On January 24, 2018, the Court of Appeals for the Federal Circuit ruled on Arthrex, Inc. v. Smith & Nephew, Inc.,[1] holding that the patent owner’s pre-IPR-institution statutory disclaimer resulting in an adverse judgment has the effect of estoppel against the patent owner.
The facts are as follows.
Smith & Nephew filed an IPR against Arthrex, challenging the validity of claims 1-9 in U.S. Patent No. 8,821,541 (‘541), for “Suture anchor with insert-molded rigid member.” The claims themselves were not at-issue in this case. Arthrex then filed a statutory disclaimer pursuant to 37 C.F.R. §42.107(e) disclaiming claims 1-9. Then, in its Preliminary Response, Arthrex argued the IPR should be dismissed based on 37 C.F.R. §42.107(e), specifically, no IPR is to be instituted based on disclaimed claims.[2] Arthrex continued to argue that 37 C.F.R. §42.73(b) supported its contention because:
(b) Request for adverse judgment. A party may request judgment against itself at any time during a proceeding. Actions construed to be a request for adverse judgment include:
(1) Disclaimer of the involved application or patent;
(2) Cancellation or disclaimer of a claim such that a party has no remaining claim in the trial;
(3) Concession of unpatentability or derivation of the contested subject matter; and
(4) Abandonment of the contest.
(Emphasis added.)
Arthrex further emphasized in its Preliminary Response that “by filing the statutory disclaimer, Arthrex is not requesting an adverse judgment.”[3] Notwithstanding Arthrex’ arguments, the PTAB entered an adverse judgment holding that “our rules permit the Board to construe a statutory disclaimer of all challenged claims as a request for adverse judgment, even when the disclaimer occurs before the Board has entered a decision on institution.”[4]
The problem for Arthrex, however, arose when the adverse judgment was entered, because estoppel under 37 C.F.R. §42.73(d)(3)(i) attached, because a patent owner “is precluded from taking action inconsistent with the adverse judgment, including obtaining in any patent . . . [a] claim that is not patentably distinct from the finally refused or canceled claim.”[5] In essence, this ruling would affect Arthrex’s two other issued patents and one pending application. Arthrex subsequently appealed, arguing that there was no “final written decision” required by 35 U.S.C. §319, which was summarily denied.
The Fed Circuit panel, consisting of Judges Newman, Dyk, and O’Malley, first reviewed the issue of appealability of the adverse final judgment. Judge Dyk, writing for the majority, started with the general rule that all final agency actions were presumed to be subject to judicial review.[6] Judge Dyk further concluded that authority was granted under 28 U.S.C. §1295(a)(4)(A), where the Federal Circuit retained jurisdiction over an “appeal from the decision of the [PTAB] . . . with respect to . . . [an IPR].”[7] Further, the panel deemed an adverse judgment ruling was a proper “decision” that provides for a right of appeal.[8]
On the second issue of whether the PTAB properly entered an adverse judgment, Judge Dyk called out Arthrex’s use of procedural tactics to gain an advantage during the IPR proceeding. Specifically, Arthrex’s attempt to prevent an adverse judgment simply by stating in its Response that “it was not requesting an adverse judgment” would render §42.73(b) “a nullity.”[9] Further, Arthrex’s disclaiming the claims at-issue prior to a decision on IPR institution, then attempting to use the IPR procedural rules to throw out the IPR because the claims at-issue were no longer pending in order to prevent estoppel would defeat the purpose of estoppel.
We see no reason why estoppel should apply if a patent owner disclaims an entire patent or application before an institution decision but should not apply if a patent owner merely disclaims some of the claims.[10]
Judge O’Malley concurred in the judgment, but she found problematic this decision with the Facebook case[11] dealing with similar issues for CBM reviews. If the PTAB lacked authority to institute a CBM based on statutorily disclaimed claims, based on Fed Circuit case law, it should also apply to this case dealing with statutorily disclaimed claims in an IPR.[12]
Judge Newman dissented, stating that because Arthrex disclaimed all challenged claims prior to an institution decision, no claims could be used to support an adverse judgment consistent with 37 C.F.R. §42.107(e). She also leaned on language in §42.73(b) that stated “disclaimer of a claim such that the party has no remaining claim at trial.” Here, there was no trial because an adverse judgment was entered prior to an IPR trial.[13]
So, it would seem that procedural machinations with the rules during a PTAB proceeding to produce a more favorable outcome is not necessarily in the best interests of the patent owner, and in the case of Arthrex, is actually detrimental to its overall prosecution strategy as other family members are now affected by this adverse decision. Patent owners, then, must think carefully about using rules tactics when handling PTAB proceedings.
[1] 880 F.3d 1345 (Fed. Cir. 2018), aff’g Smith & Nephew, Inc. v. Arthrex, Inc., No. IPR2016-001917 (P.T.A.B. Sept. 21, 2016).
[2] See 37 C.F.R. §42.107(e): “Disclaim Patent Claims. The patent owner may file a statutory disclaimer under 35 U.S.C. 253(a) in compliance with §1.321(a) . . . disclaiming one or more claims in the patent. No inter partes review will be instituted based on disclaimed claims.
[3] Arthrex, supra (slip op. at 3).
[4] Id.
[5] See 37 C.F.R. §42.73(b)
[6] Arthrex, supra (slip op. at 4).
[7] Id.
[8] Id.
[9] Id. (slip op. at 7).
[10] Id. (slip op. at 8).
[11] See Facebook, Inc. v. Skky, LLC, No. CBM2016-00091, 2017 WL 4349404, at *3 (P.T.A.B. Sept. 28, 2017).
[12] Arthrex, supra (slip op. at 2-3) (O’Malley, J., concurring).
[13] Id. (slip op. at 2-3) (Newman, J., dissenting).