Federal Circuit Provides Ammunition to Patentees In Magnum Decision

cafc1Patent Owners gained a bit of a reprieve in the Federal Circuit’s recent decision in In Re Magnum Oil Tool Int’l, Ltd.decided on July 25, 2016. In several key respects, Patent Owners regained some footing in the otherwise daunting IPR process.

As an initial matter, in one of its first post-Cuozzo (Supreme Court edition) decisions, the Federal Circuit determined that, for issues that are central to the Board’s Final Written Decision, the Court is not prohibited by § 314(d) from reviewing those decisions just because they were also addressed in the Decision to Institute. The merits of a final written decision is reviewable, even though the issue was initially decided by the Board at the decision to institute stage. Id. at 12. In the context of the Magnum decision, this meant that the Court had jurisdiction to review all of Patent Owner’s arguments regarding the basis for the Board’s ultimate judgment of unpatentability, including rationale to combine references, even though the Board addressed those arguments in the decision to institute.

The key substantive issue in the case was whether the Board’s decision adequately established a prima facie basis of obviousness. Specifically, Patent Owner argued that no adequate motivation to combine the subject references was articulated. The issue stemmed from the fact that, in the petition, Petitioner put forth a detailed obviousness argument on one set of references (“Ground 1”), but took a more abbreviated approach with a second set of references (“Ground 2”), that “incorporated by reference” the motivation to combine from Ground 1.

In response, the PTO argued that when the Board institutes a ground, it necessarily finds that Petitioner has demonstrated a reasonable likelihood of success and that this finding operates to shift the burden of producing evidence of nonobviousness to Patent Owner. But, the Court rejected the PTO’s contention and clarified that the burden of persuasion is always on the Petitioner to prove unpatentability by preponderance and that burden never shifts to the patentee. The court reasoned that, due to the significant difference between the standards of proof at institution (likelihood of success) and at trial (preponderance), it is inappropriate to shift the burden to the patentee after institution to prove that the claims are patentable.

As to the ultimate conclusion of obviousness, the court concluded that, in light of Petitioner’s failure to explain why a skilled artisan would combine the Ground 2 references, the Board had no basis for its conclusion that Petitioner had met its burden of proving obviousness by preponderance under KSR.  The court emphasized that to satisfy its burden of proving obviousness, Petitioner cannot employ mere conclusory statements because such statements cannot satisfy Petitioner’s burden. Nonetheless, the PTO argued that the Board did not err in making an obviousness argument on behalf of Petitioner based on the Ground 2 references because this argument “could have been included in a properly drafted petition.” The court flatly rejected the PTO’s contention that the Board is free to adopt arguments on behalf of Petitioners that could have been but were not raised by the Petitioner during an IPR, noting again that Petitioner bears the burden of proof. The court acknowledged that the PTO has broad authority to establish procedures in IPR’s but clarified that the authority is not so broad to allow the PTO to raise, address, and decide patentability theories never presented by the Petitioner and not supported by record evidence. Instead, the court emphasized that the Board must base its decisions on arguments advanced by a party and to which the opposing party was given a chance to respond. Accordingly, the court held that the Board’s obviousness conclusion was not based on sufficient evidence since the Board relied on Petitioner’s conclusory statements and improperly argued on behalf of Petitioner why the Ground 2 references could be combined.

Lastly, the Court addressed the PTO’s argument that Patent Owner should have challenged the Board’s actions in the rehearing request. The court quickly disposed the PTO’s argument, stating that the plain language of 35 USC § 141(c) does not require a party dissatisfied with the Board’s final written decision to first raise the issue in a rehearing request before appealing the issue to the court.

In sum, Magnum is a ray of hope for Patent Owners that have become accustomed to most aspects of IPR practice being construed against them. The Court’s docket contains many upcoming cases that will allow us to learn whether this is an aberration, or a trend.

Grounds in Inter Partes Review Petitions Must Be Specific

The divergence of inter partes review practice and reexamination practice continues to show itself in the PTAB’s rulings. In a series of 8 inter partes review petitions filed by Oracle Corporation against patents owned by Clouding IP, LLC, the Board denied a number of proposed grounds for unpatentability, finding that they were not specific enough.

The Board found that the practice, that is sometimes undertaken in reexamination practice, of generically stating that other prior art combinations may also be used does not meet the requirements of IPR practice. More specifically, the Board found that the petition contained alleged grounds for unpatentability that extend beyond those “specifically identified and particularly discussed” in the petition. Further, the petition contained “unspecified combinations of prior art.”

The Board denied all grounds that were based on these generic allegations, noting that inter partes review was a trial, not reexamination or continued prosecution, and Patent Challenger bears the burden of proof.  As such, Patent Challenger was incorrect in referring to an alleged ground of unpatentabiltiy as a proposed rejection made by the Board.  Instead, it was incumbent on Patent Challenger to identify with particularity the challenged claim, grounds, and evidence, that were being used to meet Patent Challenger’s burden. In short, the requirements of 37 CFR §104 had not been met because vague and general allegations cannot meet the “reasonable likelihood” standard.

While the Board issued 8 separate Orders, because each Order had to specify which grounds from each IPR were being dismissed, the rationale was the same in each and, as such, we include only one exemplary Order HERE.

Heavy Burden to Waive Page Limits in Inter Partes Review

If there was any doubt regarding whether the PTAB was serious about the page limitations set forth in the Trial Practice Rules for Inter Partes Review proceedings, Illumina Inc. has learned the hard way that there should be no such doubt.  The PTAB sent a stout warning, through its Order expunging Illumina’s over-length petition, that the page limit rules will be strongly enforced.

In a series of Inter Partes Review petitions filed by Illumina against the Trustees of Columbia University, Illumina filed petitions that met the 60 page limit per 37 CFR 42.24, but also concurrently filed a series of longer petitions.  This is a practice that is considered in the Trial Practice Rules – a petitioner that will move to waive the page limits must file a compliant brief, as well as the over-length brief, and then moved the PTAB to waive the 60 page limit.  In this case, the PTAB denied all such motions across the Illumina proceedings, finding that Illumina failed to set forth sufficient good cause as to why such waiver is required.  See, e.g., Illumina, Inc. v. Trustees of Columbia University, IPR2012-00006.

[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]37 CFR 42.24(a)(v)(2) – “Petitions to institute a trial must comply with the stated page limits but may be accompanied by a motion to waive the page limits.  The petitioner must show in the motion how a waiver of the page limits is in the best interests of justice and must append a copy of proposed petition exceeding the page limit to the motion.”[/pullquote]

More specifically, Illumina filed its motion to waive the page limit of its petition, alleging that the extra pages were needed to present non-cumulative grounds for unpatentability.  The Board denied the motion, finding that Illumina did not provide sufficient basis for the requested relief, expunging the proposed petition that was 24 pages over the limit.  There are instructive lessons to be learned from the analysis provided by the Board, however, that may help guide future movants regarding what it will take to have a motion to waive page limits allowed.

The Board first noted that the patent challenger’s request lacked “supporting evidence or explanation” regarding why the challenger’s arguments could not sufficiently have been explained within the Trial Practice Rules’ 60 page limit.  Order at 2.  The Board helpfully provided two examples of the types of evidence that may be relevant in this regard: 1) meaningful discussion of relevant teachings found in the additional references cited in the longer version of the petition that are not found in the compliant petition; or 2) meaningful discussion of the limitations of the challenged claims that could not be addressed sufficiently within the 60 page limit because the claims are too numerous or lengthy.  Order at 2-3.  In short, the Board rather bluntly concluded by pointing out that it is not the PTAB’s role to compare the compliant and proposed petitions, and attempt to figure out for itself whether the waiver is in the interest of justice – “Instead [the patent challenger] has the burden of establishing why it is entitled to the relief sought.”

A related, cautionary tale to consider is that this failed effort by Illumina may have far-reaching effects in view of the strong estoppel that attaches to inter partes review proceedings.  There is no question that Illumina was aware of the arguments that it presented in the proposed, over-length petition.  As such, those grounds could have been raised and Illumina will be prevented from relying upon them in the future.  Other challengers in Illumina’s predicament have filed multiple IPR petitions to get around the page limit rules.  Notably, however, the estoppel against Illumina does not attach until after a final, written decision, so Illumina has the opportunity to file additional petitions to address the grounds for challenge that were not allowed in these proceedings.

Why IPR and PGR Matter to Patent Owners

Created in the America Invents Act (AIA), the new Inter Partes Review (IPR) and Post Grant Review (PGR) “trials” at the US Patent Office have the potential to be game-changers in the way patents are challenged in the future.  After several attempts at creating Patent Office-based proceedings that are efficient and effective, there is much in the new IPR and PGR that lend credence to the notion that Congress finally hit on a combination of pure patent litigation and Patent Office procedure that will be attractive to patent challengers.  As a result, patent owners need to be intimately aware of the details and strategy considerations of these proceedings because of certain advantages offered to patent challengers, including:

1.            The burden of proving patent invalidity in an IPR or PGR proceeding is merely a “preponderance of the evidence” – lower than the standard required in Federal court of “clear and convincing evidence”;

2.            Claims in an IPR or PGR proceeding are given their “broadest reasonable interpretation,” consistent with the patent prosecution standard at the Patent Office; this is likely to be a broader interpretation than what would be argued in Federal court, making it easier to read claims on prior art;

3.            While cost, as compared to prior PTO proceedings, will be higher, cost is still considerably lower than patent challenges in Federal court;

4.            The speed of these proceedings – to be completed within 12 months – may be an attractive feature in some circumstances;

5.            The PGR procedure allows challenges to patents based on novelty and obviousness arguments for non-published prior art, such as prior use and prior sale, as well as 101 and 112 issues; and

6.            The ability to have some litigation tools to control the proceedings – depositions, oral hearing, etc. – will make it more palatable to submit good prior art to the Patent Office.

All is not lost, however, for patent owners.  Patent owners may appreciate the speed of the proceedings and the ability to have access to some litigation tools, as discussed above.  In addition, patent owners will find the following features attractive:

1.            Patent challengers, and their privies, are estopped from later raising validity challenges actually raised, or which could reasonably have been raised, in IPR and PGR proceedings (after a final written decision is entered) – this estoppel applies to Federal court litigation, USITC, as well as other proceedings before the Patent Office and attaches much quicker than the previous Patent Office proceedings;

2.            Patent challengers are afforded the ability to make claim amendments to overcome prior art issues, where appropriate (and, as is often the case, these narrowing amendments can result in claims that are stronger from a validity perspective, but not changed from an infringement perspective);

3.            IPR and PGR are not available if a petitioner has already filed a civil action claiming patent invalidity (counter claims do not count); and

4.            IPR and PGR are not available if filed more than one year after a civil action is brought by patent owner.

Only time will tell if IPR/PGR become the long-desired elixir for expensive patent litigation.  There are some who predict they will be little-used proceedings.  Others suggest they may transform patent litigation and serve as a commonly-used substitute for Markman hearings.  We’ll look forward to seeing this new development unfold before our eyes.