Two of the earliest challenges to patents under the new post grant proceedings established by the America Invents Act (AIA) are now on appeal to the Court of the Appeals for the Federal Circuit and both appeals are taking direct aim at the US Patent and Trademark Office’s decision to adopt a controversial standard for claim construction – the so-called “Broadest Reasonable Interpretation” standard – to govern all of the new AIA proceedings.

Versata v. SAP concerns the very first “covered business method” (CBM) review proceeding (CBM2012-00001) conducted by the USPTO and is on appeal by the Patent Owner, Versata, of the Patent Trial and Appeal Board (PTAB) decision to invalidate certain challenged claims. Cuozzo v. Garmin concerns the first inter partes review (IPR) proceeding and likewise is on appeal from a PTAB decision finding Couzzo’s claims invalid.

Both appellants are challenging the USPTO’s claim construction standard as impermissible substantive rule-making by the agency and arguing that the standard instead should be the same as that applied to issued patents by the federal courts – the so-called Phillips rule that requires judges and juries to give the elements of a claim their “ordinary and customary meaning.” (See, Phillip v AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005))

As the name suggests, the BRI rule gives the PTAB the ability to interpret each element of a claim as broadly as reasonably possible so long as the interpretation is consistent with the specification. The impact of such broad interpretations is that claim language can “read on” prior art that otherwise might not be relevant if the claim element is given its ordinary meaning.

The Broadest Reasonable Interpretation (“BRI”) has been around for a long time at the USPTO. It was first explicitly approved by the Federal Circuit’s predecessor (the Court of Customs and Patent Appeals or “CCPA”) as an examination standard for patent applications in 1932 (In re Horton, 58 F.2d 682) and again by the CCPA as an appropriate standard for reissue applications in 1981 (In re Reuter, 651 F.2d 751). The Federal Circuit has also approved of the standard for reexaminations in 1984 (In re Yamamoto, 740 F.2d 1569). However, the Federal Circuit has been careful not to call BRI a claim construction standard but instead referred to it as an “examination expedient.”

All three major IP bar associations (ABA, AIPLA and IPOA) have opposed the BRI standard from the moment that it was first proposed by the USPTO for the new post-grant proceedings.

The USPTO’s position, however, has been unflinching. In a public statement, the USPTO explained:

[The BRI standard] ensures that the public can clearly understand the outer limits applicants and patentees will attribute to their claims. And since applicants and patentees have the opportunity to amend their claims when working with the USPTO, they are able to resolve ambiguities and overbreadth through this interpretive approach, producing clear and defensible patents at the lowest cost point in the system. (USPTO Director’s blog, June 19, 2012, emphasis added).

For many, the italicized language of USPTO statement is precisely why the BRI should not be applied. They note that the Patent Trial and Appeal Board (PTAB) has made it virtually impossible in any of the new post-grant proceedings for a patent owner to amend its claims after the BRI standard has been applied.

In the Versata case, the patent owner, Versata, is appealing a finding that certain claims of U.S. Patent 6,553,350 are invalid. The claims at issue in the ‘350 patent, which covers methods and apparatus for pricing products, recite the use of “pricing information” that is stored in a data source and sorted against a hierarchy of product groups and purchasing organizations to determine a price of a product.

The ‘350 patent, had actually been the lynchpin of a suit brought by Versata against SAP where a jury in the federal district court for the eastern district of Texas found the patent not invalid and infringed and awarded over $350 million dollars in damages. (Interestingly, the judgment was affirmed on appeal and the district court refused to vacate the judgment following the USPTO’s finding of invalidity.)

The Versata saga highlights the precise problem that many had predicted would occur when two different standards are used for claim construction. The PTAB found the ‘350 patent claims were invalid because they preempted an abstract idea. The Board refused to adopt the District Court’s construction of “pricing information” as “denormalized numbers” and instead more broadly interpreted the term to mean any “information about pricing.” Under this broad interpretation, the claims lacked any technological feature and, hence, were invalid as claiming an abstract idea.

During the CBM proceeding, Versata set the stage for an appeal by challenging the application of BRI standard to post-grant proceedings. Most of the Board’s 38-page final written decision was devoted to a defense of the BRI standard.

The BRI issue in the Cuozzo v. Garmin case is a bit more convoluted. Couzzo’s patent was directed a system for displaying both a driver’s speed and the actual speed limit using map databases and GPI technology. The PTAB interpreted the term “integrally attached” to require that the “speedometer” and the “speed indicator” be separate elements. During the IPR, Couzzo tried to amend the claim at issue to recite a LCD that performed both functions. The Board rejected the amendment because it would have broadened the claim as construed. On this basis Cuozzo has also challenged the BRI standard.

The USPTO’s Office of the Solicitor has intervened in both cases to defend the BRI standard. The Versata case has attracted much more outside attention. In addition to SAP’s briefs as appellee, three major groups have filed friend of the court briefs: One amicus brief was submitted by a group of big chip corporations (3M, GE, J&J, etc.) with substantial IP assets opposing the BRI standard. A second amicus brief was submitted by a group of social media-type companies (Ebay, Facebook, Google, etc.) supporting the BRI standard, and a third amicus brief was submitted by many well-known U.S. electronics companies (Intel, HP, Broadcom, etc.) also supporting the PTO position.

Both Versata and Cuozzo are arguing that PTO exceeded its statutory authority in promulgating a substantive rule. They cite numerous precedents that have held that Congress has never granted the PTO anything but procedural rule-making authority and the AIA didn’t either. (In particular, both appellants cite the Tafas v. Doll case 559 F.3d 1345 (Fed. Cir. 2009), in which the Federal Circuit concluded that USPTO lacked authority from Congress to limit the number of continuation applications an applicant could file.)

Moreover, they argue that the new post-grant proceedings are fundamentally different from “examination” as practiced in reissue and re-exams at the PTO in the past. The appellants point out that the new proceedings are “adjudicatory,” therefore the judicial claim construction standard of the Phillips case: “plain and ordinary meaning to one skilled in the art” should be applied. Moreover, they argue that opportunity to amend is illusory. In fact, during oral argument, Couzzo’s counsel, Timothy Salmon, pointed out t that in the two years of CBM and IPR proceedings, the PTAB has permitted zero opposed motions to amend and only one unopposed motion to amend.

The USPTO position, of course, is that that the Patent Office did act within its authority. The brief by the Office of the Solicitor points out that BRI has been the PTO rule for nearly a century. The fact that the proceedings may be more adversarial does not mean the standard should be changed. Moreover, the agency argues that adversarial proceedings are what Congress wanted.

The Patent Office Solicitor’s brief also argues that the purported prohibition on substantive rule making does not apply in any event because the AIA gave the USPTO more new powers with respect to enacting rules governing the new post-grant proceedings.

The Solicitor’s brief further repeats the agency’s mantra that the fundamental rationale for the broadest reasonable interpretation is that it goes hand-in-hand with the right to amend and the Patent Owner has the opportunity to correct unduly broad interpretations by amendment.

The Appellee and Amici that support the government’s position argue that the BRI standard promotes clarity and precision by encouraging Patent Owners to remove ambiguities. They also argue that the PTO rules do afford patentees a real opportunity to amend despite the poor track record so far. They note that if the claims are vague, the Courts may interpret them more broadly than they deserve.

Several of the USPTO’s supporters also echo the Solicitor’s argument that the AIA gave PTO new and additional powers and argues that agency decision-making should be given deference and only overturned if the rule is arbitrary and capricious. They argue that the BRI standard is aligned with Congress’s goal of providing a faster, lower cost alternative to litigation. If the broadest reasonable interpretation rule is disallowed, the PTAB would have to hear evidence of skill in the art, extrinsic evidence of meaning, prosecution history, etc. adding to the complexity of the proceedings.

The Amicus brief submitted by the blue chip technology companies who oppose the BRI standard argues to the contrary – that the new post-grant proceedings are truly different from all other PTO examinations because patent owners do not have the same right to amend. The standard for determining the scope of claims in a post-issuance proceeding is plainly substantive and can be outcome-determinative. They also argue that there is no basis in the statutory language or the legislative history to support the promulgation of the BRI rule.

As for the argument that the BRI rule is the universal standard of the USPTO, the blue chip amici counter by noting that the agency already applies the Phillips standard in some cases (e.g., when expired patents are reissued or reexamined) without systemic failure.

Moreover, the blue chip amici argued that it is simply inconsistent with sound patent policy to have one standard for district courts and a different one for post grant proceedings. Such a system will inevitably lead to incongruous results and opportunities for gamesmanship.

Ultimately, the Federal Circuit will have to decide whether it can live with two irreconcilable standards that will time and time again lead to different conclusions as to the validity of the same claims based on different constructions by the federal trial courts and USPTO.