By: Ryan Fitzgerald, Volume 104 Staff Member
The Federal Circuit’s recent holding in General Electric Co. v United Technologies Corp.[i] increases the difficulty for competitors to challenge the validity of a patent in court after an adverse inter partes review (IPR) decision.[ii] An IPR allows any person or institution to challenge the validity of a patent owned by another party before the Patent and Trademark Appeal Board (PTAB).[iii] But on appeal, the agency’s review of a patent does not automatically establish Article III standing for the challenging party.[iv] To establish Article III standing, the challenger must show a “concrete and particularized” injury as established by Lujan v. Defenders of Wildlife.[v] However, in determining what constitutes a “concrete and particularized” injury, the Federal Circuit adopted an overly restrictive approach of the competitor standing doctrine, making it difficult for patent challengers to establish Article III standing when appealing a PTAB decision in an IPR.
I. The Federal Circuit Decision
General Electric (GE) and United Technologies (UTC) are two of the three major turbofan engine manufacturers used in commercial aircraft.[vi] In 2016, GE instituted an IPR to challenge the validity of UTC’s patent for a geared turbofan engine with a variable area fan nozzle.[vii] Upon review, the PTAB upheld UTC’s patent, concluding the claims were not obvious in light of the asserted references.[viii] GE appealed the PTAB decision to the Federal Circuit as permitted under 35 U.S.C. § 319.[ix] However, before considering the merits of GE’s challenge, the Federal Circuit asked GE to establish that it had Article III standing before the court.[x]
GE put forth three arguments to establish Article III standing. The court concluded all three failed to show an adequate “concrete and particularized” injury.[xi] First, the court denied GE’s claim that it suffered competitive harm. The court concluded GE’s competitive injuries were “too speculative” because GE did not adequately show that it expended time and money on engine designs that implicated the challenged patent.[xii] The court also rejected GE’s claim of competitive harm under the competitive standing doctrine.[xiii] Because the PTAB did not “alter the status quo of the field of competition”[xiv] when upholding UTC’s patent, the court concluded GE had failed to established Article III standing through a showing of competitive harm.[xv]
The court similarly rejected GE’s economic losses argument.[xvi] The court held that GE “fail[ed] to provide an accounting for the additional research and development costs expended to design around the [challenged] patent.”[xvii] And because there was no evidence that GE was in the process of designing a turbofan engine covered by the challenged patent, nor had definite plans to use the features of the challenged patent, the asserted economic harm was purely speculative and unsuitable to confer Article III standing.[xviii]
The court rejected GE’s third argument that statutory estoppel under 35 U.S.C. § 315(e) provided GE with Article III standing.[xix] Section 315, which bars a patent challenger from asserting invalidity of the patent in a later civil suit on any ground which was “raised or reasonably could have [been] raised during that [IPR],”[xx] was not enough to establish injury.[xxi] Unless GE showed it practiced the details of the challenged patent, a potential bar on challenging the validity in a later suit is not enough to show an injury in fact.[xxii]
II. Why the Federal Circuit Should Have Concluded GE Had Article III Standing
Though anyone may petition the PTAB to institute an IPR and challenge the validity of a patent, not every patent challenger suffers an injury in fact suitable to confer Article III standing. Typically, to establish injury, a party “must show that it is engaged or will likely engage ‘in an activity that would give rise to a possible infringement suit.’”[xxiii] But most parties actively avoid infringing a patent to avoid being liable for damages.[xxiv] For this reason, in its IPR appeal, GE asserted an injury in fact based on the competitor standing doctrine. The competitor standing doctrine confers Article III standing when “a direct and current competitor whose bottom line may be adversely affected” challenges a government action.[xxv] However, in applying this doctrine to IPRs, the Federal Circuit has taken an overly restrictive view, making it unduly difficult for a party to establish Article III standing on appeal. Contrary to the Federal Circuit’s holding, direct competitors do suffer an injury when the PTAB upholds a potentially invalid patent.
III. Competitor Standing Doctrine
The basis of the competitive standing doctrine is to confer Article III standing when “government action subjects the plaintiff to increased competition because of the probable economic injury that accompanies it.”[xxvi] The Federal Circuit attempts to distinguish its prior cases recognizing this doctrine on the grounds that competitor standing only arises when government action changes the competitive landscape,[xxvii] rather than when it upholds the competitive landscape. But this distinction is contrary to the foundation of the doctrine. As stated by the Federal Circuit, the doctrine “relies on economic logic to conclude that a plaintiff will likely suffer an injury-in-fact when the government acts in a way that increases competition or aids the plaintiff’s competitors.”[xxviii]
IV. General Electric Alleged Sufficient Injury in Fact to Confer Article III Standing
General Electric and United Technologies are two of the three major turbofan engine manufacturers used in commercial aircraft.[xxix] They compete directly for the same contracts from the commercial aircraft manufacturers such as Boeing and Airbus.[xxx] When the Federal Circuit concluded that GE did not adequately assert an injury under the competitor standing doctrine, the Federal Circuit ignored two critical government actions which directly aided GE’s competitor, UTC.
First, the Patent and Trademark Office (PTO) took action providing UTC a competitive advantage when it reviewed and granted UTC a patent.[xxxi] By granting UTC a patent, the PTO provided UTC with a competitive advantage because it provided UTC the power to exclude all others from designing such an engine.[xxxii] GE was then forced to design around UTC’s patent or be subject to infringement damages.[xxxiii]
Second, when the PTAB reviewed and upheld UTC’s claims during the IPR, the government again acted to exclude parties from competing in the market, aiding GE’s competitors. The government provided UTC the continued ability to exclude others from designing the claimed geared turbofan engine. By initially granting UTC the patent and later upholding it during the IPR, the government “aid[ed] the plaintiff’s competitors”[xxxiv] in at least two ways. This should have been enough for GE to assert Article III standing under the competitor standing doctrine, contrary to the Federal Circuit’s holding.
The Federal Circuit went too far in restricting the competitive standing doctrine in General Electric Co. v. United Technologies Corp., concluding that General Electric did not have Article III standing to appeal its patent validity challenge in an IPR. Instead, the Federal Circuit effectively asked GE to “bet the farm, or (as here) risk treble damages,”[xxxv] by actively infringing UTC’s patent, risking significant infringement damages before they could challenge the validity of the patent after losing the IPR. The Federal Circuit erred in its analysis of the competitor standing doctrine and incorrectly concluded that the government action did not aid GE’s competitors. Had the Federal Circuit properly applied the competitor standing doctrine, the court would have concluded that General Electric asserted a sufficient injury in fact to confer Article III standing and heard its appeal.
[i]928 F.3d 1349 (Fed. Cir. 2019).
[ii]An inter partesreview is a trial proceeding conducted before the Patent Trial and Appeal Board to review the validity of one or more claims of a previously granted patent raised on the grounds of novelty and nonobviousness under 35 U.S.C. §§ 102 and 103, and only on the basis of prior art consisting of patents and printed publications. Inter Partes Review, USPTO, https://www.uspto.gov/patents-application-process/appealing-patent-decisions/trials/inter-partes-review(last visited Oct. 28, 2019).
[iii]35 U.S.C. § 311 (2018) (“[A] person who is not the owner of a patent may file with the Office a petition to institute an inter partes review of the patent.”).
[iv]See AVX Corp. v. Presidio Components, Inc., 923 F.3d 1357, 1361 (Fed. Cir. 2019) (“A person does not need to have Article III standing to file an IPR . . . because Article III requirements do not apply to administrative agencies[,] . . . [therefore] [a]n IPR petitioner . . . might lack Article III standing to appeal.”).
[v]504 U.S. 555, 560 (1992).
[vi]See Gen. Elec. Co. v. United Techs. Corp., 928 F.3d 1349, 1355 (Fed. Cir. 2019) (Hughes, J., concurring in the judgment) (“[T]he market is dominated by three major players: GE, Universal Technologies Corporation, and Rolls-Royce.”).
[vii]Id. at 1355 (majority opinion).
[viii]Gen. Elec. Co. v. United Techs. Corp., No. IPR2016-00531, 2017 WL 2772687 (P.T.A.B. June 26, 2017).
[ix]“A party dissatisfied with the final written decision of the Patent Trial and Appeal Board under section 318(a) may appeal the decision pursuant to sections 141 through 144. Any party to the inter partes review shall have the right to be a party to the appeal.” 35 U.S.C. § 319 (2018). Section 141 states that a party to an IPR who is dissatisfied with the PTAB decision “may appeal the Board’s decision only to the United States Court of Appeals for the Federal Circuit. 35 U.S.C. § 141(c) (2018).
[x]Gen. Elec. Co., 928 F.3d at 1352.
[xiv]Id. at 1354. This is known as the competitor standing doctrine and is found when the government “provides benefits to an existing competitor or expands the number of entrants in the petitioner’s market.” Id.(quoting AVX Corp. v. Presidio Components, Inc., 923 F.3d 1357 (Fed. Cir. 2019)).
[xix]Id. at 1355.
[xx]Under 35 U.S.C. § 315(e), the challenger of a patent may not assert in a civil action that a claim is “invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” 35 U.S.C. § 315(e) (2018). Under the Federal Circuit’s precedent, it had yet to decide whether this provision applied to a party unable to establish Article III standing upon attempting to appeal the IPR decision. See AVX Corp. v. Presidio Components, Inc., 923 F.3d 1357, 1362–63 (Fed. Cir. 2019).
[xxi]Gen Elec. Co.,928 F.3d at 1355.
[xxiii]JTEKT Corp. v. GKN Auto. LTD., 898 F.3d 1217, 1220 (Fed. Cir. 2018) (quoting Consumer Watchdog v. Wis. Alumni Research Found., 753 F.3d 1258, 1262 (Fed. Cir. 2014)).
[xxiv]See 35 U.S.C. § 284 (2012) (“[T]he court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for use made of the invention by the infringer . . . .”).
[xxv]New World Radio, Inc. v. FCC, 294 F.3d 164, 170 (D.C. Cir. 2002) (analyzing Supreme Court precedent of the competitor standing doctrine).
[xxvi]Gen. Elec. Co., 928 F.3d at 1355 (Hughes, J., concurring in the judgment).
[xxvii]AVX Corp. v. Presidio Components, Inc. 923 F.3d 1357, 1364 (Fed. Cir. 2019).
[xxviii]Canadian Lumber Trade All. v. United States, 517 F.3d 1319, 1332 (Fed. Cir. 2008).
[xxix]See Aircraft Turbofan Engine Market 2018,MarketWatch, (Nov. 20, 2018) https://www.marketwatch.com/press-release/aircraft-turbofan-engine-market-2018-worldwide-overview-by-industry-size-market-share-future-trends-growth-factors-and-leading-players-to-2023-2018-11-20.
[xxx]Gen. Elec. Co., 928 F.3d at 1355 (Hughes, J., concurring in the judgment) (citing Decl. of Alexander E. Long 2 ¶ 3, ECF No. 36).
[xxxi]See35 U.S.C. § 131 (2018) (“The [PTO] Director shall cause an examination to be made of the application and . . . if on such examination it appears that the applicant is entitled to a patent under the law, the Director shall issue a patent therefor.”).
[xxxii]See 35 U.S.C. § 154 (2018) (“Every patent shall . . . grant to the patentee . . . the right to exclude others . . . .”).
[xxxiii]See 35 U.S.C. § 271 (2018).
[xxxiv]Canadian Lumber Trade All. v. United States, 517 F.3d 1319, 1332 (Fed. Cir. 2008).
[xxxv]MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 134 (2007).