The United States Patent and Trademark Office (USPTO) recently published a decision on petition stating that an inventor must be a natural person, and denied Petitioner’s request to name an artificial intelligence entity as the inventor.

The inventor at issue is an artificial intelligence (AI) system named “Device for the Autonomous Bootstrapping of Unified Sentience” (DABUS).  DABUS was created by Dr. Stephen Thaler, and is described as a “Creativity Machine” that contains two artificial neural networks.  The first network is trained with general information from various knowledge domains and generates novel ideas.  The second network acts as a “critic,” monitoring the first network for new ideas and identifying ideas that are sufficiently novel.  The critic net also generates an affective response used to form and ripen ideas that have the most novelty, utility, or value.

DABUS was named as the inventor in an application data sheet (ADS) filed July 29, 2019, for U.S. Patent Application No. 16/524,350.  The applicant asserted “it was the machine, not a person, which recognized the novelty and salience of the instant invention.”

In response, the Patent Office issued a Notice to File Missing Parts of Nonprovisional Application on August 8, 2019, noting that the ADS does not identify each inventor by his or her legal name.  The applicant filed a petition requesting supervisory review, which was dismissed, and the applicant subsequently filed a request for reconsideration of the decision denying to vacate the notice to file missing parts.

The decision on petition, written by Robert Bahr, Deputy Commissioner for Patent Examination Policy, notes that the patent statutes preclude construing “inventor” to cover machines because Title 35 of the United States Code consistently refers to inventors at natural persons.  See, e.g., 35 U.S.C. § 101 (“Whoever inventors or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefore, subject to the conditions and requirements of this title”); 35 U.S.C. § 115 (refers to individuals and uses pronouns specific to natural persons –“himself” and “herself”—when referring to the “individual” who believes himself or herself to be the original inventor or joint inventor).  The decision also highlights decisions from the Federal Circuit, which hold that the patent laws require an inventor to be a natural person.  See Univ. of Utah v. Max-Planck-Gesellschaft zur Foderung der Wissenschaften e.V., 734 F.3d 1315 (Fed. Cir. 2013) (holding a state could not be an inventor); Beech Aircraft Corp. v. EDO Corp., 990 F.2d 1237, 1248 (Fed. Cir. 1993) (“only natural persons can be ‘inventors,’” and finding corporations cannot be inventors).  The decision further notes that Title 37 of the Code of Federal Regulations contains numerous references to the inventor as a “person,” and that the Manual of Patent Examining Procedure (MPEP) defines conception as “the complete performance of the mental part of the inventive act,” and it is “the formation in the mind of the inventor of a definite and permanent idea of the complete and operative invention as it is thereafter to be applied in practice.”  The decision explains that the use of terms such as “mental” and “mind” in the MPEP indicates that conception must be performed by a natural person.  (The European Patent Office and UK Intellectual Property Office have similarly refused the respective counterpart DABUS patent applications for naming a non-human inventor.)

Notably, the decision leaves open the possibility of naming a human inventor, explaining that the “USPTO has not made any determination concerning who or what actually created the invention claimed” in the application.  In fact, there are a number of ways a natural person can contribute to the conception of an AI invention, such as: developing techniques for obtaining and formatting training data, selecting the AI system for a task, obtaining inputs, utilizing the outputs of the AI system, designing the algorithm used by the AI engine, or applying new training data obtained in an inventive manner to an AI engine.

Stay tuned for future updates from the USPTO, as the USPTO has actively been studying and seeking public guidance in the area of AI inventions.

The Court of Appeals for the Federal Circuit issued its decision in Bozeman Financial LLC v. Federal Reserve Bank Of Atlanta, Case No. 19-1018 (Fed. Cir. Apr. 10, 2020) [hereinafter Bozeman], holding that Federal Reserve banks (hereinafter “the Banks”) are people under the AIA, capable of petitioning for post-issuance review. The Court further affirmed the PTAB’s prior holding that the appealed patent claims are unpatentable under 35 U.S.C. § 101.

The dispute involves U.S. Patent Nos. 6,754,640 (“the ’640 patent”) and 8,768,840 (“the ’840 patent”), which are owned by Bozeman Financial, the respondent-appellant. The petitioner-appellee, the Federal Reserve Bank of Atlanta, challenged the validity of these patents in a CBM proceeding. The PTAB previously held claims 1–20, 25, and 26 of the ’640 patent unpatentable under 35 U.S.C. § 112, and claims 21-24 of the ’640 patent and claims 1-20 of the ’840 patent unpatentable under 35 U.S.C. § 101. Bozeman, at 3 and 10. Bozeman appealed the decision with respect to claims 21-24 of the ’640 patent and claims 1-20 of the ’840 patent. Bozeman, at 10.

For the first time on appeal, Bozeman Financial alleged that the Banks did not have the right to petition for post-issuance review under the AIA, arguing that the Banks are not people. Bozeman, at 3-4. The Federal Circuit exercised discretion to review this issue (which would normally be waived) because the question of whether the Banks constitute people under the AIA is “an issue of statutory interpretation, a purely legal question.” Bozeman, at 4.

The Federal Circuit identified differences between operation of the Banks and a conventional government agency, including, for example, that the Banks “do not receive congressionally appropriated funds,” do not have governmentally appointed officials, control their operations by a board of directors, and “cannot promulgate regulations with the force of law.” Bozeman, at 7 (citing 12 U.S.C. §§ 244, 301, 341 and Scott v. Fed. Reserve Bank, 406 F.3d 532, 535 (8th Cir. 2005)). Accordingly, the Federal Circuit held, for the purposes of the AIA, that the Banks constitute people because they “were established as chartered corporate instrumentalities of the United States” and can “be sued in any court of law or equity.” Bozeman, at 6 (citing 12 U.S.C. § 221 et seq.).

Further, the Federal Circuit examined the subject matter eligibility of claims 21-24 of the ’640 patent and claims 1-20 of the ’840 patent under the two-step framework set forth in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208, 216 (2014) [hereinafter Alice]. Bozeman, at 11. Under Alice step 1, the Federal Circuit held the claims “are directed to the abstract idea of collecting and analyzing information for financial transaction fraud or error detection.’” Bozeman, at 14. The Federal Circuit supports this holding by explaining that the claimed invention is “a fundamental business practice” which is a “long-standing commercial practice,” and has no meaningful distinction against the claims of recent precedential holdings in Solutran, Inc. v. Elevon, Inc., 931 F. 3d 1161 (Fed. Cir. 2019). Bozeman, at 12-14.

Under Alice step 2, the Federal Circuit holds that “there is nothing additional in the claims of the ’840 patent that would render the claims patent-eligible.” Id., at 14. Although Bozeman Financial argued that “the ordered combination of the elements … is a specific implementation of an invention that was not routine or conventional,” the Federal Circuit agrees with the PTAB’s prior holding that the ordering of the claims recites a logical sequence and does not offer an inventive sequence. Id. at 15. Regarding the machine-or-transformation test, the Federal Circuit holds that the claims do not satisfy the test because the claims provide for using “a digital-image scanner to create a digital electronic record of a check” which is “merely using a general-purpose computer and scanner to perform conventional activities in the way they always have.” Bozeman, at 15-16 (citing DDR Holdings, LLC v. L.P., 773 F.3d 1245, 1256 (Fed. Cir. 2014); Content Extraction & Transmission LLC v. Wells Fargo Bank, National Assoc., 776 F. 3d 1343, 1348-49 (Fed. Cir. 2014); and Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 716-17 (Fed. Cir. 2014).

Altogether, the Federal Circuit’s holdings in Bozeman allow Federal Reserve Banks to petition for post-issuance review under the AIA, which cements post-issuance review as a valuable tool for protesting a patent’s validity. Additionally, the Federal Circuit affirms previous holdings and provides another example of business method patent claims which are invalid under Alice.

On March 30, 2020, the Federal Circuit denied the federal government’s unopposed motion to stay a mandate of the court’s final judgment in Arthrex v. Smith & Nephew, meaning the United States Patent Office’s Patent Trial and Appeal Board (“PTAB”) must reopen and rehear up to 81 cases decided by the PTAB before the Arthrex final judgment issued.  The earlier opinion, issued on October 31, 2019, deals with the constitutionality of the appointment of the Administrative Patent Judges (“APJs”) who are responsible for presiding over adjudicative proceedings.  The final judgment resulted in providing constitutional grounds to challenge the decisions of the PTAB’s APJs to those with pending appeals with the Federal Circuit, provided those appeals were pending at the time of the Arthrex judgment and that the constitutional issue had been raised during the appeal’s briefing stage.  With its motion to stay, the government attempted to receive temporary relief during the pendency of petitions for writ of certiorari of the Arthrex opinion, but the denial marks the Federal Circuit’s consistent position[1] that the PTAB must start the rehearing process.

The Arthrex opinion held that APJs were appointed in violation of the Appointments Clause of the U.S. Constitution because, while the Patent Act provided for APJs to be appointed by the Secretary of Commerce, in consultation with the Director of the USPTO (consistent with being an “inferior officer” under the Appointments Clause), APJs were shielded from removal by their superiors (reserved only for “principal officers” under the Appointments Clause).  Among the significant repercussions following the Federal Circuit’s Arthrex decision was the uncertain legal status of PTAB decisions invalidating patent claims, given that the APJs presiding over such decisions were deemed to have been unconstitutionally appointed.  While the Federal Circuit stated in Arthrex that severing the removal provisions from the Patent Act reestablished the PTAB judges as constitutional officers, it remanded that case, requiring the PTAB to grant a new hearing with a new panel of APJs presiding.  The court thus opened the door for other PTAB cases to receive a second hearing with a new panel of APJs, provided that the decision was pending appeal with the Federal Circuit before the October 31, 2019 opinion, and that the requesting party had raised the constitutional issue in its appeal brief.

The government moved to stay the remand proceedings for ninety days or final disposition of any petition for writ of certiorari on the basis of practicality, arguing that the PTAB should be able to defer conducting the Arthrex rehearings while Supreme Court review of the case was pending.  The stay of remand was supported by all of the parties.   However, the Federal Circuit concluded that public interest would favor denying such a stay, pointing to the harm that would result from the continuing existence of patent claims that were deemed unpatentable by the PTAB in the relevant proceedings.  Those claims would continue to have legal force, as well as potentially obligate the payment of fees under license agreements that require payment until a final adjudication of invalidity – an event the Federal Circuit alleged to be common.  In addition, the court commented that the remand proceedings did not seem especially burdensome, given the maximum number of 81 cases to be reheard and the fact that the PTAB “has more than 250 members” who can adjudicate them.

Significantly, the Federal Circuit left considerable discretion as to the rehearings up to the PTAB.  The recent order explicitly states that the timing of the proceedings, at least as an initial matter, is in the PTAB’s hands, and did not opine on the availability of review of the remand proceedings.  It also noted the “limited remand proceedings” required by the October 31, 2019 decision, which specified that a new panel of APJs must be used but left the decision of whether to rehear using the existing record or to allow additional briefing up to the PTAB.

It remains to be seen how the PTAB will carry out the remand proceedings or when the PTAB will commence doing so.  A significant factor in all of the proceedings will be the extent to which the PTAB will allow new evidence or arguments to the record, if at all, and what standard it will use when deciding to do so.  The coronavirus pandemic and its effect on PTAB administration will also certainly play a role in when the rehearings occur.  However, given the fact that adverse parties will frequently want additional evidence and briefing, and the Federal Circuit’s no-comment on the availability of review of rehearing decisions, the burden on the PTAB will likely be greater than the Federal Circuit’s estimation.

[1] The Federal Circuit had, the previous week, denied petitions for rehearing en banc filed by appellees Smith & Nephew, Inc. and Arthrocare Corp.; appellants Arthrex, Inc.; and the federal government.  This decision was accompanied by four dissents.

On March 18, 2020, in Facebook, Inc. v. Windy City Innovations, LLC, the Federal Circuit held that 35 U.S.C. § 315(c) does not authorize same-party joinder and does not authorize joinder of new issues.

Windy City Innovations, LLC (“Windy City”) brought a patent infringement suit against Facebook, Inc. (“Facebook”) in a district court. Exactly one year after being served with Windy City’s complaint, Facebook timely petitioned for inter partes review (“IPR”), challenging several claims of Windy City’s patents. At that time, Windy City had not identified the claims asserted in the infringement suit. The Patent Trial and Appeal Board (“the Board”) instituted IPRs of some claims of Windy City’s patents. After the one-year time bar of 35 U.S.C. § 315(b) passed, Windy City identified claims it was asserting in the infringement suit. Some of the claims asserted in the infringement suit were not included in the instituted IPRs. Thus, Facebook filed two additional petitions for IPR of the missing claims along with motions for joinder to the already instituted IPRs. The Board instituted Facebook’s two additional IPRs and granted Facebook’s motions for joinder. Later, the Board found that some of the challenged claims were unpatentable as obvious while some were not. Facebook appealed and Windy City cross-appealed.

35 U.S.C. § 315(c) authorizes the Director to “join as a party to that [existing] inter partes review any person who” meets certain requirements. On appeal, Windy City argued that § 315(c) does not authorize (1) same-party joinder in an IPR proceeding – allowing a party to be joined to an existing IPR proceeding in which it was already a party – and (2) joinder of new issues material to patentability to an existing IPR proceeding.

Same Party Joinder

The Federal Circuit agreed with Windy City and ruled that § 315(c) does not authorize a person to be joined as a party to a proceeding in which it is already a party. The Court noted that its decision conflicts with the decision of the Board’s Precedential Opinion Panel (“POP”) in Proppant Express Investments, LLC v. Oren Technologies, LLC, No. IPR2018-00914 (PTAB Mar. 13, 2019) in which the POP concluded that § 315(c) permits a petitioner to be joined to a proceeding in which it is already a party. In that case, the Board broadly interpreted the phrase “any person” within the meaning of § 315(c) to cover “every person who properly files a petition that warrants institution,” including oneself. The Court disagreed with the Board’s interpretation and held that the phrase “join as a party to that inter partes review” included in § 315(c) limits the range of “any person” to be “those who … are capable of being joined as a party to proceeding.” The Federal Circuit thus concluded that § 315(c) does not authorize a person to be joined as a party to a proceeding in which it is already a party.

Joinder of New Issues

The Federal Circuit also agreed with Windy City and ruled that § 315(c) does not authorize “the joined party to bring new issues from its new proceeding into the existing proceeding, particularly when those new issues are otherwise time-barred.” On appeal, Facebook argued that § 315(c) does not expressly prohibit introduction of new issues in the joinder proceedings. The Court, however, held that the lack of an express prohibition does not make § 315(c) ambiguous as to whether it permits joinder of new issues, and explained that the statute “simply permits the Director, at his or her discretion, to join any person as a party to an already-instituted IPR” which “is governed by its own petition and is confined to the claims and grounds challenged in that petition” (emphasis added). The Court also held that no deference to the PTO’s interpretation of § 315(c) under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) is due because the statutory language of § 315(c) is unambiguous and clear.

Additional Views

Chief Judge Prost, Judge Plager, and Judge O’Malley provided additional views in which they opined that even if the statutory language was ambiguous, no Chevron deference would be given to the POP opinion. The panel noted the lack of “any congressional authorization, for either the Director or the Board to undertake statutory interpretation through POP opinions.”

It is clear from this opinion that neither same-party joinder nor joinder of new issues is permitted through § 315(c). Thus, if there is a co-pending patent infringement suit in a district court and the district court does not require the patent owner to identify claims asserted in the patent infringement suit until after the one-year bar date of the IPR proceeding, the alleged infringer should consider including all claims in the IPR petition that could be asserted as infringed in the litigation.

In Customedia Techs., LLC v. DISH Network Corp., the Federal Circuit affirmed the Patent Trial and Appeal Board’s final written decisions holding that claims 1-6, 8, 17, and 23 of U.S. Pat. No. 8,719,090 (the “’090 Patent”) and claims 1-4, 6-7, 16-19, 23-24, 26-28, 32-36, and 41 of U.S. Pat. No. 9,053, 494 (the “’494 Patent”) are invalid under 35 US.C. 101 as being directed to patent ineligible subject matter.  While perhaps a straightforward application of the two-step patent eligibility framework articulated in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014) to the advertising claims at issue, the decision includes potential guideposts under step one of Alice regarding where abstract ideas end and patent eligible technological improvements begin.

Claim 1 of the ’090 Patent recites:

  1. A data delivery system for providing automatic delivery of multimedia data products from one or more multimedia data product providers, the system comprising:

a remote account transaction server for providing multimedia data products to an end user, at least one of the multimedia data products being specifically identified advertising data; and

a programmable local receiver unit for interfacing with the remote account transaction server to receive one or more of the multimedia data products and for processing and automatically recording the multimedia data products, said programmable local receiver unit including at least one individually controlled and reserved advertising data storage section adapted specifically for storing the specifically identified advertising data, said at least one advertising data storage section being monitored and controlled by said remote account transaction server and such that said specifically identified advertising data is delivered by said remote account transaction server and stored in said at least one individually controlled and reserved advertising data storage section.

Notably, under step one of Alice, Customedia had argued that by “providing a reserved and dedicated section of storage, the claimed invention improves the data delivery system’s ability to store advertising data, transfer data at improved speeds and efficiencies, and prevent system inoperability due to insufficient stores.”  Slip Op. at 7.  “In short, by dedicating a section of the computer’s memory to advertising data, the claimed invention ensures memory is available for at least some advertising data.”  Id.  But the Court explained that “[e]ven if we accept Customedia’s assertions, the claimed invention merely improves the abstract concept of delivering targeted advertising using a computer only as a tool.” Id.   The Court repeated throughout the opinion that patent-eligible improvements to computer functionality must be directed to an improvement in the functionality of the computer itself, not just any improvement.  Id. at 7, 8, 11.

The Court went on to explain that “improving a user’s experience while using a computer application is not, without more, sufficient to render the claims directed to an improvement in computer functionality.”  Id. at 10.  The Court analogized the claims at issue to those found ineligible in Trading Techs. Int’l, Inc. v. IBG LLC, 921 F.3d 1084 (Fed. Cir. 2019) and Trading Techs. Int’l, Inc. v. IBG LLC, 921 F.3d 1378 (Fed. Cir. 2019), and distinguished them from those found eligible in other user experience cases such as Data Engine Techs. LLC v. Google LLC, 906 F.3d 999 (Fed. Cir. 2018) and Core Wireless Licensing S.A.R.L. v. LG Elecs., Inc., 880 F.3d 1356 (Fed. Cir. 2018).   Ultimately, the Court explained that the claims “merely recite reserving memory to ensure storage space is available for at least some advertising data,” and the only “improvements identified in the specification are generic speed and efficiency improvements inherent in applying the use of a computer to any task.”  Id. at 11.   Accordingly, the claims are directed to the abstract idea of using a computer to deliver targeted advertising, and at most improve the abstract concept of targeted advertising where a computer is merely used as a tool.  Id. at 6, 11.

Under step two of Alice, the Court found that the claim recites only generic computer components, including a programmable receiver unit, a storage device, a remote server, and a processor.  Id. at 12.

The Court’s step one analysis may be particularly helpful to defendants in further clarifying, or even narrowing, what constitutes patent-eligible technological improvements with respect to transmission of digital data.  For example, will this decision be extended to support patent-eligibility challenges of claims directed to purported improvements in storage, speed, and efficiency in the delivery of digital content more broadly, as opposed to just advertisements?  Stay tuned.

The United States Patent and Trademark Office (“USPTO”) announced that it considers the effects of COVID-19 (“the Coronavirus”) to be an “extraordinary situation.” Under 37 CFR 1.183, in extraordinary situations, the Director may suspend or waive any requirement of the regulations which is not a statutory requirement. Accordingly, as of the time of this writing, the Director has waived the requirement for certain petition fees and an original handwritten signature.

The “extraordinary situation” notice does not grant waivers or extensions of dates or requirements set by statute, including the following:

  1. the period set forth in 35 U.S.C. § 119(a)-(d) to file a nonprovisional patent application claiming the benefit of a prior filed foreign application;
  2. the period set forth in 35 U.S.C. § 119( e) during which a nonprovisional application claiming the benefit of a prior filed provisional application must be filed in order to obtain benefit of the provisional application’s filing date;
  3. the copendency requirement of 35 U.S.C. § 120 between a parent application which issues as a patent and a later filed child application, which requires that the child application be filed prior to issuance of the parent application;
  4. the three-month time period to pay the issue fee set forth in 35 U.S.C. § 151; and
  5. the 35 U.S.C. § 304 two-month time period from the date of patentee service, for a requester to file, in an ex parte reexamination, a reply to a statement filed by the patentee.

However, the USPTO will waive the petition fee in 37 CFR l.17(m) for applicants or patent owners who were unable to timely reply to an Office communication due to the effects of the Coronavirus outbreak, which resulted in the application being held abandoned or the reexamination prosecution terminated or limited. Upon filing a petition to revive under 37 CFR 1.137(a), applicant or patent owner must include a statement that the delay in filing the reply was because the practitioner, applicant, or at least one inventor, was personally affected by the Coronavirus outbreak such that they were unable to file a timely reply.

The USPTO additionally waived the requirements of 37 CFR 1.4(e)(1) and (2) for an original handwritten signature for certain correspondence with the Office of Enrollment and Discipline and certain payments by credit card. In both instances, the USPTO will accept copies of handwritten signatures in lieu of the “wet ink” signature.

Until further notice, all USPTO offices are closed to the public.  Any in-person meeting, including examiner and examining attorney interviews and Patent Trial and Appeal Board (PTAB) oral hearings, are to be conducted remotely by video or telephone.

Additional information regarding the USPTO’s COVID-19 notices may be found here.

We will continue to track and report on changes made to UPSTO operation.

The Federal Circuit was recently asked to review the interplay of real-parties-in-interest and the inter partes review (“IPR”) time-bar. Acoustic Technology, Inc., Appellant v. Itron Networked Solutions, Inc., Nos. 2019-1059, 2019-1060 (Fed. Cir. Feb. 13, 2020) (opinion available here).  The facts raised an interesting question of how business mergers can affect IPR and litigation strategies, but ultimately, the court found the issue was waived, since it was not raised until the appeal.

The case arose out of Acoustic Technology Inc.’s (“Acoustic”) enforcement of its U.S. Patent No. 8,986,574 (“the ’574 patent”) related to communications systems for utility providers to remotely monitor groups of utility meters.  Acoustic sued Itron in March 2010.  Acoustic and Itron reached a settlement agreement that provided a license of the ’574 patent to Itron.  Years later, Acoustic sued Silver Spring Networks, Inc. (“Silver Spring”) for infringement of the same patent.  On March 3, 2017, Silver Spring timely filed two IPR petitions, IPR2017-01030 and IPR2017-01031, challenging the validity of the ’574 patent.

Beginning in the weeks before the filing of the IPR petitions, executives of Itron and Silver Spring discussed a potential merger of the two companies.  The discussions continued, even after the Patent Trial and Appeal Board (“the Board”) instituted the IPRs on September 8, 2017.  On September 17, 2017, the two companies agreed to merge.  After the merger completed in January, Silver Spring filed updated mandatory notices to include Itron as a real-party-in-interest.  Several months later, the Board issued its final written decisions finding the challenged claims unpatentable.  Acoustic appealed.

One of the grounds Acoustic raised in its appeal was that the petitions were time-barred because Itron was a real-party-in-interest.  The Federal Circuit noted that its decision in Power Integrations, Inc. v. Semiconductor Components Industries. LLC, 926 F.3d 1306 (Fed. Circ. 2019) held that the real-party-in-interest determination includes all relationships that arise before institution, including those arising after the filing of the petition (but prior to institution).  The court also noted that Power Integrations declined to address whether the board must reevaluate the § 315(b) time-bar in view of a new real-party-in-interest arising after institution.

Acoustic presented two justifications for applying the time-bar.  First, Acoustic argued that Itron was in fact a real-party-in-interest before the IPR institution because of the merger discussions, related due diligence, and prepared merger agreements, all of which pre-dated institution.  Second, Acoustic argued that the Board must be able to assess § 315(b) after institution to avoid an end-run around the time-bar where parties deliberately delay corporate deals until shortly after institution.

The Federal Circuit did not provide a ruling on Acoustic’s theories because it found the arguments were waived.  Acoustic did not raise either of the time-bar arguments before the Board, even though it was aware of the merger more than seven months before the Board’s final written decision.  The court rejected Acoustic’s attempt to excuse its waiver by characterizing the time-bar as a jurisdictional issue that may be raised at any time.  The Federal Circuit distinguished challenges to an agency’s jurisdiction and a federal court’s jurisdiction, holding that time-bar challenges under § 315(b) are not immune from waiver.

Ultimately, the Federal Circuit did not address the merits of Acoustic’s time-bar argument, but it noted the concerns about the concealed involvement of interested, time-barred parties.  Perhaps, a future decision will address the issues left unresolved here and in Power Integrations about the scope of § 315(b) time-bar when applied to a new real-party-in-interest.

On Monday, February 24, 2020, in Reactive Surfaces LTD., LLP v. LG Chem LTD., IPR2018-01520, the Patent Trial and Appeal Board (PTAB) allowed substitute claims by granting a motion to amend for the fourth time this year, matching the total number of grants for such motions from 2013 through 2017.  This is a growing trend as grant rates for such motions continue to rise following the Federal Circuit’s decision in Aqua Products.

To put the numbers in context, the USPTO publishes studies on the outcomes of motions to amend in AIA trials. The studies are available here.  The first study, published in April 2016, contained data regarding practices and outcomes on motions to amend for the time period from 2013 through April 2016, including that:

  • Motions to amend had only been filed in approximately 10% of cases.
  • Only 62% of those motions actually made it to a Final Written Decision.
  • Approximately three in five decided motions were denied for reasons including anticipation or obviousness over the prior art of record.
  • Approximately one in five motions were denied based solely on procedural grounds, including:
    • failure to demonstrate a patentable distinction between the substitute and original claims; or
    • not being responsive to a ground of unpatentability involved in the trial.

That first study found only two of 118 motions to amend proposing substituted claims were granted in their entirety, with an additional four motions granted in part such that some, but not all, substitute claims were accepted, for a total of six motions being at least granted in part. That is, approximately 2% of motions were granted, or 5% of motions at least granted in part.

An update to the study through September 30, 2017, showed the grant rate barely climbing, with four motions granted out of 170, and 14 motions granted or granted in part, or approximately 2% and 8%, respectively. Rates for motion filings, making it to a Final Written Decision, and the reasons for denial remained approximately the same.  This study update occurred at a useful point in time—the Federal Circuit’s decision in Aqua Products, Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017), issued days later on October 4, 2017, which reversed PTAB practice and shifted the burden of persuasion with respect to the patentability of amended claims to the petitioner.  Thus, comparing this update with later study updates provides insights into how filing practices and the PTAB’s treatment of motions to amend have changed following Aqua Products.

Unsurprisingly, Aqua Products prompted a wave of motions to amend.  Prior to Aqua Products, around 60 motions to amend were filed each fiscal year for several years. In an updated study for Fiscal Year 2018 (the latest update available), the USPTO reported that 114 motions to amend had been filed.

Aqua Products not only prompted an enthusiastic response from patent owners anticipating improved chances for success with a motion to amend, but also seems to have caused a significant, but modest, increase in grant rate.  Of the 35 motions to amend decided in Fiscal Year 2018, four were granted, and a total of seven were at least granted in part, or 11% and 20%, respectively.  This represents a significant increase for grants from previous years, and an increase of 2-3 times for grants together with grants in part.

Further, filings of motions to amend showed a slight increase from around 10% to 13% of cases filed or decided in 2018, and motions making it to a Final Written Decision increased from around 62% to 69%.

Although the USPTO has not yet updated its study for Fiscal Year 2019, a high-level search of Final Written Decisions issued during that time indicates 111 decisions addressing substitute claims, with 18 granted and a total of 22 at least granted in part, for approximately 16% and 20%, respectively. An additional search for Fiscal Year 2020 to date[1] reveals 55 decisions, with 11 granted and 14 at least granted in part, for approximately 21% and 27%, respectively.

This data, and the increasing trend in grant rates, is shown below.

Beyond the increasing grant rates, the number of Final Written Decisions addressing motions to amend also suggests an uptick in motions filed, and possibly an increase in those motions surviving to the Decision stage. Looking to the future, it is likely that grant rates, filing rates, and survival rates will continue to increase in light of the USPTO’s Motion to Amend Pilot Program, whose proposal we previously commented on, and which was officially implemented in the first quarter of 2019.  While none of the decisions to date have relied on the Pilot Program, which is designed to give a patent owner preliminary guidance that may aid the success of motions to amend, the grant rate of motions should increase when avoidable errors can be addressed by patent owners in the revised motions.

As an example of a case where the PTAB’s requirements for a Patent Owner were met, in the Reactive Surfaces case mentioned above, the PTAB determined that the Patent Owner, LG Chem, met its required burden before the burden of persuasion on unpatentability shifted to the Petitioner.[2]  These requirements included that: 1) there were a reasonable number of substitute claims, 2) the proposed substitute claims responded to a ground of unpatentability involved in the trial, 3) the substitute claims did not enlarge the scope of the claims or introduce new subject matter, and 4) the proposed substitute claims were described and supported by the specification and any priority applications.  Responding to arguments presented by the Petitioner, the PTAB found that 1) there was no undue experimentation required to practice the substitute claims, 2) the substitute claims were not indefinite, and 3) the substitute claims were not obvious in view of the prior art combinations proposed by Reactive Surfaces.  As the PTAB was not persuaded that the Petitioner met its burden to show that the substitute claims were unpatentable, it granted the motion to amend.

Conversely, in Investors Exchange LLC v. NASDAQ, INC. CBM2018-00039, the PTAB determined that the Patent Owner had not demonstrated sufficient written description support for its supported claims, finding a string citation presented in a chart of claim elements to be insufficient explanation for how the elements were supported.  It is possible that if this failure were pointed out to the Patent Owner under the Motion to Amend Pilot Program, they would have been able to correct it in a revised motion to amend.

Similarly, in Apple Inc. v. Qualcomm Inc., IPR2018-01278, the PTAB determined that two of four proposed substitute claims would not be obvious over the prior art of record, but found that to be moot because all four proposed claims introduced new matter.  As such, the motion to amend was denied. Here, again, guidance under the Motion to Amend Pilot Program potentially could have saved the substitute claims.

The motion to amend, which historically has been filed in a low percentage of cases and granted at an even lower rate, is becoming an increasingly important strategy for patent owners to consider as grant rates increase and in view of the Motion to Amend Pilot Program.

[1] The most recent Final Written Decision considered issued on February 25, 2020.

[2] In this case, LG Chem was represented by the author’s firm, Rothwell Figg.

Since Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019) was decided three and a half months ago, the Federal Circuit has vacated and remanded four cases to the Patent Trial and Appeal Board (the “PTAB” or “Board”) for proceedings consistent with the decision.[1] In two of the decisions vacating and remanding the PTAB’s decisions, the Federal Circuit panels expressed concern with the Arthrex decision. In view of the growing number of concurring opinions, it appears increasingly likely that the Federal Circuit will grant the petitions for en banc rehearing filed in Arthrex.[2]

The Federal Circuit in Arthrex found that administrative patent judges (“APJs”) were principal officers. Because removal of APJs was limited to “such cause as will promote the efficiency of the service,” the court concluded that the APJs were appointed in violation of the Appointments Clause of the Constitution.  The court cured the constitutional defect going forward by severing the “efficiency of the service” portion of the statute and allowing APJs to be removed without cause. The case was remanded for a new hearing with a new panel of constitutionally appointed APJs. A more detailed discussion of the analysis in Arthrex can be found here.

Subsequently in Bedgear, LLC v. Fredman Bros. Furniture Co., 783 F. App’x 1029 (Fed. Cir. 2019), Judge Dyk and Judge Newman filed a concurrence expressing concerns with the Arthrex decision. Although the judges were bound to follow Arthrex, Judge Dyk and Judge Newman criticized the remedy of requiring a new hearing before a new panel. According to the concurrence, a new hearing is not required, imposes large unnecessary burdens on the inter partes review system, and involves unconstitutional prospective decision-making.[3]

More recently, in Polaris Innovations Ltd. v. Kingston Tech. Co., Inc., No. 2018-1831, 2020 WL 504974, at *1 (Fed. Cir. Jan. 31, 2020), Judge Hughes and Judge Wallach concurred to note their disagreement with the merits and question the remedy set forth in the Arthrex panel decision. Judge Hughes and Judge Wallach disagreed with the characterization of the APJs as principal officers. According to the concurrence, the Supreme Court has declined to set forth exclusive criteria for distinguishing between principal and inferior officers. The hallmark of an inferior officer is whether a presidentially-nominated and senate-confirmed principal officer directs and supervises the inferior officer’s work at some level.[4]

The Polaris Innovations concurrence criticized Arthrex for “pay[ing] insufficient attention to the significant ways in which the Director directs and supervises the work of the APJs and, instead, focuses on whether the Director can single-handedly review and reverse Board decisions, and whether APJs are removable at will.”[5] The director has significant powers of direction and supervision over the Board and individual APJs, including the power to issue binding policy guidance, institute and reconsider institution of an inter partes review without appellate review, select APJs to preside over an instituted inter partes review, single-handedly designate or de-designate any final written decision as precedential, and convene a panel of three or more members of his choosing to consider rehearing any Board decision.[6]

Further, the concurrence criticized the Arthrex decision for “misapprehend[ing] the applicable efficiency of the service standard that protects APJs.”[7] Under the “efficiency of the service” standard, APJs may be disciplined and removed for “misconduct [that] is likely to have an adverse impact on the agency’s performance of its functions.”[8] Although the APJs may not be removed without cause, the Supreme Court has not required that a civil servant be removable at will to qualify as an inferior officer.[9] Consequently, Judge Hughes and Judge Wallach concluded that the APJs are inferior officers rather than principal officers.

Judge Hughes and Judge Wallach further questioned whether the remedy proposed by the Arthrex panel comports with congressional intent. The severed “efficiency of the service” standard for removal of APJs originates in Title 5 of the United States Code and applies to Federal employees generally.[10] The concurrence emphasized that the Arthrex panel severed a separate statute in a separate title of the United States Code, and only to APJs. Further, the “efficiency of the service” standard had been part of the statute in various forms for over 30 years and Congress made no changes to this portion of the statute with the most recent revisions of the America Invents Act in 2011. Nevertheless, Judge Hughes and Judge Wallach “reluctantly conclude[d]” that the “efficiency of the service” standard could be severed as it applies to the removal protections for APJs because “the bar for non-severability is so high, and Congress can, at the end of the day, make another legislative choice if it disagrees with the outcome here.”[11]

Based on the concurring opinions discussed above, it appears that at least Judge Dyk, Judge Newman, Judge Hughes, and Judge Wallach have concerns regarding the Arthrex decision.  Whether the Federal Circuit will grant the petitions for en banc rehearing in Arthrex remains to be seen.

[1] See Bedgear, LLC v. Fredman Bros. Furniture Co., 783 F. App’x 1029 (Fed. Cir. 2019); Uniloc 2017 LLC v. Facebook, Inc., 783 F. App’x 1020, 1021 (Fed. Cir. 2019); Polaris Innovations Ltd. v. Kingston Tech. Co., Inc., No. 2018-1831, 2020 WL 504974 (Fed. Cir. Jan. 31, 2020); Polaris Innovations Ltd. v. Kingston Tech. Co., Inc., No. 2018-1768, 2020 WL 504867 (Fed. Cir. Jan. 31, 2020).

[2] The responses to the petitions for en banc rehearing were filed January 17, 2020.

[3] Bedgear, LLC, 783 F. App’x at 1030.

[4] Polaris Innovations Ltd., 2020 WL 504974, at *1-*2.

[5] Id. at *2.

[6] Id. at *2-*4.

[7] Id. at *5.

[8] Id.

[9] Id. (citing Morrison v. Olson, 487 U.S. 654, 692−93 (1988) (holding that the “good cause” restriction on removal of the independent counsel, an inferior officer, is permissible)).

[10] Id. at *6; 35 U.S.C. § 3(c).

[11] Polaris Innovations Ltd., 2020 WL 504974, at *7.

In BioDelivery Sciences International v. Aquestive Therapeutics, Inc., the Federal Circuit recently denied a petition for a rehearing en banc after the Patent Trial and Appeal Board (“PTAB” or “the Board”) interpreted its remand order to “implement the [Supreme] Court’s decision in [SAS Institute v. Iancu]”[1] by modifying its institution decision, denying the inter partes review petitions, and terminating the proceedings.  In doing so, the Federal Circuit effectively agreed with the PTAB that a SAS remand of a partial institution of an IPR does not require the PTAB to subsequently institute on all grounds.

Petitioner BioDelivery challenged 22 claims of Aquestive’s U.S. Patent No. 8,765,167 on several grounds of anticipation and obviousness. In May of 2015, the PTAB instituted IPR on only one of the seven grounds presented by the petitioner. After briefing and argument, the PTAB ruled in its final written decision that all challenged claims were valid. BioDelivery appealed to the Federal Circuit; and during the appeal process, the Supreme Court issued its decision in SAS Institute, ruling that a “petitioner is entitled to a decision on all the claims it has challenged.” 138 S. Ct. 1348 (2018). Thus, the Federal Circuit remanded back to the PTAB, ordering it to comply with SAS. The PTAB responded by denying institution of the IPR petitions entirely, reasoning that reviewing all of the claims and ground would be inefficient and expensive when the overwhelming majority of the grounds raised by the petitioner failed to meet the standard for institution of IPR. BioDelivery Sci. Int’l v. Aquestive Therapeutics, Case No. IPR2015-00165, Paper No. 91 (PTAB Feb. 7, 2019). In doing so, the PTAB rejected arguments from Aquestive that its decision was contrary to the requirements of Section 314 of the Patent Act. Noting that its decision was based solely on the information presented in the petition, it found no conflict with the requirements of § 314(a), and it equally succinctly dismissed § 314(d) non-appealability provision by qualifying the current decision as a reconsideration, not an appeal. The Board cited other cases in which it has changed its determination of institution outside the three-month period set out under § 314(b), and pointed to language in §318(a) as express contemplation that a proceeding can be “dismissed” after institution. Finally, it rejected arguments that reversing its original decision was contrary to guidance, policy, practice, or the Federal Circuit’s remand order. The Board stated that the order simply required the PTAB to make a yes-or-no institution choice regarding the petition.

When Aquestive appealed, a panel of Federal Circuit judges granted a motion to dismiss on the basis that § 314(d) clearly barred judicial review of institution decisions. 935 F.3d 1362, 1366 (Fed. Cir. 2019). Rather than finding that the SAS remand required institution of all the grounds brought forth by the petition, it agreed with the PTAB that the case required either an institution on all grounds, or no institution at all. Id. at 1365 (citing SAS, 138 S. Ct. at 1355). It further agreed that while the Director of the USPTO may be limited in his power to institute review by the institution threshold of § 314(a), he has full discretion to deny review even when that threshold is met. Thus, the court concluded that the PTAB corrected its decision on remand by denying institution, noting that nothing in its remand order divested the PTAB from its discretion.

Aquestive then requested that the panel decision be reheard en banc, which was denied. 946 F.3d 1382 (Fed. Cir. 2020). Judge Newman issued a lone dissenting opinion arguing that the PTAB’s dismissal was a direct disregard of the court’s order; that the Patent Act acknowledges that the Federal Circuit’s orders shall govern further proceedings in the PTAB; and that the PTAB’s action and the court’s ratification runs contrary to constitutional judicial authority, administrative law, and the America Invents Act.  She explained that the remand order did not direct the PTAB to reconsider its institution decision, but to review the additional claims and grounds. She thus concluded that the PTAB failed to comply when it dismissed the IPR. She continued that the PTAB was aware of how to properly proceed following the decision in SAS Institute because it issued guidance on how to do so, and it failed to follow its own guidance. She concluded by summarizing that judicial authority and written law require agencies to follow judicial remands and orders.

Newman’s strongly worded dissent aside, the PTAB’s decision to terminate the IPR proceedings stands. This decision suggests that a SAS remand does not strip the PTAB of its discretion to institute review. A prior PTAB decision instituting review on one ground will not serve as an anchor, forcing the PTAB to institute on all other grounds. When a petitioner presents weak grounds for review, even if some of the grounds meet the reasonable likelihood standard, the PTAB has authority to deny institution on an efficiency basis. Going forward, a petitioner should take care to avoid overreaching on claims and grounds, as it may risk the opportunity to invalidate any claims at all.

[1] BioDelivery Sci. Int’l, Inc. v. Aquestive Therapeutics, Inc., 898 F.3d 1205, 1210 (Fed. Cir. 2018).