United States: Fed. Cir. Defers To PTAB Finding Of Obviousness In First Pharma IPR Reviews (Merck V. Gnosis)

On December 17, 2015, the Federal Circuit issued a precedential decision affirming a determination by the Patent Trial and Appeal Board ("PTAB") that patent claims related to methods of treating elevated homocysteine levels were invalid as obvious.  In Merck & Cie v. Gnosis S.P.A., the panel majority applied a deferential "substantial evidence" standard of review and largely adopted the underlying factual findings of the PTAB.  The Merck decision signals that patent owners, who already face a lower preponderance of the evidence standard for invalidating patents during PTAB proceedings, may now have a harder time successfully appealing adverse obviousness determinations by the Board under a "substantial evidence" standard of review.  

Judge Pauline Newman vigorously dissented and argued for closer appellate scrutiny given the Congressional intent of the America Invents Act ("AIA"), the lower invalidity standard applied by the Board, and the finality of the Federal Circuit's rulings when considering validity appeals from the PTAB.  According to Judge Newman, "[t]he substantial evidence standard determines whether the decision could reasonably have been made, not whether it was correctly made."  In contrast, she wrote, "the question before us is whether the preponderance of the evidence supports the PTAB's decision."  In her view, it did not.

The case originated with litigation between Merck & Cie ("Merck") and Gnosis in the Eastern District of Texas.  In a complaint filed on January 19, 2012, Merck alleged that Gnosis and its business partner, Macoven Pharmaceuticals, infringed six patents directed to, inter alia, compositions containing natural isomers of reduced folates and methods of using the same.  Merck manufactures one of those isomers, 5-methyl(6S)-tetrahydrofolic acid or L-5-MTHF, under the trade name Metafolin® for use in dietary supplements used to treat conditions resulting from high blood levels of homocysteine.  The Texas litigation was stayed in July, 2013 after Gnosis successfully petitioned for inter partes review of four of the asserted patents.  Those PTAB proceedings resulted in all of the challenged claims being either cancelled by Merck or held to be invalid as obvious in the PTAB's June 20, 2014 decisions.   Merck subsequently appealed the PTAB's invalidity determinations to the Federal Circuit.

In its Merck decision, the Federal Circuit affirmed all of the PTAB's obviousness determinations and held that the PTAB had "found persuasive evidence" that the patent claims would have been obvious to a person of skill in light of the prior art.  Writing for the majority, Judges Hughes concluded that all of the "elements of the claims were found in a combination of prior art references", and that the "Board's finding of a motivation to combine" those references was supported by substantial evidence.  The majority also agreed that the Board was justified in concluding that Merck's evidence of non-obviousness could not overcome Gnosis' "strong evidence".  When addressing Merck's contention that the prior art taught away from 5-MTHF due to poor stability, the majority cited to references disclosing that 5-MTHF was suitable for pharmaceutical use, before concluding that the prior art as a whole did not teach away.  The majority also held that substantial evidence supported the Board's conclusion that Merck's proffered objective evidence of secondary considerations lacked an adequate nexus with the claims at issue.  To justify its decision to apply the deferential "substantial evidence" standard, the majority relied on the Court's 2000 decision In re Gartside, and its recent 2015 decision In re Cuozzo Speed Techs., LLC.  

Judge Newman, who penned the dissent in In re Cuozzo, sharply disagreed with the majority's application of a deferential "substantial evidence" standard of review on appeal, which she said lacked the level of close appellate scrutiny that was critical to the AIA's purpose of reaching "an expeditious and reliable determination on which inventors and industry innovators and competitors can rely."  Newman noted that the AIA did not adopt the judicial standard of requiring clear and convincing evidence to establish invalidity and expressed concern that despite being the only tribunal permitted to review the PTAB's validity/invalidity decisions, the Court was applying a "substantial evidence" standard applied to the review of initial patent examination decisions.  (citing In re Gartside).  She noted that in other appellate reviews of agency rulings, the regional circuits looked for "clear error" on appeal where the preponderance of the evidence standard had been used below.

Judge Newman went on to criticize the factual basis the majority had relied upon as a result of employing the deferential standard, noting at one point that the PTAB in its decision below had cited no source for a motivation to combine "other than '[t]he close similarity of purpose and disclosure between these references.'"  Newman further concluded that the majority had given insufficient weight to countervailing evidence presented by Merck:

The panel majority, looking for "substantial evidence" supporting the PTAB, does not discuss the evidence weighing against this finding, such as the known side effects of the L-5-MTHF isomer, its instability, the equivocal clinical observations, and Merck's and the University's commercial success, as well as the long-felt need, failure of others, industry praise, licensing, and copying. Deferential review on a standard that looks at only one side of the evidence is less likely to uncover errors in the balance and burden of proof.

The Merck opinion highlights the potential importance of the Court's chosen standard of review as well as the lack of a consensus between judges regarding what legal standard to apply to an obviousness review on appeal.  The Merck majority concluded that precedent required the underlying factual findings to be reviewed for substantial evidence while Judge Newman favored a "clear error" standard.  Judge Newman's call for more robust appellate scrutiny in Merck largely aligned with her dissenting opinion in Cuozzo.  In that case, Newman had contended that the Federal Circuit's endorsement of the "broadest reasonable" claim construction standard precluded achieving PTAB adjudications of patent validity comparable to those of the district courts, which was one of the purposes of the AIA.  Judge Newman had also concluded in Cuozzo that the majority's holding that PTAB institution decisions were "final and nonappealable" was a "departure from the legislative plan".  Her dissent in Merck was similar in that sense, and it marked a sharp divide between the judges.  

Merck also suffered a setback in the companion case, South Alabama Medical Science Foundation v. Gnosis S.P.A.   There, the same panel majority affirmed three other PTAB inter partes review decisions finding the challenged claims of three Merck-licensed patents to also be invalid.  Merck had asserted those patents which cover composition and method claims directed to L-5-MTHF and its administration to treat symptoms associated with folate deficiency in the underlying litigation. The majority largely adopted its reasoning from Merck to affirm the invalidity of those patents based on the same prior art references, and an additional reference used in one of the proceedings.  Judge Newman again dissented and referenced her dissenting opinion from Merck while concluding that the obviousness of the three patents had not been established by a preponderance of the evidence.  Merck's other two patents asserted in the Eastern District of Texas litigation are continuations of one or more of the three patents from the companion case. 

While a request by Merck for an en banc rehearing or even a petition for writ of certiorari seeking a review by the Supreme Court is possible, as it stands, the Merck decision may have broad implications for future invalidity challenges brought by patent owners following an adverse PTAB ruling.  In such situations, patent owners would face a higher hurdle trying to argue for a reversal in front of a panel weighing whether the PTAB's decision reasonably could have been made, instead of whether it was correctly made.  

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