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What’s at stake in Aqua Products

In In re Aqua Products, Inc., No. 2015-1177, the Federal Circuit is revisiting en banc its prior precedent upholding the Patent Trial and Appeal Board’s approach of allocating to the patentee the burden of showing that a proposed amended claim in an IPR would overcome the art of record.[i]

The PTO has promulgated regulations allowing the Board to deny a motion to amend if it expands claim scope or “does not respond to a ground of patentability involved in the trial,”[ii] and placing the burden for any motion on the movant.[iii] In Idle Free Systems, Inc. v. Bergstrom, Inc., the Board interpreted the regulations to place the burden on the patentee to show that the proposed amendments would make the claims patentable over the known prior art.[iv]

In In re Aqua Products, Inc., Aqua, the patentee, argues that the Board’s burden allocation for amended claims is improper. Aqua relies on 35 U.S.C. § 316(e), which provides, “EVIDENTIARY STANDARDS.–In an inter partes review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.”[v] Aqua also cites § 316(d), which does not require the patent owner to prove the patentability of the amended claim, only that the amendment “not enlarge the scope of the claims of the patent or introduce new matter.” [vi] Also relevant is § 316(a)(9), which provides: “REGULATIONS.–The Director shall prescribe regulations—…(9) setting forth standards and procedures for allowing the patent owner to move to amend the patent under subsection (d).[vii]

Aqua argues that § 316(e) unambiguously states that the petitioner, not the patentee, bears the burden of proving unpatentability, and because the statute does not distinguish between original and amended claims, § 316(e) applies equally to both. Aqua thus argues that the Board’s requirement that the patent owner prove patentability is entitled to no Chevron deference. Aqua also argues that the Board’s burden allocation finds no support in § 316(a)(9), which does not impose a burden of proof, or PTO Rule 42.121(a)(2)(i), which requires that a motion to amend “respond to a ground of unpatentability involved in the trial.”

Aqua further argues that other PTO regulations may be entitled to Chevron deference but the Board’s Idle Free decision is nonbinding and reviewed under § 706 of the APA. Aqua further argues that Idle Free in any case must be rejected because it conflicts with § 316(e) and finds no support in either (1) § 316(a)(9), which does not impose a burden of proof; or (2) Rule 42.121(a)(2)(i), because it only requires that a motion to amend “respond to a ground a patentability involved in the trial;” or (3) Rule 42.20(c), which imposes upon the movant the burden to establish entitlement to relief because the only relief requested is have the substitute claims be added to the IPR and the only requirement for such relief is compliance with § 316(d)(3).

Aqua also argues that an IPR is a trial, not examination, and therefor the Board may never raise patentability challenges on its own, but rather is limited to arguments made by the petitioner. If a petitioner inadequately challenges an amended claim that otherwise complies with § 316(d), the Board should include the amended claim in the published certificate. Aqua Products argues that this is fair because an amended claim is simply a narrower version of a claim the PTO previously examined and granted. Aqua adds that challenges to the claim can be made by other parties in subsequent proceedings, or by the Director in an ex parte reexamination.

The PTO takes a contrary position. The PTO’s primary argument is that its interpretation and application of Rules 42.121 and 42.20 is a valid exercise of its regulatory authority. The PTO argues that § 316(a)(9) expressly authorizes it to set forth standards and regulations for amendment practice. The PTO further argues that its practice is in accord with the established practice that a movant generally bears the burden of persuasion. Finally, the PTO argues that from a policy perspective the patentee is in the best position to understand the prior art and how it relates to the amended claims, and a contrary rule would allow patentees to obtain claims in issued patents that may have not been rigorously tested, for example, where the petitioner settled with the patentee and did not oppose the amendment.

There were also a substantial number of amicus briefs. Six amici agreed with Aqua that § 316(e) unambiguously places the burden of persuasion on the petitioner to prove amended claims are unpatentable. (IPO, AIPLA, Houston-IPLA, BIO, PhRMA, and Case Western). However, the amici did not agree on the patent owner’s burden of production (as compared to the ultimate burden of persuasion), or how to handle an amended claim that the petitioner does not challenge. Additionally, another group of twelve amici from the computer industry agreed with the PTO on both questions.

At oral argument, most judges seemed to side with Aqua. Judges Moore, Reyna, and Dyk questioned whether Idle Free is entitled to Chevron deference and we expect the court will address the important issue of deference to precedential Board decisions under either Chevron or the APA. Judges O’Malley and Taranto also both drew a distinction between the patent owner’s burden to show that the amended claim should be added to the IPR and petitioner’s burden to show that the amended claim, if added, is unpatentable. Judge Chen was the most sympathetic to the PTO’s position that § 316(e) does not apply but sought clarification regarding the regulatory support for Idle Free.

The Federal Circuit appears poised to lower the patent owner’s burden for amending claims and to place the burden of proving unpatentability of amended claims on the Petitioner. What is less clear, however, is whether the Board will be able to raise its own patentability challenges sua sponte when the petitioner does not challenge the amended claims. That latter question has major implications for patent owners as it could significantly influence the decision whether to settle with Petitioner after institution but before a final decision. Stay tuned for further analysis after the Federal Circuit issues its opinion.

[i] Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292, 1307-08 (Fed. Cir. 2015); Prilotec, Inc. v. ScentAir Techs., Inc., 807 F.3d 1353, 1363 (Fed. Cir. 2015); Nike, Inc. v. Adidas AG, 812 F3d 1326, 1333-34 (Fed. Cir. 2016).

[ii] 37 C.F.R. § 41.121.

[iii] 37 C.F.R. § 42.20(c).

[iv] Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027, 2013 Pat. App. LEXIS 6302 (PTAB June 11, 2013).

[v] 35 U.S.C. § 316(e) provides: “EVIDENTIARY STANDARDS.–In an inter partes review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.”

[vi] 35 U.S.C. § 316(d) provides: “AMENDMENT OF THE PATENT.–

(1) IN GENERAL.–During an inter partes review instituted under this chapter, the patent owner may file 1 motion to amend the patent in 1 or more of the following ways:

(A) Cancel any challenged patent claim.

(B) For each challenged claim, propose a reasonable number of substitute claims.

(2) ADDITIONAL MOTIONS.–Additional motions to amend may be permitted upon the joint request of the petitioner and the patent owner to materially advance the settlement of a proceeding under section 317, or as permitted by regulations prescribed by the Director.

(3) SCOPE OF CLAIMS.–An amendment under this subsection may not enlarge the scope of the claims of the patent or introduce new matter.”

[vii] 35 U.S.C. § 316(a)(9) provides: “REGULATIONS.–The Director shall prescribe regulations—…(9) setting forth standards and procedures for allowing the patent owner to move to amend the patent under subsection (d) to cancel a challenged claim or propose a reasonable number of substitute claims, and ensuring that any information submitted by the patent owner in support of any amendment entered under subsection (d) is made available to the public as part of the prosecution history of the patent….”