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Ultratec v Captioncall – Further Scrutiny of PTAB Practices?

In Ultratec, the Federal Circuit highlighted several problems with the Patent Trial and Appeal Board’s (“PTAB” or “Board”) permissive rules of trial proceedings and held that the PTAB abused its discretion in the consideration of supplemental information.

By way of background, Ultratec sued Captioncall for infringement of eight patents directed to systems for assisting deaf or hard-of-hearing users to make phone calls.  The case proceeded to trial where the jury found the patents to be valid and infringed and awarded damages of $44.1 million.  In parallel, Captioncall filed IPRs to contest the validity of the patents-in-suit.  The district court stayed all post-judgment proceedings pending final resolution of the IPRs.

Captioncall had retained the same expert witness for the district court litigation and the IPRs.  The expert witness testified about the same issues and references in both proceedings.  According to Ultratec, the expert witness’s trial testimony addressing a prior art reference was inconsistent with his IPR written declarations on that same point.  Ultratec sought to introduce the allegedly inconsistent testimony in the IPRs as supplemental information.

Ultratec first moved to introduce the testimony as supplemental information, but the Board denied and expunged this motion from the record because Ultratec had not first requested authorization to file the motion.

Within one week of the jury trial, Ultratec requested authorization to file a motion to submit the testimony.  The Board held a conference call to consider Ultratec’s request.  The testimony was not reviewed during the conference call and the request was denied without any written record of such.

Two weeks after the conference call, an oral hearing was held and the Board issued final written decisions shortly thereafter.  In holding that every challenged claim in the patents-in-suit was either anticipated or would have been obvious, the Board relied heavily on Captioncall’s expert witness in the decision and cited to the expert witness’s testimony over thirty times to support its findings.

Ultratec moved for reconsideration on a variety of grounds, including the Board’s failure to consider the expert witness’s trial testimony and the failure to provide an explanation of its decision to exclude the new evidence.  The motion for reconsideration was denied.

On appeal, the Federal Circuit reviewed the Board’s consideration of the supplemental information for abuse of discretion.  The Federal Circuit explained that a party seeking to submit supplemental information more than one month after the date the trial is instituted must request authorization to file a motion to submit the information.  37 CFR § 42.123(b).  The request to submit new information must show: (1) why the supplemental information reasonably could not have been obtained earlier, and (2) that consideration of the supplemental information would be in the interest-of-justice.  Id.

The Federal Circuit held that “[t]his record affords but one reasonable conclusion: Ultratec satisfied both of § 42.123(b)’s requirements for allowing Ultratec to file a motion to admit [the expert] trial testimony.”  (Slip op. at 10.)  First, the testimony could not have been obtained earlier because the testimony did not exist during the IPR discovery period and Ultratec requested authorization the week after the trial concluded.  Second, it would be in the interest-of-justice to consider sworn inconsistent testimony of the same expert addressing the same issues in the IPRs.  If indeed inconsistent, the testimony would be highly relevant to the Board’s analysis of the specific issues on which the expert gave contradictory testimony and to the Board’s overall view of his credibility.  The Federal Circuit also explained that the admission and review of the expert testimony would have placed minimal burden on the Board.

Most notably, the Federal Circuit highlighted three problems with the Board’s rules of trial proceedings.

First, the Board lacked the information necessary to make a reasoned decision because the Board’s procedures allowed the Board to deny the request to admit evidence without ever seeing the evidence it was denying.

Second, the Board’s procedures allowed it to make significant evidentiary decisions without providing an explanation or a reasoned basis for its decisions.

Third, the Board’s procedures impeded meaningful appellate review of the agency decision-making.  The Federal Circuit noted that in district court litigation, a party dissatisfied with a ruling excluding evidence is allowed to make an offer of proof to preserve error, but parties in IPRs are not provided with similar protections.  Fed. R. Evid. 103.  In this case, the Federal Circuit found that the Board’s failure to provide a reasoned basis for its denial and exclusion of information regarding this issue from the record contributed to the unreviewability of the Board’s decision-making.

Ultimately, the Federal Circuit held that the Board abused its discretion when it denied the request to admit the expert testimony and failed to explain its decision.  The IPR final written decisions were vacated and remanded.

The Federal Circuit’s identification of problems with various PTAB rules and procedures in this case, combined with the Federal Circuit’s criticism of the PTAB’s joinder practice and use of expanded panels in the recent Nidec case (see our previous article regarding Nidec Motor Corp. v. Zhongshan Broad Ocean Motor Co.), indicates a growing concern with the established procedures for IPRs and the Board’s exercising of its discretion in accordance to those procedures.