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Why the Disconnect? Federal Circuit Reverses Yet Another Inherent Obviousness Decision

On March 8, 2019, in Personal Web Technologies, LLC v. Apple, Inc., No. 2018-1599 (Fed. Cir. Mar. 8, 2019) the Federal Circuit reversed the Patent Trial and Appeals Board’s (the “Board” or “the PTAB”) cancellation of U.S. Patent No. 7,802,310 (“the ’310 patent”) based on inherent obviousness in an inter partes review (“IPR”).   Another in a growing series of reversals for improper inherent obviousness findings, Personal Web further highlights the disconnect between the Federal Circuit’s edicts on inherent obviousness and the USPTO’s and district courts’ misapplications of that doctrine.[i]  While the Federal Circuit has repeatedly and consistently decreed that inherent obviousness is a narrow doctrine with a high burden to be met,[ii] the PTAB continues to rely on the inherent obviousness doctrine as a gap-filling tool without satisfying the proper standards and evidentiary showings.  Lack of proper guidance in the Manual of Patent Examining Procedure (“MPEP”) and USPTO training materials likely exacerbates this disconnect.

Personal Web owns the ’310 patent which is directed to controlling access and delivery of data by naming data items based on a content-generated name rather than a user-generated name. The processing system uses a function to generate and assign a unique identifier based on the data item’s contents. The content-based identifiers are listed in a database along with the corresponding authorized users. When new data is transferred from a first computer to a second computer, the system prevents duplicates by comparing the incoming identifiers to existing content-based identifiers.  The system determines whether a user is authorized to access the data item by referencing the database of identifiers and corresponding authorized users.

In September 2013, Apple filed a petition requesting an IPR of the ’310 patent on obviousness grounds. The Board instituted the IPR in March 2014. Apple claimed the ’310 patent was obvious over Woodhill in view of Stefik. Woodhill discloses a backup and restore system which divides files into 1 MB binary objects, assigns each object a “Binary Object Identification” corresponding to the object’s contents, and records the name and backup information in a “Binary Object Identification Record.” Stefik discloses an authentication system for controlling access to digital works by storing in a repository each digital work’s unique identifier and associated usage rights.

Although Woodhill did not expressly disclose the claim limitation “causing the content-dependent name of the particular data item to be compared to a plurality of values,” the Board adopted the inherent obviousness conclusion of Apple’s expert.  According to the Board and Apple’s expert, the Woodhill system necessarily must be able to compare its local files to the Binary Object Identification Record in order to restore data.[iii]

The Federal Circuit rejected the Board’s reliance on inherency in reaching its conclusion of obviousness. Quoting PAR Pharm., Inc. v. TWI Pharm., Inc., 773 F.3d 1186 (Fed. Cir. 2014), the court explained that “[i]nherency . . . may not be established by probabilities or possibilities . . . . The mere fact that a certain thing may result from a given set of circumstances is not sufficient . . . . Rather, a party must show that the natural result flowing from the operation as taught would result in the performance of the questioned function.”[iv] The Federal Circuit explained the while it was possible that Woodhill’s system used an unstated Binary Object Identifier lookup table, mere possibility is not enough. Personal Web suggested, an “equally plausible, if not more plausible,”[v] understanding of Woodhill: that Woodhill’s system uses conventional user-generated file names to locate files. As further support for this understanding, the Federal Circuit pointed to Woodhill’s disclosure that its system “obtains from the user the identities of the current and previous versions of the file (comprised of binary objects) which needs to be restored.”[vi] Accordingly, the Federal Circuit reversed the Board’s finding of obviousness because the Board’s reliance on inherency was improper given that there was no evidence that the claimed lookup table existed in the prior art. Additionally, the Federal Circuit considered the parties’ remaining arguments and found them unpersuasive.

The confusion associated with this area of the law that is highlighted by these reversals by the Federal Circuit is also clearly represented in and likely propagated by the guidance that the USPTO provides to patent examiners.  In the most recent edition of the MPEP, which was revised in January 2018, the analysis for inherent anticipation and inherent obviousness is described jointly and without distinction between the two doctrines. According to MPEP 2112, Requirements of Rejection Based on Inherency; Burden of Proof, “[t]he inherent teaching of a prior art reference, a question of fact, arises both in the context of anticipation and obviousness. . . . In relying upon the theory of inherency, the examiner must provide a basis in fact and/or technical reasoning to reasonably support the determination that the allegedly inherent characteristic necessarily flows from the teachings of the applied prior art.”[vii] Despite reversals by the Federal Circuit in over a dozen inherent obviousness cases before January 2018, the USPTO has failed to provide guidance to examiners on the proper analysis.  As evidenced by the number of Federal Circuit decisions reversing the Board, it is clear that the Board continues to propagate such errors.

In Honeywell Int’l Inc. v. Mexichem Amanco Holding S.A. DE C.V., 865 F.3d 1348 (Fed. Cir. 2017), the Federal Circuit explained, “[w]hat is important regarding properties that may be inherent, but unknown, is whether they are unexpected. All properties of a composition are inherent in that composition, but unexpected properties may cause what may appear to be an obvious composition to be nonobvious.”[viii] Honeywell Int’l Inc. highlighted that a difference between inherent obviousness and inherent anticipation is inherent obviousness must be examined against the backdrop of the Graham factors.[ix]  On the other hand, MPEP 2112.01(II) only provides the following guidance: “‘Products of identical chemical composition can not have mutually exclusive properties.’ In re Spada, 911 F.2d 705, 709, 15 USPQ2d 1655, 1658 (Fed. Cir. 1990). A chemical composition and its properties are inseparable. Therefore, if the prior art teaches the identical chemical structure, the properties applicant discloses and/or claims are necessarily present. Id.”

In practice, and despite over a dozen reversals by the Federal Circuit, the USPTO continues to use this boilerplate in obviousness analyses where neither cited reference teaches the claimed invention, but rather a combination of multiple references is cited as suggesting the claimed invention if those references are combined and modified.  Taking this doctrine a step further, U.S. examiners often combine the inherent obviousness doctrine with the routine optimization doctrine to assert that even when the claimed elements are not found in any combination of the multiple cited references, it would be routine to combine and optimize various elements chosen from the multiple references in order to arrive at what is claimed and, upon doing so, all of the resultant properties, advantages, and results are inherent.  In doing so, the USPTO and district courts bootstrap to conclude inherency where none exists.

For example, in Millennium Pharm., Inc. v. Sandoz Inc., 862 F.3d 1356 (Fed. Cir. 2017), the Federal Circuit explained that “[t]he district court’s error stems from its determination that Millennium should have compared the glycerol bortezomib ester,” which was not “specifically disclosed, prepared, or tested in the [prior art]” and that, instead, “the district court should have treated bortezomib as the closest prior art compound, and acknowledged the unrebutted evidence that the D-mannitol ester of bortezomib exhibited unexpected results compared with bortezomib.” Millennium Pharm., Inc., 862 F.3d at 1369.  The Federal Circuit held that “‘[t]he applicant is not required to create [and test] prior art, nor to prove that his invention would have been obvious if the [actually existing] prior art were different than it actually was’” to rebut an allegation of inherent obviousness.  Id. (quoting In re Geiger, 815 F.2d 686, 690 (Fed. Cir. 1987)).  Conflicting with the Federal Circuit’s explanation of the law of inherent obviousness in Millennium Pharm., the MPEP provides the following guidance to examiners: “Where the claimed and prior art products are identical or substantially identical in structure or composition, or are produced by identical or substantially identical processes, a prima facie case of either anticipation or obviousness has been established. In re Best, 562 F.2d 1252, 1255, 195 USPQ 430, 433 (CCPA 1977).” M.P.E.P. 2112.01(I).  And in response to arguments explaining that the USPTO has failed to establish that the claimed elements or properties are inherently present, the boilerplate response from patent examiners is that “[t]he arguments of counsel cannot take the place of evidence in the record.”  M.P.E.P. 2145(I).

Additionally, the MPEP Requirements of Rejection Based on Inherency does not include the full inherent obviousness standard.  In Personal Web, the Federal Circuit highlighted that “[i]nherency . . . may not be established by probabilities or possibilities . . . . The mere fact that a certain thing may result from a given set of circumstances is not sufficient.” However, the MPEP section governing rejections based on inherency contains no similar language. Rather, this language is found in the section providing guidance for the 35 U.S.C. § 112 written description analysis (MPEP 2163: Guidelines for the Examination of Patent Applications Under the 35 U.S.C. 112(a)).  To properly guide examiners and reduce the number of improper rejections based on inherent obviousness, MPEP section 2112 should be updated to include this language or, better yet, a new and separate section dedicated to the proper analysis of inherent obviousness should be provided.

By updating the USPTO training materials (including training and resources for administrative patent judges) and the MPEP to reflect the Federal Circuit’s distinction between inherent obviousness and inherent anticipation, it would be possible to greatly reduce erroneous decisions both during prosecution and at the Board.  Clearer guidelines and an emphasis on applying the doctrine narrowly as intended can reduce the number of improper rejections under this doctrine. Until then, we expect to see continued reversals of claim rejections and cancellations premised on improper inherent obviousness analyses.

[i]           See, e.g. L.A. Biomedical Research Inst. at Harbor-UCLA Med. Ctr. v. Eli Lilly & Co., 849 F.3d 1049, 1067 (Fed. Cir. 2017) (“[T]he Board erroneously concluded that arresting or regressing fibrosis is an inherent effect of any regimen exceeding 45 days regardless of the dosage”); Vivint, Inc. v. Alarm.com Inc., 741 F. App’x 786, 792 (Fed. Cir. 2018) (“We therefore conclude that the Board’s finding that the terminal identifier limitation is inherently disclosed in Johnson was not supported by substantial evidence.”); Honeywell Int’l Inc. v. Mexichem Amanco Holding S.A. DE C.V., 865 F.3d 1348, 1355 (Fed. Cir. 2017) (“[T]he Board here, in dismissing properties of the claimed invention as merely inherent, without further consideration as to unpredictability and unexpectedness, erred as a matter of law.”); Southwire Co. v. Cerro Wire LLC, 870 F.3d 1306, 1311 (Fed. Cir. 2017) (“We conclude that the Board erred in relying on inherency without finding that Summers necessarily would achieve a 30% reduction in pulling force, but rather finding that it merely renders that limitation obvious.”); In re Durance, 891 F.3d 991, 1001 (Fed. Cir. 2018) (vacating and remanding because “[t]he Patent Office’s discussion of inherency also resulted in moving target rejections for Durance to traverse.”); Hill-Rom Servs., Inc. v. Matal, 716 F. App’x 996, 1004 (Fed. Cir. 2017) (“To the extent the PTO argues that these statements imply that the Board found that Kummer’s unmodified diagnostic tool is a master module, or that Zeltwanger inherently discloses a master module, we reject that argument.”); Rovalma, S.A. v. Bohler-Edelstahl GmbH & Co. KG, 856 F.3d 1019, 1025 (Fed. Cir. 2017) (“[T]he Board found that a person of ordinary skill “would have at least inherently completed the ‘selecting’ steps” and apparently determined that the other steps would have been obvious in view of Rovalma’s submissions. Id. But it did not explain the evidentiary basis for those determinations . . . .”); In re Imes, 778 F.3d 1250, 1255 (Fed. Cir. 2015)  (rejecting the Board’s finding that “streaming video or, as construed, continuous video transmission” is inherent in “sending out an e-mail message with a video file attached does not disclose” because it is not necessarily present); PAR Pharm., Inc. v. TWI Pharm., Inc., 773 F.3d 1186 (Fed. Cir. 2014) (“While it may be true that a reduction in particle size naturally results in some improvement in the food effect, the district court failed to conclude that the reduction in particle size naturally results in ‘no substantial difference’ in the food effect.”); Millennium Pharm., Inc. v. Sandoz Inc., 862 F.3d 1356, 1367 (Fed. Cir. 2017) (finding the district court clearly erred in holding “that the claims were obvious because they were the inherent result of an allegedly obvious process, viz., lyophilizing bortezomib in the presence of the bulking agent mannitol.”).

[ii]           PAR Pharm., Inc., 773 F.3d at 1195.

[iii]          Personal Web Techs., LLC v. Apple, Inc., No. 2018-1599, at *8 (Fed. Cir. Mar. 8, 2019) (citing Apple’s petition).

[iv]          Id. (emphasis in original) (citations omitted).

[v]           Id.

[vi]          Id. (citing Woodhill at 17:28–32).

[vii]         MPEP 2112 (internal quotations omitted); see also U.S. Patent & Trademark Office, 35 U.S.C. 102 & 103 Workshop: USPTO Examiner Training 89 (2018) [hereinafter PTO training material].

[viii]         Honeywell Int’l Inc., 865 F.3d at 1355.

[ix]          Id.; see also Daniel P. O’Brien & W. Murray Spruill, Does Inherency Have a Place in Determinations of Obviousness?, 32 Biotechnology Law Report 3, 7 (2013) (“A prima facie case of obviousness that relies on inherency requires the examiner to put forth a reasoned explanation within the Graham framework as to why the inherent element was present in the prior art based on knowledge available at the time of invention.” (citing W.L. Gore & Assoc. v. Garlock Inc., 721 F.2d 1540, 1555 (Fed. Cir. 1983))).