CAFC Clarifies Burden of Production in AIA Trial Proceedings

In patent examination, once a prima facie case of obviousness is presented in a rejection by the agency, the burden of production switches to the Applicant. In AIA trials, such as Inter Partes Review (IPR) there are no “rejections,” instead, there are “grounds” of unpatentability. These grounds are first presented in a petition, and if satisfying the reasonable likelihood of prevailing standard, instituted for trial by the Patent Trial & Appeal Board (PTAB).  However, institution of a trial ground by the agency is not the same as establishing a prima facie case. 

As the Federal Circuit held yesterday in In re Magnum Oil Tools Int’l, Ltd. the burden of production does not shift to the patentee upon trial institution.

McLinton Energy Group, LLC filed a petition for inter partes review (IPR) of U.S. Patent No. 8,079,413 (‘413 patent) owned by Magnum Oil Tools International, Ltd (IPR2013-00231).  The petition proposed two grounds of invalidity, a first obviousness combination based on an Alpha reference and a second obviousness combination based on a Lehr reference (both using the same secondary references). The petition’s reasoning for the Lehr combination incorporated the reasoning for the Alpha combination. Unfortunately for the petitioner, the Board instituted the IPR based on the Lehr combination, but not the Alpha combination. The Alpha ground was deemed redundant.

The Board ultimately issued a final written decision holding all challenged claims invalid over the Lehr combination.

On appeal to the Federal Circuit, patentee argued that neither the petitioner nor the Board established a prima facie basis for the Lehr ground as the rationale for the combination was based on a different combination of references. The PTO countered that institution of an IPR indicates the Board has necessarily found a reasonable likelihood of success and that this finding shifts the burden of producing evidence of nonobviousness to the patentee. The Federal circuit characterized the Board’s holding as a determination that: “obviousness in an IPR can be based on less than a preponderance of the evidence if the patent holder does not affirmatively disprove the grounds upon which the IPR was initiated.”  The Court soundly rejected this notion. (here)

First addressing the burden of proof, the Federal Circuit explained the related but distinct burdens of proof applicable to the IPR proceeding:  a burden of persuasion; and a burden of production.  In an IPR, the burden of persuasion always remains with the petitioner.  The burden of persuasion in IPR is to prove unpatentability by a preponderance of the evidence.  The burden of production may entail producing additional evidence and presenting persuasive argument based on new evidence or evidence already of record.  Although recognizing that the burden-shifting framework for the burden of production makes sense in the patent examination context, the Court held that shifting the burden of production is improper in the adjudicatory context of an IPR.

The Federal Circuit then found the Board had committed reversible error by improperly shifting the burden to the patentee Magnum. The Board in the Final Written Decision repeatedly shifted the burden to Magnum to disprove obviousness. For example, the Board faulted Magnum for failing to explain why the obviousness argument based on the Alpha combination would not be applicable to the Lehr combination. This shift was improper where, as the Federal Circuit noted, the Board and the petitioner never explained why borrowing the rationale for the Alpha combination applied to the Lehr combination, particularly where Alpha and Lehr operated differently. Without presenting specific arguments explaining why the rationale for the Alpha combination applied to the Lehr combination, the Board had not required the petitioner to support its claim of obviousness by a preponderance of the evidence and thus satisfy its burden of production. Likewise, the Court alluded to further violations of the Administrative Procedure Act (APA), which requires the patentee be on notice of of the agency’s positions and be provided an opportunity to respond. (citing to SAS Institute)

To meet its burden of production, the petitioner must articulate specific reasoning based on evidence before the Board to support the legal conclusion of obviousness. Petitioner had merely made conclusory statements that the same analysis for the Alpha combination applied to the Lehr combination. The Federal Circuit held that these types of conclusory statements cannot satisfy the burden of demonstrating obviousness.

While somewhat of a unique fact pattern, this case demonstrates the importance of fully developing all grounds of unpatentability. The Alpha ground would, under Shaw Industries, be free of IPR estoppel. Yet, returning to the district court on that basis (i.e., three reference obviousness defense) is far from ideal.  (Note: the parties settled prior to CAFC appeal)