Flo Healthcare v Kappos: time for the Federal Circuit to show its hand

In construing claims for purposes of assessing patentability, the US Patent and Trademark Office (USPTO) patent examiner or the Patent Trial and Appeal Board (PTAB) will apply the “broadest reasonable interpretation” (BRI) standard.

The America Invents Act (AIA) proceedings of inter partes review (IPR) (which replaced inter partes reexamination on September 16, 2012) and postgrant review (PGR) (available from March 16, 2013), will also involve this claim construction standard, as confirmed by former director David Kappos in a June 19, 2012 blog.

In contrast, a district court will assess validity and use a higher claim construction standard, thus tending to construe claims more narrowly to preserve validity due to the clear and convincing standard per AIA 35 USC§282.

On appeal, the Court of Appeals for the Federal Circuit (CAFC) will review any claim construction by a district court de novo. But how does the CAFC review the previous claim construction by the PTAB or examiner?

A string of CAFC cases has led to inconsistent application of the standard of review. Given the likely increase in use of the various USPTO post-grant proceedings, the CAFC should clarify the standard which would also avoid any inconsistent results and unfairness to the patent owner, and settle any expectations of the inventive community.

What’s the problem?

As a basic example of applying inconsistent standards, suppose Company A is the patent owner and sues Company X for infringement in district court. Company X counters that the patent is invalid in view of prior art. Company X loses in the district court, and appeals against the decision to the CAFC. Company X also requests a concurrent IPR of the same patent before the USPTO, citing the same prior art.

The CAFC affirms the validity of the patent. Meanwhile, Company X is invalidating the same claims in the IPR since the PTAB applied the BRI standard and construed the patent claims broadly, forcing Company A to appeal to the CAFC. The CAFC, even though the same prior art is cited, decides in favour of Company X, giving a deferential standard of review to the PTAB’s claim construction.

In effect, while Company X could not prove invalidity in the district court or CAFC, Company X was successful in proving unpatentability before the USPTO due to the application of the BRI and the CAFC due to the lower, deferential standard of review. This is the type of problem that was recently encountered in the In re Baxter Int’l Inc decision (2012), where Judge Newman in her dissent criticised the majority for overruling a previous CAFC decision holding the same patent valid.

Is this really fair to the patent owner? Properly defining the standard of review is important for any post-grant proceeding. While some of the new AIA post-grant proceedings allow a stay of a later-filed litigation and statutory estoppel attaching right away with a PTAB decision, it is still possible to have parallel proceedings and inconsistent results.

A deferential versus de novo standard of review

In Flo Healthcare v Kappos (2012), the patent owner (Flo Healthcare) appealed to the CAFC against the adverse decision by the PTAB in inter partes reexamination proceedings.

The issue on appeal was the PTAB’s (broad) claim construction under AIA 35 USC§112(f) for the claimed “height adjustment mechanism” feature. The three-judge panel realised that, while the CAFC reviews a district court’s claim construction de novo, a standard of review of a PTAB claim construction has not been consistent, and not necessarily de novo.

Judge Plager, a member of the Flo Healthcare panel, authored the decision in In re Morris, 44 USPQ2d 1023 (Federal Circuit 1997), which applied the deferential Dickinson v Zurko (1999) “reasonable” standard of review, which is seen as a “not arbitrary and capricious” standard under the Administrative Procedure Act (APA) for nonfact issues that are not pure questions of law.

This standard (for mixed fact and law) has even been applied recently in In re Suitco Surface (2010) (issue was whether the PTAB’s claim construction was “reasonable” in applying the BRI standard).

But in In re Baker Hughes (2000), the PTO’s claim construction was reviewed de novo (issue was determination of obviousness), but also seen as a pure question of law comparable to that of reviewing a district court’s claim construction. This de novo standard was applied as recently as 2012 in In re Montgomery.

In Flo Healthcare, the CAFC decided that the “height adjustment mechanism” does not invoke AIA 35 USC§112(f), under either the deferential standard or de novo standard. However, Judge Plager wrote a concurring opinion with “additional views” questioning what the right standard of review should be for a USPTO claim construction. In citing Morris and Baker Hughes, as stated by Judge Plager:

“A HOLDING WITH RESPECT TO VALIDITY SHOULD BE THE SAME WHETHER VALIDITY WAS TESTED IN A DISTRICT COURT CASE OR IN A USPTO POST-GRANT PROCEEDING.”

“The consequence of all this is that we now appear to have two contradictory lines of authority on the question of how this court reviews Board claim constructions: a deferential ‘reasonable’ (arbitrary/capricious-type) review, and a no-deference ‘pure’ law type review. ... The question then becomes whether claim construction by the Board is to be considered a question of ‘pure’ law ... and thus to be reviewed without deference; or whether it is something else, a blend of law and fact and judgment … in which case it is at least arguably subject to the ‘arbitrary and capricious’ standard of APA §706.”

Judge Newman also wrote a concurring opinion with “additional views”, in part stating: “The ‘BRI’ is an examination protocol, not a rule of law. … The ‘BRI’ applies to the initial consideration of patentability, not to the final decision.”

It is time for the CAFC to clarify the standard of review. Specifically, the CAFC should adopt a de novo standard of review for a USPTO claim construction, which would allow the CAFC to be consistent with its own previous decisions and avoid situations like that in the In re Baxter decision.

Further, with the AIA making more post-grant proceedings available, especially considering the expedited nature of IPR and PGR, there will be a growing number of patents being challenged before the USPTO, adding to the urgency of adopting a consistent standard of review.

Clarification on this issue may come soon in the Lighting Ballast v. Philips Electronics case, where the CAFC has agreed to re-hear en banc the district court case involving the amount of deference given the lower court’s claim construction. The CAFC has invited the USPTO to submit an amicus curiae brief in this case.

Benefits of a de novo standard of review for a USPTO claim construction

Judge Newman has it right in that the application of the BRI standard is only an examination tool, and not the “end-all and be-all” for proper claim construction. The BRI can be used as a starting point of claim construction, but the USPTO cannot rely on the BRI standard to arrive at a legally incorrect interpretation.

Though there is the argument that a pwost-grant proceeding like IPR or PGR is an interactive one that allows the patent owner to characterise and amend the claims, there is the counterargument that the patent owner should not be forced to amend the claims because the claims are so unreasonably and broadly construed to overlap with prior art. Further, the patent undergoing some form of post-grant proceeding has already gone through USPTO scrutiny at least once before.

What’s the basis for adopting a de novo standard of review? Simply put, there is a string of cases where the Federal Circuit has found the USPTO improperly construed the claims for different reasons: