APA Precludes New Theories Absent Requisite Notice § 554(b)(3)

The Patent Trial & Appeal Board (PTAB) will often change its construction of a disputed claim term over the course of an AIA patent trial proceeding. What was less clear, 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. This practice, occurring with increasing frequency as of late, was addressed last Friday by the Federal Circuit.

This decision will have significant impact on both PTAB trial and appeal practice going forward.
In SAS Institute Inc., v. ComplemenSoft LLC, the Board explained (here):

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 Belden Inc. v. Berk-Tek LLC 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.”  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.  
Given that the Federal Circuit agreed with the Board’s final construction of the “graphical representations of data flows” claim term, and noted that “it is uncertain” whether SAS will ultimately be able to show unpatentability under this construction, the court’s decision to vacate and remand is a nod to the importance of APA protections in AIA trial proceedings.  
 

Is the PTAB Second Choice for Your Alice Case?

Given the increased willingness of courts to dismiss Alice cases on the pleadings, petitioners may be inclined to withhold 101 grounds from CBM petitions. This is despite the fact that patent claims that qualify for a CBM challenge are often times equally susceptible to a patent eligibility challenge. That is, claims deemed CBM-eligible must satisfy a two-part test that overlaps in material respects with the Alice framework. Still, the ability to reserve the 101 issue for the court while simultaneously pursuing a CBM seems an attractive, defense strategy.

While seemingly the best of both worlds, is this two-pronged approach a smart move?
 
For CBM eligibility the first step in the analysis is to determine if the subject claim is directed to a “covered business method.”

While early CBMs satisfied the first half of the analysis by pointing to an aspect of the underlying disclosure that embraced some aspect of financial activity, the current trend is to require the claim itself to focus on a financial practice. Of course, step 1 of Alice is not concerned with a field of use, but instead on the more general concept of an abstract idea. That said, many financial methods will qualify as abstract ideas under step 1 of Alice. When CBM petitions are denied at this stage, the impact on a later Alice determination is minimal given the contextual focus.  It is the second half of the CBM analysis, if reached, that presents the greatest risk under 101.

As to the second half of the CBM analysis, the PTAB looks to whether or not the claim qualifies as a technological exception. Stated another way: “Is the claim tied to a technological solution or invention.”  Much like Step 2 of Alice, this analysis considers individual claim elements, and assesses technical merit.  For example, as with Alice, computers being used as mere tools would not be enough to qualify as an exception to CBM eligibility. The second half of the CBM and Alice inquiries are very closely aligned.

The failure of the second half CBM analysis has been cited by at least one court in denying an Alice motion.

In Sophos Incorporated v. RPost Holdings, Inc. et al, 1-13-cv-12856 (MAD June 3, 2016, Order) (Casper, J.)  Here, the court denied judgment on the pleadings that the electronic message delivery claims encompassed unpatentable subject matter because the claims did not lack an inventive concept. In other words, the second step of Alice was not satisfied. In its decision, the court noted that earlier CBM challenges were denied for failing the “technological innovation” analysis in support of the determination.

In this regard, the Court noted (here):

That the Patent Trial and Appeal Board (“PTAB”) denied petitions to institute covered business method patent reviews of the ’389 and ’913 patents tends to support this conclusion. . . .[C]overed business method patent reviews cannot be conducted on patents for technological inventions, and the PTAB denied review because the petitioners could not meet this showing.

(internal citations omitted)

Given the 101 analysis is a pure legal determination in many cases, the PTAB’s lower standard of evidence is less of a driver for CBM filers.  Going forward, given the ability to file a CBM at any time, it may be that 101 (at least in those courts that will allow early motions) will be raised first in the district court, prior to any CBM filing.
 
This case was brought to my attention by the great Docket Navigator.

Boardside Chat to Explore Best Practices This Week

This Tuesday, June 7th, the USPTO’s Patent Trial & Appeal Board (PTAB) will host its June Boardside Chat webinar. The June program will address best practices for presenting patentability/unpatentability arguments before the Board. The free webinar will be hosted by from noon to 1PM (EST) by Administrative Patent Judges (APJs) Jay Moore, Christopher Crumbley, and Kal Deshpande. The webinar will include a Q&A portion for submitted questions.

Webinar access information is provided below. Webcast Instructions for Tuesday, June 7th:

Event:

 PTAB Boardside Chat Webinars
Event address for attendees:

 https://uspto-events.webex.com/uspto-events/onstage/g.php?MTID=e792aa46e57a99d03d7945c393232401e
Date and time:

 Tuesday, June 7, 2016 12:00 pm
Eastern Daylight Time (New York, GMT-05:00)
Duration:

 1 hour
Event number:

 994 178 459
Event password:

 123456
Audio conference:
Call-in toll number (US/Canada)
1-650-479-3208
Access code: 994 178 459
Captions Link:   http://www.captionedtext.com/client/embed.aspx?EventID=2839526

Unpredictable Arts = Unpredictable Success at PTAB

In a previous post I noted the growing interest from Bio/Pharma in the patent challenge mechanisms of the Patent Trial & Appeal Board (PTAB).  While the Board offers strategic value, speed and a cost effective, technical review, these benefits are not without risk. Recent statistics out of the PTAB demonstrate that patent challenges in the unpredictable arts are far more likely to fail as compared to those in the predictable arts.  

Going forward, the PTAB institution rate for bio/pharma will drop even further.

The PTAB released the below statistics at the May 2016 Patent Public Advisory Committee (PPAC) meeting (calculated through 3/31/16).  
As shown below, bio/pharma patents have the lowest institution rates of all utility patents.
20160505 PPAC PTAB Update Page 11
In terms of success beyond institution, bio/pharma claims are also more likely to be upheld as not unpatentable as compared to the predictable arts (settlements excluded from below chart). 

Pages from 20160505 PPAC PTAB Update

In my opinion, the above chart reflects the increased value of testimonial evidence in the unpredictable arts.  That is, prior to the recent rule change, patentees were unable to present evidence until after trial institution. For example, the introduction of such evidence in electrical/computer cases leads to some claims being found not unpatentable (checkered bar), but not a significant amount. On the other hand, there is a marked departure for bio/pharma (checkered bar). As new testimonial evidence is now being accepted pre-institution, my expectation is that the trial institution rate in the bio/pharma space will fall further. (institution being for at least one claim of a given patent).

AIPLA/USPTO Program to Focus on PTAB Trials & Ex Parte Appeals

On Wednesday June 15th the AIPLA & Patent Trial & Appeal Board (PTAB) will host their second annual Bench and Bar Conference.  A highlight of the program is the Tri-Judge Panel with Judge Jay Plager from the Federal Circuit, Judge Gregory Sleet from the District of Delaware, and former PTAB Chief Judge Nate Kelley.  For the ex parte appeals topic, an actual ex parte appeal argument will be heard live.  

The event will be webcast for those unable to attend in person (USPTO, Madison Auditorium). (register here) The program will be held from 1-5PM with a reception thereafter.  The current schedule is provided below.
1:00 – 1:30 PM

​State of the Board
​1:30 – 2:30 PM ​Tri-Judge Panel
​2:30 – 2:45 PM ​Break
​2:45 – 3:45 PM ​Panel No. 2 on Administrative Aspects of AIA Trials
​3:45 – 4:30 PM ​Prosecution Tips to Strengthen a Case for Ex Parte Appeal
4:30 – 4:50 PM​ Ex Parte Appeal Oral Argument (open to public)​
4:50 – 5:00 PM​ Closing​
​5:00 – 7:00 PM ​Reception in Madison Auditorium

Impact of Concluded PTAB Proceedings on Litigation

Patent challenge proceedings of the USPTO’s Patent Trial & Appeal Board (PTAB) are designed to provide a low cost, expedited option to district court litigation. Of course, if a patent challenger is unsuccessful at the PTAB, the district court is left to make the ultimate resolution on validity.  Now several years into the PTAB’s existence, closed AIA trial records are being leveraged by the courts to resolve disputed issues of fact.  

Especially as to matters of claim scope, the PTAB’s expansion of the intrinsic record is providing courts with a short cut in assessing otherwise thorny factual determinations. Accused infringers are beginning to favorably leverage this record in related litigation—such as in a motion for summary judgment.   
As a reminder, summary judgment is only permissible if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.  As such, raising highly fact intensive proceedings at the PTAB can be a roadblock in summary judgment as PTAB proceedings often present competing facts.  Yet, in two recent instances Defendants successfully moved for summary judgment based on PTAB findings in the intrinsic record.

TMC Fuel Injection System, LLC v. Ford Motor Company

In this case, Ford filed a motion for summary judgment of noninfringement that was stayed pending the outcome of Ford’s IPR against the asserted patent.  The claims were ultimately found patentable by the PTAB, and the Final Written Decision included explicit findings on claim construction relevant to patentability, namely, that the prosecution history expressly disclaimed pressure regulators.  Because pressure regulators are a component of Ford’s accused product, Ford argued that it was entitled to summary judgment of noninfringement at the district court. 

In the decision, the district court noted that courts generally give deference to PTAB decisions based on the PTAB’s specialized patent knowledge and expertise, citing Pride Mobility Prods. Corp. v. Permobil, Inc., No. 13-01999, 2013 WL 8445809, at *3 (E.D.Pa. Aug. 14, 2013); Old Reliable Wholesale, Inc. v. Cornell Corp., 635 F.3d 539, 548 (Fed. Cir. 2011) (“[T]he PTO has acknowledged expertise in evaluating prior art and assessing patent validity.”); 35 U.S.C. § 6(a) (acknowledging the “legal knowledge and scientific ability” of the PTAB patent judges).

The district court amended its previous claim construction in view of the PTAB’s findings regarding pressure regulators and granted the motion.  In other words, even though Ford lost at the PTAB, it was able to leverage the PTAB’s findings into a win at the district court.  Absent this additional intrinsic evidence it seems likely that the question of disclaimer would have been considered a dispute 

Cayenne Medical, Inc. v. Medshape, Inc. et al.

In this case, Medshape filed an IPR challenging claims 6-11, 13, and 16-18 of Cayenne’s patent.  The PTAB instituted trial only on claims 16-18, stating it did not consider the merits of Medshape’s arguments for claims 6-11 and 13 because these claims were indefinite based on the phrase “substantially different construction.”  Soon after, Medshape filed a motion for summary judgment of invalidity of these claims due to indefiniteness at the district court.

In the decision, the district court held that although the PTAB’s findings on indefiniteness were not binding, they were “compelling evidence” and Medshape’s motion for summary judgement was granted.  (Although the court erroneously relied on a case saying cases from the TTAB—rather than PTAB—should be given weight, giving deference to PTAB decisions has also been recognized by the courts, as noted in the cites above.)  Again, although the PTAB proceedings themselves were not successful with regard to canceling these claims, the additions to the intrinsic record were useful in invalidating the claims at the district court.

Losses at the PTAB may still be of significant value.  As illustrated above, statements in the expanded intrinsic record can be successfully used in concurrent litigation, even at the summary judgment stage. 

Former Medtronic Patent Counsel Tapped for PTAB Lead

Today, the USPTO has announced the appointment of David P. Ruschke as new Chief Judge for the Patent Trial and Appeal Board (PTAB). Ruschke will begin his new role at USPTO headquarters in Alexandria, VA, on May 23, 2016.  The text of the press release is found below.

The U.S. Department of Commerce’s United States Patent and Trademark Office (USPTO) today announced the appointment of David P. Ruschke as new Chief Judge for the Patent Trial and Appeal Board (PTAB). Ruschke will begin his new role at USPTO headquarters in Alexandria, VA, on May 23, 2016.
“The Patent Trial and Appeal Board plays a critical role in the patent ecosystem, especially since the launch of post-grant trials authorized in the America Invents Act of 2011,” said Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office Michelle K. Lee. “David’s breadth of experience in global patent opposition proceedings and his deep understanding of intellectual property positions him perfectly to lead our Board well into the future.”

Prior to joining the USPTO, Ruschke managed the intellectual property portfolio of Medtronic’s CSH business unit, with sales in excess of $3 billion. As Chief Patent Counsel, Ruschke participated in numerous patent appeals, interferences, post grant reviews, inter partes reviews, and the Transitional Program for Covered Business Method Patents. He gained extensive experience in post-grant proceedings in Europe and participated in third-party contested proceedings before administrative agencies and courts around the world. He has significant experience in shaping and integrating teams of professionals, as well as managing a work force that is geographically dispersed.

“Director Lee has assembled a highly talented and hard-working team at the USPTO. I am excited to have the opportunity to join the talented judges and staff of the PTAB as we work together to serve America’s inventors,” said Ruschke.

Prior to joining Medtronic, Ruschke practiced with Covington & Burling in Washington DC, where he litigated claims of patent infringement. Ruschke’s judicial experience includes clerking for Chief Judge Glenn L. Archer, Jr. and Circuit Judge Arthur J. Gajarsa at the U.S. Court of Appeals for the Federal Circuit. He received his JD from Georgetown University Law Center, and holds a PhD in organometallic chemistry from the Massachusetts Institute of Technology and a BS in chemistry from the University of Minnesota.

Ruschke’s appointment allows Nathan Kelley to return to his position in the USPTO’s Office of the Solicitor to serve as the Deputy General Counsel for Intellectual Property Law and Solicitor. Kelley served as PTAB Acting Chief Judge for 10 months.

“I am grateful to Nate Kelley for the service he has provided our agency during his time with PTAB and I am pleased to again have his skill and expertise serving the agency and the public as the USPTO’s Solicitor.”

PTAB Moves to Establish More Precedential Decisions

Yesterday, the Patent Trial & Appeal Board (PTAB) announced the designation of five, additional precedential decisions.

Garmin Int’l v. Cuozzo Speed Techs LLC, IPR2012-00001, Paper 26 (Mar. 5, 2013) – This order discusses the factors considered in evaluating motions for additional discovery in IPR proceedings. Previously designated as informative, this decision has been treated as de facto precedent for quite some time.

Bloomberg, Inc. v. Markets-Alert Pty, Ltd., CBM2013-00005, Paper 32 (May 29, 2013) – This order discusses the factors considered in evaluating motions for additional discovery in CBM proceedings. (Garmin for CBMs)

Oracle Corp. v. Click-to-Call Techs, LP, IPR2013-00312, Paper 26 (October 30, 2013) (precedential only as to Section III.A.) – This decision pertains to interpretation of “served with a complaint” for purposes of triggering the one-year time bar set forth in 35 U.S.C. § 315(b).  More specifically, this decision stands for the proposition that a dismissal of a prior law suit “without prejudice” prevents that suit from triggering the time bar of 315(b).  This has also been de facto precedent at the PTAB.

MasterImage 3D, Inc. v. RealD Inc., IPR2015-00040, Paper 42 (July 15, 2015) – This order provides guidance on patent owner’s burden to show entitlement to substitute claims.  More specifically this decision defines “prior art of record” and “prior art known to the patentee” as used in the Idle Free decision, which outlines requirements for motions to amend.  Another decision that has been treated as de facto precedent.

Lumentum Holdings, Inc. v. Capella Photonics, Inc., IPR2015-00739 (Paper 38) (March 4, 2016) – This decision interprets 35 U.S.C. § 312(a)(2).  More specifically, it clarifies that the naming of real-party-in-interest is not a jurisdictional requirement, and that changes during a proceeding, especially prior to institution may be corrected.

With the addition of these decisions, there are now eight (8) precedential PTAB decisions corresponding to AIA trial practice, the other being:

LG Electronics, Inc. V. Mondis Tech, Ltd. IPR2015-00937 (Paper 8) (September 15, 2007) (Dismissal both with prejudice and without prejudice for some issues will trigger 315(b) bar to institution)
Westlake Services, LLC v. Credit Acceptance Corp IPR2014-01176 (Paper 28) (May 14, 2015) (325(e)(1) estoppel is claim-by-claim)
SecureBuy LLC v. CardinalCommerce Corp . CBM2014-00035 (Paper 12) April 25, 2014 (325(a)(1) bar to review after DJ action applies in CBM)

Vast Majority of Amendments Denied on the Merits

Yesterday the Patent Trial & Appeal Board (PTAB) released a study on motions to amend. Contrary to popular belief, the majority of these motions are not denied on strict procedural grounds, but instead, on the merits.

The study points out that:

  • In the 1539 trials that have gone to completion or settled (where joined or consolidated trials were counted as a single trial), motions to amend were sought in a little over 10% of cases, 192 in all. (34 more motions to amend are pending in currently open cases.)
  • Of those 192, not all ultimately required the PTAB to pass on the merits of the motion. This is because, often, motions to amend are filed as “contingent” motions—if the PTAB upholds the patentability of the original claims, such motions never get decided. Several other cases settle before motions to amend are decided. Additionally, some motions to “amend” only request the cancellation of claims, and those are routinely granted.  
  • 94 of the 118 remaining petitions were denied on merit based deficiencies, only 22 were bounced on procedural grounds.

PTAB MTA study

As shown above, 50% of MTAs are denied on the merits (101,112, 102, 103). Another 23% include multiple statutory grounds, which also include merit based deficiencies.  

As inconvenient as these statistics are for PTAB opponents, they are far from surprising. 

Plainly the lack of a large number of successful amendments to date is not rooted in any reluctance of the agency to accept amendments, but instead, a reflection of the impossibility of saving low quality patents with trivial amendments that lack technical distinction. Typically, patentees are constrained by the fear of intervening rights from proposing more substantial, technically significant amendments. The fear of intervening rights is especially prevalent in arts where licensing entities are the most active, such as consumer electronics. In such quickly developing technologies, an amendment may not only give up past damages, but foreclose future damages if the technology has already advanced beyond the patented device or methodology.

Managing Intellectual Property (MIP) PTAB 2016

This coming Thursday May 12th, MIP will host its inaugural MIP PTAB Forum 2016 in New York City. The program includes several panels including Administrative Patent Judges (APJs) of the PTAB including Acting Chief Judge Nathan Kelley.  The agenda includes a range of topics including CAFC and district court insights, strategies for new rule changes, Bio/Pharma specific strategies, and much more. (brochure)

I hope to see you there.