On March 13, 2023, in Apple, Inc., et al. v. Vidal, Case No. 2022-1249 (Fed. Cir. March 13, 2023), the Federal Circuit reversed and remanded a decision from the Northern District of California dismissing a lawsuit filed by several large technology companies for lack of standing. The lawsuit challenged the legitimacy of instructions from Director Kathi Vidal articulating a discretionary standard for denying IPR petitions based on pending parallel litigation, commonly known as the Fintiv rule. The Federal Circuit confirmed that a decision to exercise discretion and deny institution of an IPR is unreviewable. The Federal Circuit, however, reversed and remanded the lawsuit on the basis that determining whether the Fintiv rule constituted improper rulemaking is reviewable by the courts and that at least Apple had standing to bring the lawsuit.
In August 2020, Apple, Google, and others filed suit challenging the Director’s precedential designation of the PTAB decisions in NHK Spring Co. v. Intri-Plex Technologies, Inc., IPR2018-00752, 2018 WL 4373643 (P.T.A.B. Sept. 12, 2018) (designated precedential on May 7, 2019), and Apple Inc. v. Fintiv, Inc., IPR2020-00019, 2020 WL 2126495 (P.T.A.B. Mar. 20, 2020) (designated precedential on May 5, 2020). The lawsuit challenged the precedential designation on three grounds: (1) that the Director acted contrary to the IPR provisions of the patent statute — see 5 U.S.C. § 706(2)(C) (the Administrative Procedures Act (APA)); (2) that the Fintiv rule was arbitrary and capricious — see 5 U.S.C. § 706(2)(A); and (3) that the Fintiv rule was issued without compliance with the notice-and-comment rulemaking requirements of 5 U.S.C. § 553 and by 35 U.S.C. § 316. The U.S. Department of Justice moved to dismiss the lawsuit on the basis that plaintiffs lacked standing and, in the alternative, that APA review was unavailable both because (1) statutes precluded judicial review and (2) the challenges are to agency action committed to agency discretion by law, 5 U.S.C. § 701(a)(1)-(2). The district court dismissed the lawsuit on November 10, 2021, concluding that plaintiffs had standing but their challenges were to Director actions that were not reviewable based in part upon 35 U.S.C. § 314(d) (The determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable).
The Federal Circuit held that plaintiffs’ first two challenges (urging that the Fintiv rule violates the IPR statute and is arbitrary and capricious), were properly dismissed under § 701(a)(1) in that the challenges are to agency action committed to agency discretion by law. Regarding the plaintiffs’ third challenge that the Fintiv rule was issued without compliance with the notice-and-comment rulemaking requirements, the Federal Circuit determined that the APA’s procedural requirements are enforceable apart from the reviewability of the underlying action and that the government did not present a persuasive justification for concluding that the use or nonuse of notice-and-comment rulemaking procedures is a matter “committed to agency discretion by law,” 5 U.S.C. § 701(a)(2). Accordingly, a challenge could be made that the Fintiv rule was improperly put in place without notice-and-comment rulemaking.
In its reversal, the Federal Circuit noted that at least Apple had standing to challenge the Fintiv rule because it is far from speculative that this sequence will be repeated in the future, considering Apple’s size and use of a wide variety of technologies and the realistically perceived advantages of the IPR process, including the applicability of a lighter burden of persuasion to prevail in challenging a patent claim than the burden applicable in district court. As such, the Federal Circuit concluded there is a substantial risk that harm will occur in the future because of the Fintiv rule. The Federal Circuit also determined that the standard for redressability was also met, concluding there was a genuine possibility that the Fintiv rule would be changed in a way favorable to Apple in a notice-and-comment rulemaking.
Interestingly, the Federal Circuit took judicial notice that Apple is a repeat player, in the relevant respect, on a very large scale. On a regular basis, for many years, Apple has been sued for infringement (giving it a concrete stake) and then petitioned for an IPR of patent claims at issue in that suit where some petitions have been denied—for Apple, at least in Fintiv itself—based on the Fintiv rule at issue.
Although this suit has garnered a great deal of attention, it appears now that it can be resolved by the Director conducting notice-and-comment rulemaking regarding the Fintiv rule. The public will then have the opportunity to comment on the proposed rule, which could lead to changes to the Fintiv rule in its current form. But regardless of those changes, the Fintiv rule likely will not be abolished, which ostensibly was one of the goals of the suit, and the Director will maintain her discretion to deny IPR petitions based on pending parallel litigation.