In In Re Magnum Oil Tools Int’l, Ltd., the Federal Circuit found that the PTAB had improperly used its IPR institution standard—a reasonable likelihood that the petitioner would prevail as to at least one of the claims challenged in the petition—as justification for shifting the burden of persuasion and burden or production onto the Patent Owner after institution. No. 2015-1300 (Fed Cir. Jul. 25, 2016).

The IPR petition challenged claims as obvious based on two different groups of prior art combinations: Alpha and Lehr. The Board instituted review based on the Lehr combinations but not the Alpha combinations, which ultimately led to the unraveling of the Lehr combinations at the Federal Circuit.

The Federal Circuit first addressed burden of persuasion and burden of production, finding the Board had improperly shifted both burdens onto the Patent Owner. As to burden of persuasion, the Court reemphasized its ruling from Dynamic Drinkware that “the burden of persuasion is on the petitioner to prove ‘unpatentability by a preponderance of the evidence,’ 35 U.S.C. § 316(e), and that burden never shifts to the patentee.”

The Court noted that shifting the burden of persuasion has never been contemplated in litigation or the “adjudicatory context of an IPR,” whereas shifting the burden of persuasion in prosecution makes sense as “a ‘procedural tool of patent examination, allocating the burdens of going forward between examiner and applicant.’”

Next, the Court ruled that the burden of production remains with the petitioner regardless of the decision to institute, and “the Board has an obligation to assess the question anew after trial based on the totality of the record.”

The Court then found that the motivation to combine Lehr with the secondary references improperly cited back to the motivation for the Alpha combinations (e.g., “as discussed above with respect to Alpha,…” and “[t]he same analysis applies to combinations using Lehr as a base reference,…”). This led the Court to conclude that a prima facie case of obviousness had not been established, due to notable structural differences between Lehr and Alpha but no “particularized arguments [to] explain why those arguments from Alpha would be cross-applicable to the Lehr reference.”

Interestingly, the lack of a prima facie case of obviousness was a result of the Board’s improper burden shifting, in that the Board never required Petitioner to fix the deficiencies of its petition by further explaining its motivation to combine Lehr. From the outset, the Board improperly adopted the Petitioner’s proposed motivation to combine the Lehr combinations based upon the rationale incorporated from Alpha. Following institution, the Board improperly shifted the burden of disproving the Lehr combination onto the Patent Owner, and as such, never required Petitioner to bolster its motivation to combine Lehr with the secondary references.

This decision underscores the importance for IPR petitions to set forth prior art combinations that are independent from other prior art combinations, and in particular, not to incorporate by reference arguments from other grounds, which may not be instituted by the Board. Instead, for prior art combination, a petition should “articulate specific reasoning, based on evidence of record, to support the legal conclusion of obviousness.”