United States: Fractured Federal Circuit Reallocates Burden Of Proof In AIA Trials

Last Updated: October 9 2017
Article by Sandip H. Patel

An eleven-judge en banc panel of the Federal Circuit issued its long awaited decision in Aqua Products, Inc. v. Matal, Appeal 2015-1777, on October 4, 2017, vacating and remanding the IPR final decision for the PTAB to determine whether the patent owner's proposed amended claims are patentable. The court's decision includes five separate opinions, though no majority opinion. The salient take-away, as Circuit Judge O'Malley's opinion for a five-judge plurality concludes, is that "very little said over the course of the many pages that form the five opinions in this case has precedential weight." Seven judges of the fractured court decided that the Patent Office may not—as it has long been doing—place on a patent owner the burden of proving patentability of a claim it moves to amend during an AIA trial. The court's conclusion is welcome news to patent owners involved in AIA trials, and overrules numerous prior court decisions* to the extent any is inconsistent with this conclusion.

Last year, on August 12, 2016, the Federal Circuit issued an order vacating its earlier three-judge panel decision in In re Aqua Products, Inc., 823 F.3d 1369 (Fed. Cir. 2016), and reinstating the appeal after granting the aggrieved patent owner's petition for rehearing en banc. In its earlier panel decision, the court confirmed that the patent owner must bear the burden of proving patentability of an amended claim in an IPR proceeding, and in deciding a motion to amend claims, the PTAB need only consider the arguments presented by the patentee, not perform a full reexamination of the proposed claims. The patent owner, in this case, having failed to carry that burden, was unable to obtain amended claims during that IPR proceeding despite otherwise satisfying the requirements of 35 U.S.C. § 316(d) and 37 C.F.R. § 42.121(a)(2). The panel decision concluded the PTAB did not abuse its discretion in denying the patent owner's motion to amend its claims. We discussed the court's earlier decision here and the court's subsequent order here.

The en banc court, however, has now vacated the PTAB's decision and remanded the proceeding so that the PTAB may determine—without placing the burden of persuasion on the patent owner—whether the claims the patent owner sought to amend/substitute are patentable over the prior art. Specifically, in making that determination, the PTAB may not, according to the court, impose on the patent owner the burden of proving the claims are patentable. The court appears to disagree on what burdens the PTAB must apply on remand. In a concurring opinion, Judge Reyna argues in Part III that the burden of production remains with the patent owner, and that this represents the judgment of the court on that particular issue, because Judges Dyk, Prost, Taranto, Chen, and Hughes join in that part of the opinion. Judge O'Malley disagrees, stating that Part III of Judge Reyna's concurrence is "odd on a number of levels," and that its "entire discussion is dictum," and not the judgment of the court. Accordingly, although a majority of the court agrees that the PTAB erred in placing the burden of proof on the patent owner, the opinions do not appear to include an agreed statement of the majority on what specific burden the PTAB should be apply on remand. Whatever burden it applies on remand, "the Board must consider the entirety of the record before it when assessing the patentability of amended claims under [35 U.S.C.] § 318(a) and must justify any conclusions of unpatentability with respect to amended claims based on that record."

Five circuit judges "believe that [35 U.S.C.] § 316(e) unambiguously requires the petitioner to prove all propositions of unpatentability, including for amended claims." Because a majority of six judges on the en banc panel instead determined that the statute was ambiguous, according to Judge Moore, the court was forced to assess a "much harder question: Whether the agency ought to be afforded deference for its decision to place the burden of persuasion on the patentee." The Patent Office argued that under Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and Auer v. Robbins, 519 U.S. 452 (1997), the court must defer to the agency's adoption of legal standards governing its disposition of motions to amend in view of the authority Congress delegated to the agency (in 35 U.S.C. § 316(a)(9)) to "set[] forth standards and procedures for allowing the patent owner to move to amend the patent under subsection (d) to cancel a challenged claim or propose a reasonable number of substitute claims."

Much of the court's 140+ pages of opinions cogitate on this question. Judge O'Malley and judges joining her opinion note that the Patent Office never presented through a notice-and-comment rulemaking process a rule specifying who must bear the burden of proof for motions to amend; rather in two IPRs the Office interpreted its rules to assign that burden to the patent owner: MasterImage 3D, Inc. v. RealD Inc., No. IPR2015–00040, 2015 WL 10709290 (P.T.A.B. July 15, 2015), and Idle Free Sys., Inc. v. Bergstrom, Inc., No. IPR2012–00027, 2013 WL 5947697 (P.T.A.B. June 11, 2013). To these judges, neither decision supports the Patent Office's argument and neither decision is an adequate substitute for the agency's obligation to comply with the rulemaking procedures specified by the Administrative Procedures Act. Four judges dissented in two separate opinions, and would have affirmed the PTAB's decision.

The court's judgment, opinions, and "cogitations" may be the subject of Supreme Court review, or perhaps new rulemaking or legislative activities. Judge O'Malley's opinion (for the five-judge plurality) concludes by acknowledging the frustrations the court endured in the uneasy process of reaching its judgment. The judgment foists the court's frustrations on the Patent Office, parties to pending AIA trials, and their counsel. The Patent Office now bears the tall task of timely administering AIA trials in the wake of the decision, including issuing new rules and procedures for deciding motions to amend and assigning burdens of production and persuasion, while the parties and their counsel scramble to reconsider strategies and options.

The court's decision means more motions to amend will likely be presented—although, how many more remains uncertain—and their likelihood of success can only improve. Currently, the patent owner moves to amend/substitute claims with a motion that the petitioner may oppose. A grantable motion must present claims that are narrower than those challenged and find descriptive support in the patent's specification. Logically, the narrower the claimed subject matter, the more difficult it should be to establish the same is unpatentable. The petitioner will be burdened with proving as much and may need to quickly find and present evidence (and expert testimony) to satisfy its burden. Under the current procedure, the patent owner gets the last word on the matter, in the form of a reply to the petitioner's opposition. But with the burden of proof now reallocated, typical trial procedures would require that the petitioner have the last word on this issue. Mix into all of this the presentation of objections to evidence and cross-examination of witnesses, and it's not hard to imagine the challenges the court's decision presents all involved in AIA trials.

* Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015) (discussed here); Prolitec, Inc. v. ScentAir Techs., Inc., 807 F.3d 1353 (Fed. Cir. 2015) (discussed here), petition for reh'g pending; Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016) (discussed here); and Nike, Inc. v. Adidas AG, 812 F.3d 1326 (Fed. Cir. 2016) (discussed here).

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