Federal Circuit is No Place to Make New Claim Construction Arguments

The Federal Circuit has consistently made clear that arguments not first made to the PTAB will not be considered on appeal. Google fell victim to this well-worn concept in Google Inc. v. SimpleAir, Inc., 2016-1901 (CAFC March 28, 2017), wherein the Federal Circuit decided, in a non-precedential opinion, that Google waived a claim construction argument that was not first presented to the Board. The Court also denied Google’s backup argument that, even under the Board’s claim construction, the art rendered the challenged claims unpatentable.

Regarding the waiver issue, the Court gave context to the dispute by noting that the term at issue, “central broadcast server,” had been construed in three prior district court litigations. In each instance, the courts adopted a definition of the term that was identical to the construction ultimately applied by the PTAB. Although Google filed its IPR against the backdrop of those district court constructions, Google provided the Board with the district court definitions of the term, without offering any other suggested construction. Id. at 5-6 (“Google did not…insist or even request that the PTAB apply a differing construction.”). Google further conceded, at oral argument, that the district court constructions constituted the broadest reasonable interpretation in the IPR proceeding. As such, the claim construction argument Google attempted on appeal was deemed waived.

Regarding Google’s backup plan, the Court quickly dispatched with Google’s arguments, describing them as a “mischaracterization of the PTAB’s ruling, in attempt to create legal error.” Id. at 10.

In sum, this decision reminds Petitioners of the need to carefully weigh the entire record and choose their claim construction positions wisely. While it is hard to know all the litigation considerations that were present in this case, the BRI standard could have been a helpful distinction from the insufficient district court constructions to defeat the challenged claims.

Federal Circuit Reins in PTAB’s Use of CBM Reviews

GavelIn Unwired Planet, LLC v. Google Inc., Case No. 2015-1812 (Fed. Cir. November 21, 2016), the Federal Circuit rejected the PTAB’s broad application of CBM reviews to claims that are merely “incidental” or “complementary” to financial activity:  “We hold that the Board’s reliance on whether the patent claims activities ‘incidental to’ or ‘complementary to’ a financial activity as the legal standard to determine whether a patent is CBM patent was not in accordance with law.”  Going forward, the breadth of patents for which the PTAB institutes CBM trials will be less extensive than in the past.

The America Invents Act (“AIA”) permits a Covered Business Method (“CBM”) review to be instituted only for a “covered business method patent,” which the AIA defines as “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological invention.”  AIA § 18(d)(1).  The PTO adopted this definition of a “covered business method patent,” without elaboration, by regulation.  37 C.F.R. §42.301(a).

The challenged patent in this case was directed to a system that allows users of wireless devices (e.g., cell phones) to set “privacy preferences” that determine whether “client applications” can access their device’s location information.  The patent specification stated that “client applications may be service or goods providers whose business is geographically oriented,” such as a “hotel, restaurant, and/or store.”  The patent specification further stated that these businesses may wish to know that a wireless device and its user are nearby so that “relevant advertising may be transmitted to the wireless communications device.”  The PTAB then reasoned that the challenged claims were “incidental or complementary to” potential sales results from advertising.  On this basis, the PTAB found that the challenged patent was a “covered business method patent” and instituted the CBM review.

The Federal Circuit noted that this “incidental” or “complementary” language does not appear in the statutory or regulatory definition of “covered business method patent.”  Instead, that language originated from a statement Senator Schumer made, which the PTO quoted in its response to public comments concerning its consideration of proposed interpretations of the statutory definition for a CBM patent.  The Federal Circuit noted that general policy statements are not legally binding, and, without adopting a policy as a rule through rulemaking – which the PTO did not do here – an “agency cannot apply or rely upon a general statement of policy as law.”

The Federal Circuit went on to acknowledge that the “incidental” or “complementary” to financial activity test is overbroad in any event, explaining that, for example, a patent for a novel lightbulb that is found to work particularly well in bank vaults does not become a CBM patent because of its incidental or complementary use in banks.  “It is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur” to be considered a CBM patent.

As evident by the facts of this case, the PTAB has, until now, applied the CBM standard very liberally.  That trend is now likely to take a turn, at least somewhat.

Supreme Court to Review Two Key IPR Issues

8345487_sThe Supreme Court granted certiorari today on Cuozzo Speed Technology’s petition to review In re Cuozzo Speed Tech., 793 F.3d 1268 (Fed. Cir. 2015). Cuozzo presented two questions, and the Court has accepted both of them:

(1)   Whether the court of appeals erred in holding that, in IPR proceedings, the board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning.

(2)   Whether the court of appeals erred in holding that, even if the board exceeds its statutory authority in instituting an IPR proceeding, the board’s decision whether to institute an IPR proceeding is judicially unreviewable.

If the Supreme Court reverses the Federal Circuit’s decision on either of those two grounds, the impacts on future IPR proceedings could be huge. Although there are certainly patent claims that are invalid regardless of whether the “broadest reasonable interpretation” (“BRI”) or the plain and ordinary meaning (the so-called “Philips” construction) is used, there are also claims where the choice of standard is itself outcome determinative. There are, therefore, numerous patentees who should prefer Philips, and potential challengers who should prefer BRI.

Perhaps even more intriguing, however, is the possibility of a reversal on the second question presented: whether the decision to institute is so completely unreviewable as the Federal Circuit has held in (e.g.)Cuozzo or more recently Achates Pub’g. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015). Although the AIA lists a variety of situations in which IPR, PGR, and CBM are not available (35 U.S.C. §§ 315 and 325), the Federal Circuit has effectively insulated the PTAB’s decision to institute a trial from review. As such, even if the PTAB explicitly violates these statutory prohibitions, there is no mechanism by which the procedural defect can be remedied. A decision by the Supreme Court that 35 U.S.C. § 314(d) does not shield IPR institution decisions from review would dramatically shift the relative power balance between challengers and patentees in these AIA trial procedures. This blog will continue to follow this story as it develops.

Federal Circuit Addresses Substantial Evidence as Standard of Review in IPR

cafc1In June, 2014, the PTAB declared all challenged claims in two IPR trials brought by Gnosis S.p.A. to be unpatentable based on obviousness grounds. Gnosis S.p.A. v. S. Ala. Medical Science Found., IPR2013-00116 and Gnosis S.p.A. v. Merck & Cie, IPR2013-00117. In forty pages of opinion-and-dissent between the two cases, a divided panel of the Federal Circuit today affirmed these decisions as supported by substantial evidence. Merck & Cie v. Gnosis S.p.A., (Gnosis I) and S. Ala. Medical Science Found. v. Gnosis S.p.A. (Gnosis II). Of particular note is a thorough dissent filed by Judge Newman wherein she argues, unsuccessfully, that the substantial evidence standard should not apply to IPR proceedings to assure that the legislative purposes of IPR are met.

Substantively, the patents-at-issue are directed to homocysteine, a metabolic byproduct that forms in the course of mammalian biosynthesis of certain amino acids and nucleotides. Over-accumulation of homocysteine causes cardiac, skeletal, and nervous disorders. The technology in question here relates to treating this over-accumulation (hyperhomocysteinemia) by administering a particular isomer of a particular folate metabolite (L-5-MTHF). At the time of invention, folic acid was used to treat hyperhomocysteinemia, and L-5-MTHF was known as a biologically occurring metabolite of folic acid that was involved in various metabolic pathways for clearing homocysteine . Gnosis therefore argued—and the PTAB agreed—that it would have been obvious at the time of invention to cut out the middle man, so to speak, and administer L-5-MTHF directly instead of supplementing with folic acid so that the body could, after a lengthy series of enzymatic conversions, turn the folic acid into L-5-MTHF.

Of course, biological and chemical realities were not quite so simple as Gnosis’ argument for obviousness would imply. South Alabama Medical Science Foundation (SAMSF), the patentee, and their licensee, Merck, countered that at the time of invention L-5-MTHF had many known disadvantages that would discourage this strategy. For one thing, there was evidence that L-5-MTHF is not retained well in cells, such that large doses would be required to get a useful amount into the patient’s cells. This large dose problem is made doubly tricky by the fact that L-5-MTHF is not as stable as folic acid. The propensity of L-5-MTHF to degrade would mean that the dose that the manufacturer supplies would have to be correspondingly larger to account for degradation. Finally, there was some evidence that patient homocysteine levels could increase following L-5-MTHF administration, which would exacerbate rather than alleviate hyperhomocysteinemia.

Gnosis had a variety of published reports countering all of these points, and Merck had other reports countering Gnosis’ reports, and so on and so forth. The end result, as far as the PTAB was concerned, was that when all the evidence was weighed up together, the preponderance of the evidence supported a conclusion of obviousness.

Although Judge Hughes’ majority opinion does not touch on this point, the “preponderance of the evidence” standard of §316(e) is probably outcome determinative here. If this evidence had been considered under the “clear and convincing” standard for §282(a), the fact-finder would presumably have to say “Gnosis has a bunch of evidence and Merck has a bunch of counter evidence; I suspect that Gnosis’ evidence is more credible, but it is not ‘clearly and convincingly’ more credible, so the patentee gets the benefit of the doubt.” Because the challenger only had to prove unpatentability by a preponderance of the evidence, however, the PTAB as fact-finder was free to decide that Gnosis’ evidence was more credible on balance.

Judge Newman’s dissent touches upon this point, stating that, “[o]n questions that are close, as here illustrated, the standard of review can affect the result.” Gnosis I (dissent) at 13. Thus, she argues, it is incorrect for the Federal Circuit to review PTAB decisions under the highly deferential “substantial evidence” standard. Gnosis I (dissent) at 4. Specifically, Judge Newman remarks that “[t]he substantial evidence standard determines whether the decision could reasonably have been made, not whether it was correctly made.” Id. It is the Federal Circuit’s job, per Judge Newman, to assure that the PTAB’s factual findings are actually supported by the preponderance of the evidence.

PTAB Addresses Means-Plus-Function Claim in a Post-Williamson World

36713644_sLike every en banc Federal Circuit decision, the Court’s decision in Williamson v. Citrix Online, LLC, No. 2013-1130 (Fed. Cir. June 16, 2015) (en banc) made big headlines. It is, therefore, worth reviewing one of the first PTAB decisions to address the contours of that case in an inter partes review context in Toyota Motor Corp. v. Cellport Sys., Inc., IPR2015-00633, where the Board granted an IPR trial with respect to some claims, but denied as to others.

The first means-plus-function issue related to the claim limitation: “controller means including processing means in the vehicle for controlling the sending and receiving of said information using said wireless device between said first remote station and the vehicle.” More specifically, the Board had to decide the scope of both “controller means” and “processing means.”

The Board recognized that both terms were presumptively means-plus-function limitations pursuant to the Williamson decision. In rendering its claim construction determination, however, the Board agreed with Patent Owner that “controlling means” was not subject to 35 USC § 112, paragraph 6 because: 1) the language of the claim did not link the “controller means” to a specific recited function, and 2) the claim specifies detailed structure sufficient to overcome any recited or implicit function, e.g., controlling. Order at 13. Instead, the Board concluded that the recited function was associated with the “processing means” and “controller means” was simply a controller.

The Board also agreed with Patent Owner relative to the second means-plus-function issue related to limitation: “first standard network communication means.” In evaluating this limitation, the Board first instructed that the proper function for a means-plus-function limitation is the function recited in the claim. As such, the Board accepted Patent Owner’s articulation of the proper function. Then, using this function, the Board evaluated Petitioner’s proposal for corresponding structure and found that the structure identified by Petitioner was not “clearly associated or linked in the Specification to the recited function…” Order at 16.

In view of these claim construction determinations, Petitioner faced an uphill battle in having all claims put into the trial. For example, the Board explained that, for means-plus-function limitations, Petitioner is required to show that both the recited function and the corresponding structure are present in the applied references. Id. at 19. Losing the claim construction ruling made it impossible for Petitioner to win the issue of showing that the “first standard network communication means” was discussed in the Petition.

Motion for Additional Discovery Seeking Details of Kyle Bass-led Coalition Partially Succeeds

14029319_sWe continue to monitor the various strategies and tactics being employed by pharma companies that have been targeted by the “Coalition for Affordable Drugs” – a group led by hedge fund manager Kyle Bass. In a recent decision, the PTAB granted-in-part a pharma company’s attempts to dig into the background of the Bass-led coalition. Coalition for Affordable Drugs II LLC v. NPS Pharma., Inc., IPR2015-00990.

Motions for Additional Discovery have been difficult to win before the PTAB given the Board’s mandate to ensure that IPR proceedings are quick and cost-effective. To achieve that goal, of course, the discovery allowed much be far less than what is normally allowed in district court litigation.

In the NPS Pharma case, Patent Owner sought broad categories of information (in the form of 7 document requests and 2 interrogatories) relating to the entities that are funding Bass’ coalition. The Board rejected these broad discovery efforts, finding them overly broad and, therefore, not in the interest of justice. Order at 6. The Board did, however, agree that a threshold amount of evidence was presented that made some of the discovery necessary. Specifically, the Board allowed discovery into the agreements in the possession of Petitioner that relate to the control or ability to control any aspect of the IPR proceeding by a party that is not designated as a Petitioner or real party-in-interest in the Petition.

It seems likely that, if any such agreements exist, they will be put under seal in the IPR proceeding. However, we will keep a look out for them to see if we can learn more about this Bass-led group that has shaken the pharma industry.

Board Rejects Attempt to Add Testimony to Preliminary Response

33646123_sAs we have discussed, the proposed PATENT Act contains provisions that alter many facets of IPR proceedings. One of those potential changes is a new ability to include affidavits or declarations of supporting evidence and opinions to Patent Owner Preliminary Responses. A recent decision by the Board makes clear, however, that the Board is not going to jump the gun on this change. Masterimage 3D, Inc. v. Reald Inc., IPR2015-00876.

In Masterimage, Patent Owner sought to introduce deposition testimony from Petitioner’s expert that was given in related IPR proceedings. Patent Owner believed the testimony was helpful to the Preliminary Response, though it did not contradict any of the testimony provided in his declaration in this proceeding.

The Board declined to allow the introduction of the testimony at the Preliminary Response stage. Pursuant to the existing IPR regulations, new testimony may be permitted only where a party demonstrates it is in the interests of justice (i.e., where the evidence demonstrates that the trial may not be instituted). Because there was no allegation that the proffered testimony contradicted existing testimony, Patent Owner had not shown that presenting the evidence was in the interests of justice.

PTAB vs. Federal Circuit Update

cafc1To date, the Federal Circuit has weighed in on 15 PTAB decisions from inter partes review proceedings. In 3 of the 15 decisions, the Federal Circuit has issued a substantive opinion:

1) In re Cuozzo Speed Technologies – Affirming the Broadest Reasonable Interpretation claim construction standard;

2) Belden Inc. v. Berk-Tek LLC – Non-precedential decision; and

3) Microsoft Corp. v. Proxyconn, Inc. – First reversal of a PTAB decision, generally because the Board’s claim construction rulings were not reasonable because they did not follow general claim construction principles.

In 12 of those 15 decisions, the Federal Circuit has simply rubber-stamped the Board’s decision via a one sentence Rule 36 Judgment. This is, apparently, the manner in which the Federal Circuit is going to manage its anticipated spike in work due to appeals from decisions of the PTAB. This is a frustrating practice, however, as the growth of the law is stunted by the Federal Circuit’s refusal to address the issues raised in these appeals in any substantive way:

4) SoftView LLC v. Kyocera Corp. – Rule 36 Judgment

5) Clearlamp, LLC v. LKQ Corp. – Rule 36 Judgment

6) Board of Trustees v. Micron Technology, Inc. – Rule 36 Judgment

7) In re: Zillow, Inc. – Rule 36 Judgment

8) Helferich Patent Licensing v. CBS Interactive – Rule 36 Judgment

9) Luv N’Care Ltd. v. Munchkin, Inc. – Rule 36 Judgment

10) Emcore Corp. v. Nichia Corp. – Rule 36 Judgment

11) Mobile Scanning Technologies v. Motorola Solutions, Inc. – Rule 36 Judgment

12) In re Continental Automotive Systems – Rule 36 Judgment

13) Prolitec, Inc. v. Scentair Technologies, Inc. – Rule 36 Judgment

14) Neste Oil Oyj v. Reg Synthetic Fuels, LLC – Rule 36 Judgment

15) Bernina Int’l v. Handi Quilter – Rule 36 Judgment

We will keep this list updated over time.


Amendments to PATENT Act Proposal Takes Aim at IPR Proceedings

8797259_s (1)On Thursday, June 4, 2015, the PATENT Act made it out of committee on a 16-4 vote after amendments were made to the bill that take direct aim at inter partes review proceedings. While there is still a long way to go before this bill becomes a law, this bill is further along than any other, so it is worth taking a closer look at the proposed changes to IPR and PGR proceedings:

(1) Patent Owner Preliminary Responses: Patent Owner Preliminary Responses may now be accompanied by affidavits or declarations of supporting evidence and opinions. A Petitioner may seek leave to reply to new issues raised in the preliminary response.

(2) Institution Decisions: The current version of 35 USC § 325(d), that is included in the portion of the Patent Act that relates to Post Grant Review, has a provision that allows the Director to not institute because the same or substantially the same prior art or arguments were previously presented to the Office. The PATENT Act proposes an addition to 35 USC § 314 that includes similar language in the IPR portion of the statute, whereby the Director can choose not to institute an IPR trial if it does not serve the interests of justice (including if arguments were previously presented). This provision is broader than old 325(d) – is this an opening to dismiss Petitions of the type filed by Kyle Bass?

(3) Institution Decisions Based on Different Evidentiary Standard: It shall be error to institute an IPR on the basis that the evidentiary standard at the Office differs from that in a district court litigation. This provision seems to be aimed at promoting efficiency and certainty in prior decisions by district courts so that they may not be challenged on procedural grounds.

(4) Patent Owner’s Action: IPR Petitions will only be barred under 35 USC § 315(b) if a complaint is served that alleges infringement of a particular patent claim. This allows a Petitioner the ability to add additional patent claims if, after the 1 year bar of 35 USC § 315(b) has expired, an amended complaint or other paper in a pending litigation adds claims to the lawsuit.

(5) Claim Construction Admissions: Parties to IPR and PGR proceedings will now be bound in any subsequent proceeding or civil action with regard to any claim construction arguments, adopted by the PTAB, that were made during the IPR.

(6) Live Testimony at Oral Hearing: Either party to an IPR or PGR will have the right to present live testimony where “the panel finds that such testimony would facilitate resolution of the case because genuine issues of material fact, conflicting expert opinions, or issues of witness credibility exist.”

(7) No More Broadest Reasonable Interpretation: Claims will no longer be construed pursuant to BRI. Instead, the claims “shall be construed as such claim would be in a civil action to invalidate a patent under section 282(b), including construing each claim of the patent in accordance with the ordinary and customary meaning…”

(8) Deference to District Court: If a claim has been previously construed by a district court, the Office is required to consider that claim construction.

(9) Searchable Decisions: The Director must find a way to make all PTAB decisions available “in an easily accessible, searchable form.”

(10) Claim Amendments: If you want to propose substitute claims, you must file that paper within 30 days of the Decision to Institute. Any substitute claim must be more narrow, not introduce new subject matter, and respond to a ground of unpatentability. The Petitioner shall be afforded an opportunity to respond regarding the above requirements.

(11) Burden of Proof Relative to Proposed Amended Claims: If a proposed amended claim meets the three requirements set forth immediately above, the burden of proving its unpatentability lies with Petitioner, by a preponderance of the evidence.

(12) Presumption of Validity: A provision is added to the law that reiterates that “the challenged patent shall be presumed to be valid” and that nothing shall be construed to impact the operation of section 282(a) in proceedings in a court of the United States.

(13) Three Member Panels: Only 1 judge who participated in the institution of the IPR or PGR proceeding may sit on the panel that hears the actual trial. The Director is given 1 year to implement this change.

(14) Good Faith: The Director has 1 year to implement regulations that make it clear that statements made in IPR and PGR proceedings are subject to similar obligations as Rule 11 of the Fed. R. Civ. P.

PTAB Issues Subpoenas in Two IPR Proceedings

19694784_sTo date, the PTAB has sparingly used its power to issue subpoenas in inter partes review proceedings. In two recent cases, Marvell Semiconductor, Inc. v. Intellectual Ventures I LLC, (IPR2014-00553) and LG Chem, Ltd. v. Celgard, LLC (IPR2014-00692), the Board granted requests to compel depositions of third party witnesses. Here, we take a look at the fact patterns that gave rise to this unusual IPR event.

The proper procedure for obtaining a subpoena in inter partes review is to make a “Motion for Authorization” to seek a subpoena the Patent Trial and Appeal Board (PTAB) which identifies the witness and explains the relevance of the testimony.  If the request is granted, the PTAB proceeds to issue an order permitting the moving party to apply for a subpoena pursuant to 35 U.S.C. § 24.

In the Marvell case, Petitioner filed declarations by two experts to support its contention that certain references qualified as prior art, one a librarian and the other from a publishing company. Neither of the witnesses, however, were willing to voluntarily appear for a deposition. Patent Owner disputed that the references were prior art and requested the Board to compel depositions of the two witnesses to allow relevant cross-examination.  ‘553 Order at 2.  Petitioner argued that cross-examination was unnecessary since the declarations were merely limited to authentication of documents.  Id. at 3.  The Board disagreed, finding that the publication date for the references was in dispute.  Accordingly, the Board granted Patent Owner’s request to compel depositions of the two witnesses and permitted Patent Owner to seek a subpoena under 35 U.S.C. § 24. Id. at 3.

In the LG Chem case, Patent Owner submitted testimony with its Response, and Petitioner sought to cross-examine the witness.  ‘692 Order at 2.  The witness was an employee of Patent Owner when the declaration was filed, but had since left and refused to attend the deposition voluntarily. The Board noted three key facts.  First, the deposition of the witness would be considered routine discovery since his original testimony was via declaration.  Second, there was little time remaining for Patent Challenger to submit its reply.  Third, Patent Owner did not oppose compelling a deposition. Id. at 2-3.  Given these three points, the Board waived the requirement that Petitioner file a motion for authorization under 37 C.F.R. § 42.52(a), and granted what the Board deemed to be an oral motion for authorization to compel testimony.  Id. at 3. Authority to serve the subpoena was also granted by the Board.