On July 25, 2016, in In re Magnum Oil Tools Int’l, Ltd., Case No. 2015-1300, the Federal Circuit clarified the respective burdens carried by both the petitioner and the patentee in an inter partes review proceeding. The court reversed the Board’s decision that the challenged claims of U.S. Patent No. 8,079,413, directed to oil drilling through the use of hydraulic fracturing (“fracking”), would have been obvious, holding that neither the Board nor the petitioner had established a prima facie case of obviousness, and that the Board had improperly shifted the burden of proving nonobviousness to the patent owner following the Board’s institution decision.
The patent owner argued that neither the patent challenger nor the Board had ever established a prima facie case for the rejection. The PTO took the position that, upon institution of the IPR, the petitioner had demonstrated a “reasonable likelihood of success,” reasoning that this finding by the Board operated to ultimately shift the burden of producing evidence of nonobviousness to the patentee. The court found that this argument by the PTO incorrectly implied that “the Board’s conclusion on obviousness in an IPR can be based on less than a preponderance of the evidence if the patent holder does not affirmatively disprove the grounds upon which the IPR was initiated.” Id. at 14.
In its discussion, the court explained the two distinct burdens of proof: a burden of persuasion and a burden of production. The burden of persuasion “is the ultimate burden assigned to a party who must prove something to a specified degree of certainty, such as by a preponderance of the evidence or by clear and convincing evidence.” Id. (citing Dynamic Drinkware, LLC v. Nat’l Graphics, Inc., 800 F.3d 1375, 1378 (Fed. Cir. 2015)). The court clarified that, while shifting of the burden of persuasion may make sense in a prosecution context, allocating the burdens of going forward as between examiner and applicant, “[i]n an inter partes review, the burden of persuasion is on the petitioner to prove ‘unpatentability by a preponderance of the evidence,’ 35 U.S.C. § 316(e), and that burden never shifts to the patentee.” Id. (citing Dynamic Drinkware, 800 F.3d at 1378).
Conversely, the burden of production may entail “producing additional evidence and presenting persuasive argument based on new evidence or evidence already of record.” Id. (citing Tech. Licensing Corp. v. Videotek, Inc., 545 F.3d 1316, 1327 (Fed. Cir. 2008)). The Federal Circuit went on to explain that the burden of production may shift from the patent challenger to the patentee, but only in certain circumstances, such as in the context of establishing conception and reduction to practice, or in asserting an affirmative defense to a rejection based on establishing an earlier date of priority than the allegedly anticipatory reference. In either case, the patentee affirmatively seeks to establish a proposition not relied upon by the patent challenger, and thus a shifting of the burden of production is proper. In the context of obviousness, however, burden-shifting is unwarranted because “the patentee’s position is that the patent challenger failed to meet its burden of proving obviousness.” Id. at 16.
The Federal Circuit relied on the “adjudicatory context of an IPR” in explaining that the burden-shifting framework used in prosecution is not appropriate for PTAB proceedings. Id. at 15. The Federal Circuit’s characterization of IPR proceedings as “adjudicatory” to support the decision in In Re Magnum Oil presents an interesting contrast with the Supreme Court’s characterization of IPR proceedings in Cuozzo Speed Technologies, LLC v. Lee, No. 15-446, 579 U.S.___ (2016). In Cuozzo, the Supreme Court detailed at length the “examinatory” aspects of an IPR proceeding as a basis for determining that “broadest reasonable interpretation” is the proper standard for claim construction at the PTAB. It will be interesting to see how both courts reconcile their differing characterizations of IPRs in future cases and how that may affect the way in which the Board, the Federal Circuit and the Supreme Court ultimately rule on those issues yet to be addressed.