USPTO OVERTURNS FEDERAL JUDGE, INSTITUTES DUPLICATE PATENT VALIDITY TRIAL AGAINST SMALL BUSINESS

Is the Patent Trial and Appeal Board (PTAB) an alternative forum for determining patent validity that truly upholds the rule of law, or is the PTAB an arbitrary and capricious killing field that destroys the interests of innovative companies by deveining them of valuable IP rights that have been upheld, and even garnered injunctive relief, by U.S. district courts? While the debate continues to be very fractious, one particular request for Precedential Opinion Panel (POP) rehearing at the PTAB provides yet another unfortunate example that alternative forums are seldom ever better ones than federal court.

In July, the PTAB issued decisions to institute a series of three inter partes review (IPR) proceedings challenging the validity of patents owned by Low Temp Industries, an innovative pioneer of modular custom foodservice counters. Of particular importance to Low Temp’s core business is the company’s proprietary QuickSwitch technology, which Low Temp markets as the only hot-cold-frozen convertible well serving not only restaurants but also grocery stores, K-12 school cafeterias and even hospitals.

Low Temp, a third-generation family-owned company, introduced the QuickSwitch concept in 2007 and it quickly became the company’s flagship product because of “its ability to allow its food wells to switch from hot to cold to frozen in an hour or less, independent of the temperature of the wells surrounding it… The QuickSwitch’s technology—aptly named ‘hot-cold-freeze,’ or ‘HCF’—is particularly useful because it allows food that must be maintained at different temperatures, such as taco meat and cheese or lettuce, to be stored in different wells in the same unit. The QuickSwitch thus has practical, as well as sanitary, benefits.” Sales of QuickSwitch container wells contribute 15 to 18 percent of Low Temp’s annual revenues.

Each of the particularly useful benefits and commercial successes of Low Temp’s QuickSwitch technologies were recognized by U.S. District Judge Matthew T. Schelp of the Eastern District of Missouri when he granted a motion for preliminary injunction in late June 2021 on Low Temp’s QuickSwitch patents. The injunction was ordered against Duke Manufacturing Co., a major commercial foodservice company headquartered in St. Louis. Judge Schelp’s 40-page order provides a very thorough assessment of the four equitable factors to be considered prior to granting an order providing injunctive relief to address allegations of patent infringement. This is a standard that has become much more difficult to satisfy since the U.S. Supreme Court’s 2006 decision in eBay v. MercExchange eliminated the presumption toward injunctive relief in cases where a patent owner proved infringement. Yet it is a standard that Low Temp met in district court based in part on an assessment of patent validity in light of anticipation and obviousness arguments raised by Duke Manufacturing.

All of this legal reasoning failed to satisfy the administrative patent judges (APJs) deciding IPR petitions filed by Duke Manufacturing at the PTAB, where the rules are made up and injunctions don’t matter. Whereas Judge Schelp saw an innovative product protected by IP rights obtained by a family-owned company, APJs Kristina M. Kalan, Wesley B. Derrick and Michelle N. Ankenbrand found a reasonable likelihood that Duke Manufacturing will prove invalidity of the very claims that were deemed valid by Judge Schelp, based on legal arguments that have already been considered and denied by the federal district court. It’s a conclusion that beggars belief that we live in a country governed by laws and not the extrajudicial whims of an unsupervised tribunal run amok.

The APJs instituted the IPRs in this case despite the fact that the NHK-Fintiv framework for discretionary denials at the PTAB were developed to ensure that patent owners like Low Temp, who have meritable infringement cases in district courts, did not face costly proceedings at the PTAB based on duplicative validity arguments that have already failed in the courts. NHK and Fintiv are precedential cases decided by the PTAB that have created six factors to analyze when deciding whether to deny an IPR petition based on parallel district court proceedings. Those factors include: whether the district court has or will stay the infringement case; proximity of the court’s trial date to the PTAB’s final decision deadline; investment in the parallel district court proceedings; overlap in the issues raised in both the petition and the parallel proceeding; whether the PTAB petitioner and district court defendant are the same party; and other circumstances impacting the PTAB’s discretion.

Given that the district court had already entered an injunction based on a likelihood of Low Temp’s success on the merits of its infringement claims, dismissed anticipation and obviousness challenges to patent validity in an incredibly thorough 40-page opinion, and had scheduled a trial date one month prior to the PTAB’s statutory deadline for a final decision, any measure of common sense would lean toward the conclusion that Duke Manufacturing’s IPR petitions would be easily dismissed under NHK-Fintiv. However, the technical experts at the PTAB obviously had little time to exercise such sense on their own. APJs Kalan, Derrick and Ankenbrand made much ado about a stipulation entered in district court by Duke Manufacturing, in which the petitioner agreed not to pursue in district court specific validity grounds raised in the IPR petition, without any regard for the fact that Duke Manufacturing had raised validity contentions prior to the petition where it had every opportunity to pursue the IPR grounds rather than drag Low Temp into unnecessary and costly duplicative proceedings at the PTAB. In trying to engineer any evidence that a potential stay could be entered in district court, despite the Federal Circuit’s clear precedent holding that it is improper for district courts to grant both an injunction and a stay for IPR proceedings, APJs Kalan, Derrick and Ankenbrand pointed to Duke Manufacturing’s appeal of the preliminary injunction to the Federal Circuit as somehow indicative of the possibility that the district court will grant a stay.

The mangling of the NHK-Fintiv discretionary denial framework in the institution of Duke Manufacturing’s IPRs has encouraged several parties to line up behind Low Temp Industries in seeking review of the case by the PTAB’s Precedential Opinion Panel (POP). The POP, a panel consisting of the USPTO’s Director, the USPTO’s Commissioner for Patents and the PTAB’s Chief APJ, is likely the only chance for Low Temp’s family-owned business to survive the killing fields of the PTAB given the total inability to challenge PTAB institution decisions in the wake of the Supreme Court’s 2020 decision in Thryv v. Click-to-Call, which rendered decisions to institute IPRs unreviewable even if the PTAB’s decision violated federal law barring IPR institution in certain cases. On July 23 and August 4, David Reed, Counsel for Low Temp, submitted requests for POP review of the institution decisions seeking review of several aspects of the PTAB’s discretionary denial analysis that arguably violates PTAB precedent, especially the lack of weight placed on the grant of injunctive relief and the inordinate deference paid to Duke Manufacturing’s stipulation. “[T]he stipulation cannot mitigate duplication with the extensive proceedings already completed in the district court,” Reed wrote. “More duplication is guaranteed going forward because the stipulation reserves the right to continue relying on the IPR grounds and Petitioner has appealed to the Federal Circuit.”

The need to address uncertainties in the PTAB’s discretionary denial framework is one reason why inventor Earl Bright filed an amicus request form with the USPTO supporting rehearing of the institution decision by the POP. “The defendant should not be given repeated possibilities of invalidity,” Bright wrote. “Doing so worsens certainty in the judicial process.” Inventor Josh Malone also filed an amicus form seeking POP rehearing to clarify the NHK-Fintiv framework, which has been applied in cases having essentially the same facts, yet APJ panels have come to different conclusions on decisions to institute in ways that often conflicts with U.S. district court findings. “There are no objective criteria for the weighing, and the outcomes are virtually random,” Malone wrote. “It is causing delay, duplication, and multiplying expenses for parties and courts.”

US Inventor has filed an amicus form seeking POP rehearing of the Duke Manufacturing IPRs. The form was filed by Robert Greenspoon of Flachsbart & Greenspoon, who has represented many patent owners whose IP rights have been attacked at the PTAB. US Inventor’s amicus form points out a separation of powers violation created by the PTAB’s institution, which deprived Low Temp of relief ordered by an Article III court in the face of Duke Manufacturing’s inability to show that its validity challenges had substantial merit in U.S. district court. “Here, the Board’s institution decision seemingly reverses the Article III court’s findings that particular invalidity defenses lack substantial merit,” Greenspoon wrote. “This political branch incursion into Article III territory runs afoul of the Board’s duty not to violate Separation of Powers.”

Andrew Schafly of the Eagle Forum Education and Legal Defense Fund, which advocates for many issues on behalf of private property owners, also filed an amicus form both critiquing the PTAB’s application of NHK-Fintiv and bristling at the obvious gamesmanship being employed by Duke Manufacturing to avoid facing consequences for its unauthorized use of a competitor’s proprietary technology. “Duke Manufacturing (Duke) apparently intends this gambit as part of its sophisticated litigation strategy as a means of getting what PTAB should not do: provide challengers repeated bites at the apple when they have lost in another forum, especially an Article III court,” Schafly wrote.

The interests of small innovative firms cannot stand against the ruthless copying by larger competitors unless their patent rights are consistent across the entire U.S. patent system. Patent claim assertions that lead to grants of preliminary injunctions in district court shouldn’t be adjudicated in parallel proceedings before the PTAB, as the elimination of duplicative proceedings is a basic premise of the NHK-Fintiv framework. Patent owners everywhere should support POP rehearing leading to a reversal of the PTAB’s decision to institute Duke Manufacturing’s IPRs, as equal treatment of U.S. patent rights across every venue and forum is crucial for supporting the innovation economy upon which the U.S. has thrived for more than two centuries.

Steve Brachmann