The Federal Circuit, as an appellate court, defers to the findings of the Patent and Trial Appeal Board (the “Board”).  But that deference only goes so far.  The Federal Circuit’s December 1, 2017, non-precedential opinion in Microsoft Corporation v. Parallel Networks Licensing, LLC, is another example of the Federal Circuit requiring the Board to address the arguments raised before it and provide a reasoned basis for its conclusions.  In Parallel Networks, the Federal Circuit concluded that the Board came up short in two respects.

Briefly, Parallel Networks involved “U.S. Patents 5,894,554 and 6,415,335 (the Parallel Patents), which describe and claim systems for managing the handling of requests for World Wide Web pages having dynamic (changing) content.”  Slip Op. at 1.  Microsoft filed four inter partes review petitions with respect to the Parallel Patents, resulting in two instituted consolidated proceedings.  IBM filed four similar petitions, and those were likewise consolidated.  Ultimately, though, the Board found that the petitioners had failed to carry their burden.  Petitioners appealed.

The Federal Circuit first dismissed Petitioners claim construction argument.  Next, Petitioners argued that the Board failed to address one of their stated grounds for anticipation.  The Federal Circuit agreed.  Although the Board had addressed one anticipation argument with respect to the art in question, the Board apparently failed to address a second, independent, ground for anticipation within the same art.  Accordingly, the Federal Circuit instructed the Board to address the argument on remand.

Finally, Petitioners argued that the Board incorrectly concluded that they had failed to establish a reason “why a person of ordinary skill in the art would have modified” the main obviousness reference.  Slip Op. at 14.  Interestingly, the Court quoted, in full, two pages from the Petitioner’s expert.  The Court found that the Board’s reasons for dismissing this analysis were “inadequate.”  Therefore, the Federal Circuit remanded for “reconsideration of obviousness.”

For Petitioners that believe the Board gave their argument short shrift (or no analysis at all), Parallel Networks is another opinion to be used in the quest for appellate relief.  Yet as in Parallel Networks itself, this does not guarantee ultimate success; only the ability to fight another day.

The Supreme Court recently held oral argument in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC. Before what appears to be a divided Court, the parties addressed pointed questioning over whether the inter partes review (“IPR”) process is constitutional.  The justices’ questions and comments touched on a wide-range of issues including patentee expectations, the evidentiary standards in PTAB proceedings, panel stacking, the adjudication process and public v. private rights. This article will examine a couple of the major issues that were discussed in an effort to determine where certain justices may be leaning.

Based on comments made during oral argument, the chart below summarizes our views on the spectrum of where the justices may be leaning with respect to constitutionality.

Whether IPRs Are “Adjudications” or “Executive Branch Actions”

Oil States focused its criticisms of IPR proceedings on the fact that they are trial-like “adjudications” deciding a cause of action between two private parties. Oil States conceded that historical ex parte and inter partes reexaminations were constitutional, but distinguished those proceedings by arguing that they were examinational in nature rather than adjudications. Oil States also distinguished IPRs from other administrative agency proceedings before the ITC or NLRB, arguing that its challenge is to adjudicatory proceedings between private parties where the government isn’t prosecuting the action but rather is deciding the action. However, several justices indicated this distinction does not matter – either because “adjudicative” proceedings frequently are handled by executive-branch agencies (Justices Breyer and Kagan), or because patents are private rights that simply cannot be revoked by the executive (Justice Gorsuch).

The Government argued that third parties are involved in similar proceedings in executive branch agencies all the time. The Government argued that agencies frequently obtain input from private parties before rendering decisions, e.g., in formal rule-making. Even if the procedures resemble court procedures, the Government argued that IPRs are unproblematic because the decision the USPTO makes is an appropriate exercise of executive authority. The fact that the USPTO receives input from third parties does not make the process unconstitutional. Similarly, Respondent, Greene’s Energy Group, argued that the process is not an adjudication but rather is an executive branch action.

The Government distinguished prior cases requiring Article III court adjudications of disputes between private parties on the basis that those cases involved findings of liability and damages. The Government noted that in IPRs, the USPTO is not determining whether one claimant is liable to another for a violation of law, but rather is only determining the validity of a patent. IPRs also do not involve an adjudicator awarding a monetary sum to one party or another. The Government conceded that if the USPTO were to decide infringement actions, such proceedings would raise constitutional problems.

Justice Ginsburg, Justice Kagan, and Justice Sotomayor appeared sympathetic to the argument that the USPTO should have the ability to correct its mistakes regarding potentially invalid patents. Justice Ginsburg and Justice Sotomayor appeared to reject Oil States’ distinctions between reexamination procedures and the alleged adjudicatory nature of IPRs, noting that in IPRs the rules allow for the PTAB to continue the proceedings even if the third party and patent owner settled the dispute. Justice Kagan asserted that in any of the mentioned proceedings, the government is trying to determine whether a mistake was made in granting the patent. She suggested that the government wants to have a set of procedures for ensuring accuracy in determining a mistake, which involves listening to third parties that have an interest in the proceeding.

The Patentee’s Reliance Interests & Due Process

Several justices expressed concerns about patentees’ settled expectations and investments made in reliance on the issued patent. Some appeared concerned with the government being able to take away the patent, while others noted that Congress may place conditions on the granting of a patent. Chief Justice Roberts characterized the Government’s position as requiring patentees to “take the bitter with the sweet,” meaning that if a patent owner wants the sweet of having a patent, the patent owner may have to take the bitter—i.e., the chance the government might reevaluate the patent at some subsequent point.

Respondent and the Government argued that IPR procedures do not violate due process. Many justices voiced concerns over “panel stacking,” referring to the USPTO’s decision in a number of cases to use an expanded panel out of concern that the original panel would not implement administration policies. Respondent and the Government noted that such issues could be addressed in an “as-applied” due process challenge in a case where panel stacking occurred (it is not at issue in Oil States’ case). They argued that standard IPR procedures comport with due process.  Further, they argued that the patentee does not have an expectation that a patent could not be rescinded by the government because patents have always been granted subject to the possibility of being invalidated later by a court, and since 1981, by the USPTO in some form of post-grant proceeding.  The Government argued that Congress did not change any substantive rules by establishing IPRs.

Oil States agreed that Congress has the ability to limit patent rights, specifically with respect to a patent term, but argued that does not mean that a patent owner should have limited expectations as to the scope and validity of its rights.

Justice Kennedy appeared to support the idea that Congress has the ability to limit a patent term and suggested that upon being granted a patent, a patent owner should have limited expectations as to the validity and overall scope of the patent.

By contrast, Justice Gorsuch and Justice Breyer appeared to be unsupportive of the idea that a patentee should expect the possibility of its patent being revoked by the USPTO at a later date. Both justices questioned whether patentees should gain a vested right after enough time passes and the patentee makes significant investments in the technology in reliance on the patent rights.

Conclusions

It is important to note that oral arguments can sometimes be poor predictors of the Court’s final decision.  While we do not attempt to predict the outcome of Oil States following oral argument, the questioning does suggest where many justices may be leaning.

Furthermore, while the justices appeared to be divided on the overall issue of constitutionality, each of the justices appears to have some interest as to the scope and overall fairness of the IPR process. Some expressed concern with panel stacking and the ability of administrative judges to curry favor with the executive, while others expressed concern with IPR proceedings being applied to patents that were granted prior to the enactment of the America Invents Act. Such concerns suggest that even if IPR proceedings are held to be constitutional, the Supreme Court may take the opportunity to suggest limitations on the process.

We also note that, on the same day as the oral argument in Oil States, the Supreme Court heard oral argument in SAS Institutes, Inc. v. Matal. The issue presented in SAS was whether 35 U.S.C. § 318(a), which provides that in an IPR the PTAB shall issue a final written decision with respect to patentability, requires the PTAB to issue a final written decision as to every claim the petitioner challenged or whether the PTAB may issue a decision as to only some of the claims. The Supreme Court thought the issue was important to take up and chose not to hold the case pending the outcome in Oil States. This may suggest that the Supreme Court may not find all IPRs unconstitutional, since doing so would moot the issues presented in SAS.

On November 21, 2017, the PTAB issued guidance on motions to amend in view of the Federal Circuit’s en banc decision in Aqua Products, Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017).[i] The decision, a compilation of five separate opinions totaling 148 pages, left much to be analyzed and digested. However, as noted in the lead opinion, the case could be condensed down into a very narrow holding, with just a few sentences having precedential weight. Specifically, the Federal Circuit held that when considering the patentability of substitute claims presented in a motion to amend filed under 35 U.S.C. § 316(d) in an inter partes review proceeding (“IPR”) under the Leahy-Smith America Invents Act (“AIA”), “(1) the PTO has not adopted a rule placing the burden of persuasion with respect to the patentability of amended claims on the patent owner that is entitled to deference; and (2) in the absence of anything that might be entitled deference, the PTO may not place that burden on the patentee.”[ii]

In the recent guidance, the PTAB explains that in light of Aqua Products, the Board will no longer place the burden of persuasion on the patent owner to prove patentability of the proposed substitute claims. Instead, if a motion to amend meets the requirements of 35 U.S.C. § 316(d), the Board will determine patentability of the substitute claims based on a preponderance of the evidence of the entirety of the record, including any opposition made by the petitioner. This shift ultimately leaves the heavy lifting to the petitioner, on whom the burden must remain at all times during the proceeding, including demonstrating the unpatentability of amended claims.

The PTAB notes, however, that beyond this shift in burden of persuasion, the rules for motions to amend will remain unchanged. Therefore, a patent owner must still meet the requirements for a motion to amend under 37 C.F.R. § 42.121 or § 42.221, as applicable; a patent owner still has the duty to disclose to the Board any information that the patent owner is aware of that is material to the patentability of the substitute claims under 37 C.F.R. § 42.11; and a patent owner still must confer with the Board before filing a motion to amend. Those parties currently involved in a matter with a pending motion to amend that may be impacted by Aqua Products are invited to arrange a conference call with the Board to discuss.

 

[i] Guidance on Motions to Amend in view of Aqua Products (PTAB November 21, 2017), available at https://www.uspto.gov/sites/default/files/documents/guidance_on_motions_to_amend_11_2017.pdf  (last accessed December 1, 2017).

[ii] Aqua Prods., 872 F.3d at 1327.

On October 5, 2017, the Patent Trial and Appeal Board (“Board”) issued a final written decision in an inter partes review proceeding filed by Neptune Generics, LLC (“Neptune”) challenging the patentability of the claims in Eli Lilly & Co.’s Patent No. 7,772,209 (“the ’209 patent”).  The Board held that Neptune failed to establish that claims 1-22 of the ’209 patent were unpatentable.

Neptune’s IPR petition, IPR2016-00237, was one of many challenges of the ’209 patent—including IPR2016-01190, IPR2016-01335, and IPR2016-01341, which were joined with the present proceeding.  The ’209 patent was also the subject of a district court litigation, Eli Lilly & Co. v. Teva Parenteral Medicines, Inc., No. 1:10-cv-1376 (S.D. Ind.).  Notably, the Southern District of Indiana had previously rejected invalidity challenges involving some of the same prior art references.  The Southern District of Indiana court’s decision upholding the validity of the ʼ209 patent was affirmed by the Federal Circuit.

The claims of the ’209 patent are directed to methods of administering pemetrexed to a patient in need of such treatment—for example, a patient in need of chemotherapeutic treatment.  Prior to administration of pemetrexed, the claims provide for administration of folic acid and a methylmalonic acid (e.g., vitamin B12).  The patent contains two independent claims—claims 1 and 12.  The narrower of the two claims—claim 12—is reproduced below:

An improved method for administering pemetrexed disodium to a patient in need of chemotherapeutic treatment, wherein the improvement comprises:

a) administration of between about 350 μg and about 1000 μg of folic acid prior to the first administration of pemetrexed disodium;

b) administration of about 500 μg to about 1500 μg of vitamin B12, prior to the first administration of pemetrexed disodium; and

c) administration of pemetrexed disodium.

The Board instituted the IPR based on a single ground of unpatentability—obviousness in view of a meeting abstract by Niyikiza (“Niyikiza”), U.S. Patent No. 5,217,974 (“the ’974 patent”), and EP 0595005 (“EP ’005”).  Niyikiza, which was considered during the federal court litigation, described a clinical study assessing patient characteristics following pemetrexed treatment in 139 cancer patients.  Niyikiza reported that methylmalonic acid and homocysteine levels should be measured in patients at the beginning and during treatment.  The ’974 patent is directed to methods of improving the therapeutic utility of antifolates by co-administering a folate binding protein.  Additionally, the ’974 patent recognizes that folic acid is a preferred folate binding protein.  EP ’005 is directed to pharmaceutical preparations comprising vitamin B6, folate, and vitamin B12.

After full briefing and argument, the Board rejected Neptune’s challenge.  While the Board concluded that Neptune had established that it would have been obvious to pretreat with folic acid prior to administering pemetrexed sodium to treat cancer, it also concluded that Neptune failed to establish that it would have been obvious to treat with vitamin B12 as well.  The Board did not agree with Neptune’s arguments that Niyikiza’s teachings to measure methylmalonic acid levels during cancer treatment would have motivated a skilled artisan to pretreat with vitamin B12.  Moreover, the Board found that objective indicia of nonobviousness supported the patentability of the ’209 patent claims.  Specifically, the Board relied on evidence of skepticism of others (including the FDA) regarding pretreatment of pemetrexed patients with vitamin B12, which further undermined Neptune’s unpatentability challenge.

While patents challenged in a district court proceeding enjoy a statutory presumption of validity, such a presumption is not present in an IPR proceeding.  Even though the legal standard is different, this decision evidences the difficulty in overcoming a decision in a parallel proceeding—particularly after the Federal Circuit has affirmed that decision.  In affirming the district court, the Federal Circuit found that there was a “missing link between vitamin B12 deficiency and pemetrexed toxicity.”  In the IPR, Neptune was still unable to overcome factual findings relating to the lack of motivation to pretreat pemetrexed patients with vitamin B12.  Accordingly, the Board, like the district court and Federal Circuit, denied Neptune’s invalidity challenge.

On November 27, 2017, in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, the Supreme Court will hold oral argument to determine the constitutionality of the inter partes review (“IPR”) process implemented by the America Invents Act.  Clearly, this case has the potential to drastically alter the patent litigation landscape if IPR is removed as a means for competitors and accused infringers to invalidate existing patents.  This post reports on certain petitions for certiorari filed following Oil States, which address the question of what would happen to patents that have already been invalidated in IPR proceedings if the Court finds IPR unconstitutional.

The Briefing in Oil States

Petitioner, Oil States Energy Services, LLC, filed a petition for certiorari to review the Federal Circuit’s affirmance of the PTAB’s decision invalidating its patent.  The Supreme Court granted certiorari as to the issue of “whether inter partes review— an adversarial process used by the Patent and Trademark Office to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”

Petitioner argues that IPR violates Article III’s separation of powers and the Seventh Amendment’s right to a jury because only courts may adjudicate disputes involving private property rights. In opposition, Respondents, Greene’s Energy Group, LLC and the Department of Justice, argue that patent rights are public rights that are subject to the power of Congress. As such, IPR does not violate Article III or the Seventh Amendment because Congress has the authority to allow the USPTO to reconsider its decisions regarding patent grants.

Since its inception, accused infringers have frequently chosen the IPR process to attempt to invalidate patents and combat against both patent trolls and competitors.  Much to patent owners’ dismay, IPR tends to be favorable to petitioners and less forgiving for patent owners. As a result, IPR has affected patent owners across a wide swath of industries.  For that reason, the Supreme Court’s decision in Oil States could have a major impact on a host of different industries, which is reflected by the numerous amicus briefs and related petitions for certiorari that were filed following the Court’s grant of certiorari.

Of the 55 amicus briefs filed in this case, 21 support finding IPR unconstitutional while 24 support finding IPR constitutional. Although the numbers are nearly split, there do appear to be some trends amongst the briefs that have been filed. Generally, many large technology corporations such as Apple, Facebook, and Google, and generic pharmaceutical companies such as Mylan support IPR and argue in favor of finding the procedure constitutional. By contrast, many amici that favor the patent owner and seek to have IPR found unconstitutional were small business associations and inventors’ groups such as the Biotechnology Innovation Organization, the National Small Business Association and US Inventor, as well as brand-name pharmaceutical companies such as Allergan, AbbVie, and Shire Pharmaceuticals.

Petitions following Oil States: What happens to previously invalidated patents if IPR is held unconstitutional?

Several “piggy-back” petitions for certiorari have been filed in IPR cases since the Supreme Court granted certiorari in Oil States.  These petitions present the same question as Oil States—whether IPR is unconstitutional—and request that the Court hold the petition pending the decision in Oil States. Petitioners argue that if the Court finds IPR unconstitutional, then the PTAB had no authority to invalidate the patent, and therefore the holding should be vacated.  The Court has requested a response to several such petitions after respondents waived their right to respond.  See, e.g., Paice, LLC v. Ford Motor Co. (Nos. 17-113, 17-220); Affinity Labs of Texas, LLC v. Samsung Electronics Co., Ltd. (No. 17-116).

In some cases, the USPTO is acting as the respondent because the party that filed the IPR has dropped out of the case.  The USPTO has acquiesced to petitions raising the same question as Oil States­, agreeing that the Court should hold the petitions open until Oil States is decided.  See, e.g., Celgard, LLC v. Matal (No. 16-1526); Security People Inc. v. Matal (No. 17-214).

In contested cases, however, most respondents have argued that a decision in Oil States should not apply to their case.  Several respondents have argued that, even if the Court holds IPR unconstitutional, such a holding should not be applied retroactively. See, e.g., Affinity Labs, No. 17-116; Skky, Inc. v. MindGeek, S.A.R.L. (No. 17-349).

In several cases, the petitioner never challenged the constitutionality of IPR below, or waived that argument on appeal to the Federal Circuit.  In these cases, the respondents argue that the Court should deny the petition for certiorari rather than entertain the challenge for the first time.  Paice, Nos. 17-113, 17-220; Outdry Technologies Corp. v. Geox S.p.A (No. 17-408).[1] As one respondent argued, it is “not the Court’s usual practice to adjudicate either legal or predicate factual questions in the first instance.” Brief in Opposition, Outdry Technologies Corp. v. Geox S.p.A (U.S. Nov. 17, 2017) (No. 17-408) (quoting CRST Van Expedited, Inc. v. EEOC, 136 S. Ct. 1642, 1653 (2016)). Respondents make a good argument as the Supreme Court has repeatedly emphasized that it “is a court of final review and not first view.” Adarand Constructors, Inc. v. Mineta, 534 U.S. 103, 110 (2001). The Court has stated that “appellate courts ordinarily abstain from entertaining issues that have not been raised and preserved in the court of first instance.” See Wood v. Milyard, 566 U.S. 463, 473 (2012).  To allow a petitioner to raise this issue for the first time at the Supreme Court would undermine the due respect generally given to lower courts through the application of waiver rules. See id. In addition, waiver rules prevent unfair surprise to opposing parties and preserve judicial resources. In re Under Seal, 749 F.3d 276, 286 (4th Cir. 2014)

Respondents point out that, because the argument was waived, the petition can be denied regardless of the outcome in Oil States. When a party fails to make a timely assertion of a right before a court and thereby waives such a right, the Supreme Court has held that “[c]ourts may for that reason refuse to consider a constitutional objection even though a like objection had previously been sustained in a case in which it was properly taken.” Yakus v. United States, 321 U.S. 414, 444 (1944).

Cases in which the petitioner waived any objection to the constitutionality of IPR would be situated like others which are no longer “open on direct review.” In Harper v. Virginia Dept. of Taxation, 509 U.S. 86, 97 (1993), the Court held that “[w]hen this Court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule.”  In closed cases, however, the decision from the IPR should remain intact regardless of the outcome of Oil States. See id. 

As one litigant has pointed out, “the need for finality dictates that ‘a new rule cannot reopen the door already closed.’”  Flir Response to Status Report by LSI, Leak Surverys, Inc. v. Flir Sys., Inc., No. 13-cv-02897, Dkt. 140 at 3 (N.D. Tex. Filed Oct. 24, 2017) (quoting James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 541 (1991)).

If the Supreme Court follows the reasonable approach of denying petitions where challenges to the constitutionally of IPR proceedings have been waived, fewer completed IPR cases could be undone by a decision in Oil States.

 

[1] Rothwell Figg represented Geox S.p.A in its successful invalidation of Outdry Technologies’ patent in IPR proceedings, and is now representing Geox in its response to Outdry’s petition for certiorari.

A petitioner in an inter partes review may request to cancel as unpatentable one or more claims only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications.  This is expressly set forth in the statute, 35 U.S.C. § 311(b).  Notwithstanding this limitation, there are creative ways to bring other challenges, such as written description challenges under 35 U.S.C. § 112, ¶ 1, before the Patent Trial and Appeal Board (“PTAB”).  And there are good reasons for doing so.  Notably, PTAB judges, unlike district court judges that would otherwise preside over § 112, ¶ 1 arguments, have technical expertise—and in some cases, prior patent prosecution experience—and, consequently, are typically more receptive to hyper-technical arguments.

Written description attacks against means-plus-function (“MPF”) claims are precisely the sort of technical arguments that one might expect to be more favorably received by the PTAB than by a district court judge.  See 35 U.S.C. § 112(f) (previously named, and still commonly referred to as, § 112, ¶ 6).  Although § 311(b) appears on its face to bar such challenges in an IPR, the Federal Circuit’s recent decision in Uniloc USA, Inc. v. Sega of America, Inc. et al., No. 2016-2000 (Fed. Cir. Oct. 23, 2017) appears to open the door to a novel tactic for bringing such challenges.

In Uniloc, the Petitioners (Sega et al.) had challenged the claims of U.S. Patent No. 5,490,216 (“the ’216 Patent”) as being anticipated by U.S. Patent No. 5,509,070 (“Schull”). Because Schull had an effective prior art date later than the provisional applications to which the ’216 Patent claimed priority, the Petitioners’ anticipation theory could only prevail if the Petitioners were successful in defeating the priority claim to the provisional applications. The Petitioners did not, however, present a conventional § 112, ¶ 1 argument that the claim elements were not disclosed in the provisional applications. Instead, the Petitioners argued that a claim recitation calling for a “unique ID generating means” was properly interpreted as a MPF limitation under § 112, ¶ 6, and that the provisional applications merely disclosed the claimed function and did not describe the structure (i.e., an algorithm) for performing that function. The PTAB and the Federal Circuit agreed with the Petitioners’ analysis, and held that the priority claim was ineffective because the priority documents did not comply with the requirements of § 112, ¶ 6.

In Uniloc, the Petitioners were ultimately advancing a § 102 challenge based upon a third-party prior art reference. Uniloc therefore dealt with a challenge that clearly fell within the permitted scope of § 311(b). Even so, the Federal Circuit’s holding appears to open the door to presenting § 112, ¶ 6 attacks per se against a substantial fraction of challenged patents.

Here’s how this could work.  Say a petitioner wishes to challenge a patent (“Child”) that claims priority via continuation to an earlier-filed application (“Parent”) that was published more than one year prior to the date upon which the Child was filed.  Because the first patent application in a family is typically published 18 months after filing, and because examination often takes two years or more to complete, it is quite common for continuation applications to be filed well after the priority document has been published.  Imagine further that the claims in the Child contain a limitation that could reasonably be construed as an MPF limitation—say it recites a ‘means,’ a ‘module,’ a ‘unit,’ etc.—and that the specification merely states the function that the ‘means’ performs but does not describe the specific structures or algorithms for providing the claimed function.  This too is a common scenario.

Applying the holding in Uniloc, it appears that the Child is not entitled to the filing date of the Parent because the Parent specification does not describe the structures or algorithms for performing the function recited in the claims of the Child.  Note that it seems to be irrelevant that the specification of the Parent may be identical to that of the Child—unless the Parent specification adequately describes the subject matter claimed in the Child, the priority claim is defeated.  Moreover, since the Parent was published more than a year before the Child was filed, the Parent is prior art to the Child.

Since the Child is a continuation of the Parent, the Parent—which is now prior art—likely discloses every element in the challenged claims except the structure required by the MPF limitation. As to this sole missing element, the Parent further describes the need to provide an element that performs this recited function. Thus, if the petitioner is able to leverage § 112, ¶ 6 (or § 112(f)) to defeat the priority claim, the petitioner will be rewarded with a nearly-anticipatory reference and an obviousness rationale for supplying the only missing element.

Although subtle, this tactic has potential to be highly effective against a substantial fraction of challenged patents—particularly against software patents which often claim modules for performing functions without specifically describing what those modules are or how they operate.  Although these patents could, in principle, be invalidated via direct § 112 challenge in a district court, petitioners may see substantial advantage to be gained by presenting these hyper-technical arguments before the trained patent specialists at the PTAB.

  • Inter Partes Review Request Fee to Jump 72%
  • Post-Grant or Covered Business Method Review Request Fee to Jump 33%

The U.S. Patent & Trademark Office (“USPTO”) announced a new fee structure set to take effect on January 16, 2018.  Notably, fees for PTAB proceedings will increase significantly.  The USPTO explains that the fee increases are necessary to keep up with demand, continue to provide high-quality decisions within the statutory time limits, and close the gap between the cost and the fees for performing these services.

The Leahy-Smith America Invents Act (“AIA”) was enacted into law on September 16, 2011. See Public Law 112-29, 125 Stat. 284. Section 10(a) of the Act authorizes the Director of the Office to set or adjust by rule any patent fee established, authorized, or charged under title 35, U.S.C., for any services performed by, or materials furnished by, the Office. Fees under 35 U.S.C. may be set or adjusted only to recover the aggregate estimated cost to the Office for processing, activities, services, and materials related to patents, including administrative costs to the Office with respect to such patent operations. See 125 Stat. at 316. Provided that the fees in the aggregate achieve overall aggregate cost recovery, the Director may set individual fees under Section 10 at, below, or above their respective cost.

After enactment of the AIA, the Office had to estimate what the costs would be without the benefit of historical cost information. Now that the trials have been in place for three fiscal years, the Office has actual historical cost data available to more accurately set these fees and recover costs. In this final rule, the Office has revised the fees for AIA trials upwards as follows:

The Office explains that it is revising the fee levels to more closely align fees and costs to the Office for performing these services. Unit costs for inter partes review requests have consistently outpaced the unit costs for inter partes review post-institutions.  Notably, AIA trial fees are not eligible for small entity or microentity discounts.

While the number of petitions filed has hovered around 1500 in FY2015-FY2017, the institution rate has decreased each year.

Source: USPTO

In view of the decreasing number of institutions, it makes sense that the USPTO is demanding significantly higher fees at the petition stage, while moderately increasing fees for post-institution requests.  Accordingly, as fees are set to rise significantly, prospective petitioners can avoid paying the higher petition fees by filing before January 16, 2018.

  • New Privilege Rule Protects Communications with Foreign Jurisdiction Patent Practitioners From Discovery in PTAB Proceedings.
  • No Reciprocity From Foreign Jurisdiction is Required.

Under a new rule set to take effect on December 7, 2017, communications between patent practitioners authorized to practice patent matters before the United States Patent and Trademark Office (“USPTO”) under 37 C.F.R. § 11.7 and foreign jurisdiction patent practitioners will be given the same protections of privilege as found under Federal law for communication between a client and an attorney authorized to practice in the United States, including all limitations and exceptions.  37 C.F.R. § 42.57.  Such limitations and exceptions are not expressly defined in the new rule and are left open for later interpretation in accordance with relevant case law.

Importantly, the rule does not require reciprocity, i.e., it applies regardless of whether the foreign jurisdiction patent practitioner’s jurisdiction provides privilege or an equivalent under its laws.  37 C.F.R. § 42.57(b).  A foreign jurisdiction patent practitioner is defined as a person who is authorized to provide legal advice on patent matters in a foreign jurisdiction, provided that the jurisdiction establishes professional qualifications and the practitioner satisfies them. Id.

U.S. district courts follow several different approaches to determine whether communications with foreign practitioners are entitled to protection, and foreign jurisdictions also apply different rules and give highly variable levels of protection, if any.  Previously, there was no explicit USPTO rule on such privileged communications.  Thus, Administrative Law Judges made legal determinations as to which communications may be protected from disclosure on a case-by-case basis, based on the Federal Rules of Evidence and common law.  See 37 CFR 42.62(a); see also GEA Process Engineering, Inc. v. Steuben Foods, Inc., IPR2014–00041, Paper 117 (PTAB 2014).  At the United States International Trade Commission (“ITC”), certain confidential communications with a patent agent have been treated as privileged. See, e.g., USITC Inv. No. 337–TA–339, slip op. at 2, 1992 WL 811804 (ITC 1992) (finding that confidential communications between a U.S. patent agent and his client in connection with a patent prosecution are privileged).  In 2016, the Federal Circuit recognized that attorney-client privilege applies to U.S. patent agents acting within the scope of their authorized practice. See In re Queen’s University at Kingston, 820 F.3d 1287 (Fed. Cir. 2016).

Under U.S. Federal law, attorney-client privilege generally encompasses communications with an attorney made by the client’s representatives and the client. Similarly, privilege generally encompasses communications made with an attorney’s employee or assistant, as well as communications between multiple attorneys working for a client. Under this new rule, like USPTO practitioners, foreign jurisdiction patent practitioners shall also receive the same treatment as attorneys on all issues affecting privilege or waiver, such as communications with employees or assistants of the practitioner and communications between multiple practitioners.  37 C.F.R. § 42.57(c).

As the new rule is implemented by the USPTO, it applies only to protect covered communications from discovery sought in relation to the inter partes review, post-grant review, the transitional program for covered business method patents, and derivation proceedings implemented under the Leahy-Smith America Invents Act (‘‘AIA’’), and not to trials or proceedings in state or Federal courts.  Notably, the protection extends to communications made when seeking patents at the USPTO or foreign patent offices, such as when prosecuting applications or contemplating where to file an application, if they become the subject of discovery requests in relation to such AIA trials before the USPTO.

The new rule is a welcome clarification so that clients can seek legal advice without fear that those discussions will be used against them in legal proceedings at the USPTO.  It should be noted that the privilege vests with the client, not the attorney, and does not confer any new powers on the attorney or agent to practice law.  Rather, the privilege emanates from those already having authorization to practice as defined in 37 C.F.R. § 42.57(b).  Accordingly, clients should ensure that communications seeking legal advice are with a USPTO practitioner under 37 C.F.R. § 11.7 or a foreign jurisdiction patent practitioner who is authorized to provide legal advice on patent matters in a foreign jurisdiction, provided that the jurisdiction establishes professional qualifications and the practitioner satisfies them.

Remands and reversals of the Board are relatively rare.  Nonetheless, the Federal Circuit has vacated or reversed PTAB decisions every so often for adopting an erroneous claim construction.[1]  Most recently, in Owens Corning v. Fast Felt Corp., 2016-2613 (Fed. Cir. Oct. 11, 2017), the Federal Circuit reversed the PTAB’s decision upholding the challenged claims of U.S. Patent No. 8,137,757 (“the ’757 patent”) owned by Fast Felt Corporation (“Fast Felt”) due to erroneous claim construction by the Board.  While the Federal Circuit has cautioned the Board against adopting a claim construction that is unreasonably broad (see our previous article regarding In re Smith Int’l, Inc.), here the Federal Circuit overturned the PTAB’s decision for applying an unreasonably narrow view of a claim term in its analysis of the prior art.

Background

After being sued by Fast Felt for infringement, Owens Corning filed an IPR petition challenging claims 1, 2, 4, 6, and 7 of the ’757 patent on several grounds of obviousness.  The Board instituted a review based on all asserted grounds.

The ’757 patent relates to a method for printing nail tabs on roofing or building cover materials.  Slip op. at 2.  Representative claim 1 requires:

A method of making a roofing or building cover material, which comprises treating an extended length of substrate, comprising the steps of:

depositing tab material onto the surface of said roofing or building cover material at a plurality of nail tabs from a lamination roll, said tab material bonding to the surface of said roofing or building cover material by pressure between said roll and said surface.

In challenging the claims, Owens Corning relied on U.S. Patent No. 6,451,409 (“Lassiter”), which is directed to a process of using nozzles to deposit polymer nail tabs on roofing and building cover materials, as the primary reference for each asserted ground of obviousness.  Slip Op. at 4.  Owens Corning cited other prior art references, including U.S. Patent No. 5,101,759 (“Hefele”) and U.S. Patent No. 6,875,710 (“Eaton”), to teach the use of a “lamination roll” for printing polymer tabs on a wide range of substrates and materials.  Slip Op. at 5.  Although Hefel and Eaton are not specifically directed to roofing materials, Owens Corning asserted that it would have been obvious to substitute the nozzle-based process of Lassiter with the roll-based printing process of Hefele or Eaton as simply substituting one well-known process for another.  Final Written Decision at 12, 19-20.

PTAB Decision

In its Final Written Decision, the Board found that all of the elements of the independent claims were disclosed in Lassiter when combined with either Hefele or Eaton.  Final Written Decision at 12-13, 20-21.  However, the Board found that one would not have been motivated to combine Lassiter with Hefele or Eaton.  Final Written Decision at 14-15, 21-22.  Specifically, the Board found that Lassiter teaches away from Hefele and Eaton because the process of Lassiter is directed to asphalt-saturated substrates while the processes of Hefle and Eaton are directed to other various materials that are never coated with an asphalt mix.  Id.  The Board reached its decision by limiting the scope of the term “roofing or building cover material” to a material that is coated or eventually would be coated with an asphalt mix.  Id.

Appeal

Owens Corning appealed the Board’s decision based on two arguments.  Slip Op. at 6.  First, Owens Corning argued that the Board adopted an erroneous claim construction in its analysis of the prior art by limiting the term “roofing or building cover material” to a material that either has been or would be coated with asphalt.  Id.  Second, Owens Corning contended that the Board’s construction is “legally incorrect under the broadest-reasonable-interpretation standard applicable in the IPR.”  Id.

The Federal Circuit agreed with both of Owens Corning’s arguments and held that the Board erred in effectively construing the claims to exclude “materials that neither have been nor are to be coated … with asphalt.”  Slip op. at 8.  In construing the claims in light of the specification, the Federal Circuit explained that the scope of the term “roofing or building cover material” cannot be limited exclusively to the asphalt-coated materials of the preferred embodiment when the specification explicitly discloses that the claimed invention may apply to other building materials that are not coated with asphalt.  Slip op. at 7-8.

Under the correct claim construction, the Federal Circuit reasoned that “there is only one permissible factual finding — a skilled artisan would be motivated to combine the prior-art references to print nail tabs on building cover materials that are not … asphalt coated or saturated.”  Slip op. at 11.  Accordingly, the Federal Circuit held that “Board’s rejection of Owens Corning’s challenge … is not supported by substantial evidence” and invalidated the challenged claims of the ’757 patent as obvious.  Id.

Future Implications

This case reinforces that the Federal Circuit is more inclined to reverse a PTAB decision when determining that the Board has adopted an erroneous claim construction.  Accordingly, during PTAB proceedings, practitioners should consider providing evidence and expert testimony supporting their patentability position under alternative claim constructions.  This way, if there is any dispute over the claim construction adopted by the Board, the Federal Circuit may be more likely to issue a remand than completely reverse the PTAB’s decision.

In addition, this case counterbalances a string of decisions[2] where the Federal Circuit rejected the PTAB’s claim construction for being unreasonably broad.  Here, this opinion demonstrates that restricting the scope of claims exclusively to the features of the preferred embodiment may be unreasonably narrow.  Therefore, practitioners should consider all embodiments disclosed in the challenged patent when proposing claim constructions in a PTAB proceeding.

 

[1] See, e.g., In re Smith Int’l, Inc., 871 F.3d 1375 (Fed. Cir. 2017); D’Agostino v. MasterCard Int’l, Inc., 844 F.3d 945 (Fed. Circ. 2016); PPC Broadband, Inc. v. Corning Optical Commc’n., 815 F.3d 747 (Fed. Cir. 2016); and Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015).

[2] In re Smith Int’l, Inc., 871 F.3d at 1375; PPC Broadband, Inc., 815 F.3d at 756; and Proxyconn, Inc., 789 F.3d at 1299.

Abraxis Bioscience, developer of cancer drug Abraxane®, filed suit against Actavis in April of 2016 following its receipt of notice that Actavis sought approval of a generic form of the drug from the FDA. The notice, called a Paragraph IV Certification, represented that Actavis believed the patents covering the drug were invalid, unenforceable, or would not be infringed by Actavis’s generic drug product. Abraxis responded by alleging that the Actavis product would infringe claims of U.S. Patent Nos. 7,820,788 (“the ’788 patent”), 7,923,536 (“the ’536 patent”), 8,138,229 (“the ’229 patent”), and 8,853,260 (“the ’260 patent”).

On April 4, 2017, Actavis filed IPRs against the four patents, challenging all claims which had been asserted in the district court litigation. These became IPR 2017-01100 (“the 1100 IPR”) covering the ’260 patent, IPR 2017-01101 (“the 1101 IPR”) covering the ’788 patent, IPR 2017-01103 (“the 1103 IPR”) covering the ’536 patent, and IPR 2017-01104 (“the 1104 IPR”) covering the ’229 patent. The ’788, ’536, and ’299 patents are all related, claiming priority ultimately to the same provisional application.

The 1100 IPR challenged all claims of the ’260 patent asserted in the district court litigation on grounds of obviousness over four references: Desai, Shively, Liversidge, and Remington. The 1101 IPR challenged all asserted claims but claim 10 of the ’788 patent on grounds of anticipation by Desai, and all asserted claims on obviousness by Desai alone and obviousness by Desai, Kadima, and Liversidge. The 1103 IPR challenged all asserted claims of the ’536 patent on the same three grounds as the 1101 IPR. The 1104 IPR challenged all asserted claims but claim 20 of the ’229 patent on the same three grounds as the 1001 IPR and the 1103 IPR, and challenged claim 20 by obviousness over Desai and the Taxol® Label and by obviousness over Desai, the Taxol® label, Kadima, and Liversidge.  All challenges relied on the Desai reference, alone or in combination.

Abraxis filed its Preliminary Response in all four IPRs on July 12, 2017. While the institution decisions were pending, the importance of proving invalidity only increased for Actavis, as Actavis stipulated to infringement in the underlying district court litigation.

October 10 brought good news for Actavis, as the 1101, 1103, and 1004 IPRs received favorable institution decisions, where all grounds alleged were instituted as to all claims challenged. On October 11, however, institution was denied as to all claims challenged in the 1100 IPR.

Viewing the institution decisions as a whole, the Board determined that Actavis showed a reasonable likelihood that the Desai reference, alone or in combination, could render the challenged claims of the ’788 patent, the ’536 patent, and the ’229 patent invalid. Yet the court was not convinced of the same regarding the ’260 patent.

Reviewing all four patents and their challenged claims, the different outcome between the four IPRs seems to largely be due to the varying importance of the stability of the formulations taught by the prior art. While stability was discussed in all four institution decisions, in the 1101, 1103, and 1104 IPRs, it was discussed mainly as a factor in considering whether a person of skill in the art would have had a reasonable expectation of success in creating the claimed inventions.

However, the claims of the ’260 patent at issue in the 1100 IPR contained a limitation not found in the other patents specific to stability: that the formulation would be “stable for at least 3 days” under certain conditions. The Board decided that Actavis failed to establish that this limitation was taught by the asserted combination of references. The Board rejected Actavis’s argument that the formulations in question were inherently stable to the full scope of “all formulations prepared according to the requirements of the challenged claims.” The Board further found that stable formulations in Desai relied upon by Actavis had too many disparities with the claimed formulations to support the challenge.

Ultimately, institution of three of its IPR petitions has placed Actavis in a stronger position. However, the denial of the 1100 IPR could end up a boon for Abraxis, as the Board has shown that the stability limitation of the ’260 patent will be an important part of Abraxis’s defense of the validity of their patent in the ongoing district court litigation.