United States: Federal Circuit Rejects Some USPTO Requirements For Amending Claims During IPR Proceedings

On October 4, 2017, the U.S. Court of Appeals for the Federal Circuit issued an en banc decision rejecting certain procedures adopted by the Patent Trial and Appeal Board (PTAB or Board) limiting a patent owner's ability to amend claims during Inter Partes Review (IPR) proceedings under the America Invents Act. In a set of five separate opinions spanning over 140 pages, the appeals court rejected the current PTAB requirement that the patent owner bears the entire burden of proving that proposed amended claims are patentable over the prior art. This requirement has been criticized as unduly restrictive, especially in light of the strict page restrictions applicable to motions to amend. The court also disapproved the PTAB's practice of promulgating procedural rules governing AIA trials through precedential decisions, rather than through formal rulemaking under the Administrative Procedures Act. In the short term, the decision is likely to make it easier for patent owners to seek limited claim amendments  in AIA proceedings, but the court invited the USPTO to implement rules allocating the burden of proof through future rulemaking. Aqua Products, Inc. v. Matal, No, 2015-1177 (Fed. Cir. Oct. 4, 2017).


Under the AIA, a patent owner may move one time to amend claims challenged in an IPR proceeding:

During an inter partes review instituted under this chapter, the patent owner may file 1 motion to amend the patent in 1 or more of the following ways: (A) Cancel any challenged patent claim. (B) For each challenged claim, propose a reasonable number of substitute claims.

35 U.S.C. § 316(d). The PTAB has adopted procedural requirements on these motions to amend through Board rulings. MasterImage 3D, Inc. v. RealD Inc., No. IPR2015–00040 (PTAB July 15, 2015)(precedential); Idle Free Sys., Inc. v. Bergstrom, Inc., No. IPR2012–00027 (PTAB June 11, 2013)(informative). Those decisions place on patent owners the burden to prove that the amended claims, or proposed substitute claims, are patentable over not just the unpatentability grounds asserted by the petitioner, but on all possible grounds and in light of all prior art known to the patent owner. Slip op. at 12-13.

The Federal Circuit granted en banc review to consider whether that requirement was at odds with § 316(e) and the AIA's requirement that petitioners bear the overall burden of proving unpatentability during IPR proceedings by a preponderance of the evidence:

In an inter partes review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.

35 U.S.C. § 316(e). The court ordered briefing and argument on two questions:

(a) When the patent owner moves to amend its claims under 35 U.S.C. § 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. § 316(e)?

(b) When the petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?

Federal Circuit Decision

Eleven circuit court judges participated the court's decision (Judge Kara F. Stoll did not participate), writing five separate opinions. No one decision attracted a majority on all issues. In addition to reviewing the statutory language of the AIA and its legislative history, the opinions delved into administrative rulemaking under the Administrative Procedure Act (APA), and the evidentiary concepts of "burden of production" and "burden of persuasion."

In the final analysis, however, a majority of judges agreed on five key points:

(1) Section 316(e) Is Ambiguous

A majority of six judges agreed that § 316(e) is ambiguous as far as allocating the burden of proof for establishing the patentability of a proposed amended or substitute claim during an IPR proceeding. Five judges held that § 316(e) unambiguously places the burden of proof on the petitioner.

(2) USPTO Failed to Promulgate Regulations Allocating the Burden of Proof Warranting Deference.

A majority of seven judges held that, assuming § 316(e) is ambiguous, the USPTO failed to promulgate procedures allocating the burden of proof on the patent owner. Applying a Chevron deference analysis, the majority reasoned that an agency regulation interpreting an ambiguous statute is entitled to deference if:

(A) the USPTO adopted the rule or regulation through APA-compliant procedures that have the force and effect of law;

(B) if so, the rule is within the scope of the USPTO's rulemaking authority; and

(C) if so, the rule is based on a permissible construction of the statute.

See Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Seven judges agreed that the USPTO failed to effectively promulgate rules governing the burden of proof for motions to amend claims in IPRs. Under their analysis, the USPTO's formally-adopted trial rules did not address the question. See 37 C.F.R. §§ 42.20 and Rule 42.121. Moreover, a majority of the court criticized the USPTO's attempt to establish rules through Board decisions, namely the MasterImage and Idle Free decisions, rather than formal administrative rulemaking under the APA. The majority noted that the proposed rules were not published and no public comments were considered. Circuit Judge Moore wrote a separate concurring decision detailing her position that PTAB decisions were not a substitute for agency rulemaking.

(3) Absent New Regulations, PTAB Cannot Place Burden of Persuasion on Patent Owners.

Under principles of evidence, a party may be saddled with two distinct burdens in a trial or other proceeding as part of its overall burden of proof:

["Burden of Proof"] has encompassed two separate burdens: the "burden of persuasion" (specifying which party loses if the evidence is balanced), as well as the "burden of production" (specifying which party must come forward with evidence at various stages in the litigation).

Microsoft Corp. v. i4i Ltd. P'ship, 564 U.S. 91 (2011). A majority of the judges ruled that the USPTO had authority to allocate the burden of persuasion through administrative rulemaking, since the AIA did not unambiguously place the burden on any party. However, since it had failed to engage in the required rulemaking process, the USPTO could not place the burden of persuasion on the patent owner. Thus, unless and until the USPTO promulgates new regulations, the PTAB may not require a patent owner to bear the burden of persuasion on the issue of patentability of proposed amended claims. A majority of judges, however, joined a portion of a dissenting decision by Judge Taranto finding that § 316(e) does not unambiguously prevent the USPTO from placing the burden of persuasion on a patent owner moving to amend claims.

(4) But USPTO May Place Burden of Production on Patent Owner as the Moving Party

One controversial portion of the Federal Circuit's decision is a portion of a concurring opinion by Circuit Judge Reyna addressing the burden of production when a patent owner moves to amend claims. Reyna argued that moving parties generally bear the burden of producing evidence pertinent to assessing the issue to be considered, even if they donot bear the ultimate burden of persuasion. He noted that the parties had not disagreed that a patent owner filing a motion to amend under § 316(d) bears a burden of production, and that burden was reflected in formally-adopted PTAB trial rules. See 37 C.F.R. §§ 42.20(a), 42.22(a), 42.121(a)(2)(i). Thus, Judge Reyna concluded, until the USPTO promulgates different rules, it "must by default abide by the existing language of the inter partes review statute and regulations, § 316(d) and 37 C.F.R. § 42.121, which only allocate a burden of production to the patent owner." This portion of Judge Reyna's opinion appears to have attracted approval by a majority of six judges. Judge O'Malley, whose own opinion attracted a majority of judges on other issues, characterized this portion of Judge Reyna's opinion as dicta that improperly addressed an issue neither raised nor briefed by the parties. As a result, a patent owner seeking to amend claims at a minimum is required to present evidence that the proposed amendment must responds to a ground of unpatentability involved in the trial and does not seek to enlarge the scope of the claims or introduce new matter. The motion must also include a claim listing that shows the changes and sets forth support in the application disclosure for the amendments.

(5) PTAB Decision is Vacated and Remanded

A majority of seven judges agreed to vacate the PTAB's final written decision against Aqua Products so far as it denied the patent owner's motion to amend claims during the IPR and remand the case to the PTAB with specific instructions:

The matter is remanded for the Board to issue a final decision under § 318(a) assessing the patentability of the proposed substitute claims without placing the burden of persuasion on the patent owner. The Board must follow this same practice in all pending IPRs unless and until the Director engages in notice and comment rulemaking.

Slip op. at 66.

* * * * *

The various opinions by the Federal Circuit judges did not resolve two other issues related to the appeal. First, although five judges would have ruled that the PTAB must consider a motion to amend based upon the entirety of the record in the IPR, no resolution on this point was endorsed by the majority. In addition, the court reserved the question of whether the Board may raise patentability challenges to an amended claim sua sponte, or on its own initiative without an objection by a petitioner.

Practical Significance

The Aqua Products decision reflects sharply inconsistent views among Federal Circuit judges concerning how the burden of proof relating to patentability is to be allocated between a petitioner challenging claims in an IPR proceeding and a patent owner defending those claims. Five judges ruled that the AIA unambiguously places the ultimate burden of proof on the petitioner, consistent with § 316(e). The majority of judges, however, held that the AIA is ambiguous on this point and, although the USPTO has the authority to promulgate rules and regulations allocating the burden of proof, it only has done so with respect to the burden of production, not the burden of persuasion.

As a result, the Aqua Products decision will in the short term aid patent owners seeking to amend claims or propose substitute claims during an IPR proceeding. For now, the patent owner must support its motion to amend by advancing evidence that the proposed claims comply with the AIA, but the ultimate burden of persuasion on patentability will rest on the petitioner.

On the other hand, the Federal Circuit left the door open for the USPTO to engage in formal rulemaking under the APA, and through that process adopt regulations placing the entire burden of proof on patent owners.

The ultimate outcome of this issue will depend either on further review by the Supreme Court, if a petition for review is presented and granted, or on the outcome of the USPTO's promulgation of proposed regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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