In Arthrex, Inc. v. Smith & Nephew, Inc., [2017-1239] (January 24, 2018), the Federal Circuit affirmed the Board’s entry of an adverse judgment pursuant to 37 C.F.R. § 42.73(b) in an IPR, after patent owner Arthrex disclaimed all claims that were the subject of the petition, despite Arthrex’s express request that no adverse judgment be entered.

After first considering and concluding that the adverse judgment was appealable, the Federal Circuit then considered whether the entry of adverse judgment was proper.  Although Arthrex specifically stated that it was not requesting an adverse judgment, the Federal Circuit found that the application of the rule on its face does not turn on the patentee’s characterization of its own request.  The rule gives the Board authority to construe a patent owner’s actions as a request for an adverse judgment, suggesting the Board’s characterization of the action rather than the patent owner’s characterization is
determinative.

The Federal Circuit held that 37 C.F.R. § 42.73(b) permits the Board to enter an adverse judgment when a patent owner cancels all claims at issue after an IPR petition has been filed, but before an institution decision.

How this affects Arthrex remains to be seen.  The Federal Circuit noted that at  the time of the adverse judgment, Arthrex had two pending continuation
patent applications that the estoppel provision would impact, and that those two applications have since issued as patents. However, Arthrex recently filed another continuation application, which remains in prosecution and therefore is
affected by the adverse judgment.  The Federal Circuit is indicating that the current prosecution is complicated by the adverse judgment, although it did not comment on the effect on the patents that issued from the applications that were pending at the time of the adverse judgment.

The estoppel provisions prevent a patentee “from taking action inconsistent
with the adverse judgment, including obtaining in any patent . . . [a] claim that is not patentably distinct from a finally refused or canceled claim.”  The estoppel provision prevents a patent owner from obtaining a patent on a pending application, but does it also prevent a patent owner from defending a claim an issued patent?  If not, then Arthrex erred by doing the right thing and disclaiming unpatentable claims; instead it should have dragged out the proceedings while rushing to get its pending applications to issue.