Will the Phillips Standard Change the Game on Patent Claims?

New rule gives patents a better chance to survive IPRs, but with some unintended consequences for patent owners

Arguing patent claims before the Patent Trial and Appeal Board is going to resemble district courts a little more, and that could have big implications for patent litigation strategy as a whole.

Last week the U.S. Patent and Trademark Office finalized a rule to make the patent claim construction standard in PTAB proceedings the same as the standard used in district courts when construing unexpired claims. Instead of the patent office’s long-used “broadest reasonable interpretation” standard, PTAB proceedings like inter partes review will adopt the “Phillips” standard that district courts and the International Trade Commission use for patents. Patent experts say this change could enable more patent claims to survive IPRs, and alleged infringers will need to give more thought to whether they should use them to try to wipe out patent claims.

The USPTO said its new claim construction rule, proposed back in May, will lead to “greater consistency and harmonization with the federal courts and the ITC and lead to greater certainty and predictability in the patent system.” As a result of the rule, the PTAB will use the claim construction standard drawn from the 2005 Federal Circuit Court of Appeals opinion Phillips v. AWH Corp. when interpreting a patent claim in IPR, post-grant review or covered business method patents proceedings. The rule takes effect Nov. 13.

BRI VS. PHILLIPS EXPLAINED

When judging the reach of a patent claim, the difference between the BRI and Phillips standard is subtle. Each standard requires judges to interpret a claim term in a patent the way someone with “ordinary skill” in the patent’s field would interpret it. Oftentimes the standards align, but not always. In its 2016 decision in PPC Broadband Inc. v. Corning Optical Communications, the Federal Circuit Court of Appeals said it would have decided a patent claim differently under Phillips than it would have under BRI.

“Under the Phillips standard, claims are generally construed to preserve validity where appropriate,” said Justin Krieger, a partner at Kilpatrick Townsend & Stockton’s Denver office. When there’s ambiguity in what a patent claim term means, the interpretation that preserves the claim’s validity gets deference. 

Krieger said patent owners can make a very compelling argument under Phillips: If there’s ambiguity, the claim should survive. Granted, not every ambiguous term has a reasonable interpretation for validity, and the PTAB can’t “redraft” the patent’s language to support one if it isn’t there, he added.

Switching the claim construction standard in PTAB proceedings from BRI to Phillips may seem like a small change, but it will cause litigants to rethink their strategy, Krieger said. “Most people think that it’s a whole lot of hullabaloo about not much. But from a practice perspective it changes a ton.”

The overwhelming majority of patent claims in IPRs are also being litigated in district court, as alleged infringers tend to file for IPRs as a defensive maneuver against those claims. So they have to strategize for a battle on two fronts, Krieger said. Alleged infringers in an IPR generally want to argue for BRI to be used on the patent claims so they will have a greater chance of invalidating them there. But when litigating the same claims in district court, prior to this rule change, defendants could turn around and argue for the Phillips standard, which would narrow the reach of the claims and help them escape an infringement finding.

“You can argue out of both sides of your mouth with the current situation,” Krieger said.

What the rule change does is force alleged infringers, if they want to take the patent claims to IPR, to first think ahead to their arguments in district court. The court is more likely to consider the determinations that the administrative patent judges make in the PTAB proceedings. Should the petitioner still try to kill the patent claims in IPR even if it means the court will more likely find them liable for infringement down the road? The decision to petition for an IPR just became more complicated.

“I wouldn’t be surprised if you see a slight drop at least in IPR proceedings because you’ve lost a benefit for filing them,” Krieger said. He added, however, that IPRs still have plenty of advantages intact for petitioners.

WHAT ABOUT THE EVIDENTIARY STANDARD?

John Posthumus, an IP attorney and shareholder at Polsinelli in Denver, said he’s been an advocate for having a consistent claim construction standard between the courts and the PTAB. The new rule makes it less likely for the PTAB and the courts to reach different outcomes on patent claims and is a “great first step” in reducing the sometimes “maddening” inconsistencies between the two venues, he said.

Shifting the PTAB to the narrower Phillips standard will make it harder to invalidate a patent in IPRs, but only by so much, he said.

“I think it is definitely a win for patent owners, but I would suggest that they’ve won a battle and not necessarily the war,” Posthumus said. While the claim construction rules will be consistent between the district courts and the PTAB, there’s still the vast difference in evidentiary standards, he pointed out. The PTAB can find a patent claim invalid by a preponderence of the evidence, but district courts require clear and convincing evidence.

Patent attorneys have debated whether it was the broader BRI standard or the low preponderance of evidence hurdle that was the greater driver of the IPR’s patent-killing efficiency. Posthumus said “time will tell” how much the claim construction change will disrupt petitioners’ chances of success, “but clearly this preponderance of evidence is still advantageous for pursuing an IPR.”

Posthumus noted that patent examiners still use BRI when assessing patent applications; he would advocate for the Phillips standard to be used there, too, to allow for better consistency and judicial efficiency. But a change like that, he said, would be “much farther off” and “isn’t anywhere close to imminent.”

ANOTHER CAVEAT FOR PATENT OWNERS

While many patent owners have been asking for the PTAB to conform to the Phillips standard, the new consistency between the courts and the PTAB proceedings could carry a hidden disadvantage for them. Petitioners will be more likely to stay the infringement case in district court, which “can be a big disadvantage for patent owners,” said Joel Sayres, an IP litigator and partner with Faegre Baker Daniels in Denver. “That might be an unintended consequence of this.”

With the PTAB interpreting patent claims in the same way that the district court will, the court will find the PTAB’s determinations more relevant and therefore be more inclined to stay the case pending the other forum’s findings. The Supreme Court has already given district courts more reason to stay a patent infringement case undergoing a related IPR, Sayres noted; its April decision in SAS Institute v. Iancu held that all challenged claims in an IPR must receive a final decision from the PTAB, whereas previously the board could leave some out. Because all of the claims decided in an IPR will also be before the district court, the court will be more likely to await the PTAB’s opinion on them, Sayres said, and the stay would drag out the litigation.

Sayres said the claim construction rule change might have a greater effect on patent litigation in the short term — especially the very short term. He expects a rush of IPR petitioners to file next month before the rule takes effect.

— Doug Chartier

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