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 for Failing to Explain “Why” a Person of Skill Would Modify the Prior Art

Judge's BenchIt is no secret that patent owners have, on average, struggled at the PTAB over the last three and a half years.  Some practitioners say that a reason for this result is that the Board many times takes an aggressive approach in the assessment of “obviousness” under Section 103.  Yesterday, the Federal Circuit issued its decision in Black & Decker, Inc. v. Positec USA, Inc., which may signal a change in that tide.

Positec challenged Black & Decker’s US Patent No. 5,544,417, which is directed to a manner of mounting a motor in the housing of a string trimmer.  In particular, the ‘417 patent discloses the use of a “motor mounting plate” supported by the string trimmer’s housing such that the motor does not contact the interior surface of the housing.  The motor is fixedly secured to the motor mounting plate.

The Board upheld the validity of claims 7 and 10 directed to a vegetation string trimmer, but found that claims 16 and 17, directed to a method of assembling an outdoor power tool, were unpatentable under 35 USC Sec. 103 in view of Mack alone.

The Federal Circuit reversed the Board’s finding of obviousness, finding that it “is not sufficient” under Section 103 to merely find that a person skilled in the art “could have” or “would have known” to do something.  The Board must “explain why one of skill in the art would have adapted or replaced Mack’s motor mounting yoke to ensure that the motor did not move relative to the motor mounting structure.  The Board did not do so.”  (emphasis added).  “Our precedent requires that the Board explain a rationale why a person of ordinary skill would have modified Mack’s motor.”  Citing, Ball Aerosol & Specialty Container, Inc. v. Limited Brands, Inc. 555 F.3d 984, 993 (Fed. Cir. 2009).  The Federal Circuit further noted that Positec offered mere attorney argument, not evidence, to explain why a person of ordinary skill would have “fixedly secure[d]” the motor.

Perhaps this case will result in more rigorous analyses of the rationale for proposed combinations and/or modifications to prior art in the context of Section 103 assessments.  In any event, this case is a positive for patent owners.

*By way of disclaimer, Harness Dickey represented Black & Decker in the IPR and the Federal Circuit appeal

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).

Supreme Court Hears Arguments in Cuozzo Case

8345487_sWe should soon find out whether the Federal Circuit will again face reversal at the hands of the Supreme Court in a patent case. Today, the Court heard oral arguments in the case of In re Cuozzo, the first IPR decision to reach the highest court. The transcript of the proceeding can be found HERE. Reading the reaction of judges in oral argument can be a very dangerous game, but a few key observations can be noted:

First, while there were two issues on appeal, the issue of whether the Broadest Reasonable Interpretation claim construction standard is appropriate in IPR proceedings garnered almost all of the attention of the Court. Only Justices Ginsburg and Sotomayor briefly touched upon the second issue of whether the Board’s decision to institute can be reviewed by an appellate court.

Second, Chief Justice Roberts seemed troubled by the use of BRI in PTO proceedings. More specifically, Chief Justice Roberts was particularly concerned that the PTAB and a district court could come to different conclusions regarding the meaning of a claim limitation. Among his questions that indicated his seeming posture against BRI include: “It’s a very extraordinary animal in legal culture to have two different proceedings addressing the same question that lead to different results” and “It just seems to me that that’s a bizarre way to…decide a legal question.” Also, after the Solicitor explained how a district court and the PTAB may come to different conclusions, the Chief Justice asked: “And this is under a statute designed to make the patent system more reasonable and more expeditious in reaching judgments?” If an opinion comes out against BRI, we would expect the Chief Justice to author it.

Third, Justices Kennedy and Breyer seemed more favorable to BRI, framing the issue as the PTO taking a second look at questionable patents that should not have issued in the first place. As such, BRI might be appropriate for this second look in IPR. For example, Justice Kennedy asked “Well, if the patent is invalid under its broadest, reasonable interpretation, doesn’t that mean the PTO should never have issued the patent in the first place, and doesn’t that give very significant meaning and structure to this process?” Relatedly, Justice Breyer commented that “what we’re trying to do with this process is to tell the Office, you’ve been doing too much too fast. Go back and let people who are hurt by this come in and get rid of those patents that shouldn’t have issued.” These questions were less clear on their intent than Chief Justice Roberts’ questions, but indicated an understanding of why BRI had been adopted.

Fourth, regarding the issue of judicial review of PTAB decisions to institute, Justice Ginsburg indicated agreement with the Federal Circuit’s reading of 35 USC 314(d), while Justice Sotomayor seemed skeptical. Justice Ginsburg asked about the purpose of that statute if not to prevent all review of the Board’s decisions. Petitioner argued that it was to preclude mandamus and prevent review of the denial to such a hearing. At the end of the hearing, Justice Sotomayor returned to this issue, and asked why Congress would tell the PTO not to institute trial except in limited circumstances “but nobody’s going to ever watch you to make sure that’s what you’re doing.” This latter exchange was more involved and left the listener with the distinct impression that Justice Sotomayor was troubled by the lack of judicial oversight of the PTO’s decisions to institute.

Lastly, seven of the eight sitting justices asked at least one question. As is typical in such arguments, Justice Thomas did not question counsel for either Petitioner or the Solicitor.

 

Board Dismisses Petition for Failure Name All Real Parties-In-Interest

14409517_s (1)Patent Owners get frustrated when they believe a petition fails to identify all real parties-in-interest.  This is understandable, given the difficulties in obtaining additional discovery on the issue.  However, sometimes Patent Owners get that discovery, and when a Patent Owner does get the evidence it needs, it has a kill shot.  This is again reflected in Corning Optical Comm’ns RF, LLC v. PPC Broadband, Inc., IPRs2014-00440, -00441, and 00736.

There, the Board instituted review of three patents.  The petitions were filed less than a year after a lawsuit was service against Petitioner.  Patent Owner’s argument, though, was that the petition was not entitled to the original filing date because not all real parties-in-interest were named.  Rather, Patent Owner argued, a new filing date would be set only upon submission of updated mandatory notices.  Because the one-year deadline (from service of the complaint) had passed, that would mean that the petitions would be barred under § 315(b).

After institution, the Board authorized a motion for additional discovery directed to whether the Petitioner (Corning) should have identified its parent (Corning Inc.) and sister (Corning Optical Comm. LLC) companies.  The issue was whether those companies funded or controlled the IPRs.  The Board first addressed the issue of whether Patent Owner waited too long in raising the issue.  The Board decided that Patent Owner’s argument was timely, because Patent Owner only gained notice of the issue shortly before alerting the Board, based on discovery in an underlying ITC investigation.  As to the substance of the issue, the Board noted the highly fact-specific nature of the real-party-in-interest analysis.  Here, there was evidence of commingling between the three Corning entities, including because common employees of each were involved in the IPR and because Corning Inc. payed the attorneys’ fees.  As the result, the Board found that “Petitioner’s actions have blurred sufficiently the lines of corporate separation” with Corning NC, such that Corning NC ‘could have controlled the filing and participation of the IPRs.’ Zoll, Case IPR2013-00606, slip op. at 10 (Paper 13). Furthermore, we determine that evidence sufficiently establishes that Corning Inc. funded these IPR proceedings, and also exercised or could have exercised control over Petitioner’s  participation in these proceedings. Trial Practice Guide, 77 Fed. Reg. at 48,759–60; Atlanta Gas,  Case IPR2013-00453, slip op. at 8–9 (Paper 88).”

The Board then determined that the petitions could not be afforded their original filing date because of the failure to name all real parties-in-interest.  Because it was then a year past service of the complaint, any new filing date would result in a bar under § 315(b).  The Board thus dismissed the petitions.

PTAB Generously Expands Page Limits in Patent Owner Response

41185418_sThe Board has earned a reputation for rigidly following the procedural rules for IPR proceedings, for good reason. Early on, the Board was likely concerned that an ad hoc web of decisions that granted relief from the variety of rules that govern IPR would create an unwieldly body of decisions. As IPR approaches its 3-year old birthday, however, there are ever growing signs that the Board is willing to consider deviations from core procedural rules, in the right circumstances. For example, in Daicci Sankyo Co., Ltd., v. Alethia Biotherapeutics, Inc., IPR2015-00291, the Board granted Patent Owner’s request for 25 additional pages to argue the prior art status of certain references relied upon by Petitioner. Order at 3. Finding that the particular facts of the case favored an exception to the rules, the Board granted Patent Owner an additional 25 pages “to be used solely for the purposes of addressing the prior art status of references relied on by Petitioner based on prior conception plus reasonable diligence and/or prior actual reduction to practice.” Id. Similarly, Petitioner was granted an additional 12 pages to its reply brief to respond to these arguments.

Also interesting in this decision is the Board’s recitation of what should be addressed relative to this conception issues. Specifically, Patent Owner was instructed to present a “diligence chart” that includes: “1) list all days from the beginning of diligence through the end of diligence, 2) briefly state what happened on each day, and 3) cite the page and line of the motion on which the listed day is discussed; every date gap in the diligence showing must be explained…” Order at 4.

So, the Board demonstrates some leniency in the procedural rules, and also provides interesting guidance regarding what should be provided to the Board to prove diligence.

USPTO Announces Second Set of IPR Changes

USPTOToday, USPTO Director, Michelle Lee, explained the anticipated, second set of proposed changes to be made to IPR proceedings as inter partes review approaches its 3rd birthday. The first set of changes was discussed HERE. We set forth below a brief summary of the changes that have arrived. The proposed rule package will now be subject to a round of comments (due before October 19, 2015).

  1. In general, the Board shied away from adopting bright-line rules, and instead focused on the need for considering issues on a case-by-case basis.  Highlights of the new regulations include:

 

  • The Board will continue to apply the broadest reasonable interpretation standard for claim construction of unexpired claims, rather than the Phillips standard;
  • However, the Board will apply Phillips-type claim construction to claims what will expire before a final written decision;
  • Concerning motions to amend, the Office confirmed that the patent owner must show patentability of substitute claims over the prior art of record (including art provided in light of the patent owner’s duty of candor);
  • Patent Owners will be allowed to file testimonial evidence with its preliminary response, but there will be no depositions until trial is instituted, and, for purposes of deciding whether to institute trial, factual disputes will be resolved in favor of petitioner;
  • Regarding additional discovery, the Board will continue to apply the Garmin factors, subject to additional guidance reflected at http://www.uspto.gov/blog/aia/entry/message_from_administrative_patent_judges. The Board’s discussion of this issue implicitly forecasts more flexibility from the Board in applying these factors going forward;
  • Concerning the specific issue of additional discovery geared towards Patent Owner’s attempt to develop evidence concerning secondary considerations (e.g., regarding sales of Petitioner’s product), the Board maintains that the Garmin factors are applicable, but did give the Patent Owners the concession that an absolute showing of nexus is not required to obtain additional discovery;
  • Patent Owners will be allowed to raise real-party-in-interest or privity challenges at any point in a proceedings;
  • The Board reiterated its discretion to stay, transfer, consolidated, or terminate multiple proceedings involving the same claims;
  • Despite some requests for more lax adherence to the one-year time limit for IPRs, the “Office will continue to strive” to meet that deadline;
  • Concerning live testimony at hearings, the Board will continue its practice of considering requests for oral testimony on a case-by-case basis;
  • The Board also signaled that it will provide more guidance on whether parties are limited to certain issues at oral argument, that it plans to upgrade its technology so that hearings can be held in regional offices, and will allow exchange of demonstratives 7 days before a hearing; however, the Board declined to relax the rules concerning content of demonstratives;
  • The Board will be switching to word-count limits, rather than page count limits, for the petition, preliminary response, patent owner response, and petitioner’s reply brief (14,000 words instead of 60 pages for petition, patent owner preliminary response, and patent owner response, and 5,600 words instead of 25 pages for replies). As a result, the Board will no longer review claim charts in petitions for argument. For all other briefing, a page limitation will be maintained;
  • The Board states that it is working to upgrade its filing system to allow easier access to docket information;
  • The Board intends to include a Rule 11-type certification requirement for all filed papers
  • With the final version of these proposed rules, the Office will also issue an updated Office Patent Trial Practice Guide.

Lastly, we are very focused on the statistics that underlie IPR proceedings. In introducing the above changes, Director Lee explained some of the reasons why the Office believes IPR practice has been successful to date. That may be the case, but we were surprised by Director Lee’s citation to statistics regarding the results of IPR proceedings. Specifically, the Director stated that only “12 percent of total claims available to be challenged (4,496 of 38,462) were determined by the PTAB to be unpatentable in a final written decision.” Statistics can, of course, be manipulated and here, we fear, the USPTO may lose credibility. Including claims that were not challenged and claims that were resolved by settlement has a clear effect in raising the survival rate of claims subjected to IPR, without a strong basis for doing so. That is helpful for the Director’s narrative, but in our opinion, is unhelpful to ascertain the true effect of IPR and the Director’s reliance on that skewed stat undermines the other arguments made in favor the success of IPR.

Joinder Provisions of IPR Continue to Save Co-Defendants in Litigation

5097986_sThe joinder provisions of inter partes review proceedings were instituted as a direct response to the ability of parties to settle proceedings before a final written decision is instituted. Via the joinder rules, a second Petitioner can join a previous proceeding to continue a challenge to a patent in the event that the first Petitioner settles with the Patent Owner, and even if the second Petitioner would otherwise be barred pursuant to 35 USC 315(b). This scenario played out in IPR2015-00568, Nintendo of America, Inc. and Nintendo Co., Ltd. v. Babbage Holdings, LLC involving U.S. Pat. No. 5,561,811. A key factor in all joinder cases has been the strong similarity between the petitions in the proceedings that are sought to be joined, to ensure the Board has the ability to maintain a reasonable schedule in the original proceeding.

Petitioner Nintendo filed a Motion to join with another petition challenging the ‘811 patent, field by 505 Games Interactive, Inc. v. Babbage Holdings, LLC (IPR2014-00954). Nintendo’s petition asserted the same ground on which the Board instituted IPR in the ‘954 petition. Decision at 2. Nintendo’s joinder motion also represented that it would take an “understudy role” “unless and until all ‘954 petitioners settle with the patent owner.”

Although the Patent Owner later settled with 505 Games, the Board allowed Nintendo to join, and instituted review. First, Nintendo’s motion was timely filed to satisfy the requirement that the request for joinder be filed no later than one month after the institution date of the ‘954 proceeding (See 37 C.F.R. § 42.122(b)). The Board also noted that this petition was essentially the same as the ‘954 petition in grounds, prior art, expert testimony, and arguments presented, with the lone exception being Nintendo’s petition adopting the Board’s claim constructions in the ‘954 proceeding. Id. at 3.

Patent Owner opposed the motion, arguing that Patent Challenger’s decision to delay 8 months in attempting to join the petitioners in the ‘954 proceeding is prejudicial because Patent Owner settled the ‘954 proceeding under the impression that the IPR would be totally disposed of. Id. at 4. Patent Owner further asserted that Patent Challenger’s intent to at reserve the right to bring forth different positions than those asserted in the ‘954 proceeding would derail the trial schedule due to additional briefing and discovery.

The Board was unpersuaded. The Board stated that Patent Owner’s argument regarding settlements was not persuasive because at the time of the Motion for Joinder in this proceeding, there had been no Motion to Terminate in the ‘954 proceeding. Also, in light of expected termination of the the earlier proceeding, there would be no disruption in the instant trial schedule, given no briefing/discovery coordination will be needed post-termination. Id. at 4-5. Accordingly, the Board joined the two proceedings.