Through the Administrative Procedure Act, Congress intended to govern the judicial functions of administrative agencies and standardize judicial review of administrative decisions.

To comply with the APA when carrying out its judicial function, the administrative agency must at least (1) base its decision on arguments that were advanced by a party and to which the opposing party was given a chance to respond; and (2) provide a sufficiently precise explanation of its decision, including any underlying factual findings and related rationales.

These requirements govern the U.S. Patent Trial and Appeal Board's final written decision in inter partes reviews.

The U.S. Court of Appeals for the Federal Circuit recently weighed in on the application of the APA in the context of two different IPRs.

First, in the Sept. 11 Apple Inc. v. Corephotonics Ltd. decision, the Federal Circuit considered the ability of the board to rely on a substantive argument rooted in a credibility determination that was not clearly advanced by a party as the basis for confirming the patentability of the challenged claims.1

Second, in the Sept. 21 Elekta Ltd. v. ZAP Surgical Systems Inc. decision, the Federal Circuit considered whether the board was required to provide an explicit — rather than an implicit — analysis with respect to a reasonable expectation of success.

Together, these decisions shed further light on how the board must comply with the APA.2

In Apple v. Corephotonics, the Federal Circuit found the board's final written decision did not comply with the APA because the board failed to base its decision on arguments that were advanced by either party in the proceeding.

In the underlying IPR, the board found that the petitioner failed to demonstrate a reasonable expectation of success in making the proposed prior art combination, basing its decision almost entirely on its determination that petitioner's technical expert was unreliable because of a typographical error he made in his calculations.

The court acknowledged that the board is entitled to set aside technical expert testimony that it finds not scientific or credible. But, according to the Federal Circuit, the board's "explanations must be supported by substantial evidence, and its decisions must be reached only after the parties have been provided fair notice and an opportunity to be heard." The court found this was not the case here.

According to the Federal Circuit, the main error relied on by the board in its final written decision is what was characterized as the "Abbe number error." The court noted that the patent owner only mentioned this error in the background section of its response and only in passing.

The patent owner did not rely on this error in any of its arguments on the merits. And according to the court, the patent owner failed to argue that this error showed that there would have been no reasonable expectation of success or this error alone was sufficient to render all of the patent owner's expert's analysis unreliable.

Indeed, the patent owner's own expert explained that the error would not affect claimed parameters. The court explained that it was not able to discern from the board's decision why the typographical error of the petitioner's expert rendered the relevant portions of this expert's obviousness analysis as unreliable.

The court found that the board's determination that the petitioner's expert's typographical error was "essentially dispositive of the issues in the case [did] not comport with the notice requirements of the APA."

The court explained that neither party had reason to expect that the typographical error would be the focus of the board's decision, given that neither party did not brief, argue or suggest that this error was dispositive or would affect the challenged claims.

The Federal Circuit ultimately vacated the board's final written decision and remanded for further proceedings that meet the APA's requirements for notice and an opportunity to respond.

Notably, despite the remand in this case, the Federal Circuit seems to have already placed its thumb on the scale, stating that the patent owner could not have contended that this error demonstrated a lack of reasonable expectation of success because the record lacks any evidence that the unclaimed parameters to which the error pertained impact any claimed parameter.

Accordingly, even if the board is inclined to maintain its finding of a lack of reasonable expectation of success based on the petitioner's expert's errors after giving the parties an opportunity to respond, it is unclear whether that finding would be supported by substantial evidence based on the current record.

The Apple decision reinforces that parties need to be vigilant that all potential arguments be included in the "Argument" section of the briefing. Although it is ultimately impossible to predict the board's ultimate reasoning, the patent owner in this case did not do its case any favors by limiting its mention of the petitioner's expert's calculation error to the background section of the briefing.

Compliance with the APA is ultimately an issue for the board, but the Apple decision marked clear that, in some cases, the board's decision can only be as strong as the record before it.

And in Elekta Ltd. v. ZAP Surgical Systems Inc., the Federal Circuit found the board's final written decision complied with the APA because the board explained its decision with sufficient precision.

On appeal from the board's final written decision, the patent owner argued that the board erred because it failed to articulate any findings on a reasonable expectation of success.

Despite recognizing a lack of explicit findings, the court disagreed. The Federal Circuit reiterated that an obviousness determination requires a finding that there would have been a reasonable expectation of success.

But unlike a motivation to combine determination, which requires an explicit analysis, "a finding of reasonable expectation of success can be implicit."

The court recognized that requiring anything less than an explicit statement may appear to be in tension with its review of board determinations under the APA, including the APA's requirement that the board explain its decisions with sufficient precision.

But, according to the Federal Circuit, "there is no such tension where the board makes an implicit finding on reasonable expectation of success by considering and addressing other, intertwined arguments," including a motivation to combine.

The court found that in these circumstances it can reasonably discern an implicit finding by the board on reasonable expectation of success.

Unlike the Apple decision, the Federal Circuit's decision in Elekta arguably eases the APA requirements in at least the context of the board's analysis of a reasonable expectation of success. But the decision also raises the question of whether implicit determinations are acceptable for other determinations.

The Apple and Elekta decisions add to an ever-growing body of case law clarifying the requirements for an APA-compliant final written decision.

As the most recent cases make clear, the board's decision must be based on arguments clearly put forth by the parties. But assuming the rationales relied on by the board were advanced by at least one party during the inter partes review, the APA's requirement that the board must explain its decision with sufficient precision has arguably been undermined.

Footnotes

1. WL 5838695 (Fed. Cir. 2023).

2. WL 6152418 (Fed. Cir. 2023).

Originally published by Law360.

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