Federal Circuit Clarifies the Nexus Requirement for Objective Indicia of Nonobviousness

In Quanergy Systems, Inc. v. Velodyne Lidar USA, Inc.¹, a Panel of the U.S. Court of Appeals for the Federal Circuit affirmed the Patent Trial and Appeal Board’s (PTAB or Board) decisions that claims of a Velodyne patent were not obvious. This analysis included an evaluation of whether there was sufficient evidence to establish a nexus for objective indicia of nonobviousness.

Velodyne’s patent, U.S. Patent No. 7,969,558, relates to a “lidar-based 3-D point cloud measuring system.”² Lidar is an acronym for “Laser Imaging Detection and Ranging,” which is a technology that is similar to radar (Radio Detection and Ranging) but employs light rather than radio waves.³ Independent Claim 1, which is illustrative of the claims, reads as follows:

1. A lidar-based 3-D point cloud system comprising:
   a support structure;
   a plurality of laser emitters supported by the support structure;
   a plurality of avalanche photodiode detectors supported by the support structure; and
   a rotary component configured to rotate the plurality of laser emitters and the plurality of avalanche photodiode detectors at a speed of at least 200 RPM.

Quanergy filed two petitions for inter partes review. In both, Quanergy argued that the patent’s claims were obvious over the “Mizuno” prior art reference because it allegedly taught a pulsed time-of-flight (“ToF”) lidar system.⁴ The Board instituted review on both petitions, and in similar final written decisions held that Quanergy failed to demonstrate that the challenged claims were unpatentable. In its nonobviousness determination, the Board presumed a nexus between the claimed invention and objective evidence of nonobviousness that Velodyne submitted, which showed that the invention satisfied an unresolved long-felt need, there was industry praise for the invention, and a product embodying the invention was commercially successful.

On appeal, Quanergy argued that by giving substantial weight to Velodyne’s objective evidence, the Board erred in three ways.⁵ First, Quanergy argued that the Board failed to consider the issue of unclaimed features before presuming a nexus. Second, Quanergy asserted that the Board failed to provide an adequate factual basis or reasoned explanation for dismissing the unclaimed features. Third, Quanergy attempted to show that the unclaimed features it identified to the Board were critical and materially impacted the functionality of Velodyne’s products, and that Velodyne’s evidence of unresolved long-felt need, industry praise, and commercial success related primarily to the unclaimed features.

In reviewing the Board’s decisions, the Panel addressed each of the three errors alleged by Quanergy in turn.

First, the Panel determined that the Board did not err in its analysis of whether Velodyne should be entitled to a presumption of nexus. Although the Panel acknowledged that “[t]here is no dispute that the Board must consider unclaimed features as part of its presumption analysis when they are raised,” Quanergy, at best, presented only a “skeletal, undeveloped argument” to the Board.⁶ The Panel reasoned that Quanergy merely argued that Velodyne’s evidence focused on unclaimed features that are not coextensive with the patented claims. Quanergy asserted that Velodyne failed to address the configuration, software, and other components that form its product, and failed to show that the claimed elements were not merely a component of the product. However, the Panel decided that the Board had reasonably found, based on Velodyne’s product literature and expert testimony, that “Velodyne’s products embody the full scope of the claimed invention and that the claimed invention is not merely a subcomponent of those products.”⁷

Second, because the Board’s analysis of the unclaimed features identified by Quanergy was commensurate with Quanergy’s presentation of the issue, the Panel disagreed with Quanergy’s assertion that the Board failed to provide an adequate factual basis or reasoned explanation when dismissing those unclaimed features in its presumption of nexus evaluation. The Panel found the “Board’s explanation of how each alleged unclaimed feature results directly from claim limitations—such that Velodyne’s products are essentially the claimed invention—both adequate and reasonable.”⁸

Third, because Quanergy did not present arguments to the Board that (1) the unclaimed features identified to the Board were critical and materially impacted the functionality of Velodyne’s products, and (2) Velodyne’s evidence of unresolved long-felt need, industry praise, and commercial success relate to those unclaimed features, the Panel held that these were new arguments being raised by Quanergy on appeal. Thus, those arguments had been forfeited.⁹

In view of the foregoing, the Board’s decisions that the claims were not obvious was affirmed.

The Panel’s reasoning shows that unclaimed features are a consideration in a presumption of nexus analysis, if they are adequately raised by a patent challenger. Here, the presumption of nexus applied because the patent owner provided “ample evidence” that its commercial products “embody the full scope of the claimed invention, and that the claimed invention is not merely a subcomponent of those products.”¹⁰ In this case, evidence such as product literature and expert testimony sufficed to show that the full scope of the claimed invention was embodied in the products at issue. Accordingly, patentees who are relying on a presumption of nexus to assert objective indicia of nonobviousness (such as unresolved long-felt needs, industry praise, and commercial success) should submit evidence that the relevant products embody the full scope of the claimed invention, and that any unclaimed features result directly from claim limitations.