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 Designates Five Decisions as Precedential

PrecedentTo date, the PTAB has been stingy in its designation of panel decisions as “precedential.” Indeed, before today, only 3 decisions in the AIA era had been designated as precedential. That number increased dramatically on May 10, 2016, as the PTAB designated five additional, and well-known decisions as precedential. The decisions, with the PTAB’s description thereof, are listed below.

Garmin Int’l v. Cuozzo Speed Techs LLC, IPR2012-00001, Paper 26 (Mar. 5, 2013) – This order discusses the factors considered in evaluating motions for additional discovery in IPR proceedings.

Bloomberg, Inc. v. Markets-Alert Pty, Ltd., CBM2013-00005, Paper 32 (May 29, 2013) – This order discusses the factors considered in evaluating motions for additional discovery in CBM proceedings.

Oracle Corp. v. Click-to-Call Techs, LP, IPR2013-00312, Paper 26 (October 30, 2013) (precedential only as to Section III.A.) – This decision pertains to interpretation of “served with a complaint” for purposes of triggering the one-year time bar set forth in 35 U.S.C. § 315(b).

MasterImage 3D, Inc. v. RealD Inc., IPR2015-00040, Paper 42 (July 15, 2015) – This order provides guidance on patent owner’s burden to show entitlement to substitute claims. 

Lumentum Holdings, Inc. v. Capella Photonics, Inc., IPR2015-00739 (Paper 38) (March 4, 2016) – This decision interprets 35 U.S.C. § 312(a)(2).

Federal Circuit Provides Guidance on Motions to Amend in IPR

cafc1In Nike v. Adidas, the Federal Circuit today gave patent owners in IPR the beginnings of a roadmap for how to successfully amend claims in an IPR. Readers of this blog will know by now that the PTAB rarely grants motions to amend, and that the Federal Circuit has shown little inclination to make the PTAB more generous in granting such motions.

Previous appeals from a denial of motion to amend have focused on the legal standard that the PTAB applies when evaluating amendments. Microsoft Corp. v. Proxyconn Inc., 789 F.3d 1292, 1305 (Fed. Cir. 2015) (“Proxyconn argued that because DRP was not one of the references over which the PTO had instituted review… the Board exceeded its authority under § 42.121(a)(2)(i) to deny substitute claims…”); Prolitec Inc. v. ScentAir Techs., 807 F.3d 1353, 1363 (Fed. Cir. 2015) (“Prolitec argued that it did not have the burden to establish patentability over prior art references cited in the patent’s original prosecution history because they are not prior art of record in the IPR,”); Synopsys Inc. v. Mentor Graphics, slip op. at 25 (“Mentor argues that Proxyconn does not control because [it] did not address whether the patentee ought to bear the burden to distinguish all prior art known to the patent owner and whether this requirement is contrary to 35 U.S.C. § 316(e),”). By contrast, Nike spent less time challenging the standard that the PTAB applies, and more time simply explaining why its substitute claims are patentable over the art at issue. Because the Federal Circuit could not affirm the PTAB’s obviousness conclusions, it remanded the case back to the PTAB, directing the PTAB to reconsider the motion to amend in view of the defects in the PTAB’s obviousness analysis.

The take-home message here is that if you want the Federal Circuit to grant your motion to amend, you should focus on why your substitute claims are patentable over the art in the case. Do not focus on whether the PTAB is applying an incorrect standard for evaluating when amendments are proper, because the PTAB’s standards will be evaluated under very deferential Chevron review.

A last important point to note here is that Adidas asked the Federal Circuit to deny the amendment because Nike had included a single sentence in its motion asserting that the new claims were “patentable over prior art known to Nike, but not part of the record of the proceedings.” The PTAB concluded that this was facially inadequate, and that having acknowledged that it knew of art not already of record, Nike was obliged to discuss such art before the motion could properly be granted. The Federal Circuit explicitly disagreed with this conclusion. Rather, the Federal Circuit held that “we cannot see how the statement used by Nike would be inadequate, absent an allegation of conduct violating the duty of candor.” Because there were no allegations in this record that Nike had violated its duty of candor, the Federal Circuit held that Nike’s failure to discuss other art cannot be a ground on which to deny the motion to amend. This is good news for patent owners, because it means that valuable page limits do not need to be consumed discussing non-record art.

39 Months of Inter Partes Review – By the Numbers

12aWelcome to the 12th volume of our IPR-PGR Report, reporting on the statistics that underlie Inter Partes Review and Post Grant Review proceedings. This quarter marked the second in a row in which the number of IPR filings per week decreased, signaling a potential slow down in the popularity of IPRs. At the same time, more claims are surviving at the institution stage. Lastly, the Eastern District of Texas has taken a commanding lead as the jurisdiction in which litigants are least likely to obtain a stay pending the resolution of an IPR (23%).

Federal Circuit Explores Expert Declaration as IPR Supplemental Evidence

cafc1Getting caught up on a Federal Circuit decision from late last year, we take a look at the Federal Circuit’s decision in Redline Detection, LLC v. Star Environtech, Inc. (2015-1047), decided on December 31, 2015. In this case, the Court sent the strong message that petitioners must put their best foot forward right off the bat – submitting expert declarations with their petitions as part of their prima facie case and not later as supplemental evidence.

Petitioner Redline challenged Star’s patent 6,526,808 in IPR2013-00106. Redline did not file an expert declaration with its petition. Instead, Redline moved to submit the expert declaration as supplemental evidence under 37 CFR 42.123(a) after the PTAB instituted the IPR. The PTAB denied Redline’s motion and later decided that the challenged claims were not obvious. Redline appealed, and the Federal Circuit affirmed.

In the appeal, Redline principally argued that the PTAB should have granted its motion since it timely moved within one month of the institution decision and since the declaration was relevant to the instituted grounds as required by 37 CFR 42.123(a). The Court rejected Redline’s argument that timeliness and relevance automatically required the PTAB to grant Redline’s motion — movant has the burden of proving that it is entitled to the requested relief.

To that end, the Court agreed with the PTAB that Redline did not justify submission of the declaration after filing its petition and after the PTAB’s institution decision, and Redline failed to show why the declaration could not have been submitted with the petition. Instead, Redline admitted to the PTAB that it intentionally delayed filing the declaration since it was cost-effective for its expert to opine only on the instituted grounds rather than all the grounds alleged in the petition. The court noted that, while supplemental evidence may be submitted under 37 CFR 123, 37 CFR 42.104 requires the petitioner to identify in its petition each challenged claim, the statutory grounds on which it is challenged, how it is to be construed, and the relevance of the evidence to the challenge raised. As such, the Court agreed with the PTAB that Redline’s expert declaration was more than just supplemental evidence. Instead, it was evidence supporting Redline’s prima facie case and should have been submitted with the petition under 37 CFR 42.104.

Redline’s other arguments, related to construction of 37 CFR 42.123(a), also did not persuade the Court in view of the overall scheme of regulations promulgated in 37 CFR 42 subparts A and B. The court concurred with the PTAB’s decision in IPR2014-00561 that 37 CFR 42.123(a) is not a routine avenue to pursue, nor does the regulation require acceptance of, supplemental information. The court opined that requiring admission of supplemental information, which Redline’s expert declaration was not, so long as it was timely submitted and relevant to the proceeding would cut against the PTAB’s mandate and alter the intended purpose of IPR proceedings. Accordingly, the court affirmed the PTAB’s denial of Redline’s motion.

The takeaway is that petitioners must put forth their best case, including expert declarations, in their petitions.

Board Explains the Process for Evidentiary Objections—and Illustrates the Severe Penalty for Not Following It

35378580_sPractitioners who are used to district court litigation may be surprised—and tripped up—by the rules for objecting to evidence in IPRs, which differ significantly from the approach used in litigation.  The Board’s Final Written Decision in IPR2014-01204 (Valeo v. Magna Elecs.) serves as a good case study of the IPR rules’ strict process for evidentiary objections.

By way of background, possibly the biggest difference between evidentiary objections in IPRs and litigation is the IPR rules require objections to be filed with the Board within ten business days after the evidence is submitted.  Failure to object within that time waives the objections, and precludes a later motion to exclude the evidence.  After evidentiary objections are served, the proponent of the evidence can, within 10 business days, serve “supplemental evidence” in an effort to overcome the objection.  That supplemental evidence is not filed as a matter of course without the Board’s approval; rather, its use is generally limited to filing in opposition to a motion to exclude.

The Board often requires strict compliance with this procedure, and will strike objections if they do not comply, as illustrated in the Valeo case.  There, the Decision to Institute was entered on January 28, 2015.  That triggered the 10-day deadline for Patent Owner to object to the evidence in the Petition, and Patent Owner timely filed its objections on Feb. 11.  In turn, Petitioner timely served supplemental evidence on Feb. 25.  The next day, Petitioner properly sought permission from the Board to file a motion to file the supplemental evidence as “supplemental information.”  On March 4, the Board granted Petitioner permission to file its motion.  The same day, Patent Owner objected to the supplemental evidence.

On April 10, the Board granted Petitioner’s Motion to File Supplemental Information.  Thus, by operation of the rules, the “supplemental evidence” became evidence on that day.  Patent Owner never renewed its objection.  As a result, the Board ruled that Patent Owner waived its objections to the supplemental information, despite having earlier objected.  The earlier objections were ineffective, according to the Board, because the “rules provide for objections to evidence, but do not provide for objections to supplemental evidence.”

Regarding the substance of admissibility issues, the Federal Rules of Evidence apply to IPRs.  The Valeo case addresses a variety of other evidentiary objections that were effectively lodged, and a few particular points from the decision provide a window into how many PTAB judges approach evidentiary issues:

  1. Arguments about admissibility should not be included in Patent Owner’s Response; such arguments should only be raised in a motion to exclude. (See FWD at 14-15);
  2. On the flip side of that same coin, arguments about sufficiency of the evidence should be presented in the Patent Owner’s Response, not in a motion to exclude under the guise of an objection on relevance grounds. (See FWD at 16);
  3. Hearsay objections are of very limited utility with respect to expert declarations, because the Board does not consider declarations submitted as a part of the IPR to be “out of court statements,” as the declarants may be cross-examined (see FWD at 17);
  4. Objections should be precise and comprehensive. For example, if an objection does not include reference to Rule 403, then the Board may not later allow an argument based on FRE 403.  (See FWD at 20);
  5. Be sure to object to the right document. For example, an FRE 901 objection should be directed to the underlying document, not a declaration that tries to authenticate the underlying document.  Otherwise, the Board may decline to consider the issue (see FWD at 21).

In the Valeo IPR, as usually happens in IPRs, the motion to exclude was denied.

Federal Circuit Issues Second Reversal in Favor of a Patent Owner

cafc1The Federal Circuit has picked up the pace of issuing actual written opinions regarding PTAB decisions, instead of its previous, steady diet of Rule 36 Judgments. Today, the Court issued its second opinion reversing a Board decision canceling various claims in an inter partes review based on a claim construction issue in Straight Path IP Group, Inc. v. Sipnet EU S.R.O. (Fed. Cir. Nov. 25, 2015). In general, the decision comprises two key parts: 1) a fact-intensive claim construction analysis that turned on the fact that the claim language-at-issue had a plain meaning and the specification was deemed too limited to change that plain meaning; and 2) a warning that the Court will not hear new arguments on appeal.

Claim Construction Analysis: The crux of the claim construction dispute related to a claim limitation that requires “a query as to whether the second process is connected to computer network.”  (emphasis added). Patent Owner argued that the proper claim construction required a present-tense status. Id. at 6. Petitioner argued, and the Board agreed, that the proper claim construction “simply requires being registered with the server.” Id. As characterized by the Court: “what the Board meant was that, to come within the query claim language, all the query from the first unit need do is request whatever the connection server has listed about a second unit’s on-line status, even if the listed information is not accurate at the time of the query, i.e., even if it lists the second unit as online when, at the time, it is in fact not online.” Id. 

The Court’s reversal of the Board’s decision had two components. First, the Court found that the plain language of the claims undermined the Board’s determination. That plain language, “is connected to the computer network” was deemed to plainly seek a determination of whether the unit was connected at that timeId. at 7. As such, it was unreasonable for the Board to conclude that the subject query was satisfied, regardless of its current accuracy. Id. 

Second, the Court faulted the Board for failing to address that “facially clear meaning,” and instead turning immediately to the specification; which analysis of the specification was also incorrect. Id. at 8. The Court instructed that, when the claim language has a plain meaning, “the specification plays a more limited role than in the common situation where claim terms are uncertain in meaning in relevant respects.” Id. Thus, the Board’s analysis, that relied on a single passage from the patent to redefine the claim terms, was inaccurate given that there was no express or implicit redefinition of what “is connected” should mean. Id. at 9.

It is noteworthy that Judge Dyk filed a dissenting opinion, arguing that the majority erred in requiring absolute currency with regard to the real-time limitation of the challenged claims. Instead, Judge Dyk would have relied on the specification, as the Board did, because it is “always highly relevant to the claim construction analysis,” per Phillips. Dissent at 2.

New Argument on Appeal: The Court noted that the second challenge by Patent Owner to the Board’s decision rested on the Board’s failure to construe the term “process.” The Court refused to hear that challenge, though, finding that Patent Owner did not preserve the contention. Specifically, Patent Owner failed to request a construction for that term in its Patent Owner Preliminary Response, Patent Owner Response, or at the Oral Hearing. Failing to do so, the Board could not be found to have committed error in failing to construe the limitation.

Thus, this case is a rare win for a Patent Owner at the Federal Circuit, but more importantly more guidance from the Court on the ever-evolving IPR landscape.

Board Offers New Technique to Solve an Often-Raised IPR Issue

45686244_sOne panel of the PTAB has introduced a technique that may help solve the oft-raised complaint that a reply brief from Petitioner contains new evidence and/or argument not raised in the Petition. In early decisions, when this issue arose, the Board would simply dismiss the complaint by stating that it would, upon consideration of the entire record after the oral hearing, decide whether or not new evidence or argument had been relied upon. But, in Nintendo of Am. Inc. v. iLife Tech., IPR2015-00105, Paper 23, the Board offered Patent Owner a brief opportunity to point out the purported new evidence that will, frankly, probably make life easier on the Board.

More specifically, the Board addressed a complaint from Patent Owner that Petitioner’s reply brief included new arguments and referred to evidence not previously addressed in the Petition. Id. at 2. The Board introduced a new concept (a “Motion for Attention to New Material”???) that allowed the Patent Owner to file a 2-page brief that lists “the location and a concise description of any portion of the Petitioner’s Reply that Patent Owner wishes to draw to the Board’s attention, but it should not contain argument.” In turn, Petitioner was authorized to file a response to this paper, identifying an itemized list of what from the Patent Owner Response triggered Petitioner to include each item listed by the Patent Owner in its Reply. Again, no argument is allowed.

It is interesting to continue to watch the Board evolve to find new ways to solve the issues that come up so often in IPR proceedings.

Don’t Count on Avoiding a Redundancy Finding by Filing Multiple IPR Petitions

36457258_sFrom the very outset of inter partes review proceedings, the Board has helped to manage its docket by rejecting challenge grounds in petitions that are redundant to other grounds in the petition. See Liberty Mutual Ins. Co. v. Progressive Casualty Ins. Co., CBM2012-00003 (explaining vertical and horizontal redundancy). As a strategy to avoid this type of redundancy finding, Petitioners began to file multiple petitions directed to the same patent, hoping that by paying an extra $23,000+ filing fee, the Board would consider additional grounds against the same patent. That strategy is facing headwinds, however, as demonstrated in the case of LG Elec., Inc. v. ATI Techs., ULCIPR2015-00327, Paper 15 (Sept. 2, 2015) (denying request for rehearing). In that case, the Board (once again) denied a petition relying in part on 35 U.S.C. § 325(d), finding that the overlapping of arguments between two related petitions, and the institution of an IPR of the same claims in the related case, warranted a denial of the petition.

Of the reasons given by the Board for its decision, the one factor that might have tipped the Board’s decision in Petitioner’s favor relates to the purported overlap between the primary references cited in each of the two petitions at issue. If Petitioner had provided some rationale regarding why the primary references do not disclose substantially the same subject matter, the decision might have come out differently. And, of course, if the references really did disclose the same subject matter, a second petition was likely not necessary in the first place.

Regardless, a denial of a decision to institute is non-appealable, so this type of decision by the Board is, effectively, immune from challenge. 35 U.S.C. § 314(d).