Apple, Cisco, Google, and Intel have sued the Director of the USPTO, challenging a purported new rule alleged to violate the Administrative Procedure Act and exceed the Director’s statutory authority.  The complaint was filed in the Northern District of California after the NHK and Fintiv cases were designated precedential, purportedly enshrining the Fintiv factors as a new rule binding future decisions.  The complaint seeks injunctive relief and asks the court to enjoin the Director from applying the purported new rule to deny institution of inter partes review.

The NHK-Fintiv Cases and the Fintiv Factors

The Fintiv factors are a nonexclusive list of factors the Patent Trial and Appeal Board weighs in determining whether to institute an inter partes review under 35 U.S.C. § 314(a) when there is a parallel, co-pending court proceeding.  In NHK Spring Co., LTD., v. Intri-plex Technologics, Inc., the Board exercised its discretion under 35 U.S.C. §§ 314(a) and 325(d) and denied institution of the associated inter partes review.  IPR2018-00752, Paper 8 (Sept. 12, 2018) (precedential).  After weighing the 35 U.S.C. § 325(d) factors and denying institution, the Board stated that “simply because we exercise our discretion to deny the Petition under § 325(d) does not mean that we cannot consider and weigh additional factors that favor denying institution under § 314(a).”  The Board went on to find that the advanced state of a parallel district court proceeding in that inter partes review weighed in favor of denying institution under § 314(a).

Subsequent to NHK, the PTAB issued an Order that identified six nonexclusive factors it will consider when exercising its discretion to deny institution in view of a parallel, co-pending district court proceeding in Apple Inc. v. Fintiv, Inc., Case IPR2020-00019, Paper 11 (Mar. 20, 2020) (precedential).  In the Order, the Board asked the parties to submit additional briefing addressing these factors to help the Board determine whether to institute the associated inter partes review.  These factors are the Fintiv factors and include:

  1. whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted;
  2. proximity of the court’s trial date to the board’s projected statutory deadline for a final written decision;
  3. investment in the parallel proceeding by the court and the parties;
  4. overlap between issues raised in the petition and in the parallel proceeding;
  5. whether the petitioner and the defendant in the parallel proceeding are the same party; and
  6. other circumstances that impact the board’s exercise of discretion, including the merits.

See our previous blog post on the Fintiv Factors for more information.  The NHK-Fintiv decisions and the above associated factors allow the Patent Trial and Appeal Board to apply discretion under 35 U.S.C. § 314 and deny institution of inter partes review in view of parallel, co-pending court litigation under the purported new rule that is the subject of the instant complaint.

The Argument from Apple, Cisco, Google, Intel

The tech companies assert that a new rule was established when the NHK and Fintiv decisions were designated as precedential.  The argument notes that precedential decisions are binding on the board in subsequent matters involving similar facts or issues, and therefore, designating the decisions as precedential establishes a new rule since the Board is legally bound to apply the NHK-Fintiv principles in similar future decisions.

The complaint challenges the validity of the purported new rule under the Administrative Procedure Act.  Specifically, the complaint alleges that (1) the Director exceeded his statutory authority in adopting and using the NHK-Fintiv rule, (2) the NHK-Fintiv rule is final agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” and (3) even if the NHK-Fintiv rule was lawful, the Director cannot adopt such a rule without notice-and-comment rulemaking as required by the APA.

The tech companies argue that the Director exceeded his statutory authority in adopting the NHK-Fintiv rule, asserting that the rule contravenes the text and purpose of the America Invents Act (AIA) – the statutory scheme that gave rise to inter partes review.  The complaint argues that Congress explicitly allows the filing of a petition for inter partes review within a year of initiating district court litigation.  Further, the complaint notes that the AIA expressly permits a petitioner to raise invalidity arguments in a counterclaim in district court litigation without forgoing the opportunity for inter partes review under 35 U.S.C. § 315(a)(3).  Accordingly, the complaint alleges that Congress explicitly withheld from the Director the authority to deny inter partes review petitions based on a parallel infringement lawsuit against a petitioner, at least where the petition was filed within a year of initiating the district court litigation.

The tech companies further argue that the NHK-Fintiv decisions are applied in an arbitrary and capricious manner.  The companies argue that the Board makes institution decisions based on speculation about the likely course of litigation and inconsistently applies the decisions, leading to unpredictable and unfair outcomes.  The complaint cites instances where the Board has denied institution in view of impending district court trial dates which were later rescheduled anyways.

Finally, the tech companies argue that the precedential decisions enshrine a new rule that is procedurally invalid under the Administrative Procedure Act.  Specifically, the argument asserts that the precedential NHK-Fintiv decisions establish a substantive rule that alters the rights of petitioners, and therefore, requires notice-and-comment rulemaking under the APA.

Notice-and-Comment Rulemaking

Notice-and-comment rulemaking refers to a process by which an agency issues a notice of proposed rulemaking in the Federal Register under the APA, 5 U.S.C.  § 553.  In this process, the agency gives interested parties an opportunity to participate through written submissions.  The complaint argues that designating a decision as precedential is not consistent with the process required by the APA, and therefore, the rule is procedurally deficient.

It is worth noting that not all rules are subject to notice-and-comment rulemaking under the APA.  The APA distinguishes between legislative rules and non-legislative rules.  Legislative rules carry the force and effect of law and are adopted in accordance with notice-and-comment rulemaking.  Non-legislative rules, such as interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice are not generally subject to notice-and-comment rulemaking. 5 U.S.C. § 553(b)(A). There are several limits to non-legislative rules, and the distinction between legislative and non-legislative rules can be murky.  Accordingly, this aspect of the case may turn on whether the precedential decisions are considered to establish a rule, and if so, whether that rule is legislative or merely a general statement of policy.

A Long Road Ahead

It is unlikely that this case will be find its ultimate resolution at the district court.  Given the gravity of the issues raised, and the implications for future cases, it is exceedingly probable that the district court decision will be appealed, leaving the possibility that this issue may eventually be decided at the Supreme Court.



Apple Inc. et al v. Iancu, N.D. Cal., No. 20-cv-06128

35 U.S.C. § 314(a)

NHK Spring Co., LTD., v. Intri-plex Technologics, Inc., IPR2018-00752, Paper 8 (Sept. 12, 2018) (precedential)

Apple Inc. v. Fintiv, Inc., Case IPR2020-00019, Paper 11 (Mar. 20, 2020) (precedential)

35 U.S.C. § 315(a)(3)

5 U.S.C. § 553

Congressional Research Service, A Brief Overview of Rulemaking and Judicial Review (2017)