CAFC Holds IPR Claim Amendments Subject To Full Patentability Examination

Yesterday, a divided CAFC panel held in Uniloc 2017 LLC v. Hulu, LLC (here) that during an IPR proceeding, the Board may consider any patentability challenge—including subject matter eligibility—if the Patent Owner moves to amend its claims under § 316(d).  The Court continues to emphasize the agency’s duty to the public in assessing patentability of the patent claims it issues.

The dispute began when Uniloc filed a patent infringement suit against multiple digital video content providers in the Eastern District of Texas.  While the suit was pending, Hulu and other defendants filed an IPR petition against one of the asserted patents (“Uniloc Patent”).  The district court did not stay the case.

Soon after Hulu filed the petition, the district court held all claims of the Uniloc Patent invalid under § 101.  Uniloc appealed the district court’s order.

While Uniloc’s appeal was pending, the Board instituted Hulu’s petition.  Uniloc filed a motion to amend the claims, asking the PTAB to enter substitute claims if the PTAB found the original claims unpatentable.  Hulu opposed the motion, relying heavily upon the district court’s § 101 order in arguing that the substitute claims were also directed to patent-ineligible subject matter.

In its FWD, the Board denied Uniloc’s motion because Hulu had shown by a preponderance of the evidence that the substitute claims are invalid under § 101.

Then, the CAFC affirmed the Eastern District of Texas’s § 101 holding.

Next, Uniloc requested a rehearing of the Board’s denial of its motion to amend, arguing that the Board misapprehended the law in concluding it is permissible in an IPR proceeding for the Board to consider a § 101 challenge to its substitute claims.  But the Board denied Uniloc’s Request, concluding that it may consider § 101 eligibility in determining proposed substitute claim patentability in IPR proceedings.  The Director designated the Rehearing Denial precedential.

Uniloc appealed, maintaining its argument that the Board overstepped its statutory authority when it considered subject matter eligibility during IPR.  On appeal, the CAFC addressed two questions: (1) whether the case was moot in view of its previous affirmance of the Eastern District of Texas’s § 101 invalidation, and (2) whether the Board may consider subject matter eligibility on a motion to amend during an IPR proceeding.

First, the majority (Wallach and Taranto) held that the case was not moot:

Hulu has pointed to no statutory language that provides a basis for concluding that, once original claims no longer present a live dispute, the PTAB and the USPTO lose authority to consider proposed substitute claims that were presented in a contingent motion timely filed during the IPR when the original claims did present a live dispute. . . . Indeed, the USPTO’s treatment is consistent with § 316(d)’s express contemplation that a patent owner may drop original claims and seek to replace them with substitute claims.

Second, the majority held that “[t]he PTAB correctly concluded that it is not limited by § 311(b) in its review of proposed substitute claims in an IPR, and that it may consider § 101 eligibility.”  Rather, “the text, structure, and history of the IPR Statutes” indicate Congress’s intent to permit the Board to broadly review substitute claims:

The IPR Statutes plainly and repeatedly require the PTAB to determine the patentability of proposed substitute claims. Section 318 requires the PTAB issue a final written decision with respect to the patentability of any new claim added under § 316(d). It further provides that the Director shall issue and publish a certificate incorporating in the patent by operation of the certificate any new or amended claim determined to be patentable. Moreover, it states that any proposed amended or new claim determined to be patentable and incorporated into a patent following an IPR will have the same effect as if it had been originally granted. As we have concluded, a § 101 analysis constitutes a patentability determination. The plain language of the IPR Statutes demonstrates Congress’s intent for the PTAB to review proposed substitute claims for overall patentability—including under § 101—of the claims.

(internal cites and quotations omitted)

The majority then explained that the structure of the IPR Statutes dictate this outcome.  Section 311 provides rules for filing a petition and § 316 guides trial conduct.  Since the sections apply to different aspects of an IPR proceeding, § 311’s limitation of patentability determinations to §§ 102 and 103 do not apply to review of substitute claims under § 316.

Finally, the Court found that the legislative history of the IPR statutes confirm that the Board is permitted to review proposed substitute claims for patentability outside of §§ 102 and 103 because amended claims raise substantial new questions of patentability:

Proposed substitute claims in an IPR proceeding have not undergone a patentability review by the USPTO, and so the substantial new questions of patentability that have not previously been considered by the USPTO include all patentability questions, including § 101 patent eligibility. Prohibiting the PTAB from reviewing patent eligibility would indeed strip the PTAB of a critical legal tool.

(internal cites and quotations omitted)

The CAFC’s decision distinguished a seemingly conflicting plurality opinion in Aqua Product v. Matal.  872 F.3d 1290 (Fed. Cir. 2017) (en banc).  There, the plurality opinion explained that the Board should limit challenges to motions to amend claims because substituted claims must be narrower than the original claims.  But here, the majority rejected this portion of Aqua Products as dicta.

Judge O’Malley forcefully dissented on both issues finding the majority had “dramatically expanded” IPR proceedings, explaining as to mootness:

Typically, when this court has finally adjudged a patent claim invalid, it also refuses to consider any appeal that demands relief dependent on that claim and vacates any such relief that has been awarded by another tribunal. Here, rather than follow that usual procedure, the majority breathes life into a dead patent and uses the zombie it has created as a means to dramatically expand the scope of IPR proceedings.. . .

After our affirmance of the district court’s ineligibility determination, and once the time expired for Uniloc to seek Supreme Court review of that affirmance, it did not possess any patent rights that it could give up in exchange for a substitute claim.

(internal cites and quotations omitted)

Judge O’Malley then disagreed with the majority on the merits:

After concluding that an invalid patent can serve as a vehicle to reach the merits of this appeal, the majority announces that, when it comes to substitute claims, the Board can engage in a full-blown examination. This revelation runs contrary to the plain language of the statute and the policy of efficiency that underlies the IPR system.

Given that amendments are only made in 10% of cases, and 101 issues come up in a subset of those, this decision has limited impact in practice. But, there is an interesting divergence of views at the Court on what level of review should be given to amended claims issuing from the agency. We have not heard the last of this topic.