United States: How The PTAB And Federal Circuit Have Responded To Aqua Products

The patent bar watched the en banc rehearing decision in Aqua Products Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017), with great interest. This was because the lack of availability to amend claims in an inter partes review has frustrated patent owners and was a somewhat unanticipated consequence of the America Invents Act. When the AIA was enacted in 2012, many practitioners expected post-grant proceedings amendment practice to be available and quite similar to pre-AIA re-examination practice. This expectation was founded in the statutory language and past practice. The AIA states in Section 316(d)(1) of the Patent Act, 35 U.S.C.A. § 316(d)(1), that "the patent owner may file one motion to amend the patent." Furthermore, IPR and post-grant review proceedings were intended to replace inter partes re-examinations to review the patentability of patent claims. Standard inter partes re-examinations—and ex parte re-examinations—allowed the patent owner to amend claims.

However, the Patent Trial and Appeal Board's approach in post-grant proceedings since the AIA was enacted has severely restricted motions to amend by substituting claims.

Through regulations and decisions, the PTAB set forth ground rules for IPR amendment practice. The statute authorizes the Patent and Trademark Office to promulgate rules relating to motions to amend in Section 316(a)(9) of the Patent Act, 35 U.S.C.A. § 316(a)(9). The PTO did so in 37 C.F.R. §42.121, requiring that the motion to amend:

• Respond to a ground of unpatentability.
• Avoid enlarging the scope of the claims.
• Avoid introducing new subject matter.
• Propose only a reasonable number of substitute claims.
• Show written description support for every change in the original disclosure of the patent.

Through its decisions, and in reliance on a general procedural regulation placing the burden of proof on the moving party to establish entitlement to the relief requested, the PTAB further established that the burden to show patentability of the proposed substitute claims was on the patent owner.

Aqua Products

In Zodiac Pool Systems Inc. v. Aqua Products Inc., No. IPR2013-159, 2014 WL 4244016 (P.T.A.B. Aug. 22, 2014), the PTAB held all instituted claims unpatentable for anticipation and obviousness and denied Aqua's motion to amend proposing three substitute claims. Although the PTAB found the substitute claims complied with Section 316(d) and 37 C.F.R. §42.121(a), it was "not persuaded that patent owner has demonstrated the patentability of the proposed substitute claims over a ground of unpatentability involving Henkin and Myers." According to the PTAB, the rule relating to motions to amend and the general rule assigning the burden to movants placed the burden on the patentee to show that the proposed amendments would make the claims patentable over the known prior art.¹

On appeal, a panel of the U.S. Court of Appeals for the Federal Circuit affirmed the PTAB decision. In re Aqua Products, 823 F.3d 1369 (Fed. Cir. 2016). The Federal Circuit had previously and repeatedly upheld the PTAB's approach to motions to amend.²  The panel in Aqua Products concluded, therefore, "Given our precedent, this panel cannot revisit the question of whether the board may require the patentee to demonstrate the patentability of substitute claims over the art of record."

The court granted a request for en banc rehearing in In re Aqua Products, 833 F.3d 1335 (Fed Cir. 2016), to specifically address the burden on a patent owner that moves to amend its claims under Section 316(d) of the Patent Act.³

The en banc court delivered its opinions in Aqua Products Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017). Judge Kathleen O'Malley wrote a plurality opinion. Four of the 11 judges on the panel joined in the opinion, and two others concurred as to the result it reached. In that opinion, the court held that, under the PTO's current rules and rule-making history, the agency may not place the burden of persuasion regarding the patentability of proposed amended claims on the patent owner:

The court expressly overruled contrary Federal Circuit precedent as follows: "To the extent our prior decisions in Microsoft Corp. v. Proxyconn Inc., 789 F.3d 1292 (Fed. Cir. 2015); Prolitec Inc. v. ScentAir Technologies Inc., 807 F.3d 1353 (Fed. Cir. 2015)...; Synopsys Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016); and Nike Inc. v. Adidas AG, 812 F.3d 1326 (Fed. Cir. 2016), are inconsistent with this conclusion, we overrule those decisions."⁵

It also addressed PTAB precedent, saying two of the PTO's previous decisions "do not alter our conclusion that the PTO's regulations do not speak to either Section 316(e) or the ultimate burden of persuasion regarding patentability."

Five judges concluded that the statutory scheme is unambiguous, saying it does not place the burden of proving the patentability of amended claims on the patent owner. Those five judges also concluded that there is no PTO rule identifying which party has the burden to show patentability of proposed substitute claims. Without a rule, there could be no basis for Chevron deference.⁶  They also rejected the argument that 37 C.F.R. §42.20(c), the general rule placing the burden on movants, applies to a patent owner's motion to amend claims under Section 316(e) of the Patent Act.

Six more judges said the statute is ambiguous, but they disagreed on whether the PTO interpretation deserved deference.

Two of those six, Judges Timothy B. Dyk and Jimmie V. Reyna, believed it did not, which, when added to the five who believed the statute was unambiguous, provided a plurality of seven agreeing to discard the PTO interpretation without deference.

The plurality of seven judges vacated the original PTAB decision, concluding "that the board erred when it imposed the burden of proving the patentability of its proposed substitute claims on Aqua." The case was remanded "for the board to issue a final decision under Section 318(a) assessing the patentability of the proposed substitute claims without placing the burden of persuasion on the patent owner." The court further instructed the board to follow the same practice "in all pending IPRs unless and until the director engages in notice and comment rule-making."

The en banc decision in Aqua Products appears to leave open the possibility that the PTO could promulgate a rule placing the burden on the patent owner or petitioner.

The Federal Circuit would then review that rule to determine if it should be accorded Chevron deference.

Post-Aqua Guidance from the PTO

On Nov. 21, 2017, the PTO issued guidance on motions to amend in view of Aqua Products  as a memo from then-Chief Patent Judge David Ruschke to the PTAB.

According to the guidance, "In light of the Aqua Products decision, the board will not place the burden of persuasion on a patent owner with respect to the patentability of substitute claims presented in a motion to amend."

Notably, the guidance does not squarely allocate the burden of persuasion. Instead, if a patent owner files a motion to amend meeting the statutory requirements of Section 316(d) and the regulatory requirements of 37 C.F.R. §42.121, "the board will proceed to determine whether the substitute claims are unpatentable by a preponderance of the evidence based on the entirety of the record, including any opposition made by the petitioner."

That is, the PTAB will place all evidence of patentability and unpatentability on the scale. If the evidence tips toward unpatentability, the motion to amend will be denied. If it tips toward patentability, the motion will be granted. And if it is "in equipoise as to the unpatentability," the motion will be granted. In other words, a tie goes to the patent owner.

The guidance seems to be an attempt to: follow Aqua, as the PTO must; avoid expressly assigning the burden on the petitioner or the patent owner in favor of evaluating unpatentability based on "the entirety of the record"; provide some guidance to PTAB judges and practitioners; and preserve the PTO's future rule-making options left open by Aqua.

Post-Aqua at the PTAB

Several instituted IPRs were pending when the en banc panel delivered the Aqua decision. Patent owners acted to address the change brought about by the decision. Supplemental briefing was authorized in several cases, though the specifics of each case vary in terms of how many pages were allowed per brief and whether a sur-reply was also authorized.⁷  An exception was Samsung Electronics Co. Ltd. v. Rosetta-Wireless Corp., No. IPR2016-00622, 2017 WL 4799775 (P.T.A.B. Oct. 20, 2017), where the PTAB denied the patent owner's request to file a motion to amend in light of Aqua Products. In Samsung, the final written decision issued Aug. 21, 2017, and the patent owner had not filed a motion to amend during the trial.

So far, post-Aqua motions have produced mostly negative results for patent owners. In Minerva Surgical Inc. v. Hologic Inc., No. IPR2016-00868, 2017 WL 6404966 (P.T.A.B. Dec. 15, 2017), the PTAB concluded that while the motion met all the requirements of Section 316(d) and 37 C.F.R. §42.121, the proposed substitute claims were "unpatentable by a preponderance of the evidence based on the entirety of the record." In Semiconductor Components Industries LLC v. Power Integrations Inc., No. IPR2016-01589, 2018 WL 922378 (P.T.A.B. Feb. 14, 2018), the PTAB denied a motion to amend for unpatentability of the proposed substitute claims without any discussion of burden. In Taiwan Semiconductor Manufacturing  Co. v. Godo Kaisha IP Bridge1, No. IPR2016-01249, 2017 WL 6541530 (P.T.A.B. Dec. 20, 2017), the PTAB granted one substitute claim and denied two proposed substitute claims as unpatentable for obviousness based on the "entirety of the record." In Cisco Systems Inc. v. Focal IP LLC, Nos. IPR2016-01254 and IPR2016-01257, 2017 WL 6611482 (P.T.A.B. Dec. 27. 2017), the PTAB denied the patent owner's proposed substitute claims for failure to show written description support in the originally filed disclosure. In Prime Focus Creative Services Canada Inc. v. Legend3d Inc., No. IPR2016-01243, 2017 WL 6503413 (P.T.A.B. Dec. 18, 2017), the PTAB did not reach the issue of patentability because it concluded the patent owner's proposed amendments would "impermissibly introduce new matter and enlarge the scope of [the] claims."

An exception to the mostly negative continued treatment of motions to amend is the decision in Apple Inc. v. Realtime Data LLC, No. IPR2016-01737, 2018 WL 1326656 (P.T.A.B. Mar. 13, 2018), in which the PTAB granted Realtime's contingent motion to amend. After finding that the patent owner's proposed substitute claims satisfied the procedural requirements of 37 C.F.R. § 42.121, the PTAB went on to note that, under Aqua Products, the patent owner "does not have the burden of persuasion with respect to the patentability of the substitute claims presented," and the standard for its analysis would be "whether the substitute claim is unpatentable by a preponderance of the evidence based on the entirety of the record, including any opposition made by the petitioner," the standard set forth in the director's guidance. The PTAB went through each of the asserted obviousness grounds in the context of the proposed substitute claims and concluded that the petitioner "fail[ed] to establish that proposed substitute claims 118–173 are obvious." In particular, the PTAB held that the asserted references failed to "teach or suggest" the proposed substitute claim limitations and said the petitioner did not explain why an ordinarily skilled person would have combined the references to arrive at the claimed invention.

In post-Aqua IPR submissions, some patent owners are hedging their bets by arguing patentability while emphasizing that the petitioner has the burden. Examples include Intel Corp. v. R2 Semiconductor Inc., No. IPR2017-00705, motion to amend filed, 2017 WL 6335866 (P.T.A.B. Dec. 11, 2018). Other patent owners are noting that its only burden, one of production, is met, and reserving patentability arguments until the petitioner has met its burden of persuasion. Apotex Inc. v. Novartis AG, No. IPR2017-00854, motion to amend filed, 2017 WL 5472688 (P.T.A.B. Nov. 13, 2017). In Askelladen LLC v. Verify Smart Corp., No. IPR2017-00726, motion to amend filed, 2017 WL 6209751 (P.T.A.B. Nov. 20, 2017), the patent owner went so far as to state that Aqua Products overruled the requirement of 37 C.F.R. § 1.121(a)(2)(i) for the patent owner to show the amendment responds to a ground of unpatentability.

In Westinghouse Air Brake Technology Corp. v.  Siemens Industry Inc., No. IPR2017-00580, motion to amend filed, 2017 WL 4712280 (P.T.A.B. Oct. 20, 2017), the patent owner filed a motion to amend—after Aqua  Products—containing two sets of proposed substitute claims: one if the challenged claims are entitled to the asserted priority date, one if not. According to the patent owner, both sets are narrowing, do not introduce new matter, have written description support, and are patentable.

In Controls Southeast Inc. v. QMax Industries LLC, No. IPR2017-00977, motion to amend filed, 2017 WL 6505527 (P.T.A.B. Dec. 19, 2017), the patent owner's contingent motion to amend relied heavily on the Aqua decision in arguing its amendment should be granted because it "is sufficiently narrower than the challenged claim to overcome the grounds of unpatentability upon which the IPR was instituted."

Post-Aqua at the Federal Circuit

Silver Peak Systems Inc. v. Matal provides an example of an appeal that was pending at the Federal Circuit when Aqua Products  was decided. Riverbed Technology Inc. v. Silver Peak Systems Inc., No. IPR2014-00245, 2015 WL 3638276 (P.T.A.B. June 9, 2015), the PTAB denied a motion to amend proposing substitute claims because the patent owner had not "met its burden of proof to demonstrate patentability of its proposed substitute claim[s] ... over the prior art." The court in Silver Peak Systems Inc. v. Matal, 698 F. App'x 1036 (Fed. Cir. 2017), issued an opinion vacating and remanding the decision for further proceedings consistent with Aqua Products.⁸

In Bosch Automotive Service Solutions LLC v. Matal, 878 F.3d 1027 (2017), the Federal Circuit also vacated and remanded a denial of proposed substitute claims for evaluation of patentability in accordance with Aqua Products. In Autel U.S. Inc. v. Bosch Automotive Service Solutions LLC, No. IPR2014-00183, 2015 WL 2149218 (P.T.A.B. May 5, 2015), the PTAB found the proposed apparatus claims were indefinite and that the patent owner had failed to carry its burden of proof to show patentability of the proposed substitute claims.

The limited holding of Aqua Products was that no PTO rule expressly placed the burden on the patent owner to show patentability of proposed substitute claims and the PTAB's practice of doing so was impermissible. Moreover, the director's guidance places no burden of persuasion on the patent owner. Nor does it expressly place the burden on the petitioner. But in Bosch, a precedential decision written by Judge Raymond Chen and joined by Judges Pauline Newman and Todd M. Hughes, the Federal Circuit panel unequivocally said the petitioner has the burden of proving unpatentability of amended claims, citing Section 316(e) as support:

It is interesting that the author of Bosch, Judge Chen, was one of the judges who would have affirmed in Aqua Products, finding Section 316(e) ambiguous and supporting deference to the PTO practice of assigning the burden of persuasion to the patent owner. Perhaps Bosch is where a majority of the court currently stands on the issue: that, as Judge O'Malley wrote in Aqua Products, "the most reasonable reading of the AIA is one that places the burden of persuasion with respect to patentability of amended claims on the petitioner."⁹

The Bosch panel's statement and citation to Section 316(e) as the basis for placing the burden of proving unpatentability on the petitioner will impact future cases and the PTO's flexibility in future rule-making. In fact, the PTO petitioned for rehearing Feb. 5, 2018, seeking to amend the statement to remove the citation to Section 316(e)¹⁰ and modify the statement placing the burden on petitioner as follows:

These changes to the Bosch decision sought by the PTO would preserve the view of a majority of the judges in Aqua that Section 316(e) is ambiguous, create less conflict with the recent director's guidance not expressly placing the burden on petitioner, and provide more flexibility for the PTO in future rule-making.

Intervening Rights Arising from Granted Substitute Claims

The issue of intervening rights may arise more frequently if more amendments are granted in IPRs. Section 318 (c) of the Patent Act, 35 U.S.C.A. § 318(c), provides that intervening rights have the same effect in IPRs as they do in reissued patents. As the district court found in Longitude  Licensing Ltd. v. Apple Inc., No. 14-CV-04275-EDL, 2015 WL 12778777 (N.D. Cal. Oct. 29, 2015), "arguments in favor of the claims and claim amendments made during PTAB proceedings could constitute a basis for intervening rights, thus limiting damages for the claims that survive IPR."

Drafting and Prosecuting to Minimize Need to File Motion to Amend

Consider keeping application pending
Maintaining pending continuation applications has long been a recommended practice to protect the patent applicant's invention while the scope of such protection is being determined. Aqua Products does not change that recommendation, despite removing the burden of persuasion on patent owners in motions to amend. If the PTAB does not allow the patent owner to enter a particular proposed substitute claim during an IPR or post-grant review, such subject matter can still be pursued in a pending family member, assuming the subject matter of the proposed substitute claim is patentably distinct from any claims canceled by the PTAB. The PTAB has held that prosecution of a continuation application does not have to be stayed during an IPR. AC Dispensing Equip. Inc. v. Prince Castle LLC, No. IPR2014-00511, decision issued (P.T.A.B. Oct. 17, 2014).

Of course, the practice of maintaining continuation applications cannot be unreasonable, and the cases of Tafas v. Doll, 559 F.3d 1345 (Fed. Cir. 2009); In re Bogese, 303 F.3d 1362 (Fed. Cir. 2002); and Symbol Technology Inc. v. Lemelson Medical, Educational & Research Foundation, 422 F.3d 1378 (Fed. Cir. 2005), stand as a warning in that regard.

Solid evidentiary showings,declarations
Solid evidentiary showings and possibly declarations, in addition to on-point legal arguments, may help to develop strong patentability records that will help claims withstand both administrative and judicial challenges. Consider presenting declarations supporting Section 112 positions, written description and enablement, and Section 103 positions for nonobviousness. By prudently establishing such records during prosecution, a patent owner has a strong basis from which to persuade the PTAB that the petitioner does not have a "reasonable likelihood" of success and thus achieve denial of institution. Of course, declarations always require careful consideration of Therasense Inc. v.  Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011), including careful thought and planning to minimize chances that the patent owner will lose the patent on a theory of inequitable conduct or unclean hands.

Full range of fully supported claims
Including several claims of varying claim scope in the patent application increases the likelihood that one or more of them will survive in a subsequent IPR proceeding without any need to amend. Ideally, the original claim set should include both broad and narrow claims. The narrower claims will provide the strongest patentability position during both prosecution and subsequent IPR proceedings. The broader claims can offer context for claim interpretation of the narrower claims. They can also protect the invention from design-around variants, enhancing the value of the patent in district court litigation.

Post-Aqua IPR and PGR Practice

Post-Aqua, will more motions to amend be granted? It is too early to say. There has not been a rush of decisions granting proposed substitute claims so far. The number of denials based on a patent owner's failure to meet its burden of production set forth in Section 326(d) of the Patent Act, 35 U.S.C.A. § 326(d), and 37 C.F.R. § 42.121 will not change.

Furthermore, it is possible that 37 C.F.R. §42.121(a)(2)(i), which addresses a failure to respond to a ground of unpatentability involved in the trial, may muddy the waters of a patent owner's still-existing burden of production. Will 37 C.F.R. §42.121(a)(2)(i) merely become a substitute ground for rejecting patent owner's motions to amend, thereby leaving motion to amend practice in its current weak state? Even if the burden of persuasion is not placed on the patent owner, if the burden of coming forward with evidence is placed on the patent owner, as a practical matter future decisions could conclude the patent owner failed to come forward with sufficient evidence of patentability while stating the petitioner bears the burden of persuasion.

Further, as in Power Integrations future decisions may continue to reject amended claims while remaining silent on who has the burden. Or, as in Parrot SA v. QFO Labs Inc., Nos. IPR2016-01550 and IPR2016-01559, 2018 WL 922374 (P.T.A.B. Feb. 15, 2018), future decisions may deny motions to amend citing the "entirety of the record," the language of the director's guidance.

Will the PTO go through formal rule-making to explicitly place the burden on the patent owner or the petitioner to show patentability of proposed substitute claim(s)? Maybe, but Bosch as it currently reads seems to limit the PTO's rule-making flexibility to promulgate a rule placing the burden on the patent owner. Even if rules are proposed, they may not be finalized for several months. After that, those rules could face—and fail—Federal Circuit scrutiny.

It will also be important for practitioners to monitor the status of Chevron deference in light of the pending U.S. Supreme Court ruling in SAS Institute Inc. v. Matal, No. 16-969, oral argument held, 2017 WL 5680366 (U.S. Nov. 27, 2017), and the status of the constitutionality of AIA post-grant proceedings in light of another pending ruling in Oil States Energy Services LLC v.  Greene's Energy Group LLC et al., No. 16-712, oral argument held, 2017 WL 5680363 (U.S. Nov. 27, 2017).

When filing a motion to amend, a patent owner should consider filing it as a contingent motion, which is contingent on the original claims being held unpatentable, and still should substantively argue patentability of the original claims in the patent owner's response. If the motion is not contingent, patent owners may get caught when requesting concomitantly cancellation of claims and allowance of substitute claims without arguing patentability of original challenged claims. The request to cancel may well be granted and the request to allow substitute claims denied, leaving patent owner with no claims. For an example, see Facebook Inc. v. EveryMD LLC, No. IPR2014-00242, 2015 WL 2268210 (P.T.A.B. May 12, 2015), where the patent owner did not specify that the motion to amend was contingent on the instituted claims being held unpatentable. The PTAB, without any discussion of patentability arguments, granted the request to cancel and denied the proposed substitute claims for failure of the patent owner to demonstrate patentability.

Footnotes

1 See Idle Free Sys. Inc. v. Bergstrom Inc., No. IPR2012–00027, 2013 WL 5947697 (P.T.A.B. June 11, 2013); MasterImage 3D Inc. v. RealD Inc., No. IPR2015-00040, 2015 WL 10709290 (P.T.A.B. July 15, 2015).

2 Microsoft Corp. v. Proxyconn Inc., 789 F.3d 1292 (Fed. Cir. 2015), Prolitec Inc. v. ScentAir Techs. Inc., 807 F.3d 1353; Nike Inc. v. Adidas AG, 812 F.3d 1326 (Fed. Cir. 2016). All were overruled by Aqua Products Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017).

3 The two questions presented were: "(a) When the patent owner moves to amend its claims under 35 U.S.C.A. § 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.A. § 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?" The en banc decision did not answer the second question.

4 The remaining four judges would have affirmed the PTAB's decision.

5 In Prolitec, there was a petition for rehearing pending at the time of the Aqua Products en banc decision. In light of the en banc decision in Aqua Products, the Federal Circuit granted Prolitec's petition for rehearing en banc, vacated the panel opinion and the PTAB's decision, and remanded the case. Prolitec Inc. v. ScentAir Techs. Inc., No. 2015-1020, order issued (Fed. Cir. Oct. 18, 2017).

6 Chevron U.S.A. Inc. v. Natural Res. Def. Council Inc., 467 U.S. 837 (1984).

7 See Minerva Surgical Inc. v. Hologic Inc., IPR2016-00868, 2017 WL 4804517 (P.T.A.B. Oct. 23, 2017).

8 Note that on remand for reconsideration under Aqua, PTAB standard operating procedure 9 (SOP 9) will also apply. SOP 9, Procedure for Decisions Remanded from the Federal Circuit for Further Proceedings, provides guidance for panels and parties in terms of a schedule and actions for proceeding with the remand. The stated goal is to issue PTAB decisions on remanded decisions within six months of the Federal Circuit final judgment.

9 Aqua Products, 872 F.3d 1290.

10 The PTO pointed out that a majority of judges in Aqua Products (Prost, Dyk, Reyna, Taranto, Chen and Hughes) found that Section 316(e) is ambiguous as to the burden of persuasion for amended claims. The patent owner's response was filed Feb. 26, 2018. The response briefly opposed the suggested revision: "The panel should deny the petition for panel rehearing. The panel opinion plainly adopts the lead opinion of the court in Aqua Products. ... To the extent some of the judges found 35 U.S.C.A. Section 316(e) ambiguous, the panel opinion in this matter resolved the ambiguity." The case is now captioned Robert Bosch LLC v. Iancu to reflect the appointment of the new director of the PTO, Andrei Iancu.

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.