EDTX judge rules that IPR estoppel applies to all grounds included in the petition, except those that are denied for purely procedural reasons

In Biscotti Inc. v. Microsoft Corp., Magistrate Judge Roy S. Payne of the Eastern District of Texas recommended finding that the IPR estoppel statute, 35 U.S.C. § 315(e), applies to all grounds included in an IPR petition except those that are denied institution for purely procedural reasons, such as for redundancy. Case No. 2:13-CV-01015-JRG-RSP (E.D. Tex. May 11, 2017).

After being sued for infringement, the defendant in Biscotti filed several IPR petitions challenging dozens of claims. Some of the grounds were instituted, and the case was stayed pending resolution of the IPR trials, from which several claims survived. After the stay was lifted, the defendant continued to maintain that certain asserted claims were invalid on the basis of grounds that were similar to those that were relied on in the IPRs.

On the plaintiff’s motion for summary judgment that estoppel barred defendant’s invalidity grounds, the Magistrate considered four categories of grounds: (1) grounds that were instituted but failed to establish unpatentability, (2) grounds denied institution on the merits, (3) grounds not included in the petition, but that reasonably could have been, and (4) grounds denied institution for redundancy. The Magistrate recommended that estoppel should apply to the first three grounds, but not to the fourth.

The decision on the fourth category followed the Federal Circuit’s holding in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc. (which we wrote about here), in which the court held that grounds denied institution as redundant were not subject to estoppel under § 315(e)(2).

As for the second and third categories, the Magistrate acknowledged that a broad reading of Shaw, which some other district courts have followed (for example, see our discussion of Verinata here), would exempt these categories from estoppel. However, the Magistrate reasoned that a narrower interpretation of Shaw was more consistent with the purpose of IPRs to streamline patent disputes. Indeed, the Magistrate noted that limiting estoppel to only instituted grounds would have the effect of protracting and complicating litigation rather than simplifying it.

While some courts may read Shaw as broadly exempting from estoppel grounds that were denied on the merits or that were not included in the petition, the Biscotti decision shows that some courts may take a more narrow interpretation and read Shaw to apply only to grounds denied for redundancy. Therefore, in deciding which grounds to include in a petition, it is risky to hold grounds in reserve in the hopes of using them in subsequent district court litigation if needed.

District Court holds that IPR estoppel does not apply to grounds denied institution on the merits

In Verinata Health, Inc. v. Ariosa Diagnostics, Inc., Judge Susan Illston of the Northern District of California held that the IPR estoppel statute, 35 U.S.C. § 315(e), does not apply to invalidity grounds asserted in an IPR petition but denied institution on the merits. Case No. 12-cv-05501-SI (N.D. Ill. Jan. 19, 2017).

The plaintiff in Verinata alleged infringement of claims that had survived an IPR trial.  The petitioner in the trial, who was also a defendant in the infringement suit, had asserted three obviousness grounds: (1) Shoemaker, Dhallan, and Binladen, (2) Dhallan and Binladen, and (3) Quake and Craig.  The Board instituted trial only on Ground 1.  Ground 2 was denied institution as redundant, and Ground 3 was denied institution because the petitioner failed to establish a reasonable likelihood of success on the merits.  At the end of the IPR trial, the Board held that the petitioner failed to show that the challenged claims were unpatentable over the Ground 1 combination.

After the stay was lifted in the infringement suit, the plaintiff moved to strike the defendant’s invalidity contentions that included Grounds 2 and 3, arguing that the defendant was estopped under § 315(e). The court looked to the Federal Circuit’s interpretation of this statute in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc. (which we wrote about here), in which the court held that IPR grounds denied as redundant were not subject to estoppel because the statute applies only to grounds that were raised or could have been raised during the IPR trial, that is, after institution.

The Verinata court interpreted Shaw broadly as standing for the proposition that “IPR estoppel only applies to grounds on which the PTAB actually institutes.”  The court stated that this interpretation ensures that estoppel applies only to arguments that received “proper judicial attention.”

Under this interpretation of § 315(e), the Verinata court held that Ground 3 was not subject to estoppel because it was denied institution and could not, therefore, have been raised during the IPR trial.

Interestingly, although Ground 2 was denied institution as redundant, the court held that it was nevertheless subject to estoppel because, as it was merely a subset of instituted Ground 1, the ground was raised, or reasonably could have been raised, during the IPR trial.

This decision follows another recent district court case, Intellectual Ventures I LLC v. Toshiba Corp., No. 13-453-SLR (D. Del. Jan. 11, 2017), that similarly interpreted Shaw broadly in holding that estoppel did not apply to grounds that could have been included in an IPR petition, but were not.

It remains to be seen whether the Federal Circuit will interpret Shaw so broadly (and § 315(e) so narrowly) when it hears appeals of cases like Verinata and Intellectual Ventures.  As it stands, however, the scope of IPR estoppel appears to be much narrower than many had expected.  If the scope of estoppel remains this narrow, the decision as to which grounds to include in a petition becomes somewhat less fraught.  A petitioner can include additional grounds in a petition without fear that a denial of institution will foreclose those grounds forever.  And a petitioner can hold back grounds as a backup defense for possible district court litigation without fear of being estopped.

Federal Circuit rules that PTAB’s decision on time-bar is still not appealable

A Federal Circuit panel recently confirmed that 35 U.S.C. § 314(d) does not permit appeal of a decision by the PTAB that an IPR petitioner is not time-barred under 35 U.S.C. § 315(b). Wi-Fi One, LLC v. Broadcom Corporation, No. 2015-1944 (Fed. Cir. Sep. 16, 2016).

Patent Owner unsuccessfully argued to the PTAB that Petitioner was time-barred from seeking IPR of its patent because Petitioner was in privity with certain entities involved in parallel district court litigation over the patent who were time-barred under Section 315(b). On appeal, Patent Owner recognized that the Federal Circuit (in Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652, 658 (Fed. Cir. 2015)) held that Section 314(d) “prohibits this court from reviewing the Board’s determination to initiate IPR proceedings based on its assessment of the time-bar of § 315(b).”

Patent Owner argued that the Supreme Court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), implicitly overruled Achates. Specifically, Cuozzo “tied the limitation of judicial review to the Patent Office’s ability to make its substantive patentability determination as embodied in § 314(a)” and left open “the precise effect of § 314(d) on appeals . . . that depend on other less closely related statutes,” such as the time-bar of Section 315(b).

The Federal Circuit rejected Patent Owner’s argument, as Cuozzo stated that the prohibition against reviewability applies to “questions that are closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review,” and that Section 315 “is just such a statute.” In fact, Cuozzo addressed Section 312, which governs what form a petition must take and is not related to substantive patentability.

Patent Owner also argued that time-bar issues should be reviewable because parties may argue those issues at trial. However, the Court noted that Achates also rejected this argument, and was not overruled by Cuozzo.

The Federal Circuit has now made clear that decisions under Section 315(b) are not appealable, and that the reviewability ban under Section 314(d) is not limited to issues arising under section 314. Thus, although it was the Patent Owner that was denied appellate review in Wi-Fi One, it is even more critical in the wake of that decision that parties wishing to file an IPR address potential privity issues as early as possible and account for any potential time-bar issues in deciding when to file their IPR.

Federal Circuit Rejects PTAB’s Analysis of Motion to Amend

In Veritas Technologies LLC v. Veeam Software Corporation, the Federal Circuit concluded that the PTAB erred in denying Patent Owner’s motion to amend claims in an IPR proceeding and remanded to the PTAB for further consideration of the substitute claims submitted in the motion. No. 2014-00090 (Fed. Cir. Aug. 30, 2016).

In the IPR, the Board applied the broadest reasonable interpretation standard of claim interpretation and invalidated the challenged claims as obvious over prior art. The Board also denied Patent Owner’s motion to amend, concluding only that Patent Owner and its expert declarant had failed to address whether each newly added feature in each proposed claim, as distinct from the claimed combination of features, was independently known in the prior art. Notably, the Board did not make an evidentiary determination of patentability of the proposed new claims.

The Federal Circuit panel found no error with the Board’s claim construction and affirmed the obviousness determination of the patent claims, but the panel took issue with the Board’s denial of the motion to amend. Applying the Administrative Procedure Act and reviewing the Board’s denial to see if it was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law,” the Federal Circuit noted that Patent Owner did not contest Petitioner’s argument that the substitute claims address the parties’ claim-construction dispute. But rather than determine whether the substitute claims should be construed as Patent Owner argued, the Federal Circuit focused on the inadequacies of the Board’s reasons for denying the motion to amend.

More specifically, the Federal Circuit focused on the fact that the Board denied the motion to amend based on its insistence that the Patent Owner discuss whether each newly added feature was separately known in the prior art. The Board concluded that the motion and accompanying expert declaration were insufficient because they did not discuss the features separately but discussed only “the newly added feature in combination with other known features.” The Federal Circuit held that this analysis and conclusion by the Board, which was the sole basis for denying the motion to amend, was unreasonable and must be set aside as arbitrary and capricious.

According to the Federal Circuit, there was nothing inherently improper in the Patent Owner’s decision to focus only on the combination itself as the “new feature,” given the “long line of Supreme Court and Federal Circuit cases noting that novel and nonobvious inventions often are only a combination of known individual features.”

PTAB denies Petitioner’s motion to suspend prosecution of co-pending applications

In Telebrands Corp. v. Tinnus Enterprises, LLC, the Board denied Petitioner’s request for authorization to file a motion to suspend prosecution of co-pending patent applications that were continuations of the challenged patent. PGR2015-00018, Paper 62 (Aug. 29, 2016).

In several decisions prior to Telebrands Corp., the Board found that the estoppel provision of 37 C.F.R. § 42.73(d)(3)(i), which states in relevant part, “A patent applicant or owner is precluded from taking action inconsistent with the adverse judgment, including obtaining in any patent: (i) A claim that is not patentably distinct from a finally refused or canceled claim,” did not authorize the Board to stay prosecution of co-pending patent applications.

For example, in Chums, Inc. v. Cablz, Inc., Case IPR2014-01240, which we wrote about here, the Board noted that an inter partes review merely involves a review of the involved patent, rather than a family of patents and patent applications. Additionally, in EMC Corp. and VMware, Inc., v. Personal Web Technologies, IPR2013-00083, Paper 12 (March 19, 2013), the Board held that it may stay a reexamination proceeding only in the situation where the involved patent is subject to the reexamination.

These decisions suggest that the estoppel provisions of § 42.73(d)(3)(i) may allow a final written decision in an AIA trial proceeding to impose constraints on prosecution of co-pending patent applications, such as when the challenged patent is the subject of the prosecution-related proceeding, or after a final written decision finally rejecting or cancelling at least one challenged claim, but make clear that any request to impose constraints on prosecution of unchallenged co-pending patents and patent applications prior to the final written decision are premature.

In Telebrands Corp., Petitioner sought to establish the Board’s authority to suspend prosecution of co-pending applications that were continuations of the challenged patent under 37 C.F.R. § 42.3(a) and 37 C.F.R. § 1.103(e). 37 C.F.R. § 42.3(a) states that “The Board may exercise exclusive jurisdiction within the Office over every involved application and patent during the proceeding, as the Board may order,” and 37 C.F.R. § 1.103(e) states that “The Office will notify applicant if the Office suspends action by the Office on an application on its own initiative.” Patent Owner opposed Petitioner’s request, citing several decisions, including the decisions mentioned above, where the Board found that it was not authorized to stay prosecution of unchallenged co-pending patents and patent applications.

In denying Petitioner’s request, the Board found that Petitioner had not persuaded the Board that the co-pending patent applications met the “‘every involved application and patent’ requirement, which triggers [the Board’s] authority under § 42.3(a),” and that Petitioner did not establish that Part 42 of Title 37 incorporates § 1.103(e). Further, the Board noted that Patent Owner cited several Board decisions (e.g., including the two decisions discussed above) to support its position that the Board was not authorized to suspend prosecution of co-pending patent applications, Petitioner was unable to cite to any Board decision granting such relief.

PTAB grants inaugural award of attorneys’ fees

In RPX Corporation v. Applications in Internet Time, LLC, the PTAB awarded attorneys’ fees for the first time in an AIA post-issuance proceeding. The Board had previously granted the Petitioner’s motion for sanctions in response to the Patent Owner’s improper disclosure of confidential information in violation of the Board’s Standing Default Protective Order. IPR2015-01750, Paper 69 (Jul. 1, 2016), citing to Paper 58 (May 6, 2016).

To arrive at its decision, the Board analyzed three factors: “(i) whether a party has performed conduct that warrants sanctions; (ii) whether the moving party has suffered harm from that conduct; and (iii) whether the sanctions requested are proportionate to the harm suffered by the moving party.”

At the time of the Petitioner’s disclosure, a protective order had not been entered in the proceeding. However, the parties had agreed by email that the Standing Default Protective Order set forth in the Board’s Trial Practice Guide applied to the proceeding.

The violation of the Protective Order was discovered by the Petitioner upon receipt of three signed acknowledgements that accompanied the Patent Owner’s Preliminary Response. The Petitioner emailed the Patent Owner requesting the identity of the three individuals that signed the acknowledgments. The Patent Owner responded that the individuals were the Patent Owner’s president, the Patent Owner’s litigation counsel for the challenged patents in a related district court proceeding, and “an advisor to [Patent Owner] regarding the IPRs.”

The Patent Owner categorized its president as a “party” under § 2(A) of the Protective Order, while the others were “other employees of a party” under § 2(E). The Patent Owner conceded that it had not sought prior permission to share the information, notwithstanding the provision in § 2(E) that other employees of a party “shall be extended access to confidential information only upon agreement of the parties or by order of the Board” (emphasis in original). The Board determined that “[t]hose disclosures, therefore, violated § 2(E) of the Protective Order.”

The Patent Owner argued that the disclosure posed no harm to the Petitioner, an argument that the Board did not find persuasive. The Board agreed that the Petitioner’s “core business deals with NPE litigation,” including “assisting its clients in defending themselves against assertions of patent rights by NPEs.” The Board found that the Patent Owner’s disclosure caused harm because it was to individuals that “work on behalf of NPEs.” In particular, Patent’s Owner’s “advisor” is the CFO of “the #3 NPE by volume in 2014 (over 100 litigations filed).”

The Board determined that the request of $13,559 in attorneys’ fees was warranted and reasonable based upon the particular circumstances.

PTAB Usually Misses the One-Month Pendency Goal for Requests for Rehearing

No statute or rule establishes a time limit for the Board to decide a request for rehearing. However, the Trial Practice Guide states that the Board “envisions” that decisions will be made within approximately one month unless additional briefing is required. An analysis of recent decisions shows that the Board is not meeting this stated goal in most cases, even when no additional briefing is requested.

For this analysis, the 21 Board decisions on requests for rehearing that issued in the month of August 2016 were considered. Of these, sixteen were requests for rehearing of institution decisions and five were requests for rehearing of final written decisions. None of the requests resulted in a reversal of the Board’s earlier decision.

The chart below shows the length of time from request to decision for the 21 August decisions.

Owens Graphic

The average pendency of all the requests was 71 days from the date of the request to the date of the decision, with a median of 58 days and a range of 10 days to 204 days. Thus, the majority of requests are taking around two months or longer to decide, with some taking several months. The long-pending requests are not limited to any particular type of request: requests for rehearing of institution decisions (n=16) had a median pendency of 44.5 days and a range of 10 days to 204 days, while requests for rehearing of final written decisions (n=5) had a median pendency of 108 days and a range of 28 days to 160 days.

The long pendency of the requests cannot be explained by delays caused by additional briefing. None of the five requests that pended for more than 100 days involved additional briefing on the request. The two cases that did involve additional briefing pended for 58 and 70 days, respectively.

While these data represent only a snapshot, they do show that the Board is often missing its one-month goal, sometimes by several months.[1] This may indicate that the PTAB judges have heavy workloads and are giving priority to meeting statutory deadlines.

Based on these limited data, parties in post-grant proceedings can expect that a decision on a request for rehearing will probably take more than one month and may take several months. This is significant because it can cause a substantial delay in the ultimate resolution of an underlying patent dispute.

[1] Note that two of the six decisions on requests for rehearing decided between September 1 and September 14 pended for more than five months (169 days and 223 days).

Federal Circuit Rejects PTAB’s Reliance on “Common Sense” to Supply Missing Claim Limitation

In Arendi S.A.R.I. v. Apple Inc., et al., the Federal Circuit reversed a PTAB decision finding all instituted claims in an IPR invalid as obvious based on the prior art and “common sense.” No. 2015-2073 (Fed. Cir. Aug. 10, 2016).

The challenged patent claimed, in part, a method for accessing a document and searching for information outside the document using a second computer program based on certain types of information contained in the document as identified by a first computer program. The only reference cited as prior art disclosed a computer program that recognizes a telephone number as a class of text in a document and includes an “Add to address book” option.

Relying on expert testimony, the Board found that it would have been “common sense” to search for the recognized telephone number when selecting the option to “Add to address book,” in order to avoid duplicate entries.

While the Court recognized that “common sense and common knowledge have their proper place in the obviousness inquiry,” it provided “three caveats” when applying it:

  • First, “common sense is typically invoked to provide a known motivation to combine, not to supply a missing claim limitation.”
  • Second, using common sense to supply a missing claim limitation “ought to be treated as the exception, rather than the rule” and applied where the missing limitation in question is “unusually simple and the technology particularly straightforward.”
  • Third, common sense “cannot be used as a wholesale substitute for reasoned analysis and evidentiary support, especially when dealing with a limitation missing from the prior art references specified.”

Applying these principles to the Board’s decision, the Court found first that the Board used common sense to supply a missing claim limitation and that the missing claim limitation “is central to representative claim 1,” rather than merely “peripheral.” In particular, if the element were missing, then “the claims would be almost void of content.”

Second, the Court found that the Board relied “precisely” on “conclusory statements and unspecific expert testimony” in finding it would have been common sense to supply the missing claim limitation. Accordingly, the Court reversed the Board’s decision.

Federal Circuit criticizes PTAB for changing claim construction midstream

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.

Federal Circuit rejects PTAB’s attempt at burden-shifting

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.”