Risks of Disclaiming Before Institution of an IPR

Elizabeth N. Spar, Ph.D., J.D.

By Elizabeth Spar, Ph.D. A member of our Patent Practice Group

February 2018 PTAB Alert

Faced with an inter partes review (IPR) challenging one of its patents, Arthrex sought to avoid getting a decision that could subvert its other patents and patent applications. So it simply disclaimed the challenged claims, thereby precluding institution of the IPR. Arthrex also filed a Preliminary Response arguing that an IPR should not be instituted because, according to 37 C.F.R. § 42.107 (e), “[n]o inter partes review will be instituted based on disclaimed claims.”

Nevertheless, to Arthrex’s dismay, the Patent Trial and Appeal Board (PTAB) entered an adverse judgment against the challenged patent claims with full estoppel effect against claims in pending patent applications that were not “patentably distinct” from the disclaimed claims. Arthrex appealed, but the Federal Circuit affirmed. Arthrex, Inc. v. Smith & Nephew, Inc.

In a concurring opinion, Judge O’Malley expressed doubts about whether the Patent and Trademark Office (PTO, of which the PTAB is an administrative branch) had statutory authority to issue the regulation pertaining to adverse judgment and, if so, whether the regulation was properly promulgated. This potential challenge to the regulation was not briefed by the parties or decided by the court, so it remains an open issue for future litigants.

The PTO regulation in question, 37 C.F.R. § 42.73(b), relates to judgments rendered by the PTAB in an IPR and states that a disclaimer of all challenged claims will be construed as a request for an adverse judgment. In an attempt to evade this regulation and save the claims in its related patent applications, Arthrex simply asserted in its Preliminary Response that the disclaimer was not a request for an adverse judgment.

Nonetheless, the Board entered an adverse judgment against Arthrex pursuant to the regulation, concluding that the Board is permitted to construe a statutory disclaimer of all challenged claims as a request for adverse judgment, even if the disclaimer occurs before the Board has entered a decision on institution of the IPR.

When the Board entered the adverse judgment, an estoppel effect attached because 37 C.F.R. § 42.73(d)(3)(i) prevents a patent owner “from taking action inconsistent with the adverse judgment, including obtaining in an patent… [a] claim that is not patentably distinct from a finally refused or canceled claim.” This was critical because Arthrex had pending applications at the time of the decision that would be undermined by this estoppel provision.

On appeal, Arthrex argued that adverse judgment was not appropriate because Arthrex specifically stated that it was not requesting an adverse judgment when it disclaimed the challenged patent claims.

Arthrex also argued that the rule does not apply because it pertains to a patentee’s “disclaimer of a claim such that the party has no remaining claim in the trial” and, in this instance, the PTAB did not institute a trial.

The Federal Circuit affirmed the Board’s decision to enter adverse judgment against Arthrex, and, as a result, Arthrex could not avoid estoppel by disclaiming the challenged claims prior to institution of the IPR. The court asserted that the rule governing requests for adverse judgment would be rendered a nullity if a patent owner could avoid an adverse judgment by merely arguing that it was not requesting one.

The court disagreed with Arthrex’s interpretation, asserting that the rule states that a patent owner may request an adverse judgment at any time during a “proceeding”, which is defined by the Patent and Trademark Office as “a trial or preliminary proceeding,” which “begins with the filing of a petition for instituting a trial.”

In the concurring opinion, Judge O’Malley disagreed that Arthrex’s disclaimer should have inflicted such sweeping harm on patent claims in its pending applications. She reasoned that if the Board lacks authority to institute a review based on statutorily disclaimed claims, it similarly lacks authority to take any action with respect to disclaimed claims, particularly prior to institution of an IPR.

As to the issue of the Board’s authority to issue the rule governing requests for adverse judgment, Judge O’Malley stated that the IPR statute “does not grant the Board the rulemaking authority to, in effect, make patentability determinations with estoppel effect – particularly prior to institution.” Judge Newman, in a dissenting opinion, also raises these issues.

Patent owners should be aware of the consequences of disclaiming claims challenged in an IPR prior to institution if there are pending claims in related patent applications. Nevertheless, an opportunity remains for someone to question the PTO’s authority to issue Rule 42.73(b).