11th Annual Patent Law Institute

Transcription

1 INTELLECTUAL PROPERTY Course Handbook Series Number G th Annual Patent Law Institute Co-Chairs Scott M. Alter Douglas R. Nemec John M. White To order this book, call (800) 260-4PLI or fax us at (800) Ask our Customer Service Department for PLI Order Number , Dept. BAV5. Practising Law Institute 1177 Avenue of the Americas New York, New York 10036

2 4 U.S. Court of Appeals Federal Circuit 2016 Cases Affecting Post Grant Practice Lissi Mojica Brooks Kushman P.C. If you find this article helpful, you can learn more about the subject by going to to view the on demand program or segment for which it was written. 309

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4 INTRODUCTION: During 2016, the U.S. Court of Appeals for the Federal Circuit issued decisions in an increasing number of appeals from AIA post grant proceedings before the USPTO Patent Trial and Appeal Board ( PTAB or Board ). These decisions contribute to the existing decisional law governing practice before the PTAB. Although the Federal Circuit s approach to PTAB appeals may evolve over time, decisions to date reflect two significant characteristics. First, the Federal Circuit has taken a generally deferential approach to PTAB interpretation and application of USPTO rules and procedures governing AIA trials. Second, the Federal Circuit has reviewed the PTAB s application of substantive patent law more closely, and has vacated or reversed PTAB rulings where the Board has misapplied the Federal Circuit s authority concerning the Patent Act. This article summarizes the key Federal Circuit decisions from 2016 as well as a few 2017 decisions that affect practice and strategy before the PTAB in AIA trials. A. Motions to Amend: Federal Circuit Upholds PTAB Limits on Motions to Amend Claims After Institution, But Will Review Issue En Banc in 2017 Although the America Invents Act permits patent owners to file motions to amend claims in a patent under review, see e.g., 35 U.S.C. 316(d), patentees generally have been unsuccessful in seeking amendments. This inability to amend claims results in widespread criticism from patent owners in AIA proceedings, and increases the risk to patent owners involved in AIA trials. The USPTO has promulgated rules that place squarely on the patent owner the burden of demonstrating that proposed substitute claims are patentable over the known prior art. Idle Free Sys., Inc. v. Bergstrom, Inc., IPR , Paper 26, 2013 WL (PTAB June 11, 2013). In a later PTAB decision by an expanded panel, the PTAB clarified this requirement, noting that for purposes of motions to amend under 37 C.F.R known prior art refers to: (a) any material art in the prosecution history of the patent; (b) any material art of record in the current proceeding, including art asserted in grounds on which the PTAB did not institute review; and 3 311

5 (c) any material art of record in any other proceeding before the USPTO involving the patent. See Masterimage 3D, Inc. v. Reald Inc., No. IPR , Paper 42, 2015 WL (PTAB Jul. 15, 2015)(informative designation). 1. Panel Decision In a 2016 case, In re Aqua Products, Inc., 823 F.3d 1369 (Fed. Cir.), reh g en banc granted, opinion vacated, 833 F.3d 1335 (Fed. Cir. 2016), the Federal Circuit continued its trend of deference to the UPSTO s exercise of authority to promulgate rules implementing the AIA, and to the PTAB s interpretation of those rules. In Aqua Products, involving a patent for a water-propelled automatic swimming pool sweeping device, the patentee sought to amend the claims under review to add three requirements: (1) that the water jets powering the device are set to a vector to create a downward force on the front wheels (thereby holding the device to the pool surface), (2) that the wheels controlled the directional movement of the device, and (3) than the device had four wheels. The patent owner argued in its motion to amend that the proposed substitute claims were patentable over the two references cited by the petitioner and at issue in the IPR. It focused its argument on the newly-added limitation requiring a vector creating a downward force, mentioning the other amendments only in passing. The patent owner also noted that its embodiment of the invention was successful, and accused the petitioner of copying the patented design, but did not argue that either fact was significant and a secondary consideration of non-obviousness. The PTAB denied the motion to amend, concluding that the amended claims would be obvious in light of the cited references. On appeal, a three-judge panel of the Federal Circuit affirmed. (Note that this panel decision was withdrawn in connection with the Federal Circuit s grant of rehearing en banc, discussed below). The court noted that its prior cases involving disputed motions to amend generally upheld the PTAB rules, despite the fact that they impose a challenging burden on patent owners to establish that the amended claims are patentable, in part because the PTAB panels lack the capacity to examine amended claims. See Nike, Inc. v. Adidas AG, 812 F.3d 1326 (Fed. Cir. 2016); Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015). The Federal 4 312

6 Circuit panel concluded that those decisions were controlling, and that the panel could not revisit the question of whether the Board may require the patentee to demonstrate the patentability of substitute claims over the art of record. 823 F.3d at Applying the USPTO s standard for successfully moving to amend, the court ruled that the patent owner failed to present proof to meet the Masterimage 3D standard. Thus, it upheld the PTAB s decision to deny the motion to amend. The appeals court agreed that the PTAB was not required to consider non-obviousness arguments based on the potential secondary considerations of non-obviousness evidence, which was not argued by the patent owner, and on the second and third proposed new limitations, because the patent owner effectively failed to raise them in the motion. It noted that to hold otherwise would require the Board to fully reexamine the proposed claims in the first instance, effectively shifting the burden from the patentee to the Board. Although the patent owner did mention the issues in passing in its response to the petition, and raised them in more detail later in the proceeding, none of the arguments appeared in the portion of the motion to amend that sought to explain why the Substitute Claims Are Not Obvious In View of [the Prior Art]. Accordingly, the Board was under no obligation to consider them in evaluating the motion to amend. Id. at Notably, the appeals court was not persuaded by the patent owner s protests that it did its best to address the standard for amending claims considering the 15 page limit for motions then in effect. The Federal Circuit noted that, [t]he problem here is that [the patent owner] did not ask the Board for additional pages, or any similar relief. As such, we cannot say that the Board abused its discretion by holding [it] to the then applicable page limits. Id., at n.2. Note that, effective May 12, 2016, the PTAB has expanded the page limit for motion to amend to 25 pages. See 37 CFR 42.24; Amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board, 81 Fed. Reg , (Apr. 1, 2016). Although the 25 page limit provides more opportunity to present arguments in support of a motion to amend, it still represents a significant constraint, especially if the proposed amendments relate to multiple limitations in the claims under review and the petitioner has identified many prior art references

7 2. Rehearing On August 12, 2016, the Federal Circuit vacated the panel decision in Aqua Products and granted rehearing en banc to consider whether the court s past decisions on the amendment issue were correct. In re Aqua Products, Inc., 833 F.3d 1335 (Fed. Cir. 2016). The court ordered briefing and argument on the following issues: (a) When the patent owner moves to amend its claims under 35 U.S.C. 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. 316(e)? (b) When the petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie? Id. In addition, the court specifically invited interested parties to submit amici curiae briefs without seeking consent of the parties or leave of the court. The Aqua Products rehearing will present an important opportunity for Federal Circuit judges to debate the operation of AIA trials under somewhat restrictive USPTO PTAB procedures. Some judges have expressed concern about specific PTAB practices, including denying review based on redundancy and the high level of deference, afforded PTAB fact-finding. Judge Newman, in particular, has been an outspoken dissenter in several AIA appeals. The Aqua Products case may reveal whether the court will continue to defer to the USPTO, or whether it will begin to exert its authority to reshape AIA trial procedures. B. Standard of Appellate Review: Court Adheres to Substantial Evidence Standard for Review of PTAB Decisions In a case presenting disparate views of two Federal Circuit judges, the court denied a petition for rehearing en banc to consider whether PTAB decisions should continue to be reviewed for substantial evidence, or whether the court should apply the less-deferential clear error standard. Merck & Cie v. Gnosis S.P.A., 820 F.3d 432 (Fed. Cir. 2016)

8 Gnosis filed a petition for IPR review of Merck s patent, relating to the use of folates to lower levels of homocysteine in patients. The PTAB ruled that the challenged claims were invalid as obvious based on several factual findings, including that a motivation existed to combine multiple references cited by the petitioner to arrive at the claimed invention. On appeal, the Federal Circuit affirmed, reviewing the Board s factual findings for substantial evidence. See Merck & Cie v. Gnosis S.P.A., 808 F.3d 829, 833 (Fed. Cir. 2015), cert. denied, 137 S. Ct. 297 (2016). Merck petitioned for rehearing en banc, arguing that the Federal Circuit must review the Board s factual findings for clear error, a less deferential standard of review. In denying the petition, Judge O Malley summarized the issue: I agree that application of the substantial evidence standard of review is seemingly inconsistent with the purpose and content of the AIA. This court is bound by binding Supreme Court precedent Dickinson v. Zurko, 527 U.S. 150 (1999) and this court s own In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000) to apply the substantial evidence standard of review to factual findings by the Board, however. Because Congress failed to expressly change the standard of review employed by this court in reviewing Board decisions when it created IPR proceedings via the AIA, we are not free to do so now. In her dissent, Judge Newman pointed out that the APA s deferential standard seems incompatible with the role of AIA trial decisions, which may have far-reaching impact on the parties: When the final decision is adverse to the patent owner, the PTAB cancels the affected patent or claims. An important aspect of the America Invents Act is that the final decision produces an estoppel against the petitioner in any ensuing litigation. Thus these PTAB proceedings carry a heavy load, for they affect not only the property rights of the patent owner, but also the potential liability and opportunity of the petitioner. My concern relates to the Federal Circuit s implementation of its appellate role, for the court has adopted a highly deferential standard of review of these PTAB decisions, instead of the full and fair review that is appropriate to the America Invents Act. The entire thrust of the America Invents Act is that these PTAB proceedings would be an alternative to district court proceedings on these issues, and would receive the same level of appellate review. The highly deferential review standard of support by substantial evidence does not assure the intended identity of result for these PTAB and district court determinations. Id

9 C. Basis for PTAB Decision: Board May Rely on Facts Outside the Petition for Review and Institution Order in Final Written Decision One common issue arising in PTAB proceedings is the ability of the Board to base its decision on references or other facts outside the petition for review. The petition generally frames the issues to be considered in the proceeding, including the grounds for challenging the patentability of the claims under review. If the PTAB strays from the petition and the patent owner s responses, due process issues may arise. In Genzyme Therapeutic Products LP v. Biomarin Pharmaceutical Inc., 825 F.3d 1360 (Fed. Cir. 2016), the Federal Circuit affirmed a decision by the PTAB invalidating two patents after an IPR proceeding, even though the decision partially rested on references and evidence not disclosed in the challenger s petition for review or the PTAB s decision to institute. The appeals court ruled that the PTAB s use of evidence developed during the IPR trial was not a violation of the Administrative Procedures Act and the patent owner had fair notice of the new evidence. The decision is significant because patent owners facing AIA post grant proceedings previously objected to the introduction of evidence outside the petition. The Genzyme decision casts doubt on the viability of that defense strategy. The patent owner, Genzyme, owns two patents relating to the treatment of Pompe s disease, a malady caused by the inability of a patient to metabolize glycogen, by administering a modified lysomal enzyme acid, α-glucosidase. Biomarin filed a petition for IPR raising four grounds for invalidity, including obviousness, based on five references. The PTAB instituted review on two grounds, and declined to institute review on two grounds based on redundancy (See discussion of Shaw Industries decision, below). During the trial, Genzyme argued that the claimed inventions were not obvious in light of the references, because all the references cited in the petition and decision to institute described in vitro experiments and a person skilled in the art would not have considered it likely that the results would be successful in live animals. In response, Biomarin cited two additional references describing in vivo experiments to prove that the same results in animals would be expected. The PTAB issued a final written decision ruling that the Genzyme patents were invalid as obvious, relying in part on the in vivo studies introduced by Biomarin. Genzyme then appealed the ruling to the Federal Circuit, including by arguing that the PTAB s reliance on evidence not identified in the petition for 8 316

10 review or decision to institute violated the procedural protections of the Administrative Procedures Act. A panel of the Federal Circuit affirmed the PTAB s ruling that the patents were invalid as obvious. The court noted that although the APA places procedural limitations on AIA trials, including the right to notice and the opportunity to be heard, the PTAB did not violate the Act because the grounds for invalidation were the same ones identified in the petition and decision to institute: the patents were invalid as obvious based on specific combinations of cited references. The appeals court rejected Genzyme s argument that the PTAB could not stray from the references identified in the petition and decision to institute, noting that the development of additional evidence (such as the in vivo studies) is commonplace in litigation: There is no requirement, either in the Board s regulations, in the APA, or as a matter of due process, for the institution decision to anticipate and set forth every legal or factual issue that might arise in the course of the trial. Because the institution decision comes at the outset of the proceedings and the patentee is not obligated to respond before the Board makes its institution decision, it is hardly surprising that the Board cannot predict all the legal or factual questions that the parties may raise during the litigation. The development of evidence in the course of the trial is in keeping with the oppositional nature of an inter partes review proceeding. The purpose of the trial in an inter partes review proceeding is to give the parties an opportunity to build a record by introducing evidence not simply to weigh evidence of which the Board is already aware. 825 F.3d at 1367 (citations and quotation omitted). The in vivo studies were applied as evidence that a person skilled in the art would have considered it likely that the techniques disclosed in the references cited in the petition and institution decision would be successful in animals. See Ariosa Diagnostics v. Verinata Health, Inc., 805 F.3d 1359 (Fed. Cir. 2015) (PTAB may consider prior art reference to show state of art at time of invention even if reference not cited in institution decision). The court also noted that Genzyme had actual notice of the in vivo studies, as they were introduced during the IPR proceeding, and had the opportunity to rebut the evidence. Notably, the court observed that Genzyme could have moved to exclude the evidence based on unfairness or sought an extension of time to prepare a response, but failed to do so. The Genzyme decision appears to undercut an argument commonly used by patent owners in AIA trials to limit challenges to the prior art references and essential facts identified in the petition. The decision suggests that parties may expand the factual record significantly 9 317

11 during the trial, including using new references to establish factual support for the invalidity challenge. In practice, the very tight time restrictions in the AIA trial process, strict limits on the length of briefs, and the limited ability to conduct discovery make it difficult for patent owners to respond to new evidence raised during the trial. Thus, the Genzyme approach, if widely adopted by the PTAB, would make it even more difficult for patent owners to oppose a petition following institution. The Genzyme decision underscores the importance of opposing a petition of review at the institution stage, when the challenge may be stopped prior to trial. If a trial is instituted, patent owners should be aware that evidence introduced by a petitioner late in the trial could raise notice and due process concerns. The Genzyme panel s discussion of this issue may provide some support for either a request for an extension of time to evaluate and respond fully to the evidence or, if an extension is unavailable, a motion to exclude the evidence. D. Termination of Proceedings: PTAB Decision to Terminate IPR Proceedings After Institution Is Not Appealable Applying the Supreme Court s interpretation of the AIA s provision making inter partes review institution decisions final and nonappealable, 35 U.S.C. 314(d), the Federal Circuit held that a PTAB decision to terminate an IPR after institution due to a petitioner s failure to identify the real party-in-interest cannot be challenged on appeal. Medtronic, Inc. v. Robert Bosch Healthcare Systems, Inc., 839 F.3d 1382 (Fed. Cir. 2016). The petitioner, Medtronic, filed three petitions for IPR challenging claims in two patents owned by Robert Bosch Healthcare Systems, Inc. After institution, the PTAB granted discovery to explore the relationship between Medtronic and a subsidiary that Bosch had sued for infringing the patents. The subsidiary also had filed a previous petition for IPR on the Bosch patents, which was denied. Based on the discovery, Bosch moved to dismiss the IPR on the grounds that the subsidiary was a real party-in-interest, and Medtronic failed to name it in the petition. See 35 U.S.C. 312(a)(2). The PTAB granted the motion and terminated the proceedings. Medtronic appealed the termination to the Federal Circuit. Initially, the appeals court dismissed the appeal for lack of jurisdiction. Then, following the Supreme Court s ruling in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct (2016), reviewing appealability of

12 institution decisions, the appeals court recalled the mandate and requested additional briefing. In an October 20, 2016 decision, the Federal Circuit reaffirmed its decision and dismissed Medtronic s appeal. The court rejected Medtronic s argument that Cuozzo permitted it to appeal the PTAB s decision to terminate the IPR. In Cuozzo, the Supreme Court held that 314(d) bars mine run challenges based on questions that are closely tied or closely related to the application and interpretation of statutes related to the Patent Office s decision to initiate inter partes review[.] 136 S. Ct. at (See discussing in Addendum). The appeals court held that Medtronic s appeal was indeed closely related to the institution decision, rather than based on due process or other constitutional issues, or application of other statutes: It is difficult to conceive of a case more closely related to a decision to institute proceedings than a reconsideration of that very decision. It would be strange to hold that a decision to institute review would not be reviewable but a reconsideration of that decision would be reviewable. This is especially so when, as here, the Board s reconsideration was predicated on a failure to meet the statutory requirements for filing a petition under 312(a), a provision that defines the metes and bounds of the inter partes review process. The Board s reconsideration in this case is fairly characterized as a decision whether to institute proceedings, the review of which is barred by 314(d). 839 F.3d at (quotation and citation omitted). The court noted that this result was consistent with recent cases applying Cuozzo and generally declining to review PTAB institution decisions. See, e.g., Husky Injection Molding Sys. Ltd. v. Athena Automation Ltd., 838 F.3d 1236 (Fed. Cir. 2016); Wi-Fi One, LLC v. Broadcom Corp., 837 F.3d 1329 (Fed. Cir. 2016). The court rejected Medtronic s argument that the appeal raised constitutional issues, since the PTAB s authority to decide whether to institute review proceedings included an inherent authority to reconsider those decisions without implicating due process concerns. E. Subject Matter for Covered Business Method Review: Subject Matter Incidental or Complementary to Financial Activity Not Subject to CBM Proceedings In one Federal Circuit decision that appears to deviate from the court s tendency to defer to the USPTO s interpretation of the AIA, the appeal court vacated a PTAB final written decision following review of a patent under the Transition Program for Covered Business Method Patents ( CBM ). The appeals court ruled that the PTAB

13 erred in instituting CBM review by applying a test that was not consistent with congressional history of the AIA s CBM proceedings when it concluded that a challenged patent was eligible for CBM review. The ruling will likely change the landscape of CBM review eligibility and reduce the number of patents subject to CBM review. Unwired Planet, LLC v. Google, Inc., 841 F.3d 1376 (Fed. Cir. 2016). Unwired Planet, LLC owns U.S. Patent No. 7,203,752, entitled Method and system for managing location information for wireless communications devices. The 752 patent discloses a technology for controlling access to a wireless device s location information based on pre-established privacy preferences, such as the time, location of the device, or identity of the entity requesting location information. The 752 patent issued on April 10, In October 2013, Google, Inc. filed a petition for CBM review of specific claims in the 752 patent on the grounds that the claims were not directed to eligible subject matter under 35 U.S.C. 101, and that some claims were indefinite and obvious. Google argued that the challenged claims were eligible for CBM review under on the PTAB s test - whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity. The PTAB determined that the patent claims were eligible for CBM review and instituted review. In a final written decision, the PTAB ruled that all challenged claims were unpatentable under section 101. Unwired Planet appealed the decision to institute and the unpatentability ruling to the Federal Circuit. The sole issue decided by the court on appeal was whether the 752 patent met the requirements for CBM review. Under the AIA, CBM review is available only for covered business method patents. The AIA defines a CBM patent 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 inventions. AIA 18(d)(1). The corresponding regulations promulgated by the USPTO relating to CBM review merely repeat the language of the statute and do not add any clarity or guidance to the AIA language. See Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 1325 (Fed. Cir. 2015) (noting that, It might have been helpful if the [PTO] had used [its] authority to elaborate on its understanding of the definition [of CBM] provided in the statute. )

14 Unwired Planet argued on appeal that the challenged 752 patent claims do not recite any financial applications and the PTAB improperly instituted CBM review by considering whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity F.3d at 1379 (emphasis added). Based on statements in the patent specification, the PTAB concluded that the inventions could be used for applications potentially leading to commercial activity, such as by providing information from merchants located in close proximity to a wireless device. In a panel decision written by Circuit Judge Jimmie V. Reyna, the Federal Circuit ruled that the PTAB s ruling that the 752 patent was eligible for CBM review was not in accordance with the language of the AIA or congressional intent in enacting the statute. The appeals court noted that the AIA does not include incidental or complementary in its definition of a CBM patent. It further held that the corresponding legislative history does not support the broader definition adopted by the PTAB. The only support for the PTAB s test was a policy statement prepared by the USPTO and a single statement in the AIA s legislative history by Sen. Charles Schumer. The court noted, however, that the legislative history contained other conflicting statements that were much narrower than the PTO s current interpretation, and the USPTO did not include the broader interpretation when it promulgated proposed regulations for CBM proceedings. Moreover, the court noted that, Neither the legislators views nor the PTO policy statement provides the operative legal standard. The authoritative statement of the Board s authority to conduct a CBM review is the text of the statute. Id. at The court ruled that the 752 patent claims do not recite financial or commercial activity, and thus are not eligible for CBM review. Furthermore, rejecting Google s argument for eligibility, it noted that it is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur. Id. at The appeals court explained that: The Board s application of the incidental to and complementary to language from the PTO policy statement instead of the statutory definition renders superfluous the limits Congress placed on the definition of a CBM patent. CBM patents are limited to those with claims that are directed to methods and apparatuses of particular types and with particular uses in the practice, administration, or management of a financial product or service. AIA 18(d). The 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. Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a

15 CBM patent because its practice could involve a potential sale of a good or service. All patents, at some level, relate to potential sale of a good or service. Id. The court held that the criterion for CBM review applied by the PTAB was not in accordance with the AIA. It vacated the PTAB decision and remanded to allow the Board to determine whether the challenged 752 patent claims were eligible for CBM review under the correct criteria. It did not reach a decision on the substantive issues in the appeal, including whether the 752 patent claims are patenteligible under Section 101, given the decision to vacate the institution of the CBM. Given the financial criterion for CBM reviews under the AIA, CBM reviews have not been as numerous as the very popular inter partes review (IPR) proceedings. However, they still pose a serious threat to owners of patents that qualify for CBM review. Unlike IPR proceedings, CBM reviews allow petitioners to challenge the patentability of pre-aia patents on grounds other than patents and printed publications, such as patent ineligibility or indefiniteness. Further, in IPR petitions the petitioner is estopped from raising grounds that they could have raised in the petition, however in CBM review the petitioner may assert any ground in the court as long as it is a different ground than that asserted in the CBM review. The decision in Unwired Planet narrows the universe of patents subject to challenge in CBM proceedings. The decision also may suggest a limit to the Federal Circuit s willingness to defer to USPTO interpretation of AIA procedures. In this case, the agency s criteria for CBM patents lacked a sound basis in either the statutory language or legislative history. F. Application of Substantive Law: PTAB Obviousness Decision Must Provide Reasoned Explanation For Motivation to Combine References In 2016, two significant Federal Circuit cases involved patent owner Nuvasive, Inc. In the first decision, the Federal Circuit vacated a final written decision of unpatentability in an IPR proceeding when the Board relied on references not identified in the petition, although they were disclosed in a different petition filed by the same petitioner. In re NuVasive, Inc., 841 F.3d 966 (Fed. Cir. 2016). Nuvasive owns U.S. Patent No. 8,187,334, relating to spinal fusion implants. Medtronic, Inc. filed two petitions for IPR challenging various claims in the 334 patent. The PTAB ultimately issued a final decision

16 that all but one challenged claim were unpatentable as obvious under 35 U.S.C. 103, based on one reference, Michelson, which had been cited by Medtronic in one IPR petition. Nuvasive appealed, however, on the grounds that the key reference applied by the Board in one IPR proceeding was not cited in the petition for that proceeding. In fact, the petitioner raised the reference in the proceeding for the first time in its reply, in order to rebut an argument raised by the patent owner it its responsive papers. After it became apparent in the proceeding that the petitioner was relying on the previously undisclosed references, the Board denied Nuvasive s request to strike the petitioner s argument or to file a sureply brief. The Federal Circuit noted that: Under the APA s standards, NuVasive was entitled to an adequate opportunity to respond to this asserted fact about Michelson. And under the APA s fact-specific standard, common sense, and this court s precedent, that entitlement was not lessened in this case by virtue of the opportunity NuVasive had to respond to other factual assertions about Michelson. In [Dell Inc. v. Acceleron, LLC, 818 F.3d 1293 (Fed. Cir. 2016)], we held that an opportunity to respond was needed when the petitioner, to make its anticipation showing, newly pointed to a previously unmentioned portion of the allegedly anticipatory prior-art patent, even though it had earlier focused extensively on other portions of that prior-art patent. 818 F.3d at In the related, non-ipr context, we have relied on the APA s requirements to find a new ground where the thrust of the rejection has changed, even when the new ground involved the same prior art as earlier asserted grounds of invalidity. In re Leithem, 661 F.3d 1316, 1319 (Fed. Cir. 2011). Here, the assertion about [the reference] on which the Board ultimately relied is sufficiently distinct from Medtronic s other assertions about Michelson that NuVasive was entitled to the APA-required opportunity to respond to it, under the Administrative Procedure Act. 841 F.3d at 972. This due process right was not satisfied by Nuvasive s ability to discuss the reference in a parallel IPR proceeding, or by the ability to submit its observations, not accompanied by factual submissions. G. Standing: Who Has Standing to Appeal a Final Decision in an AIA Post Grant Proceeding? In a 2017 case, Phigenix, Inc. v. Immunogen, Inc., No , 2017 WL (Fed. Cir. Jan. 9, 2017), the Federal Circuit established for the first time an operative standard for establishing standing to appeal a final agency decision from the USPTO

17 Although the petitioner had the capacity to initiate review under the AIA, that did not automatically provide standing to appeal an adverse result to the Federal Circuit. The court noted that: [A]lthough Article III standing is not necessarily a requirement to appear before an administrative agency, Consumer Watchdog v. Wis. Alumni Research Found., 753 F.3d 1258, 1261 (Fed. Cir. 2014) (citation omitted), an appellant must nevertheless supply the requisite proof of an injury in fact when it seeks review of an agency s final action in a federal court,.. Indeed, the Supreme Court has recognized that not every party will have Article III standing in an appeal from a PTAB final written decision. See Cuozzo Speed Techs., LLC v. Lee, 136 S.Ct. 2131, (2016) (explaining that, although a party that initiated an inter partes review need not have a concrete stake in the outcome, it may lack constitutional standing to sue in federal court) WL at *2. The court recognized the general standard for standing, that the appellant must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the appellee, and (3) that is likely to be redressed by a favorable judicial decision. Id. at *3 (quotation omitted). The court then established the ground rules for applying the standing test: the burden of production of evidence relating to standing, the evidence necessary to sustain the burden, and the time when the appellant must demonstrate standing. As to the burden of production, the court noted that the Supreme Court has held that each element is an indispensable part of an appellant s case and must be supported in the same way as any other matter on which the [appellant] bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation. Id. at *3, quoting Lujan v. Defs. of Wildlife, 504 U.S. at 561. The Federal Circuit concluded that the summary judgment burden of production applies in cases where an appellant seeks review of a final agency action and its standing comes into doubt. Id. As to the second issue, the evidence that will satisfy the burden, the court held that an appellant must either identify... record evidence sufficient to support its standing to seek review or, if there is none because standing was not an issue before the agency, submit additional evidence to the court of appeals, such as by affidavit or other evidence. Id., quoting Sierra Club v. EPA, 292 F.3d 895, 899 (D.C. Cir. 2002). As to the third issue, the point in time at which the appellant must demonstrate standing, the court held that an appellant must identify the relevant evidence demonstrating its standing at the first appropriate time, whether in response to a motion to dismiss or in the opening

18 brief. Id. at *4, quoting Sierra Club, 292 F.3d at 900. The court noted that: Imposing on an appellant the dual obligations of producing the evidence and producing the evidence early in the litigation comports with the reality that such evidence is necessarily peculiar to the appellant and ordinarily within its possession. Thus, if there is no record evidence to support standing, the appellant must produce such evidence at the appellate level at the earliest possible opportunity. Id. (quotation omitted). H. Grounds for Denying Petitions: Can the Federal Circuit Review the Board s Practice of Denying Grounds as Redundant? In addition to creating three new administrative proceedings to allow members of the public to challenge the validity of issued patents without the expense of federal court litigation, the AIA provides that the PTAB must reach a final determination on post grant challenges within 12 months after institution of review proceedings, with a six month extension available for good cause. 35 U.S.C. 316(a)(11). The unexpected popularity of AIA post grant proceedings has resulted in a surprisingly high volume of petitions seeking review. One technique adopted by the USPTO to manage the AIA trial docket is to institute review on less than all the claims, and on less than all the grounds, identified in a petition seeking review. Most controversial is the PTAB s practice of denying institution on grounds deemed redundant of other grounds in the petition. The USPTO justifies redundancy-based denials as an exercise of the agency s broad discretion whether to grant AIA review petitions. The Patent Act and the regulations promulgated by the USPTO regulating AIA trials do not expressly identify redundancy as a ground for denying institution of review on a particular claim or ground, but give the USPTO authority to prescribe regulations. For example, 35 U.S.C. 316(a) states that, The Director shall prescribe regulations... (2) setting forth the standards for the showing of sufficient grounds to institute [IPR review], and 316(b) identifies as factors to be considered in formulating regulations the efficient administration of the Office, and the ability of the Office to timely complete proceedings[.] The Patent Rules governing IPRs merely provide that the Board may deny some or all grounds for unpatentability for some or all of the challenged claims. Denial of a ground is a Board decision not to institute inter partes review on that ground. 37 C.F.R (a)

19 The PTAB explained its rationale for denying petitions based on redundancy in an early CBM decision, Liberty Mutual Ins. Co. v. Progressive Cas. Ins. Co., No. CBM , Paper 7 (PTAB 2012). In Liberty Mutual, the petition identified over 400 different grounds of invalidity directed to 20 claims. The PTAB explained that this large number of combinations created an undue burden on both the patent owner and on the PTAB, and could result in delays in arriving at a final decision. The PTAB placed the burden on the petitioner to identify its strongest ground for challenge, and noted that in the absence of any prioritization the PTAB would institute on grounds it selected. As the PTAB faced increasing volumes of AIA petitions, and limited resources threatened to prevent the agency from reaching final decisions in IPR and CBM proceedings within 12 months from the date of institution, the PTAB increased its use of redundancy as a basis to deny review of some challenged claims. Despite the approach set forth in Liberty Mutual, the PTAB adopted a practice of denying petitions to institute on redundant grounds without affording the petitioner an opportunity to comment on the strength of each ground. As a result, the PTAB may grant a petition for less than all the challenged claims, and even as to those claims the PTAB may consider less than all the references or combination of references alleged to invalidate. For example, in Shaw Indus. Group Inc. v. Automated Creel Sys. Inc., IPR (PTAB), the PTAB denied review on seven of 15 alleged grounds of invalidity, without explanation as to how it evaluated the merits of the grounds. In fact, the PTAB instituted review of less than all the claims, and denied as redundant an allegation that one reference independently anticipated multiple claims. A decision to deny a petition for review on grounds deemed to be redundant creates several potential difficulties for the petitioner. First, the grounds chosen for review may not be the strongest grounds for challenging a patent. Second, the petitioner may never receive substantive review of the grounds deemed redundant, due to time limits for commencing an IPR, and/or by an estoppel arising from a final determination in which the claim survives the ground chosen for review. See, e.g., 35 U.S.C. 315(a)(1) (IPR must be filed within one year of action by petitioner or real party in interest seeking to invalidate patent) and 315(e) (estoppel bars petitioner from asserting in a later proceeding any ground that that the petitioner raised or reasonably could have raised during IPR proceeding). The Federal Circuit

20 had an opportunity to review the PTAB s practice of denying petitions as redundant in the Shaw Industries case. In Shaw Industries, the petitioner petitioned for IPR of 21 claims in the challenged patent, asserting 15 different grounds. The PTAB initiated on all but 1 claim, but only based on 2 grounds. The remaining grounds were denied as redundant in light of [its] determination that there is a reasonable likelihood that the challenged claims are unpatentable based on instituted grounds. Shaw Indus. Grp., Inc. v. Automated Creel Sys., Inc., 817 F.3d 1293 (Fed. Cir.), cert. denied, 137 S. Ct. 374 (2016). During oral argument in an appeal of the Shaw Industries matter, two Federal Circuit judges closely questioned the USPTO s counsel concerning the PTAB s use of redundancy as a means to pare issues in AIA review proceedings. The USPTO admitted that petitions are denied, in part, based on redundancy as an administrative measure to allow the PTAB to manage its volume of AIA trial proceedings. The USPTO contended that a decision to deny review on redundancy was not a substantive agency decision, and was based on practical considerations relating to the board s ability to complete review within the prescribed one-year time limit. In addition, the USPTO continued to press its position that a PTAB decision to institute is not subject to judicial review. The Federal Circuit panel was openly skeptical of the USPTO s position. When the agency agreed with Circuit Judge Kimberly A. Moore s understanding that a denial of institution on redundancy grounds was not a substantive determination, but rather meant that the issues not instituted were redundant in terms of too many different grounds of rejection, she criticized the practice as resembling Putting a blindfold on and throwing darts at a wall and deciding which grounds to go forward with. I see no rhyme, reason, or logic in the decisions made. For example, Judge Moore pointed out that the PTAB decided that one reference cited by the petitioner in Shaw was redundant, and did not institute review based on that reference, even though it was the only reference cited as anticipating numerous claims in the challenged patent. Circuit Judge Jimmie V. Reyna criticized the practice as amounting to a substantive decision, stating that, You are doing something that prevents in my opinion some litigants from... having their day in court. In the panel decision, however, despite the concerns expressed by the judges during oral argument, the Federal Circuit accepted the Board s practice. We can see benefit in the PTO having the ability to institute IPR on only some of the claims and on only some of the

21 proposed grounds, particularly given the Board s statutory obligation to complete proceedings in a timely and efficient manner. 817 F.3d at The court concluded that: We cannot say we agree with the PTO s handling of Shaw s petition. We also cannot say that the PTO s decision made the proceeding more efficient, particularly given that [one ground not instituted] alleged anticipation by a single reference while the two instituted grounds were alleged obviousness over combinations of references. We have no authority, however, to review the Board s decision to institute IPR on some but not all grounds. Denial of a ground is a Board decision not to institute inter partes review on that ground. 37 C.F.R (b). 817 F.3d at In his concurring opinion, Judge Reyna noted that, [R]egardless of whether the Board s institution decisions can be appealed, the Board cannot create a black box decisionmaking process. Conclusory statements are antithetical to the requirements of the Administrative Procedures Act (APA), which the PTO and its Board are subject to.... The PTO has lost sight of its obligation to consider the effect of its implementation of the IPR process on the integrity the patent system as a whole. 35 U.S.C. 316(b). I. Application of Substantive Law: PTAB Obviousness Decision Must Provide Reasoned Explanation For Motivation to Combine References Although the Federal Circuit generally has deferred to the PTAB on some procedural issues, the court recently has taken a closer look at both substantive and procedural aspects of Board final decisions finding challenged claims invalid. In a significant case, In re Nuvasive, Inc., 842 F.3d 1376 (Fed. Cir. 2016), the appeals court vacated a PTAB decision ruling that challenged claims were unpatentable as obvious when the Board failed to articulate a reasoned explanation for combining two prior art references. This decision provides patent owners with much-needed relief from tenuous conclusory arguments that claims are obvious based on combinations of prior art references without a specific reasoned motivation for the combination, and may serve as notice to petitioners that conclusory obviousness arguments should not succeed at the PTAB. When combined with another recent case involving the same patent owner, in which the appeals court criticized the Board for basing an obviousness rejection of a reference not identified in the petition for review, the cases may indicate to trend toward increased judicial supervision of AIA rulings. See In re Nuvasive, Inc., 841 F.3d 966 (Fed. Cir. 2016), discussed above

22 The appeal involved an inter partes review proceeding initiated by Medtronic, Inc. concerning Nuvasive s U.S. Patent No. 8,361,156, relating to spinal fusion implants. The Board entered a final written decision that several challenged claims were unpatentable as obvious under 35 U.S.C. 103, ruling that a person skilled in the art would have combined cited references to arrive at the claimed invention. In its final decision, the PTAB acknowledged the arguments advanced by the parties on whether a person skilled in the art would have combined the references and rejected Nuvasive s arguments. It also noted that the level of skill in the relevant art was very high, and that Nuvasive s position vastly underestimate[d] the ordinary skill of surgeons in this field. However, the PTAB never actually made an explanationsupported finding that the evidence affirmatively proved that the PHOSITA would have made the combination. 842 F.3d at On appeal, Nuvasive raised two arguments. First, it argued that the cited references were not prior art printed publications because they were not accessible to the public. On this point, the Federal Circuit ruled that the argument was waived because Nuvasive did not include it in its trial submissions and expressly abandoned the argument at trial. Nuvasive was successful on its second argument, however. Reviewing the Board s decision for substantial evidence, the court ruled that the final decision was not supported by an adequate finding of a motivation to combine. The Federal Circuit noted that, in applying KSR Int l Co. v. Teleflex Inc., 550 U.S. 398 (2007), it has consistently looked for a stated motivation to combine when a combination of prior art references is the basis of an obviousness rejection. [T]he factual inquiry whether to combine references must be thorough and searching and [t]he need for specificity pervades [our] authority on the PTAB s findings on motivation to combine. 842 F.3d at , quoting In re Lee, 277 F.3d 1338 (Fed. Cir. 2002)(quotation omitted). The court noted that although the stated rationale need not be perfect, and is not a rigid and mandatory formula, the PTAB must articulate a reason why a PHOSITA would combine the prior art references. 842 F.3d at 1382 (emphasis in original). The appeals court observed that it previously has accepted rationales such as reducing waste in a production process, and allowing a greater degree of movement in a mechanical device. On the other hand, an explanation is not sufficient where it is a conclusory statement without a reasoned explanation, simply a rejection of patent owner arguments disputing a motivation to combine, or invocation of common sense alone

23 Against this standard, the court ruled that the PTAB had failed to provide a reasoned explanation for its conclusion that a motivation to combine the references existed. Although the USPTO argued that the Board effectively adopted Medronic s arguments advocating obviousness, the court noted that the PTAB did not articulate why PHOSITA would have been motivated to combine the references. Additionally the court noted that the PTAB failed to articulate a reason why the PHOSITA would have been motivated to modify the prior art. The court vacated the final decision and remanded for additional findings on the motivation issue. 842 F.3d at This result strongly suggests that conclusory statements and superficial analysis of motivations to combine are insufficient to establish a prima facie case under 35 U.S.C. 103, that the burden of proof to establish motivation in IPR proceedings lies squarely with the petitioner, and the PTAB must make specific findings regarding a motivation to combine in its decisions. J. Reconstruing Claims: Claim Construction in Final Decision May Not Deviate from Institution Decision Even though the Federal Circuit agreed with the Patent Trial and Appeal Board s new claim construction in the final written decision, the Court found that the Board erred by adopting a new construction for a term it had construed differently in its institution decision. SAS Institute, Inc. v. ComplementSoft, LLC, 825 F.3d 1341 (Fed. Cir. 2016). The Federal Circuit vacated and remanded the portions of the Board s final written decision that relied on the new claim construction. Judge Stoll noted that in the context of IPR proceedings, the Board may not change theories in midstream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory. In the final written decision, the Board found one of the instituted claims patentable because the prior art did not disclose the newlyconstrued limitation graphical representations of data flows. The Federal Circuit pointed out that the patent owner, ComplementSoft, agreed with the institution decision claim construction; and likewise, SAS, the petitioner, focused on the same claim construction in its reply. It is difficult to imagine either party anticipating that already-interpreted terms were actually moving targets, and it is thus unreasonable to expect that they would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent. This is