In a precedential decision the Federal Circuit vacated and remanded a Patent Trial and Appeal Board decision invalidating claims from Nuvasive's U.S. Patent No. 8,361,156 in an inter partes review instituted on a petition by Medtronic, Inc.  In rendering its opinion the Court reiterated the need for the Board to enunciate a reasoned basis for finding obviousness.

The '156 patent is directed to spinal fusion implants; claim 1 is representative:

A spinal fusion implant of non-bone construction positionable within an interbody space between a first vertebra and a second vertebra, said implant comprising:
. . .
    at least first and second radiopaque markers oriented generally parallel to a height of the implant, wherein said first     radiopaque marker extends into said first sidewall at a position proximate to said medial plane, and said second radiopaque     marker extends into said second sidewall at a position proximate to said medial plane.

The prior art cited against these claims included two prior art industry brochures, a user guide, and a U.S. Patent Application publication (the Federal Circuit's opinion contained no further explication of the facts at issue).  The PTAB issued a Final Written Decision that concluded that the patent was invalid for obviousness over "various combinations" of this cited art.

The Federal Circuit vacated and remanded.  Judge Wallach wrote for a unanimous court, joined by Judges Moore and Taranto.  The Court considered two issues:  first, whether Patentee Nuvasive had waived its argument that two of the asserted prior art references were not "printed publications."  The panel affirmed, illustrating the severity of practice before the PTAB.  The importance of the question for appellate review is patent:  to properly consider the correctness of the PTAB's actions, the Federal Circuit needs "a comprehensive record that contains the arguments and evidence presented by the parties" because the court's review "is confined to the four corners of that record" says the opinion, citing In re Watts, 354 F.3d 1362, 1367 (Fed. Cir. 2004).  With regard to waiver, Nuvasive had challenged the references status as prior art in its opposition to the inter partes review petition.  However, it did not pursue this argument during the "trial" phase of the IPR.  But it can be seen from portions of the transcript before the PTAB that Nuvasive did not waive these arguments so much as not focus its argument before the Board on the issue:

[PTAB Judge]:  I take it you no longer are disputing the public availability of the Telamon reference[s]?

[NuVasive's Attorney]:  That is correct, we're leaving that issue aside.  We're focusing entirely on the obviousness to modify these markers in the medial plane.  We're not abandoning the other arguments in our Patent Owner response, specifically with the dependent claims, we're just not addressing them right now because they're already addressed.

So, we're going to assume that these are prior art . . . .

As a consequence of this colloquy, the Board did not address the public availability of the references vel non (and their status as prior art) in its Final Written Decision.  The Federal Circuit held this was waiver, citing the IPR Scheduling Order for cautioning the patent owner that "any arguments for patentability not raised and fully briefed in the response will be deemed waived."  In the context of appellate review, this decision was justified from its consequence:  the panel did not have "'the benefit of the [PTAB]'s informed judgment' on the public accessibility issue," again citing Watts.  The lesson is clear:  if a patent owner in an IPR has identified a potentially dispositive issue in opposing the petition in the initial phase of the proceeding (i.e., before the IPR has been declared), she risks waiver if she does not pursue any and all such issues during the trial phase as well.

Despite these references being considered as prior art, the Federal Circuit vacated the PTAB's obviousness determination and remanded for reconsideration in light of this opinion.  The Court held that the PTAB had failed to explain with sufficient specificity why the claimed invention was obvious.  The opinion equates the requirement for motivation to combine found in its case law prior to KSR v. Teleflex with the Supreme Court's KSR requirement that there must be a reasoned basis for combining prior art references.  The "'factual inquiry whether to combine references must be thorough and searching' and '[t]he need for specificity [in making this determination] pervades [the court's] authority'" according to the opinion, citing In re Lee, 277 F.3d 1338, 1343 (Fed. Cir. 2002).  Here, the Court held that the PTAB did not provide such an adequate basis, applying two "distinct but related principles" in arriving at its conclusion. The first has to do with the Court's ability to properly review the PTAB's decision; according to the opinion, without a rational explanation the Court cannot determine whether the agency's actions were ""arbitrary, capricious, an abuse of discretion, or . . . unsupported by substantial evidence . . . ." under 5 U.S.C. § 706(2)(A)–(E) (2012).  Citing its own and controlling Supreme Court precedent, the panel opined that "the orderly functioning of the process of review requires that the grounds upon which the [PTAB] acted be clearly disclosed and adequately sustained," citing SEC v. Chenery Corp., 318 U.S. 80, 94 (1943), and that "[a]lthough we do not require perfect explanations" the court "may affirm the PTAB's findings 'if we may reasonably discern that it followed a proper path, even if that path is less than perfectly clear,'" citing Ariosa Diagnostics v. Verinata Health, Inc., 805 F.3d 1359, 1365 (Fed. Cir. 2015).

The second principle the Court cited is the need for the PTAB to "articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made," citing Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).  This the PTAB did not do regarding its "motivation to combine" analysis, according to the opinion:  specifically, the PTAB did not "articulate a reason why a PHOSITA would combine the prior art references" (emphasis in opinion).  The opinion then cites instances where the PTAB has complied with this requirement (Nike, Inc. v. Adidas AG; Allied Erecting & Dismantling Co. v. Genesis Attachments, LLC) and more importantly where it has not and why.  For example, "'conclusory statements' alone are insufficient and, instead, the finding must be supported by a 'reasoned explanation,'" citing In re Lee.  It is also "without explaining why the PTAB accepts the prevailing argument," citing Cutsforth, Inc. v. MotivePower, Inc., 636 F. App'x 575, 578 (Fed. Cir. 2016).  Finally, the opinion states that "although reliance on common sense may be appropriate in some circumstances [], the PTAB cannot rely solely on common knowledge or common sense to support its findings," citing Arendi S.A.R.L. v. Apple Inc., 832 F.3d 1355, 1362 (Fed. Cir. 2016).

Applying these principles to the case before it, the panel held that the PTAB had not satisfied them.  The Board "failed to explain the reason why a skilled worker would have been motivated to modify the prior art "to place radiopaque markers" as they were placed according to the claims of the '156 patent.  Moreover, a "majority" of the PTAB's analysis was a mere summary of the parties' arguments, followed by criticisms of Nuvasive's arguments.  But the PTAB "never actually made an explanation-supported finding that the evidence affirmatively proved" that a skilled worker would have made the modifications amounting to the differences between the claimed invention and the combination of the cited art.  Moreover, the Board did not formally adopt Petitioner Medtronic's arguments, although it "effectively" did so (according to the Board itself), but did not provide the required "reasoned explanations" for doing so.  "Medtronic's arguments amount to nothing more than conclusory statements that a PHOSITA would have been motivated to combine the prior art references to obtain additional information" to modify the prior art, and the PTAB "[i]n summary of Medtronic's arguments [] never articulated why the additional information would benefit a PHOSITA" in making such modifications, according to the opinion.  These deficiencies were enough for the Federal Circuit to conclude that the case should be remanded to the PTAB "for additional PTAB findings and explanations regarding the PHOSITA's motivation to combine the prior art references."

In re Nuvasive (Fed. Cir. 2016)
Panel: Circuit Judges Moore, Wallach, and Taranto
Opinion by Circuit Judge Wallach