2016: The Administrative Procedures Act (APA) Takes Center Stage
In re Cuozzo Speed Technologies was certainly a watershed moment for AIA trial practices. The 2016 decision settled years of seemingly endless debate on the propriety of the Patent Trial & Appeal Board’s (PTAB) claim construction rubric. By endorsing the Board’s use of the Broadest Reasonable Interpretation (BRI), the high court squelched a key rallying cry of PTAB critics and simultaneously reinforced the legitimacy of AIA trial proceedings. Yet, while the Cuozzo challenge to BRI was noteworthy in a broader sense, the BRI debate (no matter how it came down) was not expected to change AIA trial practices in significant regard.
Other notable 2016 events included PTAB rule changes allowing preliminary responses to offer new testimonial evidence.
But, for practitioners, the real impact in 2016 came from the Federal Circuit’s recalibration of AIA trial practices. The Court repeatedly reinforced the mandates of the Administrative Procedures Act (APA) in assessing acceptable AIA trial practices. Thus, the top 5 PTAB decisions this year come not from the PTAB or the Supreme Court, nor from rule changes, but instead, the Federal Circuit.
At number 5 is a CBM dispute relating to the statutory authority conveyed to the agency under Section 18 of the AIA. While the decision does not reference the APA directly, this statutory analysis is an application of the mandate of 5 USC 706(2)(C).
5. Unwired Planet, LLC v. Google Inc., (here)
Since 2012, the Patent Trial & Appeal Board (PTAB) has reined in its definition of a covered business method (CBM) patent under Section 18 of the AIA. In early CBM decisions, it was enough for the patent specification to reference some incidental or complimentary financial service aspect for the PTAB to find CBM eligibility. Since those early decisions, the PTAB has recalibrated its CBM eligibility analysis. Today, the Board increasingly seeks out claim language explicitly related to financial transactions/services.
In Unwired Planet, the Federal Circuit had occasion to consider CBM eligibility in the context of one of those earlier PTAB decisions and rejected the notion that a passing reference to a financial application was enough to convey CBM eligibility. In its decision, the CAFC focused the definitional scope applied by the PTAB for assessing CBM patent eligibility.
In the opinion by Judge Reyna, it was noted that the Board did not apply the statutory definition. Rather, the Board’s standard originated in a statement from Senator Schumer that the PTO quoted in its response to public comments concerning proposed interpretations of the statutory definition for a CBM patent. But, the Court explained that “[g]eneral policy statements, however, are not legally binding” and held that the PTO should not apply or rely upon such general statements of policy as law.
In this case, the PTO’s reliance on a policy statement impermissibly expanded the PTO’s authority beyond that granted by Congress:
The Board’s application of the “incidental to” and “complementary to” language from the PTO policy statement instead of the statutory definition renders superfluous the limits Congress placed on the definition of a CBM patent. CBM patents are limited to those with claims that are directed to methods and apparatuses of particular types and with particular uses “in the practice, administration, or management of a financial product or service.” AIA § 18(d). The patent for a novel lightbulb that is found to work particularly well in bank vaults does not become a CBM patent because of its incidental or complementary use in banks. Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service. All patents, at some level, relate to potential sale of a good or service.
As noted above, the broad, specification-based view of CBM eligibility is no longer as prevalent at the PTAB as it was a few years back. Still, Unwired is noteworthy as the first CAFC decision to identify outer boundaries of CBM eligibility as conveyed by the enabling statute.
At #4 for 2016, the Federal Circuit explored the adequacy of the agency’s fact finding under the APA.
4. In re Nuvasive (here)
The CAFC’s decision in Nuvasive vacated the PTAB’s Final Written Decision from IPR2013-0056 involving Medtronic, Inc and NuVasive, Inc. and remanded the case “for additional findings and explanations regarding the PHOSITA’s motivation to combine the prior art references.” .
But this case wasn’t so much about about the law of obviousness, but instead, the adequacy of the appellate record under the Administrative Procedure Act (APA).
The dispute in this IPR related to certain spinal fusion technology in which radiopaque markers were located along a specified area of fusion. Specifically, the patent challenger stated that a person of skill in the art “would have considered it to be common sense” to place radiopaque markers along the medial plane “to provide additional information regarding the orientation or location of an implant.” This reasoning was affirmed by the Board. Patent Owner NuVasive appealed the PTAB’s obviousness determinations, arguing, inter alia: “whether the PTAB adequately set forth findings and explanations to support the conclusions that a combination of these prior art references would have rendered [the challenged claim] obvious.”
In Nuvasive, the Court found that the PTAB failed to articulate a motivation to combine the prior art references. In particular, in reaching the conclusion that it would have been obvious to combine, “the PTAB failed to explain the reason why a PHOSITA would have been motivated to modify [the prior art references]” to achieve that which the challenged patent teaches. The PTAB relied on only one conclusory statement by the petitioner’s expert that the modification would provide “additional information.” The Court explained “the PTAB never articulated why the additional information would benefit a PHOSITA” when implementing the methods taught by the prior art reference. Furthermore, the Court pointed out that the PTAB “also failed to explain the type of additional information a PHOSITA would obtain or how the PHOSITA would use that information.”
Yet, the Court was not advocating a rigid and mandatory obviousness formula, but rather that the Board explain its rationale as opposed to conclusory statements; summaries of arguments simply followed by their rejection “without an explanation for why the PTAB accepts the prevailing argument[;]” and reliance “solely on common knowledge or common sense to support its findings.”
Citing the APA statutes and the complimentary Chenery Doctrine, the Court stressed that, in its Final Written Decisions, “the PTAB ‘must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the [obviousness determination] made.’” Specifically, “[t]he PTAB’s own explanation must suffice for us to see that the agency has done its job and must be capable of being ‘reasonably . . . discerned’ from a relatively concise PTAB discussion.” (emphasis added) To emphasize this point, the CAFC went through its APA-based rationale as follows:
This explanation enables the court to exercise its duty to review the PTAB’s decisions to assess whether those decisions are “arbitrary, capricious, an abuse of discretion, or . . . unsupported by substantial evidence . . . .” 5 U.S.C. § 706(2)(A)–(E) (2012); see Dickinson v. Zurko, 527 U.S. 150, 152 (1999) (holding that § 706 governs our reviews of the USPTO’s findings of fact and providing the framework for this review). We “cannot exercise [our] duty of review unless [we] are advised of the considerations underlying the action under review.” SEC v. Chenery Corp., 318 U.S. 80, 94 (1943). Indeed, “the orderly functioning of the process of review requires that the grounds upon which the [PTAB] acted be clearly disclosed and adequately sustained.” Id. Although we do not require perfect explanations, we may affirm the PTAB’s findings “if we may reasonably discern that it followed a proper path, even if that path is less than perfectly clear.” Ariosa Diagnostics v. Verinata Health, Inc., 805 F.3d 1359, 1365 (Fed. Cir. 2015) (citation omitted).
(emphasis added)
Thus, while it may very well be common sense to add radiopaque markers to provide more information to medical professionals, something more is needed in terms of explanation. Presumably such an explanation might be satisfied in a sentence or two, but for reviewability purposes, that fact finding is necessary for all but the most trivial of technologies, and modifications.
Next, at number 3, is a case clarifying that the Board must give proper notice of the matters of fact and law asserted (APA 5 USC § 554(b)(3)), and allow for a response from properly noticed parties.
3. SAS Institute Inc., v. ComplemenSoft LLC, (here)
The Patent Trial & Appeal Board (PTAB) will ocassionally change its construction of a disputed claim term over the course of an AIA patent trial proceeding. What was unclear prior to SAS, however, was whether or not the Board had the authority to advance an entirely new claim construction of its own—of a term not in dispute—for the first time, at final decision.
The Court expalined in SAS that:
It is difficult to imagine either party anticipating that already-interpreted terms were actually moving targets, and it is thus unreasonable to expect that they would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent.
As background, SAS challenged all sixteen claims of ComplementSoft’s patent 7,110,936 in inter partes review (IPR). Trial was instituted for claims 1 and 3-10, but claims 2 and 11-16 were denied institution. At the conclusion of trial, the PTAB determined that claims 1, 3, and 5-10 were unpatentable as obvious, but that SAS did not carry its burden of showing that claim 4 was unpatentable.
As to claim 4, the PTAB found that the “prior art did not satisfy the ‘graphical representations of data flows’ limitation, which it … construed to mean ‘a graphical representation comprised of icons depicting data processing steps and arrows to depict the movement of data through source code.’” This construction, however, was a departure from the construction applied by the PTAB at institution, which was “a depiction of a map of the path of data through the executing source code.” Neither party contested or disputed the Board’s original construction during the pendency of trial.
On appeal, SAS argued that the Board’s final construction of “graphical representation of data flows” was incorrect and that the Board erred in changing its interpretation of this claim term without allowing the parties to brief the issue and without either party contesting the Board’s original construction. Notwithstanding the Federal Circuit’s agreement with the Board’s final construction of the “graphical representations of data flow” claim term, the court vacated and remanded the PTAB’s decision with respect to claim 4 “so that the parties may address a new construction that the Board adopted in its final written decision after interpreting the claim differently before.”
While the Court acknowledged that the Board is free to change its construction at the time of FWD, it took issue with the Board changing its mind mid-stream, without affording the parties notice, or an opportunity to respond to its unilateral construction. In reaching this conclusion, the court determined that the PTAB’s actions in this case ran afoul of the procedural requirements of the Administrative Procedure Act (APA). Specifically, APA § 554(b)(3), which states that “[p]ersons entitled to notice of an agency hearing shall be timely informed of … the matters of fact and law asserted.”
In the context of IPR proceedings, the Court previously held in late 2015 that under § 554(b)(3) “an agency may not change theories in midstream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory.” Belden Inc. v. Berk-Tek LLC 805 F.3d 1064, 1080 (Fed. Cir. 2015). Although the Federal Circuit has previously afforded protections to patent owners under APA § 554(b)(3), it held in SAS Institute that such protections also apply to IPR petitioners, whom “stand to lose significant rights in an instituted IPR proceeding because of the estoppel effects that trigger against them if the Board issues a final written decision.”
As to the impact of the APA’s requirements on this case, and as briefly noted above, the court found:
SAS focused its argument on the Board’s institution decision claim interpretation, a reasonable approach considering ComplementSoft agreed with this interpretation in its patent owner’s response and never suggested that the Board adopt the construction that eventually materialized in the final written decision. It is difficult to imagine either party anticipating that already-interpreted terms were actually moving targets, and it is thus unreasonable to expect that they would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent.
The Court’s decision to vacate and remand in this case demonstrates the importance of conforming to APA protections in AIA trial proceedings as to all parties.
2. Genzyme Therapeutic Products LP v. BioMarin Pharmaceutical Inc. (here)
In 2016, the Court of Appeals for the Federal Circuit (CAFC) has issued significant opinions on the critical import of the Administrative Procedure Act (APA). As noted above, 5 U.S.C. § 554(b)(3) prevents the Patent Trial & Appeal Board (PTAB) from introducing new claim interpretation theories without notice, or opportunity to respond in SAS Institute Inc., v. ComplemenSoft LLC. In addition to that decision is an even more significant decision in Genzyme Therapeutic Products LP v. BioMarin Pharmaceutical Inc.
In Genzyme, the Court dispelled a widely held belief held by many practitioners and PTAB judges alike. Namely, that an AIA trial petition must function as a storehouse for all possible evidence and arguments. In a plainly worded opinion the Federal Circuit found that “[t]he purpose of the trial in an inter partes review proceeding is to give the parties an opportunity to build a record by introducing evidence—not simply to weigh evidence of which the Board is already aware.” (emphasis added)
Simply stated, this decision was an AIA trial practice game changer.
Genzyme appealed a PTAB final written decision in two IPR proceedings in which the Board held claims of two of its patents unpatentable as obvious. In its Institution Decision, the Board instituted review of one patent on two grounds: a combination of a Duke press release and two references known as Barton and van der Ploeg ’88; and a .combination of a reference known as Reuser with Barton and van der Ploeg ’88. The Board instituted review of a second patent based on a combination of the Duke press release, Reuser, and a reference known as van Hove. None of these references included data from in vivo tests on live animals.
In its trial responses, Genzyme introduced evidence of in vivo experiments, arguing that, because the Board did not institute review based on any references that included in vivo data, petitioner should not be permitted to use any prior art showing successful in vivo tests to demonstrate obviousness. However, in its trial reply, petitioner noted two in vivo studies, referred to as van der Ploeg ’91 and Kikuchi. In its finding that the disputed claims were obvious, the Board found that a person of ordinary skill at the relevant priority date would have been motivated to pursue the clinical development of the therapy disclosed in Reuser. As support for its findings as to the state of the art regarding in vivo studies, relevant to obviousness, the Board referred to the Kikuchi and van der Ploeg ’91 references, concluding that “a person of ordinary skill in the art would have had a reasonable expectation of success at the time the invention was made.”
Genzyme cried foul.
In its CAFC appeal, Genzyme had argued that the Board violated the requirements of notice and an opportunity to respond found in the Administrative Procedure Act (“APA”) because, in finding that the claims at issue were unpatentable, the Board relied on “facts and legal arguments” that were not set forth in the institution decisions–that is, the data on in vivo test results. Therefore, Genzyme argued, it was denied notice “of the issues to be considered by the Board and an opportunity to address the facts and legal arguments on which the Board’s patentability determination [would] rest.”
However, the Court found that Genzyme did have notice of the specific combinations of references that the Board relied on in finding the claims invalid, which did not change. The final written decisions in the IPRs only cited to additional evidence that reinforced these original trial grounds. That is, the in vivo studies were referenced in the obviousness determination, but only insofar as establishing what a person of ordinary skill would have known. On Genzyme’s theory that this specific explanation needed to be in the petition from the start, the Court explained that “as long as the opposing party is given notice of the evidence and an opportunity to respond to it, the introduction of such evidence is perfectly permissible under the APA.”
Not stopping there, the Court amplified that there is no requirement for an institution decision to “anticipate and set forth every legal or factual issue that might arise in the course of the trial.” In the adversarial IPR process, evidence will be developed in the course of the trial and the Board complies with the APA if it allows the parties to receive “adequate notice of the issues that would be considered, and ultimately resolved,” at the hearing. In this IPR, Genzyme–which brought up the subject of in vivo references initially– was not denied notice, or an opportunity to be heard “at a meaningful point.”While earlier CAFC decisions on AIA trial practice such as Belden Inc., v. Berk-Tek LLC made clear that the Board had considerable discretion in allowing rebuttal evidence from petitioners that served to bolster a trial ground rather than formulate a new one, Genzyme makes clear that additional evidence is, in fact, expected.
The practice of preparing the most comprehensive petition possible will still hold given the ability of patentees to present new evidence in their preliminary responses pointing out an evidentiary or legal oversight. Yet, Genzyme has offered comforting clarity to petitioners, and makes decisions to institute AIA trial proceedings all the more formidable for patentees.
Finally, at number 1 is a case that will explore, and presumably reverse the previously applied appeal bar to time bar issues under 315(b).
1. Wi-Fi One LLC v. Broadcom/Click-To-Call Techs. v. Oracle Corp., (here)
Back in November of 2015, the Federal Circuit issued a non-precedential decision in the Click-To-Call Techs. v. Oracle Corp., which openly questioned the continued viability of Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) post-Cuozzo. As a reminder, Achates held that issues arising under 35 U.S.C. § 315(b) (i.e,, IPR one year, time bar) could not be appealed to the CAFC, pursuant to 314(d).
In Wi-Fi One, the Court granted en banc review of the IPR appeal bar.
The question for en banc review is as follows:
Should this court overrule Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) and hold that judicial review is available for a patent owner to challenge the PTO’s determination that the petitioner satisfied the timeliness requirement of 35 U.S.C. § 315(b) governing the filing of petitions for inter partes review?
In the earlier Click-to-Call decision, Judge Taranto distinguished jurisdictional issues under the Administrative Procedure Act (APA) as compared to matters of patentability:
314(d). . .refers to a “determination . . .whether to institute an IPR under this section” (emphasis added). As a textual matter, those words clearly encompass the “reasonable likelihood” determination specified in § 314(a), but they leave unclear to what extent they reach determinations of compliance with other statutory provisions bearing on institution. The interpretive task demands a wider focus, beyond the words of § 314(d) alone, as the Court’s analysis in Cuozzo itself shows. . . ..regulations treat compliance with the timing rule for IPRs as a matter of Board “jurisdiction.” 37 C.F.R. § 42.3(b) (in section headed “Jurisdiction,” providing that “[a] petition to institute a trial must be filed with the Board consistent with any time period required by statute”) . . . . The “jurisdiction” label, while a troublesome one in many contexts, here relates to an Administrative Procedure Act principle that the Court in Cuozzo invoked in stating that, at least sometimes and maybe generally, § 314(d) does not bar review to determine if agency action is “‘in excess of statutory jurisdiction.’”
As the Court appears likely to overrule Achates and allow appeal of IPR time bar issues, the question becomes: What will the Court do with incomplete factual records and PTAB denials of further discovery on 315(b) issues? That is, the PTAB applies the interests of justice standard in determining whether additional discovery is warranted for 315(b) disputes in IPR (typically, for determining relationships among parties). Not surprisingly, the PTAB denies discovery for the vast majority of these disputes. Given the new appeal possibilities, 315(b) issues in ongoing IPRs will likely be reinvigorated as Patent Owners try to reserve such issues for appeal.
Should the Court decide to review such disputes going forward, the Board may decide to loosen its standards to avoid remands on such matters. Alternatively, the Board will need to be especially mindful of the new review possibilities going forward and provide more fulsome explanations and fact finding as to such discovery denials.
Honorable mentions:
In re Aqua Products – While this case gets a lot of attention by commentators, amendment practices regardless of where the burden lies for demonstrating patentability/unpatentability will never be a major component of AIA trial practices. The more interesting aspect of this dispute is the second question, which relates to the Board’s role as an expert agency when amendments are not challenged.
In re Magnum Oil Tools Int’l Ltd. – This case made clear that the burden of persuasion never leaves the petitioner. While interesting in a general, academic sense, this issue is unlikely to present itself in many cases.
VirnetX Inc. v. Apple Inc. – Interesting discussion of the role of expert agency fact finding. A must read for anyone more accustomed to district court evidence assessment.