NHK-Fintiv Rule - APA Violation?

April 21, 2021 – Article

I recently wrote an article (NHK-Fintiv Rule Challenges Look Futile at Federal Circuit) about a Federal Circuit decision that dismissed Mylan’s appeal of a PTAB decision that denied institution of an IPR. The Federal Circuit concluded that although judicial review is available by petition for mandamus and the Federal Circuit may consider Mylan’s request for mandamus, “there is no reviewability of the Director’s exercise of his discretion to deny institution except for colorable constitutional claims.” Mylan Laboratories Ltd. v. Janssen Pharmaceutica. N.V., No. 2021-1071, slip op. at 12 (Fed. Cir. March 12, 2021) (precedential).

            However, there is another avenue in which the NHK-Fintiv rule may be challenged, under the Administrative Procedure Act (APA). In August 2020, Apple Inc., Cisco Systems, Inc., Google LLC, and Intel Corporation filed a complaint (APA action) for declaratory and injunctive relief against Andrei Iancu, Director of the USPTO at the time. The complaint indicates that the NHK-Fintiv rule violates the AIA, which allows an IPR to proceed in tandem with infringement litigation involving the same patent claims so long as the IPR petition is filed within one year after the petitioner was served with the complaint in the infringement suit.  Further, the complaint states that the process in which the NHK-Fintiv rule was adopted, was procedurally invalid under 35 U.S.C. § 706(2) shown below (emphasis added):

            “To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—

(1) compel agency action unlawfully withheld or unreasonably delayed; and

(2) hold unlawful and set aside agency action, findings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

(B) contrary to constitutional right, power, privilege, or immunity;

(C)in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;

(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or

(F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.

In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error.”

            The complaint supports its claim that the rule violates the AIA and the APA, asserting Count 1 under 5 U.S.C. §706(2)(C), Count 2 under 5 U.S.C. §706(2)(A), and Count 3 under 5 U.S.C. §706(2)(D).

            Count 1 states: “The NHK-Fintiv rule is final agency action “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right” because it violates the AIA and the Director exceeded his statutory authority in adopting it.” Count 1 thus addresses that the AIA expressly allowed for IPR and litigation to proceed simultaneously where the IPR petitions are filed within one year after the start of an infringement lawsuit involving the same patent, and the Director does not have authority to rewrite or alter the statute enacted by Congress by denying institution of a timely filed IPR petition.

            Count 2 states: “The NHK-Fintiv rule is final agency action that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” addressing that the NHK-Fintiv Rule produces irrational, unpredictable, and unfair outcomes, and would fail to achieve its stated purpose of promoting administrative efficiency.

            Count 3 states: “The NHK-Fintiv rule is final agency action undertaken “without observance of procedure required by law” because the Director could not adopt such a rule without notice-and-comment rulemaking. The NHK-Fintiv rule was adopted after inter partes review decisions in the PTAB, which the agency later designated as precedential. However, this process is not permitted under the APA.

            Section 553 of the APA requires that an agency provide general notice of the proposed rule making in the Federal Register, where the notice must include (1) the time, place, and nature of the rulemaking proceedings; (2) reference to the legal authority under which the rule is proposed; and (3) either the terms or substance of the proposed rule. The agency must then give “interested persons an opportunity” to comment on the proposed rule, and the agency is required to review the public comments and respond to “significant” comments received, and may make changes to the proposal based on those comments. Once this process is complete, the agency may publish the final rule in the Federal Register.

            Even if the conclusions for Counts 1 and 2 may arguably be subjective, it is clear – and objectively so – that the NHK-Fintiv rule did not follow the regulations of agency rule making of at least Count 3 identified in the complaint of the APA action. The hearing on the APA action took place last month on March 11, during which Judge Davila suggested that the NHK-Fintiv rule should have gone through notice-and-comment rulemaking.

            We await the decision on the APA action. As NHK-Fintiv rule challenges by mandamus petition to the Federal Circuit look futile, IPR petitioners now rely on the decision in the APA action for recourse.