Discretionary Denials under Fintiv Rebooted by Vidal’s Decision
Discretionary Denials under Fintiv Rebooted by Vidal’s Decision

The Director of the USPTO, Kathi Vidal, issued a decision this week raising the likelihood that the Patent Trials and Appeals Board (PTAB) will exercise its discretion to deny the institution of Inter Partes Review (IPR) challenges. Last June, Vidal issued guidance on the discretionary denial standard, which was widely interpreted to be the death knell for discretionary denials. The Director’s decision this week will undoubtedly change that view. It appears that the prospects for discretionary denial are alive and well at the PTAB.

In  COMMSCOPE TECHNOLOGIES LLC, v DALI WIRELESS, INC. (IPR2022-01242) (hereinafter, ”Director’s Decision”), Vidal clarified the standard for discretionary denials for an IPR under the Interim_Procedure for_Discretionary_Denials_Memo (hereinafter, “Memo”), when applying the Fintiv factors articulated in Apple Inc. v. Fintiv, Inc., IPR2020-00019, Paper 11 (PTAB Mar. 20, 2020) (precedential). The Memo articulated that the Patent Trials and Appeals Board (PTAB) should consider a set of nonexclusive factors, also known as the Fintiv factors, on a case-by-case basis when determining whether to institute an AIA post-grant proceeding where there is parallel District Court litigation. The six factors include:

  1. whether the Court granted a stay or evidence exists that one may be granted if a proceeding is instituted;
  2. proximity of the Court’s trial date to the Board’s projected statutory deadline for a final written decision;
  3. investment in the parallel proceeding by the Court and the parties;
  4. overlap between issues raised in the petition and in the parallel proceeding;
  5. whether the Petitioner and the Defendant in the parallel proceeding are the same party; and
  6. other circumstances that impact the Board’s exercise of discretion, including the merits. (Memo, Pg. 2).

The Memo explains that Fintiv Factor 6 is a “compelling evidence test.”. However, the Memo also states that “the PTAB will not deny institution of an IPR or PGR under Fintiv (i) when a petition presents compelling evidence of unpatentability; (ii) when a request for denial under Fintiv is based on a parallel ITC proceeding; or (iii) where a Petitioner stipulates not to pursue in a parallel District Court proceeding the same grounds as in the petition or any grounds that could have reasonably been raised in the petition.”(Memo, Pg. 9)(emphasis added). Given the alternative nature of the last three factors, it was read by many as requiring that the PTAB only find compelling evidence of unpatentability to institute the IPR, without considering the other five Fintiv Factors.

The Director’s Decision gave some much-needed clarification on this issue. In particular, it clarified that, in the Memo, “[Director Vidal] intended for PTAB panels to only consider compelling merits if they first determined that Fintiv factors 1–5 favored a discretionary denial.” (Director Decision, Pg. 4). “[I]n circumstances where the Board determines that the other Fintiv factors 1–5 do not favor discretionary denial, the Board shall decline to discretionarily deny under Fintiv without reaching the compelling merits analysis.” (Director Decision, Pg. 4-5). Conversely, only if “the Board’s analysis of Fintiv factors 1–5 favors denial of institution, the Board shall then assess compelling merits.” (Director Decision, Pg. 5). Accordingly, if Fintiv factors 1-5 favor a discretionary denial of the IPR, the Board must find that the Petitioner has met the “compelling merits test” to institute the IPR.

The “compelling merits test” requires a higher standard than the “reasonable likelihood” standard required for the institution of an IPR under 35 U.S.C. § 314(a). “[T]he compelling merits standard is a higher standard than the standard for institution set by statute.” (Director Decision, Pg. 3). As explained by the Director’s Decision, “[t]he compelling merits test seeks to strike a balance among the competing concerns of avoiding potentially conflicting outcomes, avoiding wasteful parallel proceedings, protecting against Patent Owner harassment, and strengthening the patent system by allowing the review of patents challenged with a sufficiently strong initial merits showing of unpatentability.” (Director Decision, Pg. 4). The Director’s Decision stops short of prescribing a specific test that must be satisfied under the “compelling merits test” other than specifying that it is a higher standard than required for institution of the IPR.

However, the Director’s Decision does expressly state that “the Board shall provide its reasoning in determining whether the merits are compelling.” The Director’s Decision identifies that OpenSky Indus., LLC v. VLSI Tech. LLC, IPR2021-01064 and Patent Quality Assurance, LLC v. VLSI Tech. IPR2021-01229 are examples where the Board has properly stated how the “compelling merits test” was satisfied by the facts in the respective case. As a result, although there is not a prescribed test, the Board must provide reasoning for why the merits of the petition are compelling to satisfy the higher standard once the Fintiv factors that favor a discretionary denial are satisfied.

Accordingly, the Director’s Decision clarifies the need for the PTAB to always address Fintiv Factors 1-5 when determining whether to exercise a discretionary denial of an IPR where there is parallel District Court litigation. That is, the Director’s Decision clarifies that the PTAB is to only evaluate Fintiv Factor 6 (i.e., the “compelling merits test”) where the PTAB analysis of Factors 1-5 favors a discretionary denial.

For Patent Owners
For Patent Owners, the Director’s Decision reinforces the importance of arguing all of six of the Fintiv factors in the Patent Owner’s Preliminarily Response (POPR) when the Patent Owner is requesting a discretionary denial under Fintiv. Specifically, under Fintiv Factor 6Fintiv, the Patent Owner should directly explain how the Petitioner has not met their burden of showing “the evidence, if unrebutted in trial, demonstrates that ‘it is highly likely that the [P]etitioner would prevail with respect to at least one challenged claim.” (Director Decision, Pg. 5).

In addition, the Director’s Decision further reinforces the importance of venue in a patent litigation after TC Heartland LLC v. Kraft Foods Group Brands LLC. For example, under Fintiv Factor 2 (discretionary denial is more likely where the trial date is earlier than the statutory deadline of the post-grant proceeding) and Fintiv Factor 3 (discretionary denial is more likely where the Court has issued substantive orders), an IPR petition based on a litigation in the Eastern District of Texas, for example, is more likely to be afforded a discretionary denial. Whereas an IPR of the same patent that originates from a litigation in the Northern District of California, for example, is more likely to not satisfy Fintiv Factors 2 and 3 in which case a discretionary denial would not be afforded.

For Petitioners
As a result of the Director’s Decision, Petitioners who are arguing against a discretionary denial are well served to focus their efforts on Fintiv factors 1-5 because the “compelling merits test” sets a much higher threshold than the “reasonable likelihood that the Petitioner would prevail with respect to at least 1 of the claims challenged in the petition” standard required for the institution of an IPR under 35 U.S.C. § 314(a). However, the “compelling merits test” is only reached once the Board has found that Fintiv Factors 1-5 favor a discretionary denial. Therefore, the Petitioner can avoid the higher standard under the “compelling merits test” by successfully arguing in the petition that Fintiv factors 1-5 do not support a discretionary denial.

In addition, the Director’s Decision further highlights the importance of filing the IPR petition as soon as possible after being served with the complaint in the District Court litigation. Although 35 U.S.C. § 315(b) permits the Petitioner up to one year from being served with a complaint alleging infringement of the patent, waiting to file the IPR can involuntarily tip Fintiv factors 1-5 in favor of a discretionary denial. Accordingly, it is critical that the Petitioner quickly locate the invalidating prior art and file the IPR petition in order to avoid the “compelling merits test.”



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