In SAS Institute, Inc. v. ComplementSoft, LLC, the Federal Circuit criticized the PTAB for changing its claim construction “midstream” and vacated the Board’s finding that, under the newly adopted construction, one of the claims in the Patent Owner’s software patent was valid. Nos. 2015-1346, 2015-1347 (Fed. Cir. Jun. 10, 2016).
In its institution decision, the Board construed the term “graphical representations of data flows” as “a map of the path of data through the executing source code,” and relied on its construction of that term in denying institution on one of the grounds included in the petition.
In the post-institution briefing, neither party advocated for a revised construction of the term, instead relying on the construction in the Board’s institution decision. Nonetheless, in its final written decision, the Board changed its construction to “a graphical representation comprised of icons depicting data processing steps and arrows to depict the movement of data through source code,” and under that construction it found the claim at issue patentable over the prior art.
Although the Federal Circuit agreed with the construction adopted by the Board in its final written decision, the Court strongly criticized the Board’s “procedure for arriving at this construction.” Because IPR proceedings are formal administrative adjudications, they are subject to the procedural requirements of the APA, which, under § 554(b)(3), requires that “[p]ersons entitled to notice of an agency hearing shall be timely informed of . . . the matters of fact and law asserted.”
Although § 554(b)(3) has, in the past, been interpreted to provide protections to the patent owner in IPR proceedings, the Court explained that it “is not so limited.” The protections of § 554(b)(3) apply to all “[p]ersons entitled to notice of an agency hearing,” which, in the case of an instituted IPR proceeding, includes both the Patent Owner and the Petitioner. Thus, in the context of IPR proceedings, “an agency may not change theories in midstream without giving [both parties] reasonable notice of the change and the opportunity to present argument under the new theory.”
In denying the Petitioner’s request for rehearing, the Board defended its new construction on the ground that the Petitioner was not prejudiced because it “could have made construction arguments for the term.” The Federal Circuit rejected this argument, explaining that because the parties could not have “anticipat[ed] that already-interpreted terms were actually moving targets,” it would be “unreasonable to expect” them to brief or argue “hypothetical constructions not asserted by their opponent.”
Because the Board failed to provide the parties with the opportunity to present argument under its new claim construction theory, the Federal Circuit remanded “so that the parties may address the Board’s construction of ‘graphical representations of data flows.’”
This decision provides an important vehicle for parties to an IPR proceeding to challenge the ultimate determination on patentability if it is based on a claim construction that differs from the one the Board adopted in the institution decision.