Fintiv’s Impact

The NHK-Fintiv rule (or simply “Fintiv”) is a set of factors that the Patent Trial and Appeal Board (PTAB) considers when determining whether to institute an inter partes review (IPR) proceeding in view of a parallel district court litigation. To put it simply, the Board can refuse to move forward with a petitioned challenge to a patent’s validity on various grounds that are unrelated to the technical merits of the petition. Originating out of the case of Apple Inc. v. Fintiv, the rule was made precedential in May 2020 and is now regularly applied in review institution decisions.

The Fintiv factors are as follows:

1. Whether the court has already taken a position on the patent validity issue presented in the IPR petition.

2. The proximity of the court’s trial date to the PTAB’s projected deadline for a final written decision.

3. The investment in the parallel proceeding by the court and the parties.

4. Whether the petitioner has filed multiple IPR petitions against the same patent.

5. Other circumstances that impact the PTAB’s exercise of its discretion, including the merits of the petition and the impact of the PTAB’s decision on the parties and the patent system as a whole.

The purpose of the Fintiv factors is to balance the competing interests of efficiency and fairness in the patent system. While IPR proceedings are intended to provide a more efficient and cost-effective alternative to litigation for resolving patent disputes, courts also have an interest in preserving their own authority to decide patent validity issues, particularly when a trial is imminent. Many predicted it would (once again) shake up the balance of legal power between patent owners and accused infringers.

Major tech companies, which can be the target of frequent infringement suits and often use the PTAB to file petitions challenging the patents that are asserted against them, criticized the rule and argued that it limited their ability to nip potentially lengthy and costly litigation in the bud. A review found that in the final eight months of 2020 after Fintiv was made precedential, the PTAB denied more than 125 patent challenges under the new rule—about 38% of the cases where the Fintiv factors were considered. This led many to believe that Fintiv was negatively impacting major tech companies. However, the concerns that Fintiv would lead to an outsized favorable position for patent owners do not appear borne out over time.

The relatively high rate of denials that occurred in the immediate aftermath of the Fintiv ruling in 2020 dramatically declined over the next year. In Q4 2021, the PTAB issued just six Fintiv-based denials while granting institution in 85 other instances where the issue was considered. Low rates of Fintiv-related denials continued in the first part of 2022, with only 13 cases discretionarily denied under a Fintiv analysis, a rate of less than 10%.

One reason for the decline was attributed to the adjustment in litigation strategy on the part of by the challenging party before the PTAB. They were more willing to pledge to the Board that they wouldn’t pursue similar invalidity arguments in the parallel district court case if review was instituted.

Then, in June 2022, USPTO Director Kathi Vidal issued guidance that circumscribed Fintiv’s applicability, including when a petition presents “compelling evidence of unpatentability” on the merits. The guidance also stated that district court trial date information must be considered based on the district’s actual median time to trial, rather than as initially scheduled. Following the issuance from Vidal, there has been an even sharper decline in discretionary denials. As of March 2023, there had only been four decisions post-guidance where the PTAB exercised its discretion to deny institution based on Fintiv.

The USPTO has issued a notice of proposed rulemaking to codify the Fintiv factors. The proposed rule would add a new subsection (c) to 37 CFR § 42.108, which sets forth the standards for instituting an IPR proceeding. The new subsection would require the PTAB to consider the Fintiv factors before deciding whether to institute an IPR proceeding. The proposal, in theory, seeks to establish a framework for the PTAB to apply the Fintiv factors consistently and transparently in deciding whether to institute an IPR proceeding. While minor adjustments to the application of the rule may result, observers do not expect any tectonic shifts in the policy.

Over the last decade, the balance of legal power has swung undoubtedly in favor of large tech companies and against patent holders, thanks to various precedential decisions and impactful legislation and regulatory changes. The application of Fintiv, however, is not likely to be such watershed moment. Rather, even while parties may disagree over its fair-handedness, if the rule is applied consistently and predictably by the Board, it may serve both parties well by refocusing their attention back to the merits of the case.

Sources: Bloomberg Law; RPX; USPTO, IAM; Finnegan, Henderson, Farabow, Garrett & Dunner, LLP