A ‘Tip of the Hat’ from the Supreme Court: Cuozzo and Why Differing Standards Continue

Sheridan Ross P.C. Shareholder Robert Brunelli takes a closer look at the Supreme Court’s June 2016 claim construction ruling and highlights a few takeaways from the historic ruling…

Much has been said about Cuozzo since the June 20 Supreme Court claim construction ruling. And despite claim construction being described as the “most important event in the course of a patent litigation,” two differing standards will continue to play-out for patent litigants in PTO and Article III courts, respectively.[1]

In late June, the Supreme Court ratified the PTO’s broadest reasonable construction standard—thereby allowing the conflicting claim constructions standards to continue. In doing so, the Court ‘tipped its hat’ to the PTO’s rule making authority—even in the face of a district court standard that requires that a patent be construed based on a plain and ordinary meaning of the claim language in light of the specification.[2]

But how did the Court’s 20-page opinion square this inter-institutional tension?

In short, the Court did so by foreshadowing the PTO’s expertise as an Executive Agency. The opening paragraphs set this tone by exalting the “patent examiner[‘s] expertise in the relevant field.”  Slip Opinion at 2. But then, later, the Court turned to Chevron deference.[3] Such deference exists where a statute leaves a “gap” or is “ambigu[ous]”—allowing an Agency, such as the PTO—“leeway to enact rules that are reasonable in light of the text, nature, and purpose of the statute.” Id. at 13.  Indeed, the Court declared that a “gap” did exist. And because “neither the statutory language, its purpose, or its history suggest[ed] that Congress considered what standard the agency should apply,” the Court held that the PTO could fill that gap with a claim construction standard promulgated by its regulations—albeit different to Article III courts. Id.at 16-17.

A PTO Rule Must Be Reasonable Under Chevron

Still, even if Chevron applies, an Agency’s promulgated rules must be reasonable. Here, the Court found in the affirmative. First, Justice Breyer pointed to policy. In particular, “construing a patent claim according to its broadest reasonable construction helps to protect the public.” Id. at 17. That standard, the Court said, “helps ensure precision while avoiding overly broad claims . . .” Id.

Second, Justice Breyer turned to history to rationalize the PTO’s standard as being reasonable. He noted that “[t]he Patent Office has used this standard for more than 100 years”—i.e., that the BRC standard not only applied in the more recent IPR proceedings, but reexamination and interferences proceedings as well. Id. at 18. Supporting the latter point, a Brief for Generic Pharmaceutical Association et al., described the similarities between interference proceedings and adjudicatory aspects of IPR. The Court had little trouble adopting the analogy to reinforce its reasoning. Thus, because BRC has always been the relevant standard for past adjudicatory proceedings at the PTO, the Court had no reason to carve out a new exception for IPRs.

What are the Take-Aways of the Cuozzo Decision?

There are several take-aways from the unanimous decision—perhaps the biggest being a strong ‘tipping’ of the Supreme Court’s proverbial ‘hat’ towards the PTO’s rulemaking authority, especially after the Federal Circuit’s divided en banc opinion. In other words, the Court considered the PTO an expert Agency acting pursuant to an express grant of rulemaking authority. But two further points are worth noting:

1.  Use of PTO Courts Should Only Increase: The Court’s decision reflects a significant rebalancing of power between the PTO and Article III courts—sanctioned by the Supreme Court. True, the decision is upheld status quo by reinforcing the PTO’s claim construction standard for over 100 years. But what is unprecedented is the number of patent claims that have been cancelled since IPRs have become a forum of choice for patent litigants in the past four years. While it’s hard to gauge what impact the PTO standard has had on patent litigants precisely, it’s safe to say that the PTO’s standard certainly hasn’t hurt alleged infringers—nor those hedge fund petitioners seeking to challenge biopharmaceutical companies so to affect stock prices of those very companies. This trend should continue in light of Cuozzo’s decision. And why wouldn’t it? The BRC standard ensnares more prior art than that applied by the district court standard—thus increasing the chances that a patent is invalid.

Moreover, the Court’s ratification of PTO’s interpretive authority over claim construction coincides with the PTO’s growth into an Agency with a multibillion-dollar annual budget, over ten thousand employees, and a raft of post-issuance proceedings that now rival some of the largest district court dockets in the country. The Cuozzo decision will do nothing to discourage activity in PTO post-issuance courts. Instead, such activity should only gain momentum because now there is no question about the legitimacy of the PTO standard.The Supreme Court has spoken, leaving Congress the only arm of government to harmonize the conflicting standards.

2.  Increasing PTO Clout: Although Cuozzo was only issued in late June, it could well demonstrate a pattern of further deference to PTO’s expertise. This crystal-ball gazing doesn’t seem far-fetched because just recently, the Federal Circuit, in Immersion Corp. v. HTC Corp., overturned a district court decision—heeding a long-standing position of the PTO.  The Federal Circuit resolved the tension between the district court’s interpretation of the statute and the PTO’s in favor of the latter. Indeed, just how the Cuozzo decision recognized 100 years of the PTO applying the BRC standard, the Immersion holding recognized the PTO’s 50-year policy of “same-day continuations.”  Slip Opinion at 12. The Federal Circuit’s reference to Zenith Radio Corp. v. United States, 437 U.S. 443, 457–58 (1978) served to support this view. Id. (“The Supreme Court has long recognized that a ‘longstanding administrative construction,’ at least one on which reliance has been placed, provides a powerful reason for interpreting a statute to support the construction.”).[4]

This case, too, may see Supreme Court review given that tens of thousands of patents are at stake. Still, the deference afforded by the Federal Circuit is no surprise given Congress’ recent backing of the PTO vis-à-vis the AIA, and an Agency that is increasing in financial and geographic clout with the spread of its regional offices to Detroit, Denver, Dallas and Silicon Valley.

But as the clout of the PTO continues to gather steam, so does the potential tension between PTO—that the Court considers as an expert Agency of the Executive—and Article III courts.Claim construction and patent continuation dates are not the only points of contention. More will come to the surface.No crystal-ball gazing is required for this point . . . it’s just a matter of time as to what issues will present.