozzo—which doesn't implicate the "deference mistake" problem—is whether the PTO's decision on an IPR petition is in fact, as the statute says, "final and nonappealable." (In this case, only one claim of Cuozzo's speed limit indicator patent was challenged, but the PTO instituted review of three claims—and invalidated all of them as obvious.) Justice Breyer's opinion for the Court holds that the "strong presumption" favoring judicial review is overcome by the clear statutory language, though he notes that review may be allowed for constitutional questions or actions "in excess of statutory jurisdiction." In dissent, Justice Alito (joined by Justice Sotomayor—patent law makes strange bedfellows!) would allow judicial review of final PTO decisions to avoid shielding PTO "shenanigans" from judicial scrutiny.

The second, and more significant, issue in Cuozzo is the standard for evaluating patent claims during IPR. For readers not steeped in patent jargon, the "claims" are the highly technical statements at the end of a patent that define the scope of the patentee's legal rights, and "claim construction" (translating the claims into more understandable English) is one of the most contested parts of patent litigation. When the PTO examines applications in the first place, it applies the "broadest reasonable construction" standard; broader claims are more likely to be unpatentable (e.g., for being obvious in light of prior references), and the idea is to give claims a broad interpretation while patent applicants have ample opportunities to amend. In contrast, during patent litigation in the courts, claims are given their "ordinary meaning" to a researcher in that field.

Which standard governs IPR? Congress directed the PTO to "prescribe regulations … establishing and governing inter partes review under this chapter," and the PTO decided to apply the broadest reasonable construction standard, making it easier for challenged patents to be invalidated. Cuozzo and its pro-patent amici argued that this is wrong as a matter of statutory interpretation, but the Supreme Court unanimously upheld the PTO's rule. Justice Breyer's opinion treated this as a straightforward Chevron case: the statute is ambiguous; it expressly authorizes the PTO to fill such gaps; and the PTO's choice of a standard is not unreasonable. (As an aside, this case was an odd vehicle because Cuozzo actually wanted a broader interpretation of a claim term than that used by the PTO, which would make it more likely that the claim is obvious.) Of course, treating this as a Chevron issue means the PTO also has discretion to change the standard, or Congress could mandate a different standard by statute, so the fight may not be over. But for now, the patent community is left with the status quo.

As the popularity of IPR continues to grow, this means that the validity of granted patents will be increasingly evaluated under two very different sets of rules. During patent litigation in the courts, claims are entitled to a presumption of validity and are construed based on the ordinary meaning standard. But IPR looks like patent examination: in these proceedings (and subsequent appeals to the Federal Circuit), the presumption of validity does not apply and claims are interpreted more broadly. It would thus be a mistake for the PTO to rely on a precedent from district court litigation—or for a district court to rely on a precedent from IPR proceedings—without accounting for the different standards of review and interpretive rules in the different contexts. But in our article Deference Mistakes, Jonathan Masur and I found that courts make these kinds of mistakes all the time. And these mistakes have real consequences: if courts use IPR precedents during litigation, they might unwittlingly invalidate too many patents; if the reverse, they might unwittlingly uphold too many patents. And Masur and I explain that such mistakes will not be confined to individual cases: they have the potential to generate systematic shifts in legal doctrine.

Suppose, for example, that the Federal Circuit starts applying a de facto looser standard of patentability to IPR appeals, either because it makes deference mistakes in analogizing these cases to precedents from the infringement context, or because some judges simply want to rein in IPR's "death squad" reputation. (Indeed, I think it makes good policy sense to have a laxer standard for patents that have already been granted and that have generated reliance interests.) But the PTO has chosen the stricter standards of examination for IPR, and if the Federal Circuit undermines this standard sub silentio, it will have a more pernicious effect than simply affecting future IPR proceedings—the PTO would also be obligated to follow these precedents in the examination context, leading to a loosening of patentability standards overall.

This is a problem with no easy fix, though Masur and I suggest that it should become standard citation practice to parenthetically note the deference regime governing the legal question at issue in a cited case. Given the variety of deference regimes the Federal Circuit will be juggling, judges might ask their law clerks to adopt this practice in bench memos—which might also help force law clerks to consider the full context of an opinion they are citing, rather than simply using electronic keyword searching to jump to the most relevant language. And litigants before the Federal Circuit should also police each other, such as by pointing out when the opposing party is relying on a case decided under a less favorable deference regime.

Justice Breyer's Cuozzo opinion acknowledged that "the use of the broadest reasonable construction standard in inter partes review, together with use of an ordinary meaning standard in district court, may produce inconsistent results and cause added confusion," such as a patent claim being upheld in district court and later invalidated by the PTO, but the Supreme Court concluded that this possibility "is inherent to Congress' regulatory design." Let's hope the PTO and the courts can limit the resulting confusion by keeping these different contexts straight.