The Federal Circuit Adopts a Redundancy Exception to Estoppel Following Inter Partes Review

Published in Intellectual Property & Technology Law Journal. Originally appeared in Kaye Scholer's Spring 2016 PTAB Monitor: Developments in Inter Partes Review Practice.

—by Katie Scott

In Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., the Federal Circuit held that grounds not instituted by the PTAB on the basis of redundancy will not be subject to estoppel in later proceedings.[i] The court’s decision is bound to be controversial because it gives petitioners an unexpected second chance to challenge the validity of claims that survive an IPR on prior art that was previously raised but on which review was not instituted due to redundancy. This is a significant decision— and may have broader impact than the court intended— because the court’s reasoning would suggest that estoppel only applies to grounds that were raised or reasonably could have been raised “during” the inter partes review post-institution, as opposed to all grounds the petitioner raised or reasonably could have raised in the petition. Even if this is not what the court intended, the court’s decision and its reasoning will likely affect litigants’ strategies in IPRs and parallel district court litigation. 

Shaw Adopted the PTAB’s Proposed Exception to Estoppel for Grounds Denied for Redundancy

In Shaw, the petitioner sought a writ of mandamus to instruct the PTO to institute IPR of the claims that were denied institution on the basis of “redundancy” because otherwise it would be estopped from asserting those grounds in future proceedings.[ii] The Federal Circuit panel (Judges Moore, Reyna and Wallach) unanimously held that mandamus was unwarranted because estoppel would not apply to grounds that were not instituted on the basis of redundancy—including with respect to claims that were subject to a prior Final Written Decision by the Board.[iii] The Panel adopted the PTO’s argument that estoppel under 35 U.S.C. § 315(e) only applies to grounds that were “raised or reasonably could have been raised during that inter partes review,” and because “[t]he IPR does not begin until it is instituted[,]”[iv] the petitioner “did not raise—nor could it have reasonably raised—the Payne-based ground during the IPR.”[v] Accordingly, “[t]he plain language of the statute prohibits the application of estoppel under these circumstances.”[vi] Thus, at least for now, petitioners and patent owners should be aware that any grounds that were denied by the Board on the basis of redundancy are still fair game for subsequent litigation before the PTAB, district court or ITC.[vii]

Until now, many practitioners have thought that the scope of estoppel following an IPR would be as broad as the language of the statute suggests,[viii] such that it would apply to any patent claim that is subject to a Final Written Decision and any ground that the petitioner “raised or reasonably could have raised” in the prior petition, including those grounds that may be denied due to redundancy.[ix] At the same time, because institution decisions are not appealable, many thought this breadth of estoppel was unfair to petitioners. Nonetheless, this interpretation was consistent with the legislative history, which describes the estoppel as precluding subsequent litigation on issues that were raised or reasonably could have been raised in the prior proceeding.[x] Under Shaw, the Federal Circuit’s reasoning shifts the inquiry from what the petitioner “raised” in its petition to what was raised “during” the IPR after institution.

Estoppel: Preparing for the Unknown

Given the dearth of precedent to draw from, and the ambiguity over how courts will determine whether a prior art patent or printed publication reasonably could have been raised in a prior IPR, we suggest that petitioners focus on the legislative history’s guidance to prepare themselves. Thus, a petitioner should consider how it would demonstrate that a later discovered prior art reference is not “prior art which a skilled searcher conducting a diligent search reasonably could have been expected to discover” prior to the IPR. One recommended approach is for petitioners to document their diligent search efforts in a memorandum that answers the following questions:

Who performed the search? Identify who performed the search and why they were selected. Describe the process of selecting a search firm, which firms were considered and the qualifications of the firms and their employees conducting the search. Describe the qualifications of attorneys performing or supervising the search and reviewing the results (e.g., the years of experience and/or relevant technical degrees or background). Retain documentation of the hours billed by the search firm and attorneys supervising the search.

What was searched for? Create or have the search firm provide documentation of the scope of the search. While the scope of search is often included in proposals from search firms, those proposals may not explain why a particular search scope is recommended or selected. Initial proposals also may not reflect any changes made to the scope after the search begins. Include justifications for any keywords that will be used in the search, as well as why any potentially important terms are omitted (e.g., certain claims were unlikely to be asserted in subsequent litigation). Identify and justify any date limitations that were placed on the search.

Where was searched? Which databases were searched? What languages were included in the search? What languages did the searchers speak? What geographic choices were made, and why (e.g., for a particular technology, why searching prior art from one geography is more important than another)?

Why? Remember that it may not be enough to state what was done—the memo should also explain the reasoning behind each decision to show that the search was reasonable, performed by skilled searchers and completed in a diligent manner. Show the reasonableness of the selected search by documenting the additional cost that would have been necessary to expand the scope of the search.

As for when this memo should be written, we recommend preparing it when memories are fresh and documents are easy to find—ideally while the search is ongoing, but no later than right after the filing of the petition. By documenting these critical facts when they are most accessible, petitioners will be better positioned to demonstrate that “a skilled searcher conducting a diligent search” would not have found any later-identified prior art. Hopefully, these recommendations will avoid a scramble to reconstruct these facts years after they occurred, and prepare the petitioner to avoid a claim of estoppel if the IPR is not successful.

Shaw’s Reasoning Raises Additional Questions

Unfortunately, the Federal Circuit’s view of the “plain language of the statute” is arguably at odds with the application of estoppel to other grounds that could not have been raised “during” the IPR, but were clearly intended by the legislature to be subject to estoppel in later proceedings.[xi] Like grounds denied on the basis of redundancy, grounds that were raised in the petition but denied on the merits (and arguably even grounds that were not raised in the petition) cannot be “raised” by the petitioner “during” the IPR after institution. Thus, under the court’s reasoning, one could argue that estoppel should also not apply to those non-instituted grounds in a subsequent proceeding, should the claims survive the IPR on the instituted grounds. In particular, the reasoning in Shaw applies equally to grounds that were denied institution on the merits because nothing in the statute would suggest a distinction based on the reason for non-institution (both were raised by the petitioner in the petition and neither could be raised “during” the IPR post-institution). It remains to be seen how this issue will play itself out as the case law develops.

The Current Scope of Estoppel Before the PTAB

Until the Federal Circuit weighs in on the issue again, estoppel will apply to grounds that the petitioner “raised or reasonably could have raised” in the prior petition, unless the ground was previously denied by the Board on the basis of redundancy.[xii] For example, in Apotex v. Wyeth, the Board found that estoppel did not apply to a ground that was previously denied as redundant,[xiii] but found it did apply to a ground that was based on a new combination of prior art that the petitioner had cited in the prior petition.

Grounds based on prior art known to the petitioner at the time of the prior filing will likely be estopped under the “could have raised”[xiv]standard,[xv] and the Board will consider whether other prior art “reasonably” could have been raised by determining whether the ground is based on “prior art which a skilled searcher conducting a diligent search reasonably could have been expected to discover.” For example, in IBM v. Intellectual Ventures, the Board was persuaded to apply estoppel with evidence that “a skilled searcher conducting a diligent search reasonably could have been expected to discover” a prior art reference that was available in a full-text searchable database that was referenced in Patent Searching Tools and Techniques, and the reference could be found in the database by searching for terms used in the challenged[xvi]claim.[xvii]

Practical Implications of the Redundancy Exception to Estoppel

The Federal Circuit’s adoption of the Board’s position that there is an exception to estoppel for grounds that were previously denied on the basis of redundancy raises several practical implications for both petitioners and patent owners.

For petitioners, this exception to estoppel suggests that including additional grounds in the petition (even if they are likely to be denied on the basis of redundancy) could be a good strategy to preserve those additional grounds from being subject to estoppel in later proceedings. Notably, the unintended consequence of the PTO’s position and Shaw’s endorsement of that position is that petitioners will be incentivized to include as many grounds as will fit within the space constraints of a petition, contrary to the PTAB’s oft-provided guidance to include fewer, more detailed arguments, rather than more, less-developed ones.[xviii] This strategy is also not without its risks, as the Board may not institute on the best grounds or may deny the petition entirely if it finds the arguments to be insufficiently developed.

From the patent owner’s perspective, the strategy of identifying redundancies in the patent owner’s preliminary response will generally be unhelpful, given that a finding of redundancy would insulate those grounds from estoppel in future proceedings. Instead, patent owners should consider devoting the Preliminary Response to arguments that could result in noninstitution on the merits.

With respect to motions to stay litigation pending IPR, the estoppel exception undercuts the rationale that an IPR will simplify a parallel litigation by precluding further litigation of invalidity based on patents or printed publications.[xix] Indeed, the exception will likely allow petitioners to litigate invalidity challenges the PTAB found were redundant in subsequent proceedings if any instituted claims survive the IPR. Given that petitioners usually choose their strongest grounds to assert in an IPR, this means that estoppel will be far less meaningful to patent owners than it might have otherwise been.

Additionally, defendants in multidefendant district court litigation should be very cautious before agreeing to be bound to an estoppel in exchange for a stay while another defendant’s IPR proceeds. Given the lack of clarity surrounding the scope of estoppel following an inter partes review, a defendant may find itself having agreed to an estoppel that is broader than what would otherwise be imposed by developing case law.[xx]

While it remains to be seen how the PTAB, district courts and the ITC will apply the estoppel statute in specific situations, the Federal Circuit’s opinion in Shaw is unlikely to be the last word on the issue of estoppel. Thus, as the scope of estoppel following an inter partes review is still being fleshed-out, practitioners are well advised to take this uncertainty into account as they devise their case strategies.

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[i]       Shaw Indus. Group, Inc. v. Automated Creel Sys., Inc., No. 2015-1116, 2016 WL 1128083, *5 (Fed. Cir. Mar. 23, 2016) (“We agree with the PTO that § 315(e) would not estop Shaw from bringing its Payne-based arguments in either the PTO or the district courts. . . . In light of our construction of the statute, mandamus is not warranted. Thus, we deny Shaw’s petition for writ of mandamus.”); see also id. at *9-10 (Reyna, J., concurring specially) (“The statutory scheme’s estoppel provisions make such ambiguity in whether substantive determinations were made problematic. The effects of estoppel are profound.”). While the PTO argues that there is no “Redundancy Doctrine,” numerous Board decisions suggest otherwise. Id. at *8-9 (“Before this Court, the PTO argues efficiency; that is, the Board may choose among the grounds asserted because a particular ground may resolve the case and a multiplicity of grounds would increase the Board’s workload and make it difficult to meet its statutory deadlines.”); see also Liberty Mut. Ins. Co. v. Progressive Cas. Ins. Co., CBM2012-00003, 2012 WL 9494791, at *2 (PTAB Oct. 25, 2012) (designated “representative”).

[ii]       Shaw at * 5.

[iii]      Id.

[iv]      Id. (citing In re Cuozzo Speed Techs., LLC, 793 F.3d at 1268, 1272) (“IPRs proceed in two phases. In the first phase, the PTO determines whether to institute IPR. In the second phase, the Board conducts the IPR proceeding and issues a final decision.” (citations omitted)).

[v]       Id.

[vi]      Id.

[vii]     Id. But see Shaw at *10 (Reyna, J., concurring specially) (“Whether estoppel applies, however, is not for the Board or the PTO to decide. Nor is it for us to decide in the first instance, despite the invitation from Shaw Industries, because the issue is not properly before us. See Appellant’s Opening Br. 75–76. Instead, whether the ‘redundant’ grounds are subject to estoppel must be determined in the first instance by the district court or the U.S. International Trade Commission. 35 U.S.C. § 315(e)(2). These tribunals should not have to parse cryptic statements or search out uncited doctrines to make this determination.”).

[viii]     35 U.S.C. § 315(e) (“Estoppel.—(1) Proceedings before the office.—The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review. (2) Civil actions and other proceedings.—The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not assert either in a civil action . . . or in a proceeding before the [ITC] . . . that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.”) (emphases added).

[ix]      See, e.g., Richard Torczon, “Redundant Grounds: A Growing Hazard In Post-Grant Practice,” Law360 (Apr. 20, 2015) (“For example, denying review without deciding the merits leaves the petitioner in an ambiguous status for subsequent estoppel purposes.”); Ralph Loren, “PTAB Use of Redundancy May Have Unfair Estoppel Effect,” Law360 (Mar. 21, 2014) (“If the board then denies all but a single ground of each type, holding the remaining grounds as redundant, and the petitioner loses the IPR, the petitioner would not only lose its ability to pursue the alternative denied grounds during the proceeding, but would also lose the ability to pursue the denied grounds in litigation . . .”); David Cavanaugh, “What We’ve Learned from PTAB Decisions on Institution,” Law360 (Oct. 10, 2013) (“A petitioner, because of the estoppel, is understandably wary of a practice that reduces the number of issues or grounds to be addressed in the proceeding.”).

[x]       157 Cong. Rec. S1368-80, at S1376 (daily ed. Mar. 8, 2011) (statement of Sen. Jon Kyl) (“extending could-have-raised estoppel to privies will help ensure that if a review is instituted while litigation is pending, that review will completely substitute for at least the patents-and-printed-publications portion of the civil litigation.”); id. (“This [estoppel] effectively bars such a party . . . from later using inter partes review . . . against the same patent, since the issues that can be raised in an inter partes review . . . are those that could have been raised in [an] earlier post-grant or inter partes review.”); see 157 Cong. Rec S951-52, at S952 (daily ed. Feb. 28. 2011) (statement of Sen. Chuck Grassley) (“It also would include a strengthened estoppel standard to prevent practitioners from raising in a subsequent challenge the same patent issues that were raised or reasonably could have been raised in a prior challenge.”).

[xi]      See note 10, supra.

[xii]     See Apotex Inc. v. Wyeth LLC, IPR2015-00873, 2015 WL 5523393, at *5 (PTAB Sept. 16, 2015) (applying estoppel to a ground based on prior art that was cited in the prior petition but not asserted as a “ground,” and denying estoppel with respect to a ground that was included in the prior petition but not instituted on the basis of redundancy).

[xiii]     Id. (“Ground 1 in the instant Petition was never raised during the ‘115 IPR, because the Board denied institution of Ground 6 as redundant, and Petitioner could not have raised Ground 6 again once institution was denied as to that ground. Estoppel under 35 U.S.C. § 315(e)(1), therefore, does not bar Petitioner from maintaining a proceeding before the Office on Ground 1.”).

[xiv]     Id.

[xv]     Dell Inc. v. Elecs. and Telecomms. Research, Inst., IPR2015-00549, 2015 WL 1731182, at *3 (PTAB Mar. 26, 2015) (representative opinion) (“On this record, the differences in how the references have been asserted in these proceedings have no weight on our determination of whether the grounds raised in the instant Petition could have been raised in the ‘635 IPR.”); Ford Motor Co. v. Paice LLC, IPR2014-00884, 2015 WL 8536739, at *7 (PTAB Dec. 10, 2015) (“Here, we need not speculate about what reasonably could have been discovered and proffered, because the record demonstrates that Ford must have known of Caraceni, Tabata ‘201, and Tabata ‘541 at the time of the -571 and -579 Petitions, and if not, such knowledge should be imputed to it. More specifically, with respect to the Tabata references, they were cited during prosecution that led to the ‘347 patent and are listed on the face of the patent. Ex. 1201, 3, 4. As such, Ford was on notice of the existence of the Tabata references as potential prior art to the ‘347 patent before it filed the -571 and -579 Petitions.”).

[xvi]     Intl. Bus. Machs. Corp. v. Intellectual Ventures II LLC, IPR2014-01465, 2015 WL 7185850, Part II.i.c (PTAB Nov. 6, 2015) (quoting 157 Cong. Rec. at S1375 (statement of Sen. Jon Kyl)); see also Ford, IPR2014-00884, 2015 WL 8536739, at *7 (“What a petitioner ‘reasonably could have raised’ includes prior art that a skilled advocate would have been expected to discover and proffer in the course of conducting due diligence on the patent at issue.”).

[xvii]    IBM, 2015 WL 7185850, Parts II.i & III.

[xviii]   See U.S. Pat. Office, PTAB Roundtable Slides at 15 (Denver, May 8, 2015), available at http://www.uspto.gov/ip/boards/bpai/ptab_roundtable__slides_may_update__20140503.pdf (“Better to provide detailed analysis for limited number of challenges than identify large number of challenges for which little analysis is provided. . . .”).

[xix]     See Synopsys, Inc. v. Mentor Graphics Corp., No. 2014-1516, 2016 WL 520236, at *13 (Fed. Cir. Feb. 10, 2016) (Newman, J., dissenting) (“The court today holds, contrary to the AIA, that the PTAB can ‘pick and choose’ which of the challenged patent claims and issues it will decide in these new proceedings. Maj. Op. at [*5]. The court endorses such partial decisions by the PTAB, and ‘see[s] no inconsistency’ with leaving some of the challenged claims and issues undecided. Maj. Op. at [*5]. . . . The present practice of partial decision by the PTAB leads to duplicative proceedings in the PTAB and the district courts. Since the AIA provides for a different standard of proof than in the district courts, this system of partial decision does not achieve the reliability and expedition for which the AIA was enacted, but instead can produce prolonged uncertainty and multiplied proceedings, at increased rather than reduced cost. In the case at bar, validity of all of the challenged claims was not decided by the PTAB, illustrating this concern.”).

[xx]     For example, if a non-petitioning defendant previously agreed to an estoppel that did not account for the redundancy exception described in Shaw, such estoppel would arguably be broader than what would be applied to the petitioning defendant. A negotiation of the scope of estoppel is described in In re Protegrity Corp., MDL No. 2600, 2015 WL 4734938, *2 (N.D. Cal. Aug. 10, 2015), where in the context of a motion to stay pending CBM, the plaintiff “argue[d] that each of the petitioning defendants should be required to agree that they will be estopped by the invalidity arguments raised in each others’ petitions, and that each of the non-petitioning defendants should agree to be bound to the same extent as the petitioning defendants. When the Court asked the non-petitioning defendants whether they would agree to this, all except for one said that they would agree to be estopped, but only as to any grounds on which PTAB issues a final written decision.”).