Context:
- In February, the Acting Director of the United States Patent & Trademark Office (USPTO), Coke Morgan Stewart, rescinded a memo by former Director Kathi Vidal that narrowed the application of the Fintiv criteria for discretionary denials of inter partes reviews (IPRs) of patents by the USPTO’s Patent Trial and Appeal Board (PTAB) (February 28, 2025 announcement by the USPTO). A month later, she sent a memo to all PTAB judges establishing a new bifurcated procedure (of a temporary nature for now, citing the PTAB’s case load) under which the Office decides on a potential discretionary denial before reaching the merits (March 27, 2025 ip fray article).
- Last year, publicly-traded German supercomputer firm ParTec AG sued Microsoft in the Eastern District of Texas, alleging the infringement of three of its U.S. patents by clusters used particularly for the purpose of running AI applications (June 10, 2024 ip fray article). A Unified Patent Court (UPC) complaint against Microsoft supplier NVIDIA followed in the fall (October 28, 2024 ip fray article).
What’s new: Yesterday, ParTec replied to Microsoft’s petition for an IPR of one of the three patents-in-suit. In accordance with the Acting Director’s late-March memo, ParTec filed a separate petition for discretionary denial. In this case, given that the Acting Director’s memo came less than a month before ParTec’s deadline to respond to the IPR petition, the brief on the merits was due at the same time.
Direct impact: The petition raises various arguments for discretionary denial, and it would take only one of them, or the combination of two or more, to persuade the Director and the PTAB judges involved in this part of the decision in order to the petition to be denied in favor of litigating validity in district court. The first argument is that the Texas trial will take place before the PTAB’s deadline for a decision on the petition. There are also arguments with respect to the extent to which Microsoft’s petition is duplicative not only of its arguments in the district court proceedings but also the validity considerations the USPTO already addressed during the initial examination.
Wider ramifications: It is not a coincidence that a “Big Tech” company is the petitioner in this case. Large technology companies are mass filers of IPR applications. ParTec’s request for a discretionary denial is a good test case for an impact assessment of the Acting Director’s late-March memo, and the way in which the discretionary-denial brief cross-references the merits brief vindicates many practitioners’ initial reaction to the memo that quite often a request for discretionary denial will also involve merits-related questions.
Here’s ParTec’s “bifurcated discretionary denial briefing pursuant to the Director’s March 26, 2025 memorandum”:
Given that the discretionary-denial brief references the merits brief, here’s the patent owner’s preliminary response:
For ParTec it is potentially an advantage that this case is one of a few where the new deadline for a discretionary-denial brief (two months after the notice of filing of the petition, which in this case was given on January 16, 2025) lapsed before the Acting Director’s late-March memo, but where there still was the opportunity to file the discretionary-denial brief within one month of the memo (and, which is important here, simultaneously with the merits-related preliminary response).
Only some of the arguments for discretionary denial overlap with the merits, though. The first Fintiv argument is that “the same issues will be resolved in the parallel District Court proceeding before the Board likely would issue a final written decision in this proceeding.” The district court trial has been scheduled by Judge Robert W. Schroeder III for June 15, 2026. If the PTAB decided three months after yesterday’s preliminary response to institute an IPR and then adjudicated the IPR petition within one year of institution, the final written decision would come down in July 2026.
Microsoft declined to make a Sotera stipulation to avoid overlaps between the PTAB and district court decisions. The petition argues that even if Microsoft made one now, there would still be some additional invalidity contentions at issue in district court and the PTAB decision would not necessarily resolve the question.
In connection with Fintiv factor 6, the petition raises merits-related issues:
“As discussed in the concurrently filed Preliminary Response brief, the merits of this Petition are particularly weak. In short, in the absence of any close prior art, Petitioner was forced to rely on a primary reference authored by Patent Owner that was already thoroughly addressed and distinguished during prosecution. Petitioner attempted to address the distinctions identified during prosecution, but ultimately could not find any art more relevant than that already considered by the Office. Instead, Petitioner was forced to rely on a 20+ year old reference (Budenske) that not only fails to teach the missing limitations, but expressly teaches away from the solution claimed in the ’442 Patent.”
The discretionary-denial brief goes on to make an argument under 35 U.S.C. §325(d), saying that “substantially the same art and arguments were previously presented to the Office and patentability of the challenged claims was confirmed over that art and those arguments.”
Under “Additional relevant considerations,” the discretionary-denial brief notes that Microsoft is challenging only one of the three patents-in-suit (U.S. Patent No. 11,537,442 on an “application runtime determined dynamical allocation of heterogeneous compute resources”) at the PTAB at this point. Therefore, the PTAB proceedings can’t dispose of the entire Texas case. And even if Microsoft filed IPR petitions against the other patents now, those would come too late given that even the present petition probably won’t be adjudicated before the district court conducts its jury trial.
ParTec’s arguments in favor of discretionary denial appear strong. This is a case where the new USPTO leadership’s decision to return to the Fintiv principles could make a difference. To be fair, Microsoft would be a bit out of luck if this happened as it could not have foreseen all of this. Its litigation strategy might have been a different one if its lawyers had anticipated what Acting Director Coke Morgan Stewart was going to do. But that is not a consideration for the USPTO, which needed a solution in light of an excessive PTAB case load that holds up other proceedings only because of (mostly large) defendants bringing IPR petitions that are sometimes duplicative of their arguments in district court and/or of arguments already addressed by the USPTO at the pre-grant stage.
As the request for discretionary denial notes, Microsoft’s intent to litigate invalidity in district court is reflected by the fact that it even sought (and obtained) leave to amend its invalidity contentions in district court.
Counsel
Microsoft’s PTAB IPR petition was filed by Klarquist’s Andrew Mason. Microsoft’s lead counsel in district court is Desmarais’s Betty Chen. Local Texas counsel is Gillam & Smith’s Melissa Smith.
ParTec’s responsive PTAB filings were made by Heim, Payne & Chorush’s Michael Heim. ParTec’s lead counsel in district court is Susman Godfrey’s Justin Nelson, famous for the $800M settlement in Dominion v. Fox News. Mr. Nelson recently got an “A plus” from Judge William Alsup, one of the most difficult federal judges to please, in an AI copyright case (April 4, 2025 ai fray article).
Presumably the PTAB filings are coordinated by either party’s lead counsel in the infringement case.