Changes in PTAB Trial Practice May Lead to Increase in District Court Stays

The recent decision in SAS Institute v. Iancu — in combination with the proposed shift from a broadest reasonable interpretation (BRI) standard to the Phillips standard for claim construction used in district court — moves trials at the U.S. Patent Trial and Appeal Board toward being the most likely forum for first consideration of claim construction and patent validity, and perhaps a shift toward becoming a truer “alternative” to litigation, as Congress envisioned under the America Invents Act.

In the first five years since PTAB trials went into effect, the result has been an increase in PTAB trials running concurrently with district court litigation pertaining to the same patent. Indeed, since the inception of PTAB trials, a majority of cases have had co-pending litigation.

Two recent legal developments are poised to have a profound impact on the interplay between PTAB trials and district court litigation: the U.S. Supreme Court decision in SAS and the new rules set forth on May 9, 2018, by USPTO Director Andrei Iancu in the Notice of Proposed Rulemaking, which introduced a change to the Phillips claim construction standard for PTAB trials.

In the SAS decision, the majority held that instituting an IPR is an all-or-nothing decision, such that the PTAB must either institute for all challenged claims or deny institution entirely. The Court’s ruling was based on the rationale that the AIA statutes entitle a petitioner to a final written decision addressing all challenged claims, and the following USPTO Guidance expanded that position to note that “the PTAB will institute on all challenges,” meaning all grounds included in the petition, not just all claims.

Iancu’s proposed new rules for a change to the claim construction standard are also likely to change the impact that PTAB trials have on district court litigation. Responding to arguments that the overlap between patents that are considered at the PTAB and those that are the subject of litigation favors using a consistent claim construction standard, Iancu has proposed changing from use of the BRI standard in PTAB trials to the same Phillips standard used by courts. This proposed rule change will mean that when a patent is challenged both in court and at the PTAB, the PTAB is likely to become the first forum to construe a patent’s claims under Phillips, due to the expedited timeline of PTAB trials as compared to claim construction in most jurisdictions.

Impact on Stay Rates

For concurrent litigation and PTAB trials, the historic grant rate for contested stays has hovered around 60 percent. This percentage likely reflects the fact that many judges have considered PTAB trials as “simplifying the issues” for the litigation, which has been a key factor in district courts’ decisions whether or not to grant such a stay. After the SAS decision and a proposed change to a Phillips-style claim construction at the PTAB, an increase of the stay rate in concurrent district court cases seems likely.

In practice, district courts typically consider whether a stay “will simplify the issues in question.” Post-SAS, if a Phillips-style claim construction is used, then the issues for litigation would almost certainly be “simplified,” since if a PTAB trial is instituted, it will be on all claims and under the same construction standard. In addition, due to PTAB trials proceeding according to an expedited timeline, filing early in the litigation timeline can be particularly advantageous to a petitioner. The PTAB may weigh in on claim construction under Phillips as early as six months after the filing of the PTAB petition, via the institution decision, which is likely to be well ahead of the typical timeline for a Markman hearing in most jurisdictions. This timeline seems like yet another reason for courts to stay cases pending that construction.