Court Opinion

ID: 4238810
Source: CourtListenerOpinion
Date Created: 2018-01-24 16:00:40.657523+00
Date Added: 2024-06-11T14:43:20.952053
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

                   ARTHREX, INC.,
                      Appellant

                           v.

 SMITH & NEPHEW, INC., ARTHROCARE CORP.,
                   Appellees
            ______________________

                      2017-1239
                ______________________

    Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. IPR2016-
00917.
                 ______________________

               Decided: January 24, 2018
                ______________________

    ANTHONY P. CHO, Carlson, Gaskey & Olds, P.C.,
Birmingham, MI, argued for appellant. Also represented
by DAVID J. GASKEY.

   NATHAN R. SPEED, Wolf, Greenfield & Sacks, PC,
Boston, MA, argued for appellees. Also represented by
RICHARD GIUNTA, MICHAEL N. RADER.
               ______________________

  Before NEWMAN, DYK, and O’MALLEY, Circuit Judges.
    Opinion for the court filed by Circuit Judge DYK.
2                      ARTHREX, INC.   v. SMITH & NEPHEW, INC.

    Concurring opinion filed by Circuit Judge O’MALLEY.
    Dissenting opinion filed by Circuit Judge NEWMAN.
DYK, Circuit Judge.
    In a pending inter partes review proceeding (“IPR”)
before the Patent Trial and Appeal Board (“the Board”),
Arthrex, Inc. disclaimed all claims that were the subject
of the petition. The disclaimer occurred before the Board
issued an institution decision. The Board then entered an
adverse judgment pursuant to 37 C.F.R. § 42.73(b). Ar-
threx appeals. Because we conclude that the Board acted
within the scope of the regulation, we affirm.
                       BACKGROUND
    On April 19, 2016, Smith & Nephew, Inc. and Arthro-
care Corp. filed an IPR petition challenging claims 1–9 of
U.S. Patent No. 8,821,541 (“the ’541 patent”), which is
owned by Arthrex. On July 22, 2016, Arthrex disclaimed
claims 1–9 of the ’541 patent as permitted under 37
C.F.R. § 42.107(e). Arthrex then filed a Preliminary
Response, arguing that an IPR should not be instituted
because 37 C.F.R. § 42.107(e) states “[n]o inter partes
review will be instituted based on disclaimed claims.” At
that point, Arthrex confronted 37 C.F.R. § 42.73(b), which
provides:
     A party may request judgment against itself at
     any time during a proceeding. Actions construed
     to be a request for adverse judgment include:
     (1) Disclaimer of the involved application or pa-
         tent;
     (2) Cancellation or disclaimer of a claim such
         that the party has no remaining claim in the
         trial;
     (3) Concession of unpatentability or derivation of
         the contested subject matter; and
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                    3

    (4) Abandonment of the contest.
37 C.F.R. § 42.73(b) (emphasis added). In order to avoid
the entering of an adverse judgment pursuant to 37
C.F.R. § 42.73(b), the Preliminary Response stated that
“[b]y filing the statutory disclaimer, Arthrex, Inc. is not
requesting an adverse judgment.” J.A. 17.
    After further briefing, the Board entered an adverse
judgment against Arthrex pursuant to 37 C.F.R.
§ 42.73(b), concluding that “our rules permit the Board to
construe a statutory disclaimer of all challenged claims as
a request for adverse judgment, even when the disclaimer
occurs before the Board has entered a decision on institu-
tion.” Smith & Nephew, Inc. v. Arthrex, Inc., No. IPR2016-
001917, slip op. at 6 (P.T.A.B. Sept. 21, 2016).
    When the Board entered an adverse judgment, an es-
toppel effect attached, as 37 C.F.R. § 42.73(d)(3)(i) pre-
cludes a patent owner “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.” At the time of the
adverse judgment, Arthrex had two pending continuation
patent applications that this estoppel provision would
impact. Those two applications have since issued as
patents. Arthrex recently filed another continuation
application, which remains in prosecution and therefore is
affected by the adverse judgment.
    Arthrex timely appealed. Smith & Nephew and Ar-
throCare Corp., the petitioners in the IPR proceeding,
moved to dismiss the appeal for lack of subject-matter
jurisdiction, arguing that 35 U.S.C. § 319 (providing for
appeal from a “final written decision”) created the exclu-
sive means of appeal and that the Board did not issue a
“final written decision” as required by that section. This
court denied the motion, directing the parties “to address
in their briefs whether the order on appeal is reviewable
4                     ARTHREX, INC.   v. SMITH & NEPHEW, INC.

as a final decision.” Arthrex, Inc. v. Smith & Nephew
Corp., No. 17-1239, Dkt. No. 18 (Fed. Cir. Jan. 31, 2017).
                       DISCUSSION
                            I
    The first issue is whether the adverse final judgment
is appealable. There is no contention that the statutory
appeal-bar provision applies here. See 35 U.S.C. § 314(d)
(stating that institution decisions “shall be final and
nonappealable”); see also Cuozzo Speed Techs., LLC v. Lee,
136 S. Ct. 2131, 2139-42 (2016). Rather, the question is
whether a statute provides a right to appeal.
    We approach this question in light of the general rule
that judicial review is presumed to be available with
respect to final agency action. The Supreme Court has
recognized “the strong presumption that Congress intends
judicial review of administrative action.” Mach Mining,
LLC v. EEOC, 135 S. Ct. 1645, 1651 (2015); see also
Cuozzo, 136 S. Ct. at 2140; Administrative Procedure Act
§ 10, 5 U.S.C. §§ 701, 704 (providing judicial review for
final agency actions unless precluded by statute).
    Here, the language of 28 U.S.C. § 1295 appears to
provide for appeal. 1 Section 1295(a)(4)(A) provides the
Federal Circuit with jurisdiction over “an appeal from a
decision of—the Patent Trial and Appeal Board of the
United States Patent and Trademark Office with respect
to . . . inter partes review under title 35.” The adverse
judgment in this case is a decision of the Board, and the
decision is “with respect to” an inter partes review pro-

    1    We need not decide whether the right to appeal
comes directly from § 1295 or in conjunction with § 704 of
the APA. Both statutes play a role in defining the review-
ability of Board decisions.
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                     5

ceeding. The judgment is also final, as the judgment
terminated the IPR proceeding. See In re Arunachalam,
824 F.3d 987, 988 (Fed. Cir. 2016) (holding that
§ 1295(a)(4)(A) incorporates a finality requirement);
Copelands’ Enters., Inc. v. CNV, Inc., 887 F.2d 1065, 1067-
68 (Fed. Cir. 1989) (en banc) (same).
     Smith & Nephew argues, however, that the more spe-
cific reference to appeal rights in § 319 should govern;
that § 319 only provides for review from a final written
decision; and that there has been no final written decision
here. Section 319 provides, “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.” 35 U.S.C. § 319.
    On its face, § 319 does not cabin the appeal rights con-
ferred by § 1295. However, Smith & Nephew points to
language in our previous decision, St. Jude Medical,
Cardiology Division, Inc. v. Volcano Corp., 749 F.3d 1373
(Fed. Cir. 2014). St. Jude stated that § 1295(a)(4)(A) “is
most naturally read to refer precisely to the Board’s
decision under section 318(a) on the merits of the inter
partes review, after it ‘conducts’ the proceeding that the
Director has ‘instituted.’” Id. at 1376. It also stated “[t]he
final written decision is the only decision that the statute
authorizes a dissatisfied party to appeal.” Id. at 1374.
However, St. Jude did not involve a similar situation, and
the availability of appeal of final adverse judgment deci-
sions was not directly addressed in that case.
    In St. Jude, the issue was whether § 1295(a)(4)(A) au-
thorized review of a Board decision declining to institute
an IPR or whether such an appeal was barred by § 314(d),
which provides, “[t]he determination by the Director
whether to institute an inter partes review under this
section shall be final and nonappealable.” 35 U.S.C.
§ 314(d). St. Jude found that non-institution decisions fall
within the “broadly worded bar on appeal” under § 314(d).
6                     ARTHREX, INC.   v. SMITH & NEPHEW, INC.
749 F.3d at 1376. Thus, the question there was whether
the appeal bar foreclosed appellate jurisdiction—a ques-
tion not involved here. Under these circumstances, we are
not bound by the language in St. Jude. When a prior
decision does not “squarely address[ ] [an] issue,” a court
remains “free to address the issue on the merits” in a
subsequent case. Brecht v. Abrahamson, 507 U.S. 619,
631 (1993); see also Automated Merchandising Sys., Inc. v.
Lee, 782 F.3d 1376, 1381 (Fed. Cir. 2015).
    Because § 319 does not on its face provide the exclu-
sive means for appeal over IPR decisions not subject to
the appeal bar, and § 1295(a)(4)(A) on its face provides a
right to appeal, we conclude that a final decision that
disposes of an IPR proceeding in the form of an adverse
judgment is a “decision” from the Board with respect to
IPRs under title 35 and that § 1295 provides a right to
appeal a final adverse judgment. This is also not a situa-
tion in which § 319 impliedly precludes review under
§ 1295. See Block v. Cmty. Nutrition Inst., 467 U.S. 340,
345-48 (1984); Pregis Corp. v. Kappos, 700 F.3d 1348,
1357-58 (Fed. Cir. 2012).
                             II
    The next question is whether the Board properly en-
tered an adverse judgment pursuant to 37 C.F.R.
§ 42.73(b). At the outset, we note that Arthrex has specifi-
cally disclaimed any argument that the regulations are
not authorized by the statute. 2 Under these circumstanc-
es, we do not decide whether the PTO had authority to

    2   “Q: You’re not contending that the PTO doesn’t
have the authority to adopt a regulation providing for
estoppel on the cancellation of a patent or a claim, right?
A: That is correct, we are not contending that the Patent
Office does not have authority.” Oral Arg. at 1:11-1:25.
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                    7

adopt this regulation. We reserve that issue for another
day.
    Arthrex argues only that the regulation is inapplica-
ble. It first argues that this is so because Arthrex specifi-
cally stated that it was not requesting an adverse
judgment. The application of the rule on its face does not
turn on the patentee’s characterization of its own request,
and such a construction would make no sense. If the
Board’s authority to enter an adverse judgment depended
on whether the patent owner requested an adverse judg-
ment, a patent owner could always avoid an adverse
judgment by simply stating that it is not requesting one,
even with respect to the specific instances articulated in
37 C.F.R. § 42.73(b). This would render the rule a nullity.
Moreover, § 42.73(b) 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 appellant appears to have backed
away from this argument in its Reply Brief. Appellant
Reply Br. 15 (“But Arthrex never suggested that a Patent
Owner could avoid adverse judgment in one of the ex-
pressly defined situations of 37 C.F.R. § 42.73(b).”).
    Arthrex alternatively points out that subsection 2 of
37 C.F.R. § 42.73(b) refers to the cancellation of claims
such that there is “no remaining claim in the trial.” Ar-
threx argues that this means that subsection 2 only
applies if an IPR proceeding has been instituted. We
think the Board’s contrary interpretation is consistent
with the rule. The rule states that an adverse judgment
may be entered after a petition has been filed, but before
an IPR proceeding has been instituted. It then states that
a patent owner may request an adverse judgment at any
time during a “proceeding,” 37 C.F.R. § 42.73(b), and the
8                     ARTHREX, INC.   v. SMITH & NEPHEW, INC.

PTO’s rules define “proceeding” as “a trial or preliminary
proceeding,” which “begins with the filing of a petition for
instituting a trial.” Id. § 42.2. 3
    While the rules define “trial” as requiring “a contested
case instituted by the Board based upon a petition,”
37 C.F.R. § 42.2, the language of subsection 2 relating to
remaining claims “in the trial” can be interpreted as
meaning that there is no claim remaining for trial, which
occurs when, as here, all of the challenged claims have
been cancelled. The purpose of 37 C.F.R. § 42.73(b) is to
define the circumstances in which the estoppel provision
of 37 C.F.R. § 42.73(d) applies. The purpose of the estop-
pel provision is to “provide[ ] estoppel against claims that
are patentably indistinct from those claims that were
lost.” Rules of Practice for Trials Before the Patent Trial
and Appeal Board and Judicial Review of Patent Trial
and Appeal Board Decisions, 77 Fed. Reg. 48,612, 48,649
(Aug. 14, 2012). For this purpose, there seems to be no
meaningful distinction between claims that are cancelled
before an IPR proceeding is instituted and claims that are
cancelled after an IPR proceeding is instituted.
    Additionally, it seems that the subsections of 37
C.F.R. § 42.73(b) should be applied consistently. Subsec-
tion 1 states that “[d]isclaimer of the involved application
or patent” will be construed as a request for an adverse
judgment. There is no time limitation, so this subsection
on its face seems to apply at any time during the proceed-
ing. We see no reason why estoppel should apply if a
patent owner disclaims an entire patent or application
before an institution decision but should not apply if a
patent owner merely disclaims some of the claims. Sub-

    3   Arthrex did not challenge the PTO’s promulgation
of Rule 42.2, or its interpretation of the term “proceeding”
therein.
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                   9

section 3 similarly contains no time limitation, stating
that a “[c]oncession of unpatentability or derivation of the
contested subject matter” will be construed as an adverse
judgment.
    The fact that the other provisions of 37 C.F.R.
§ 42.73(b) do not expressly turn on whether an IPR pro-
ceeding has yet been instituted supports the Board’s view
that subsection 2 also is not so limited. Because we be-
lieve the Board’s interpretation of the rule is consistent
with its language, and because there has been no chal-
lenge to the Board’s authority to adopt the rule, we sus-
tain the Board’s reading of the regulation.
    37 C.F.R. § 42.73(b) permits the Board to enter an ad-
verse judgment when a patent owner cancels all claims at
issue after an IPR petition has been filed, but before an
institution decision.
                         CONCLUSION
    We conclude that the Board’s decision is appealable,
and that the Board’s interpretation is consistent with the
language of the regulation. We do not reach the questions
of whether the regulation is authorized by the statute or
whether, if so, it was properly promulgated.
                         AFFIRMED
                            COSTS
   No costs.
  United States Court of Appeals
      for the Federal Circuit
                 ______________________

                    ARTHREX, INC.,
                       Appellant

                            v.

 SMITH & NEPHEW, INC., ARTHROCARE CORP.,
                   Appellees
            ______________________

                       2017-1239
                 ______________________

    Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. IPR2016-
00917.
                 ______________________
O’MALLEY, Circuit Judge, concurring.
     I agree with Judge Dyk that we have jurisdiction un-
der 28 U.S.C. § 1295(a)(4)(A) to review the Board’s ad-
verse judgment against Arthrex, and I agree that the
Board’s interpretation of 37 C.F.R. § 42.73(b) is consistent
with the text of that regulation. I write separately to
point out that I have doubts about whether the Director
had the authority under 35 U.S.C. § 316 (or any other
statutory provision) to issue that regulation or whether, if
so, the regulation was properly promulgated.
    The Board relied on 37 C.F.R. § 42.107(e), which
states that “[n]o inter partes review will be instituted
based on disclaimed claims,” in explaining its grant of
adverse judgment against Arthrex. As Arthrex notes in
2                     ARTHREX, INC.   v. SMITH & NEPHEW, INC.

its citation to supplemental authority, the Board recently
designated as precedential a portion of a decision denying
a request for rehearing in which the Board determined
that covered business method (“CBM”) review cannot be
instituted based on statutorily disclaimed claims. Face-
book, Inc. v. Skky, LLC, No. CBM2016-00091, 2017 WL
4349404, at *3 (P.T.A.B. Sept. 28, 2017) (designated
precedential as to Section II.B.2). According to the Board,
our case law requires that statutorily disclaimed claims
must be treated as if they never existed and therefore
those claims cannot support institution of CBM review.
Id. I believe this same logic applies to the institution of
inter partes review on disclaimed claims. And, if the
Board lacks the authority to institute review based on
statutorily disclaimed claims, as § 42.107(e) and Facebook
seem to indicate, it is unclear to me why the Board would
have the authority to take any other action—particularly
prior to institution—with respect to disclaimed claims.
    I question the Board’s authority to issue adverse
judgments prior to institution for another reason. 37
C.F.R. § 42.73(b) explains that “[a] party may request
judgment against itself at any time during a proceeding.”
(emphasis added). The PTO has defined the term “pro-
ceeding” broadly, to encompass both the trial and a “pre-
liminary proceeding,” the period of time beginning with
the filing of the petition and ending with the institution
decision. 37 C.F.R. § 42.2. As we explained in Shaw
Industries Group, Inc. v. Automated Creel Systems, Inc.,
817 F.3d 1293, 1300 (Fed. Cir. 2016), however, “[t]he IPR
does not begin until it is instituted.” The PTO’s expansive
definition for “proceeding,” and the Board’s application of
that definition to the practice of issuing adverse judg-
ments prior to institution, seem to conflict with our con-
clusion in Shaw.
    I also am skeptical that the framework of the Leahy-
Smith America Invents Act (“AIA”) provides the Board
with the necessary authority to issue adverse judgments
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                   3

based on statutory disclaimers prior to institution of inter
partes review. The AIA does not address procedural
actions before institution beyond the filing of a petition
and the patent owner’s response, should the patent owner
wish to submit one. 35 U.S.C. §§ 311–13. Nor does the
process of institution itself mention or contemplate the
issuance of adverse judgments. Id. § 314. And I note that
the estoppel provision of the AIA, § 315, does not address
estoppel arising from pre-institution adverse judgments—
it addresses estoppel arising following the issuance of a
final written decision under § 318. Section 316(c) ex-
plains that the Board “shall, in accordance with [35
U.S.C. § 6], conduct each inter partes review instituted
under this chapter”; it does not grant the Board the
rulemaking authority to, in effect, make patentability
determinations with estoppel effect—particularly prior to
institution. Id. § 316(c) (emphasis added); see also 35
U.S.C.        § 6(b)(4)  (providing  that     the    Board
“shall . . . conduct inter partes reviews and post-grant
reviews pursuant to chapters 31 and 32.” (emphasis
added)).
    Because Arthrex affirmatively disclaimed any such
statutory or administrative law challenge to the Board’s
reliance on 37 C.F.R. § 42.73(b), however, we may not
reach those questions in this case. This is particularly so
because, in light of the disclaimer of these questions,
neither party briefed or argued them. We, thus, must
save these inquiries for another day—one where the
relevant questions are raised and adequately analyzed by
the parties.
  United States Court of Appeals
      for the Federal Circuit
                ______________________

                   ARTHREX, INC.,
                      Appellant

                           v.

 SMITH & NEPHEW, INC., ARTHROCARE CORP.,
                   Appellees
            ______________________

                      2017-1239
                ______________________

    Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. IPR2016-
00917.
                 ______________________
NEWMAN, Circuit Judge, dissenting.
    The Petitioners’ request for inter partes review was
not “instituted” because the patentee, Arthrex Inc., dis-
claimed all of the challenged claims before the PTAB
decided whether to institute the requested review. Thus
inter partes review could not be instituted, for no chal-
lenged claims remained in the patent. See 37 C.F.R.
§ 42.107(e):
   No inter partes review will be instituted based on
   disclaimed claims.
Nonetheless, the PTAB issued an adverse judgment on
the disclaimed claims. The parties agree—a position
apparently shared by the panel majority—that this ad-
verse judgment subjects Arthrex to the estoppel provi-
2                     ARTHREX, INC.   v. SMITH & NEPHEW, INC.

sions of 37 C.F.R. § 42.73(d)(3); that is, Arthrex would be
subject to the same estoppel result as if there had been an
IPR trial and Arthrex had lost on the merits.
    From this flawed statutory and regulatory interpreta-
tion, I respectfully dissent.
                       DISCUSSION
    Soon after Smith & Nephew, Inc. filed a petition for
inter partes review of claims 1–9 of U.S. Patent No.
8,821,541 (“the ’541 patent”), Arthrex disclaimed all of the
challenged claims. Inter partes review was no longer
available, see 37 C.F.R. § 42.107(e), supra. The PTAB
then entered an “adverse judgment” on claims 1–9, alt-
hough no review was conducted of those claims, and none
could be conducted after the disclaimer. My colleagues
incorrectly hold that this action is in conformity with
statute and regulation.
    The PTO accompanied the America Invents Act with
the issuance of Rules, including 37 C.F.R. § 42.73(b)
concerning “[a]ctions construed to be a request for adverse
judgment.” This Rule states that such actions include:
    (1) Disclaimer of the involved application or pa-
    tent;
    (2) Cancellation or disclaimer of a claim such that
    the party has no remaining claim in the trial;
    (3) Concession of unpatentability or derivation of
    the contested subject matter; and
    (4) Abandonment of the contest.
I emphasize the words in the trial in subsection (2) be-
cause this is an explicit limitation, not included in the
other subsections. Here there was no trial, and no trial
was possible after the disclaimer of claims 1–9, for insti-
tution of trial was not possible. Subsection 42.73(b)(2), by
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                    3

its terms, makes clear that it relates to procedures “in the
trial;” it has no relevance to the institution phase.
    I also note that Arthrex explicitly stated to the PTAB
that it “is not requesting an adverse judgment,” for Ar-
threx states that the PTAB had been applying this Rule
inconsistently. The PTAB then entered an adverse judg-
ment, conflicting with the Rule.
     A further conflict arises in the PTAB’s issuance of this
“final decision,” for final decision on inter partes review,
as authorized by 35 U.S.C. § 318, applies upon PTAB trial
of patentability, a trial that cannot occur when trial is not
“instituted.” Adverse judgment against disclaimed claims
without institution of trial is not available by statute, and
is contrary to the PTO Rule directed to this event.
   I. Agency Compliance with Statute and Rules
    An administrative agency must comport with its au-
thorizing statute, and the PTO’s practices and regulations
must implement the statutory purpose. See Food & Drug
Admin. v. Brown & Williamson Tobacco Corp., 529 U.S.
120, 125 (2000) (“Regardless of how serious the problem
an administrative agency seeks to address, however, it
may not exercise its authority in a manner that is incon-
sistent with the administrative structure that Congress
enacted into law.”) (internal quotations omitted); Bowen v.
Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988) (“It is
axiomatic that an administrative agency’s power to prom-
ulgate legislative regulations is limited to the authority
delegated by Congress.”).
    The judicial obligation is to assure agency compliance
with its legislated authority. See Nat’l Broad. Co. v.
United States, 319 U.S. 190, 224 (1943) (“Our duty is at
an end when we find that the action of the Commission
was based upon findings supported by evidence, and was
made pursuant to authority granted by Congress. It is
not for us to say that the ‘public interest’ will be furthered
4                     ARTHREX, INC.   v. SMITH & NEPHEW, INC.

or retarded by the [regulation].”). Here the PTAB stated
that “our rules” authorize an adverse judgment in the
absence of institution and the absence of trial. That is
incorrect, for Rule 42.73(b) is explicit as to when such an
adverse judgment is authorized, and Rule 42.73(b)(2), the
only subsection directed to disclaimed or cancelled claims,
refers to adverse judgment only when there is “no remain-
ing claim in the trial.” Here, there was no trial, and no
trial was possible.
    Arthrex observes that some PTAB decisions have held
that such an adverse judgment “creates an estoppel that
would limit Arthrex’s rights as to future patent claims in
continuing applications.” Arthrex Br. 3. This conse-
quence makes it imperative that the PTAB’s rules con-
form to the legislative intent, and are implemented in
accordance with their text, so that the concerned public
will know the consequences of its choices.
     The language of 37 C.F.R. § 42.73(b)(2) forecloses the
interpretation the panel majority ascribes. Subsection
(b)(2) states that adverse judgment may be entered on:
“[c]ancellation or disclaimer of a claim such that the party
has no remaining claim in the trial.” PTO regulations
define PTAB “trial” as meaning “a contested case institut-
ed by the Board based upon a petition.” 37 C.F.R. § 42.2.
Accordingly,     the    language      of   § 42.73(b)(2)  is
“[c]ancellation or disclaimer of a claim such that the party
has no remaining claim in a contested case instituted by
the Board based upon a petition.”
    Subsection (b)(2) on its face is directed to disclaimer
or cancellation “in the trial.” It is not disputed that “in
the trial” can occur only after institution. “[W]here, as
here, the statute’s language is plain, the sole function of
the courts is to enforce it according to its terms.” United
States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)
(quoting Caminetti v. United States, 242 U.S. 470, 485
(1917)) (internal quotations omitted).
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                    5

    Claims 1–9 were disclaimed before institution. Ac-
cordingly, the present situation is outside of subsection
(b)(2), for there was no trial and no possibility of trial. As
required by § 42.107(e), “no inter partes review will be
instituted based on disclaimed claims.” That regulation
was applied by the PTAB, and no inter partes review was
instituted. Without institution there can be no trial, and
without trial there can be no final written decision under
35 U.S.C. § 318, and no adverse judgment based upon 37
C.F.R. § 42.73(b)(2).
     The inclusion of “in the trial” in subsection (b)(2) is a
critical distinction from the other subsections, which do
not distinguish between institution and trial. This dis-
tinction cannot be ignored. “Where an agency includes
particular language in one section of a regulation but
omits it in another it is generally presumed that the
agency acts intentionally and purposely in the disparate
inclusion or exclusion.” Yonek v. Shinseki, 722 F.3d 1355,
1359 (Fed. Cir. 2013) (alterations omitted).
    The PTAB’s interpretation of subsection (b)(2) to elim-
inate the words “in the trial” is an explicit change in the
Rule, requiring rulemaking procedures. Such rule change
is governed by the Administrative Procedure Act, see 35
U.S.C. § 2(b)(2)(B), for it is a substantive change in statu-
tory interpretation and administration. And, according to
Arthrex, it is inconsistently applied among PTAB panels.
Situations “where interested parties would have had to
divine the Agency’s unspoken thoughts” regarding a
regulation casts serious doubts on the propriety of the
rulemaking. See Int’l Union, United Mine Workers of Am.
v. Mine Safety & Health Admin., 407 F.3d 1250, 1260
(D.C. Cir. 2005) (alterations and quotation marks omit-
ted).
    Instead, the majority attempts to reconcile the
PTAB’s decision by interpreting § 42.73(b)(2)’s statement
of “no remaining claim in the trial” as meaning “no re-
6                      ARTHREX, INC.   v. SMITH & NEPHEW, INC.

maining claim for trial.” Maj. Op. at 8. Thus, my col-
leagues construe the words “in the trial” as including non-
institution where no trial is possible. This is a distortion
of a carefully worded regulation, and changes its mean-
ing. However, “a court is not free to disregard require-
ments simply because it considers them redundant or
unsuited to achieving the general purpose in a particular
case.” C.I.R. v. Gordon, 391 U.S. 83, 93 (1968).
    Our task is to assure that agency regulations conform
to the statute, and that the regulations are applied in
accordance with that conformity. See E.P.A. v. EME
Homer City Generation, L.P., 134 S. Ct. 1584, 1600 (2014)
(“However sensible (or not) the Court of Appeals’ position,
a reviewing court’s task is to apply the text [of the regula-
tion], not to improve upon it.”) (internal quotations omit-
ted). A cardinal principle of statutory and regulatory
construction is to “‘give effect, if possible, to every clause
and word.’” Williams v. Taylor, 529 U.S. 362, 404 (2000)
(quoting United States v. Menasche, 348 U.S. 528, 538-39
(1955)); see Roberto v. Dep’t of the Navy, 440 F.3d 1341,
1350 (Fed. Cir. 2006) (“The rules of statutory construction
apply when interpreting an agency regulation.”).
    The panel majority ignores the differences among the
subsections of Rule 42.73(b), and states that the rule
allows that “an adverse judgment may be entered after a
petition has been filed, but before an IPR proceeding has
been instituted.” Maj. Op. at 8. What is clear is the
contrary, for there can be no adverse judgment “before an
IPR proceeding has been instituted.” St. Jude Medical v.
Volcano Corp., 749 F.3d 1373 (Fed. Cir. 2014).
    The statutory design of the America Invents Act is
that when institution is denied, the IPR does not proceed
to trial and decision, and the consequences of a final
decision do not arise. The legislative record is clear as to
those consequences, see H.R. REP. 112-98, 48, 2011
U.S.C.C.A.N. 67, 78 (“[A] final decision in a post-grant
ARTHREX, INC.   v. SMITH & NEPHEW, INC.                  7

review process will prevent the petitioner, a real party in
interest, or its privy from challenging any patent claim on
a ground that was raised in the post-grant review process.
The post-grant review procedure is not intended, however,
to inhibit patent owners from pursuing the various ave-
nues of enforcement of their rights under a patent, and
the amendment makes clear that the filing or institution
of a post-grant review proceeding does not limit a patent
owner from commencing such actions.”).
    The PTAB’s Rule as now interpreted is contrary to the
statute. And although the Rule states that a patentee
may request an adverse judgment at any time, here the
patentee expressly requested no adverse judgment. My
colleagues’ view that estoppels can nonetheless be invol-
untarily imposed by the PTAB when no claims were
subject to trial exceeds the PTAB’s statutory authority.
Such looseness simply adds to the uncertainties facing
practitioners seeking to comply with the Rules imple-
menting the America Invents Act.
    The PTO Rules of Practice for Trials Before the PTAB
refer to estoppels flowing from “those claims that were
lost.” 77 Fed. Reg. 48,612, 48,649 (Aug. 14, 2012). These
Rules are contradicted by the majority’s holding that
“there seems to be no meaningful distinction between
claims that are cancelled before an IPR proceeding is
instituted and claims that are cancelled after an IPR
proceeding is instituted.” Maj. Op. at 8. To the contrary:
there is a powerful distinction. The foundation of the AIA
is the distinction between the threshold determination of
whether to “institute” trial, and the trial proceedings and
ensuing estoppels after trial.
    Arthrex is not challenging the PTO’s authority to
adopt relevant regulations; Arthrex states in its brief that
“Arthrex never suggested that a Patent Owner could
avoid adverse judgment in one of the expressly defined
situations of 37 C.F.R. § 42.73(b).” Arthrex Reply Br. 15.
8                      ARTHREX, INC.   v. SMITH & NEPHEW, INC.

The panel majority ignores the differences among these
“expressly defined situations,” and rewrites § 42.73(b)(2)
to eliminate the words “in the trial.” Neither the PTAB
panel nor my colleagues comply with the legislative
distinction among the subsections of § 42.73(b).
                 II. Prior Adjudication
     I take note of the district court litigation between
these parties, on claims 10–11 of the same ’541 patent.
That case had not been stayed by the district court, and
validity of claims 10–11 was sustained. Both Arthrex and
Smith & Nephew state uncertainty arising from the
PTAB’s ruling herein, bringing into further focus the need
for reliable regulations, consistently applied. 1
                       CONCLUSION
    When all of the claims for which the Petitioners
sought review were disclaimed before the PTAB instituted
trial, the PTAB’s authority to render adverse judgment
did not arise. From my colleagues’ endorsement of the
PTAB’s flawed interpretation of its Rule, I respectfully
dissent.

    1   The parties have apprised the court of the PTAB’s
recent action in declaring “precedential” its ruling that
covered business method (“CBM”) review cannot be con-
ducted on disclaimed claims. Facebook, Inc. v. Skky, LLC,
No. CBM2016-00091, 2017 WL 4349404, at *3 (P.T.A.B.
Sept. 28, 2017). The PTAB held that disclaimed claims
“must be treated as if they never existed,” id. at *5; thus
the claims at issue here cannot be subject to a final ad-
verse judgment. The majority’s decision here conflicts
with this ruling, reinforcing the view that the issue of pre-
institution disclaimer requires attention.