More Than a Mere Academic Exercise
On October 4, 2017, in Aqua Products, Inc. v. Matal, a highly fractured en banc Federal Circuit determined that the PTAB can no longer place the burden of establishing the patentability of amended claims on the patent owner in IPR proceedings. This case should result in more claim amendments surviving such proceedings, and it also opens that possibility that more motions to amend will be filed. However, this decision is unlikely to be the panacea hoped for by patent owners. First, any amended claim is still likely going to be subject to intervening rights. Considering that the majority of patents involved in IPRs are also being asserted in concurrent district court litigation, claim amendments might not always be feasible. Moreover, the decision makes clear that the Patent Office could again place the burden of persuasion for claim amendments back on the patent owner, provided that the Office first goes through proper notice and comment rule-making. As a result, any benefit that patent owners gain from this decision might be fleeting.
As we reported at the time, the Federal Circuit granted the petition for rehearing en banc on August 13, 2016, to address 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?
The three judge panel that rendered the Aqua opinion consisted of Chief Judge Prost, Circuit Judge Reyna, and Chief District Judge Stark (sitting by designation). That panel felt constrained by the precedent of cases like Microsoft and Nike. Instead, the panel only considered whether the Board abused its discretion by not evaluating "objective indicia of non-obviousness and various new limitations in the proposed claims," and ultimately affirmed the PTAB.
For those interested, the technology at issue in the case involved automated swimming pool cleaners. Specifically, the patent disclosed cleaners that used angled jet drive propulsion systems to move the system in a controlled manner. This was a less expensive alternative to cleaners in the art that required the use of motor-driven wheels. Moreover, the motorless prior art cleaners that did exist allegedly used suction or water jets, which caused the units to move erratically.
This decision has been some time in coming as oral arguments were held on December 9, 2016. It should be no surprise therefore that there were multiple opinions (five to be exact), and that figuring out the actual outcome is not trivial. Even identifying which Judge agreed with which opinion is fairly convoluted. The "main" opinion, which expressed the judgment of the Court, was authored by Judge O'Malley, and was joined by Judges Newman, Lourie, Moore, and Wallach. Judge Moore authored another short opinion that was joined by Judges O'Malley and Newman, whom authored and joined, respectively, the first opinion. Judge Reyna authored the final opinion that was not considered a dissent (because the ultimate outcome that it reached was in agreement with the O'Malley opinion). Judge Reyna was joined in whole by Judge Dyk. However, Judge Reyna's opinion included the soon-to-be-infamous "Part III" that was joined by Chief Judge Prost and Judges Taranto, Chen, and Hughes, all of whom dissented from the ultimate judgment. In fact, Part III (directed to the burden of production) was the only part of the entire decision that was joined by a majority of the Court. However, Judge O'Malley belittled Part III because it allegedly had no proposed judgement attached to it. Therefore, according to her, it amounted to nothing more than dicta (but more on this below). Judge Taranto wrote a substantial dissent that was not only joined by Chief Judge Prost and Judges Chen and Hughes, but was also joined by Judges Reyna and Dyk (at least in part). Finally, Judge Hughes filed a second dissent that was joined by Judge Chen. Got it?
With regard to what can be considered precedential in the five opinions, Judge O'Malley noted that there are only two legal conclusions that can be gleaned as supporting the judgment of the Court. Because a majority of Judges believed that 35 U.S.C. § 316(e), the statute that establishes the evidentiary standard for IPRs, was ambiguous with regard to whether the burden of persuasion of establishing the unpatentability of substitute claims should be on the petitioner, it was necessary to reach "Chevron Step Two." The first legal conclusion, therefore, was that "the PTO has not adopted a rule placing the burden of persuasion with respect to the patentability of amended claims on the patent owner that is entitled to deference." The second legal conclusion flowed from this, specifically "in the absence of anything that might be entitled to deference, the PTO may not place that burden on the patentee." As a result, the Court vacated the original PTAB final written decision "insofar as it denied the patent owner's motion to amend." The case was "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." Moreover, the Board was instructed to follow the same practice "for all pending IPRs unless and until the Director engages in notice and comment rule-making."
Everything else in the decision Judge O'Malley labeled as "cogitations" -- "[e]ven our discussions on whether the statute is ambiguous are mere academic exercises." However, Judge Rayna and those joining Part III of his opinion disagreed. As indicated above, these two pages were the only part of the entire 148-page decision that was joined by a majority of Judges. This section dealt with the burden of production, and specifically whether the patent owner as the moving party has the burden of production for motions to amend. And even though Judge O'Malley disagreed, Judge Rayna believed that Part III of his opinion did set forth a judgement of the Court "on what the Board may and may not do with respect [to] the burden of production on remand in this case." As a result, Judge Rayna's opinion concluded by stating that "the Patent Office must by default abide by the existing language of 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." Apparently the Patent Office will be left to determine whether to follow Judge Rayna's pronouncement or agree with Judge O'Malley that Part III is dicta and therefore does not have the force of law.
It will certainly be interesting to see how the Patent Office reacts to this decision. The current motion-to-amend practice before the PTAB is ill-equipped to deal with this shift in burdens. For example, will the petitioner be given more space to make its argument that a proposed substitute claim is not patentable, especially considering new evidence will likely need to be introduced? Moreover, now that the petitioner bears the ultimate burden of persuasion, will it be provided the opportunity to have the last word in the briefing? Similarly, will the timing of the briefing for motions to amend adapt to the Court's decision? These questions will need to be addressed sooner rather than later, especially considering the Court's opinion is to be applied to all pending IPRs. And will the Patent Office move speedily with the notice and comment rule-making, will it chose to live with the Court's decision for the foreseeable future, or will it seek Supreme Court review? The fractured nature of the decision practically begs for review from the Supreme Court, but whether that comes to pass remains to be seen. We will continue to monitor the fall-out from this case and provide additional commentary as warranted.
Aqua Products, Inc. v. Matal (Fed. Cir. 2017)
Panel: Chief Judge Prost and Circuit Judges Newman, Lourie, Dyk, Moore, O'Malley, Reyna, Wallach, Taranto, Chen, and Hughes; Circuit Judge Stoll did not participate
Opinion by Circuit Judge O'Malley, joined by Circuit Judges Newman, Lourie, Moore, and Wallach; Circuit Judges Dyk and Reyna concur in result;
Opinion by Circuit Judge Moore, joined by Circuit Judge Newman and O'Malley;
Opinion by Circuit Judge Reyna, joined by Circuit Judge Dyk and joined in part by Chief Judge Prost and Circuit Judges Taranto, Chen, and Hughes;
Opinion by Circuit Judge Taranto, joined by Chief Judge Prost and Circuit Judges Chen and Hughes, dissenting from the judgment, and joined in part by Circuit Judges Dyk and Reyna;
Opinion dissenting from the judgment by Circuit Judge Hughes, joined by Circuit Judge Chen
