Unreasonable Claim Construction Causes PTAB Reversal

 

In a fairly case-specific claim construction analysis, the Federal Circuit reversed the PTAB today in D’Agostino v. Mastercard, Int’l, 2016-1592, -1593 (Fed. Cir. Dec. 12, 2016), finding that the Board erred in determining the challenged claims to be unpatentable because, as a matter of logic, the prior art could not anticipate or render those claims.

The patent at issue involved methods of effecting secure credit-card purchases by minimizing merchant access to credit card numbers. In those methods, a limited-use transaction code is given to the merchant in the place of the credit card number. Of particular importance to the Court’s decision was a “single-merchant” limitation that required that, when such a transaction code is requested, the request limits the number of authorized merchants to one, but does not then identify the merchant because the claims required that such identification occurred only later. Id. at 7.

In its claim construction during the inter partes review trial, the PTAB adopted a construction that did not recognize the separation in time of the communication of the transaction code and the communication of the merchant’s identity. Id. at 5-6. As might be expected, the Court relied upon the specification of the subject patent, as well as its file history, to support this claim construction. See, e.g., id. at 6 (“The prosecution history reinforces the evident meaning of the single-merchant limitation…”).

In general, this decision represents another decision that patent owners can point to in support of the notion that the Board is not flawless in all of its decisions. This particular Board panel made errors that, according to the Federal Circuit, were fairly obvious in nature helping to undercut any notion of Board infallibility.

PTAB Reversed on Issue of Diligent Reduction to Practice

cafc1Perfect Surgical Techniques (PST), Inc. owns US 6,030,384 (‘384). Olympus petitioned for inter partes review of ‘384 as anticipated or obvious over JP H10-33551 (JP ‘551). JP ‘551 published less than one year before the ‘384 priority date, and therefore JP ‘551 was only art under pre-AIA 35 U.S.C. §102(a). PST offered a Rule 131 affidavit to remove JP ‘551 as prior art. The Patent Trial & Appeal Board (PTAB) ruled that the affidavit did not show sufficient evidence of continuous diligence between conception and reduction to practice, and therefore JP ‘551 is prior art to ‘384.

The ‘384 inventor was a working surgeon, so most of his working day was given over to patient care. Inventor hired a patent attorney to draft the application that later became ‘384, and the attorney sent the inventor a draft on 28 January 1998, thus proving that the inventor had conceived of the invention before JP ‘551 published on 10 February 1998. PST relied on the ‘384 filing date (1 May 1998) for reduction to practice. Therefore, PST had to show diligence between 9 February (the day before the publication date of the Japanese reference) and 1 May. PST submitted correspondence and invoices from the attorney to show that the inventor and attorney were working diligently in that intervening time, but these records only documented activity on 2, 4, 12, & 16 March and on 7 & 13 April.

The question for the PTAB, then, was whether the gaps between (e.g.) 4 and 12 March, or between 16 March and 7 April were so long as to show a lack of diligence. The PTAB concluded that these gaps showed that the inventor and attorney were not continuously exercising reasonable diligence.

On appeal, PST argued that the PTAB had applied an incorrect legal standard by requiring continuous exercise of reasonable diligence. PST argued—and the Court of Appeals for the Federal Circuit (CAFC) agreed—that the correct standard is “reasonably continuous exercise of diligence.” In other words, one does not need evidence that one’s reasonable diligence was continuous, but rather one needs evidence that one’s diligence was “reasonably continuous.” See, Tyco Healthcare v. Ethicon Endo-Surgery, 774 F.3d 968, 975 (Fed. Cir. 2014) (“To establish diligence in reduction to practice, the basic inquiry is whether there was reasonably continuing activity to reduce the invention to practice,” internal quotations and ellipsis omitted).

The CAFC vacated and remanded for the PTAB to reconsider whether the evidence showed “reasonably continuous” diligence. Therefore, Perfect Surgical stands for the proposition that the standard for proving prior invention is not “continuous reasonable diligence,” but instead is “reasonably continuous diligence.”

Federal Circuit Broadly Affirms PTAB’s Determinations on Analogous Art, Motivation to Combine References, and Obviousness of Claims

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The level of deference the Federal Circuit gives to the Board’s IPR decisions has been surprising to many practitioners, considering the Court’s reputation for reversing district court decisions.  The trend of deference to the Board continues, as illustrated in Unwired Planet, LLC v. Google Inc., 2015-1810, -1811, Nov. 15, 2016.

Unwired involved one patent, U.S. 7,024,205.  The Board nullified the patent twice over, finding the claims obvious in an IPR, and lacking written description in a CBM proceeding.  Unwired involved a consolidated appeal of both.  The Federal Circuit affirmed the Board’s obviousness finding, and thus did not reach the CBM decision.

The ‘205 patent involved a system and method for providing cell phone users with prioritized search results based either on the user’s location, or based on other criteria chosen by the network administrator (the point of the latter is to allow search providers to prioritize results based on whether, for example, a restaurant has paid to be listed).  More particularly, the patent claims a scheme wherein the search results list a further-away provider before listing a different, closer provider (called “farther-over-nearer ordering” in the opinion).

Google presented a variety of prior art including basic references on providing search results in an electronic setting and also a 1997 book by Galitz discussing principles for interface design, including various techniques for ordering text information and menus.  On appeal, Unwired presented 3 arguments:  (1) Galitz was non-analogous art; (2) the prior art does not teach farther-over-nearer ordering; and (3) there was inadequate motivation to combine Galitz with the other art.

The Federal Circuit rejected all three arguments.  As to non-analogous art, the Court first noted that the field of endeavor of a patent is not limited to the point of novelty, the narrowest conception of the field, or the particular focus within a given field.  Because both Galitz and the patent dealt, broadly speaking, with the field of interface design, the Court determined a person of ordinary skill would have looked to Galitz.

Second, as to the prior art’s alleged lack of teaching, the evidence was clear that the prior art sometimes would have returned results with farther-over-nearing ordering, even though that wasn’t necessarily the goal of that prior art.  Nonetheless, that was legally sufficient:  “We reject this argument because combinations of prior art that sometimes meet the claim elements are sufficient to show obviousness.”  Lastly, the Court found sufficient evidence (including in the form of expert testimony) to believe that a person of ordinary skill in the art would have combined the references.  Here too, the Court presented a relatively broad (and challenger-friendly) reading of the law:  “Google also argues that it does not need to show that there was a known problem with the prior art system in order to articulate the required rational underpinning for the proposed combination.  We agree.”  This final point is consistent with KSR, as the opposite position (that the problem need to have been known) would seem perilously close to the TSM test rejected in KSR.

The Federal Circuit’s deference to the Board, and challenger-friendly reading of the law, in IPR appeals continues to encourage parties to pursue their positions through IPR petitions.

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.

In re NuVasive Brings the Administrative Procedure Act to IPRs

45686244_sNuVasive owns US 8,187,334, which claims certain spinal implants. Medtronic filed a petition challenging various claims of the ‘334 patent as obviousness over US 2002/0165550 (Frey) in view of US 5,860,973 (Michelson). Medtronic also filed a second petition challenging other claims over a promotional brochure for the Synthes Vertebral Spacer-PR (SVS-PR) in view of Michelson. Medtronic specifically mentioned Michelson figure 18 in its argument for obviousness over Frey, but not in its argument about obviousness over SVS-PR. The PTAB instituted two separate IPR proceedings on these two petitions. The proceedings were not consolidated, but there was a single oral hearing held for both proceedings.

In its patent owner response, NuVasive argued that its claimed implant was long and narrow, but that the cited art taught long and wide implants, for larger surface area to stabilize. Medtronic responded by noting that Michelson’s figure 18 shows a long and narrow implant. NuVasive attempted to have Medtronic’s response stricken as a new ground of rejection not present in the petition, or alternatively to be allowed to file a surreply. The PTAB denied both requests, and cut NuVasive off when it tried to make arguments on this point during the oral hearing.

Both IPRs ended with a determination that all challenged claims but one were unpatentable. Both final decisions relied on Michelson figure 18 to establish prima facie obviousness.

On appeal, the Federal Circuit (CAFC) affirmed the first IPR (in which figure 18 was cited in the petition). However, the CAFC vacated the second IPR, and remanded for the PTAB to give NuVasive a chance to respond to Medtronic’s argument about figure 18. The CAFC concluded that this result was compelled by the Administrative Procedures Act (APA), which requires (5 U.S.C. § 706) that a reviewing court “set aside agency action… not in accordance with law [or]… without observance of procedure required by law.” This case constitutes only the second time (after Dell Inc. v. Acceleron LLC, 818 F.3d 1293 (Fed. Cir. 2016)) that an IPR appellant has successfully challenged a PTAB defeat on APA grounds.

There are a few points to pause and notice about this outcome. First, the argument here is not about introducing a new reference into the mix, but rather about whether NuVasive was sufficiently on notice about one figure in Michelson. Second, there is no question that NuVasive actually knew about Michelson figure 18 at the time that it was writing its response to the argument about SVS-PR, because figure 18 was cited in the Frey petition. In other words, the APA failure here lay in not calling out figure 18 in the other of the pair of IPR petitions. It requires a very rigorous application of the APA to find reversible error in this argument about figure 18.

Other appellants have made APA arguments after a PTAB loss, and the NuVasive court was careful to distinguish from the cases in which APA arguments failed. In particular, the NuVasive court distinguished Genzyme Therapeutic Prods. v. Biomarin Pharm., 825 F.3d 1360 (Fed. Cir. 2016) and Belden Inc. v. Berk-Tek LLC, 805 F.3d 1064 (Fed. Cir. 2015). While the PTAB decisions in those cases had cited references or portions of references not specifically mentioned in the petition, the “new” material was merely cited as background, but not relied upon for part of the prima facie rejection.

There are a few take-home lessons to learn from this. First, if you are challenging a patent, be careful about citing to any portion of a reference in the challenger’s reply that was not cited in the petition. Similarly, if you are defending a patent, pay careful attention to what is cited in the challenger’s reply, compared to the original petition, and do not be shy about insisting on a right to make additional replies to anything that is cited for the first time in the reply. Finally—and more broadly—this case shows that the APA can provide a successful basis for an appeal from the PTAB.

Federal Circuit Weighs in on Evidentiary Challenge in IPR, Reversing PTAB

34447773_sMore often than not, evidentiary issues in IPR proceedings fail to make headlines because the Board will structure its Final Written Decision to avoid evidentiary challenges. Findings that a party’s motion to exclude is denied as moot are common. That makes the Federal Circuit’s decision in REG Synthetic Fuels, LLC v. Neste Oil Oyj (November 8, 2016) all the more interesting. In that decision, the Court reversed the Board’s decision to exclude certain evidence submitted by Patent Owner during the trial.

More specifically, Patent Owner sought to swear behind one of the prior art references presented in the Petition. Among the evidence provided for this purpose was test data from third parties, communications between the inventor and third parties, and minutes from a meeting that the inventor had attended. Id. at 5. Petitioner moved to exclude this evidence on the basis of lack of authentication, hearsay, or as improper reply evidence. The Board granted the motion to exclude.

On appeal, the Court first clarified that priority issues, including conception and reduction to practice, are questions of law predicated on subsidiary factual findings. Id. at 6. The Court addressed the Board’s finding that two emails between the inventor and a third party (Exhibit 2061 in the case) provided necessary corroboration of the patented invention. Id. at 16. Petitioner argued that the emails were hearsay because they contain out of court statements by a third party. Patent Owner responded by arguing that it did not offer the emails to prove the truth of the matter asserted. The Court agreed with Patent Owner, finding that the emails were offered for the non-hearsay purpose to show that the inventor thought he had achieved a quality claimed in the patent-at-issue. “The act of writing and sending the email is, by itself, probative evidence on whether [the inventor] recognized–at the time that he had written the email–” the claimed property. Id. at 17. In short, the exhibit was legally significant because it showed that the inventor communicated the conception of the invention to the third party.

Because the Board excluded relevant evidence in the trial, the case was remanded for further consideration.

Federal Circuit Rejects Patentee’s Effort to Narrow Claim Scope

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One wrinkle of IPR practice is that patentees are often in the position of advocating a narrower claim scope than the challenger—just the opposite of what is usually seen in district court litigation.  The narrowing strategy is logical—particularly where there is very close prior art, a patentee may need to seek a narrow construction in the IPR to avoid the prior art, and then worry about infringement later.  However, the Federal Circuit decisions that restrict efforts by district court defendants to limit a claim to the preferred embodiment also functions to limit patentees in IPRs.  The Federal Circuit’s November 9, 2016 decision in Schoeller-Bleckmann Oilfield Equipment AG v. Churchill Drilling Tools US, Inc. is a good example of that dynamic.

Schoeller was an appeal from the PTAB’s decision that the challenged claims were anticipated and obvious.  The technology involved drilling apparatuses, and specifically a mechanism for allowing and restricting the flow of liquid through a drill string to activate and deactivate a downhole tool.  The only issue on appeal was whether the Board properly construed “ball-like portion.”  In the claim, that limitation was a part of a “deformable activator” that restricts fluid flow when engaged with a seat.

The issue presented was whether the Board properly construed the term as “a structure with at least one outer curve” (which would encompass a deformable ball), or whether the term was limited to the “deformable ring” shown in the patent’s figures (as advocated by the patentee).

The Federal Circuit affirmed the Board, finding the patentee’s narrowing effort was contrary to the Court’s repeated teaching that claim terms should not be limited to a preferred embodiment without a clear intent to redefine the term or a clear disavowal of claim scope, citing Thorner v. Sony as an example.  Looking particularly to the patent, the Court determined the specification allowed a ball as a species of the “ball-like portion” based on a specification passage stating “the dart can pull the ball downwardly.”  This case serves as a good reminder that a broad specification can actually hurt a patentee in an IPR.

PTAB Reversed Based on Non-Analogous Art Theory

34108250_sAlthough In re Natural Alternatives LLC (Fed. Cir. August 31, 2016) is not an IPR appeal, it should be of interest to those who care about IPRs and PGRs because it reflects a successful appeal from the Patent Trial & Appeal Board (PTAB) involving the fairly rare issue of non-analogous art.

Natural Alternatives (NA) owns US 6,080,330 (‘330), which claims compositions for deicing roads using less salt and fewer toxic chemicals than have traditionally been used for that purpose. NA licenses ‘330 to various manufacturers of road-deicing supplies. One of NA’s licensees decided to challenge the patent by filing a request for ex parte re-examination, which the PTO granted. Eventually the Examiner rejected all claims as obvious and the PTAB affirmed. NA appealed to the Federal Circuit (CAFC).

There were two “representative” limitations litigated before the PTAB and then the CAFC, and the key limitation in both claims was “desugared sugar beet molasses.” NA discovered that if you mix this particular molasses with any of a number of previously known deicing agents (mostly road salts), you enhance the salt’s deicing effectiveness, such that you get more deicing “bang” for the salt “buck.” This means that you can use less salt per winter, which is good because salt can corrode vehicles, pollute groundwater, etc. Before NA’s discovery, desugared sugar beet molasses was a waste product that was simply thrown away.

The crux of the PTO’s argument for prima facie obviousness was that PL 164018 (Zdzisław) disclosed an antifreeze containing sugar beet molasses (the parties disputed whether this molasses was desugared, but that point is not critical) and a prior art deicing agent (a class of alcohols). The principle difference between Zdzisław’s antifreeze and NA’s claimed composition are that NA’s claimed composition: (1) requires a particular ratio of molasses to deicing agent; and (2) at least some of NA’s claims require salt, not alcohol, as the deicing agent. The Examiner cited US 5,639,319 (Daly), which also used molasses and alcohol but in different ratios than used in Zdzisław. Daly uses the molasses/alcohol mix as a tire ballast (i.e., bulk weight loaded into a truck tire to make it more dense to improve driving on slick surfaces). Then the Examiner cited a study published in Public Works magazine to show that alcohol and road salt achieve essentially the same deicing effect. The PTAB considered that the range of molasses to alcohol ratios in Zdzisław and Daly—combined with the alleged interchangeability between alcohol and salt from Public Works—showed that it was nothing more than routine optimization to adjust the ratio of molasses and road salt to arrive at NA’s claimed deicing composition.

NA argued that it was not proper to combine antifreeze art (Zdzisław) and tire ballast art (Daly) because they are not analogous art fields. The PTAB took the position that both anti-freeze and tire ballast are things that you use in a car in the winter, and this made them part of the same general art field. The CAFC disagreed, citing In re Clay, 966 F.2d 656 (Fed. Cir. 1992). In Clay the PTO had argued that oil storage tanks and oil extraction rigs were all part of the same art field of “petroleum industry,” but the CAFC disagreed, holding that “petroleum industry” was too generic and abstract a way of framing the art fields in question. The panel in the present case similarly considered the things-you-do-to-a-car-in-winter view of analogous art to be too abstract. Because the PTO—which has the initial burden of establishing prima facie obviousness—had not offered a cogent explanation of why Zdzisław and Daly are analogous art, the CAFC held that prima facie obviousness was not established in the first instance, and therefore there was properly no rejection for NA to rebut. Therefore, the PTAB’s judgment was reversed.

Federal Circuit Demonstrates Willingness to Rein in PTAB’s Onerous Idle Free Rules Regarding Claim Amendments

cafc1Patentees have been generally frustrated with the Board’s unwillingness to grant motions to amend. The Board’s Idle Free case, and its progeny, have added a number of requirements to a motion to amend that are above and beyond the simple requirements set forth in the IPR implementing statute. While the Federal Circuit has, generally, stated that the Board can, via decisions like Idle Free, define the characteristics of IPR proceedings, some of those requirements are beginning to fall by the wayside. Another requirement was knocked down by the Court today in Veritas Techs. v. Veeam Software (August 30, 2016). No longer must a patentee show that added claim elements in a motion to amend are, individually, inventive over the known prior art.  The Federal Circuit’s rebuke of the Board on this point  gives patentees more hope for future amendments.

The Veritas IPR involved a patent covering systems and methods for restoring computer data.  As a first line of defense, the patentee argued for a narrow claim construction in an effort to avoid the prior art.  That argument was rejected by both the Board and the Federal Circuit, with citation to the broadest reasonable construction claim construction standard.  As a second line defense, the patentee presented a conditional motion to amend which explicitly added the patentee’s claim construction argument to the claims.  The Board also rejected that motion, a ruling the Federal Circuit characterized as “based on its insistence that the patent owner discuss whether each newly added feature was separately known in the prior art.”  Specifically, the Board had faulted the patentee for discussing only “the newly added features in combination with other known features.”  The Federal Circuit held that position to be arbitrary and capricious and thus in violation of the Administrative Procedure Act.

Specifically, the Court found several instances in the record where the patentee (or its expert) explained that prior art systems did not contain the newly added features.  The Court could “not see how the Board could reasonably demand more from Veritas,” particularly in light of the “long line of Supreme Court and Federal Circuit cases (including KSR) which note “that novel and nonobvious inventions often are only a combination of known individual features.”  In light of that precedent, the Court “fail[s] to see how describing a combination is meaningfully different from describing what is new about the proposed claims, even in comparison to the unamended claims.”

As a final note, the Court explained the recent grant of en banc rehearing in In re Aqua Products (concerning the allocation of burdens in IPR amendment practice) did not affect the issue in this case.  The Court thus remanded instead of waiting for the decision in Aqua Products.