Locke Lord QuickStudy: PTAB Panel that Institutes an IPR May Also Render Final Decision on the Merits in that IPR

On January 13, 2015, the Federal Circuit held that there is no violation of due process rights when the Patent Trials and Appeals Board (PTAB) panel that institutes an inter partes review (IPR) also renders the final decision on the merits in that same IPR. See Ethicon Endo-Surgery, Inc. v. Covidien LP, No. 2014-1771, slip op. (Fed. Cir. Jan. 13, 2016). In addition, the Ethicon court affirmed the PTAB ruling that the patent-at-issue (U.S. Patent No. 8,317,070 (the ‘070 patent)) is invalid as obvious over the prior art. Id. at 2-3.

On March 25, 2013, Covidien petitioned the USPTO for inter partes review of claims 1–14 of Ethicon’s ’070 patent. See id. at 6. The USPTO, through a PTAB panel, granted the petition on August 26, 2013. Id. The same PTAB panel found all challenged claims to be invalid as obvious over the prior art. Id.

On appeal to the Federal Circuit, Ethicon argued that allowing the same panel that instituted the IPR to also issue the final decision on the merits for the IPR raised “serious due process concerns.” Id. at 9. Specifically, Ethicon argued that the PTAB panel’s initial exposure to the limited record (i.e., the petition and preliminary response) presents a risk that the PTAB panel may “prejudge” the case prior to reviewing the complete IPR record. Id. Such prejudgment by the PTAB panel, as argued by Ethicon, would deprive a patent holder of its due process right to an impartial decision maker. Id.   

The Federal Circuit disagreed, noting that even the Supreme Court has never held a system of combined functions of an administrative body to be a violation of due process rights, but has instead actually upheld such systems. Id. at 10. Indeed, a system of combined functions is similar to that of a litigation in which a preliminary injunction is sought: “[t]he inter partes review procedure is directly analogous to a district court determining whether there is ‘a likelihood of success on the merits’ and then later deciding the merits of a case.” Id. at 11 (internal quotations and citations omitted).   

The Federal Circuit also rejected Ethicon’s statutory argument that Congress intended to keep the functions of institution and final decision separate. Id. at 13. Relying on the statute or legislative history of the statute, the implicit power of the head of an agency to delegate to subordinates, and Congress’s vesting of broad rulemaking powers in the head of the agency, the court held that “both as a matter of inherent authority and general rulemaking authority, the Director had authority to delegate the institution decision to the Board.” Id. at 13-18. Accordingly, the Ethicon court held that Ethicon’s due process rights were not violated by allowing the same PTAB panel that instituted the IPR to also issue the decision on the merits.

Judge Newman disagreed with the majority’s holding explaining that “[t]he ‘institution’ step is a carefully designed threshold, whereby only meritorious challenges will be considered. And as a safeguard of administrative objectivity, the legislation divided the functions of institution and trial into separate bodies within the PTO.” Id. at Dissent, p. 2. Notably, however, the majority relied on the legislation among other authorities and found to the contrary. Id. at 13-18.

Ethicon also challenged the PTAB’s decision on the merits, specifically arguing that the PTAB panel failed to consider the commercial success of an allegedly infringing Covidien device and an alleged long-felt but unresolved need. Id. at 19-20. With respect to commercial success, the court agreed with the PTAB panel that the Covidien device contained many unclaimed features as well as a feature present in the prior art, both of which contributed to the commercial success of the Covidien device. Id. at 18-20. Regarding the alleged long-felt but unresolved need, the court agreed that Ethicon’s evidence was insufficient to support its assertion because the evidence merely demonstrated features already in the prior art rather than the claimed features. Id. at 20. In other words, Ethicon’s evidence on commercial success or on the alleged long-felt but unresolved need was not sufficient to overcome a Covidien’s prima facie showing of obviousness.   

The Ethicon decision provides some procedural guidance for parties to IPR proceedings where the IPRs are instituted. In such cases, the PTAB panel that institutes an IPR (by finding a reasonable likelihood that the petitioner would prevail on at least one of the challenged claims) may also examine all evidence submitted during the course of the IPR and render a decision on the merits – the Ethicon decision appears to clear the Constitutional and statutory challenges against the possible dual functionality of a PTAB panel. In addition, Ethicon further reemphasizes the importance of establishing a nexus between the claimed features of the invention and the alleged secondary considerations, e.g., commercial success and long-felt but unmet need.