Federal Circuit Rules Inter Partes Review Estoppel Does Not Apply to Invalidity Grounds Not Instituted on Basis of Redundancy by PTAB

On March 23, 2016, the United States Court of Appeals for the Federal Circuit issued a decision in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293, holding that the PTAB’s decision not to institute IPR review on petitioned grounds on the basis of redundancy would not have estoppel effect on the challenger. In Shaw, the court denied Shaw’s writ of mandamus, concluding it was not warranted because Shaw was not estopped from raising its non-instituted grounds in future proceedings.

Under 35 U.S.C. § 315(e), a challenger in an IPR that results in a final decision is estopped from asserting in a future proceeding, at the PTO or in a civil action, any grounds the challenger raised or could have raised during the IPR. The purpose of the statute was to prevent parties from asserting abusive serial challenges to patents and provide faster, and less costly alternatives to civil actions. However, the Federal Circuit ruling carves out an exception to the estoppel rule that limits its scope.

In Shaw, Automated Creel Systems sued Shaw for patent infringement related to a system for supplying yarn materials to a manufacturing process. In response, Shaw petitioned for IPR on three grounds pertaining to a subset of claims. The PTAB instituted IPR on two of the grounds, and denied the petition on the third ground based on redundancy “in light of its determination that there is a reasonable likelihood that the challenged claims are unpatentable based on the grounds of unpatentability on which [the PTAB] institute[d] an inter partes review.” Notably, Shaw filed a second IPR petition for one claim that the PTAB did not institute, but again the PTAB denied some the grounds in the petition as being redundant. Shaw (1) appealed to the Federal Circuit arguing it had jurisdiction to review the PTAB’s decision not to institute all grounds, and (2) petitioned for a writ of mandamus instructing the PTAB to reevaluate its redundancy decision.

The Federal Circuit first held that it had no jurisdiction over the PTAB’s decision under 35 U.S.C. § 314(d), which provides that the PTAB’s decision whether to institute IPR is final and nonappealable. The court then addressed Shaw’s petition for writ, predicated on the concern that § 315(e) would prevent it from raising the non-instituted grounds in future proceedings. In denying the petition for writ, the court agreed with the PTO’s assertion that Shaw would not be estopped by § 315(e) in either the PTO or the district courts because the statute only created estoppel for arguments “on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” However, the court explained that because the PTAB denied the grounds as redundant, IPR was not instituted on the those grounds and thus Shaw did not raise, nor could it have raised the grounds during the IPR. Therefore, § 315(e) estoppel did not apply.

In concurrence, Judge Reyna lamented the PTAB’s practice of denying some grounds on the basis of redundancy, otherwise known as the Redundancy Doctrine. Judge Reyna expressed concern over the PTAB’s decision making without any explanation for why or how the Board came to the conclusion that the grounds were redundant. He noted that while 37 C.F.R. § 42.108 permitted the PTAB to deny instituting certain grounds in a petition, the Administrative Procedures Act required that the decision have a reasoned basis. In addition, the PTAB’s lack of explanation in its application of the Redundancy Doctrine not only facilitated arbitrary and capricious decision making, but also made it unclear whether the decision was a substantive decision. The ambiguity as to whether the decision was substantive would therefore make it difficult for district courts or the U.S. International Trade Commission to determine whether estoppel should apply to the “redundant grounds.”

Interestingly, the court reiterated its holding in HP Inc. v. MPHJ Technology Investments, LLC, 817 F.3d 1339 with similar facts, holding that the challenger was not estopped from raising grounds deemed redundant by the PTAB in future proceedings.  With these holdings, the Federal Circuit has taken away some of the bite from the estoppel provisions and it will be interesting to see how parties will use the exception to bring serial challenges in civil actions.

By:  Thomas Ritchie and Kevin Dam