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Synopsys, Inc. v. Matal

United States District Court, E.D. Virginia, Alexandria Division

November 15, 2017

SYNOPSYS, INC., Plaintiff,
v.
JOSEPH MATAL, [1] et al., Defendants.

          MEMORANDUM OPINION

          T. S. ELLIS, III UNITED STATES DISTRICT JUDGE.

         This is an Administrative Procedure Act (“APA”)[2] appeal from a decision by the Director of the United States Patent & Trademark Office (“PTO”), vacating an order granting ex parte reexamination of Patent No. 6, 240, 376 (“'376 Patent”), owned by intervenor defendant, Mentor Graphics Corporation (“Mentor”). Specifically, the PTO Director vacated its order granting ex parte reexamination of the '376 Patent on the ground that the statutory estoppel provisions of the Leahy Smith America Invents Act (“AIA”)[3] prohibited Synopsys, Inc. (“Synopsys”) from bringing its reexamination request. The PTO and Mentor seek dismissal of this appeal on several grounds, including: (i) the Director's decision is not “final agency action” under the APA; and (ii) the substantive statute precludes judicial review of the Director's decision. These issues have been fully briefed and argued and are now ripe for disposition. For the reasons that follow, the appeal must be dismissed.

         I.

         Because the issues presented involve a third party's ability to challenge the validity of issued patents, it is appropriate to begin with a description of the two mechanisms Congress has established for third parties to challenge issued patents. Congress established the first mechanism-the ex parte reexamination process-when it enacted the 1980 Act to Amend the Patent and Trade Mark Laws.[4] The ex parte reexamination process allows a third party to request that the PTO reexamine a patent on the ground that there is a substantial new question about its patentability. See 35 U.S.C. § 302. If the Director of the PTO determines no substantial new question of patentability exists, that decision is “final and nonappealable.” 35 U.S.C. § 303(c). If, on the other hand, the Director determines that a substantial new question of patentability exists, the Director orders a review of the patent via an ex parte reexamination proceeding. See 35 U.S.C. §§ 303-04. At that point, the patent owner may file a statement on the new question, and the challenger may file a reply to any statement filed by the patent owner. See 35 U.S.C. § 304. A patent examiner then conducts a reexamination according to the procedures established for initial examination. See 35 U.S.C. § 305. Only the patent owner can appeal the examiner's final determination regarding the patent's validity to the Patent Trial and Appeal Board (“PTAB”) and then to the United States Court of Appeals for the Federal Circuit. See 35 U.S.C. § 306.[5]

         In 1999, Congress created a second mechanism through which third parties can challenge issued patents. That process, now known as inter partes review, [6] gives a third party challenger the ability to participate more extensively in the patent review process. Specifically, the challenger continues to participate in the process after the Director institutes inter partes review, and the parties can engage in discovery, motions practice, and witness examinations. See 37 C.F.R. § 42. The third party challenger also has the right to appeal a final written decision of the PTAB to the United States Court of Appeals for the Federal Circuit. See 35 U.S.C. § 319.

         These two mechanisms for review of a patent's validity-ex parte reexamination and inter parties review-interact in an important way. Specifically, a third party challenging a patent in the inter partes review process is estopped from raising, in any later proceeding before the PTO, any ground the third party challenger raised or reasonably could have raised in the inter partes process. See 35 U.S.C. § 315(e). Accordingly, a third party challenger submitting a request for ex parte reexamination must certify, as a part of its request, that the statutory estoppel provisions do not prohibit the challenger from filing the ex parte reexamination request. See 37 C.F.R. § 1.510(b)(6).[7] If the third party challenger does not include this certification, or if the certification is not accurate, then the request will not be deemed filed and the Director will not institute an ex parte reexamination proceeding. See 37 C.F.R. § 1.510(c).

         II.

         In 2012, Synopsys filed a petition with the PTO requesting inter partes review of several claims in Mentor's '376 Patent. Specifically, Synopsys challenged claims 1 and 28 of the ‘376 Patent on the basis of prior art references, including: U.S. Patent Nos. 5, 530, 841; 5, 680, 318; and 5, 748, 488 (collectively, “Gregory”). The PTO Director instituted an inter partes review proceeding on some of Synopsys's claims based on the “Gregory” references, and, at the conclusion of the proceeding, the PTAB issued a final written decision, upholding the validity of claims 1 and 28 of the patent against the “Gregory” references.

         Thereafter, in 2016, Synopsys requested ex parte reexamination of several claims in the '376 Patent, including the same two claims-claims 1 and 28-that were challenged in the 2012 inter partes review process. Synopsys based its challenge of claims 1 and 28 on two prior art references different from the “Gregory” references, namely U.S. Patent No. 6, 182, 247 (“Herrmann”) and U.S. Patent No. 6, 317, 860 (“Heile”). Also, Synopsys certified that it was not estopped from filing the request pursuant to U.S.C. § 315(e). On November 8, 2016, the PTO issued an order granting reexamination of claims 1 and 28 of '376 Patent based on the “Herrmann” and “Heile” references.

         After the order issued, Mentor challenged Synopsys's estoppel certification, arguing that Synopsys reasonably could have raised the “Herrmannn” and “Heile” references in the prior, inter partes review proceeding. The PTO agreed with Mentor and determined that because Synopsys could have raised the “Herrmannn” and “Heile” references in the inter partes process, Synopsys was estopped from challenging claims 1 and 28 of the '376 Patent based on those references in an ex parte reexamination request. Accordingly, on December 15, 2016, the PTO vacated the prior order granting reexamination and gave Synopsys the opportunity to file a corrected request and certification.

         Synopsys availed itself of this opportunity and subsequently filed a corrected ex parte reexamination request, including challenges to claims 24, 26, and 27 of the '376 Patent, but omitting the challenges to claims 1 and 28. The Director granted reexamination with respect to the remaining claims, and the ex parte proceeding on those claims is ongoing.

         Shortly after filing its corrected request, Synopsys initiated this action, pursuant to the APA, to challenge the Director's determination that Synopsys was estopped, pursuant to § 315(e), from requesting ex parte reexamination of claims 1 and 28 on the basis of the “Herrmannn” and “Heile” references. On May 26, 2017, Synopsys filed a motion for summary judgment, arguing that the Director's estoppel determination was contrary law because § 315(e) bars only challenges based on prior art references that were actually raised in the inter partes review petition and that could have been raised in the inter partes review proceeding. The PTO and Mentor each filed cross-motions for summary judgment and/or motions to dismiss, contending that (i) there is no jurisdiction to address this issue; and (ii) even assuming the issue can be addressed, the PTO correctly interpreted § 315(e) to apply to challenges based on prior art references that could have been raised in the petition seeking inter partes review. The threshold question is thus whether judicial review of the Director's decision is permitted. The PTO and Mentor argue there is no jurisdiction because: (i) the Director's estoppel determination is not final agency action under the APA; and (ii) the ex parte reexamination statutory scheme does not allow judicial review of the Director's estoppel determination. Synopsys, in response, contends (i) that the Director's action is final agency action for APA appeal purposes; and (ii) that the statute does not bar judicial review.

         III.

         A.

         Analysis of this issue properly begins with the question whether the Director's order vacating reexamination is “final agency action” under the APA. In this respect, the APA allows persons “adversely affected or aggrieved by agency action” to challenge and seek judicial review of “final agency action for which there is no other adequate remedy in a court.” 5 U.S.C. § 704. By contrast, as the statute explicitly notes, “preliminary, procedural, or intermediate agency action” is not “directly reviewable.” Id. The rationale of the APA's finality requirement is clear; it allows the agency “an opportunity to correct its own mistakes and to apply its expertise” while avoiding “piecemeal review which at the least is inefficient and upon completion of the agency process might prove to have been unnecessary.” FTC v. Std. Oil Co. of Cali., 449 U.S. 232, 242 (1980). In this regard, the Supreme Court has recognized that finality requires that two conditions be met: (i) the action “must mark the ‘consummation' of the agency's decisionmaking process;” and (ii) “the action must be one by which ‘rights or obligations have been determined, ' or from which ‘legal consequences will flow.'” Bennett v. Spear, 520 U.S. 154, 177 (1997).[8]Thus, “the core question is whether the agency has completed its decisionmaking process, and whether the result of that process is one that will directly affect the parties.” Franklin v. Massachusetts, 505 U.S. 788, 798 (1992).

         Given these principles, the question whether the Director's estoppel decision in this case is final for APA purposes is a close one. On the one hand, the Director's decision plainly did not terminate the administrative proceedings; instead, the decision allowed Synopsys to file a new request for reexamination with a proper certification pursuant to PTO regulations. See A1686.[9]Synopsys chose to do so, [10] and as a result, the ex parte reexamination proceeding with respect to the validity of the '376 Patent is ongoing. Whereas “a final order typically ‘disposes of all issues as to all parties, '”[11] the decision here affected only two of Synopsys's challenges to the '376 Patent based on two prior art references-the “Herrmannn” and the “Heile.” Because the remaining challenges are ongoing, the Director's estoppel decision does not appear to be the consummation of the agency's decisionmaking process.

         But this does not end the finality analysis. It is important to note that courts, grappling with whether an agency order is final for APA appellate purposes, have found it instructive to invoke an analogy to the final judgment rule under 28 U.S.C. § 1291.[12] And in this regard, courts have uniformly held that orders dismissing cases without prejudice are not final; the order becomes final and appealable “[o]nly if the plaintiff cannot amend or declares his intention to stand on his complaint.” Borelli v. City of Reading, 532 F.2d 950, 951-52 (3d Cir. 1976).[13] Here, the PTO afforded Synopsys the opportunity to amend its request and Synopsys elected to do so. The logic of § 1291, applied here, suggests the Director's order never became final because, by analogy to the final judgment rule, the proceeding has not ended, but is ongoing. In sum, the fact that Synopsys was afforded the opportunity to amend its request and the fact that the reexamination proceeding is ongoing with respect to the '376 Patent suggest that the Director's estoppel determination was not the consummation of the agency's decisionmaking process and thus cannot be final agency action.

         By contrast, the D.C. Circuit has recognized that what matters in a finality analysis is not “whether the [challenged] order is the last administrative order contemplated by the statutory scheme, but rather whether it imposes an obligation or denies a right with consequences sufficient to warrant review.” Envtl. Def. Fund, Inc. v. Ruckelshaus, 439 F.2d 584, 589 n.8 (D.C. Cir. 1971).[14] And, as Synopsys correctly notes, the administrative proceeding with respect to the narrow question at issue here-whether Synopsys is estopped from challenging claims 1 and 28 of the '376 Patent based on the “Herrmannn” and “Heile” references-is complete. Moreover, as Synopsys also notes, there was nothing tentative or preliminary about the Director's decision on this narrow question; the Director determined that the ex parte reexamination request was not entitled to a filing date, memorialized that determination in an order, and vacated the original order instituting a proceeding. See Sys. Application & Techs., Inc., 691 F.3d at 1384 (concluding “there was nothing interlocutory, uncertain, or tentative” about the Army's decision where the Army “memorialized its decision to take corrective action in a letter” and “set in motion several irretrievable legal consequences”).

         It also appears that at no time in the ongoing ex parte reexamination proceeding will the PTO reconsider its estoppel decision, and therefore Synopsys will have no additional opportunity to argue the merits of its position before the PTO. Thus, this case stands in stark contrast to cases where ongoing agency proceedings might obviate the need for judicial review. Compare Heinl v. Godici, 143 F.Supp.2d 593, 597-98 (E.D. Va. 2001) (determining that the PTO's decision to allow ex parte reexamination of a patent is not final “because there are at least three ...


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