Takeaways

• In ZyXEL, the petitioner unexpectedly received a second chance to argue against the patentability of the patentee’s substitute claims, even though the U.S. Patent Trial & Appeal Board (PTAB) had already found those claims patentable.
• A close look at 35 U.S.C. §315(e)(1) and the Court’s opinion indicates that the Court’s instructions on remand to the PTAB contradicts the statute’s clear prohibitions.
• Patentees should ensure their substitute claims are clearly distinct to avoid similar challenges, while petitioners should not rely on the Court granting second chances despite this outcome.

The Federal Circuit’s decision in ZyXEL Communications Corp. v. UNM Rainforest Innovations (Appeal Nos. 2022-2220, 2022-2250, July 24, 2024) starts out as a garden variety appeal from an inter partes review proceeding (“IPR”) before the Patent Trial & Appeal Board (“PTAB”). However, the opinion takes a final, unexpected turn by remanding to the PTAB to reconsider whether the new substitute claims are unpatentable in light of collateral estoppel and an additional prior art combination that the petitioner never even raised.

The technology at issue involves a method for constructing a frame structure for data transmission, which is adaptable for use with various communication systems, including those designed for high mobility users. During the IPR, the PTAB found the original claims 1–4 and 6–7 unpatentable as obvious, but upheld dependent claim 8 as patentable. The PTAB also granted a motion to amend, which added new substitute claims 44–47 and 49–50 (replacing claims 1–4 and 6–7), finding those new substitute claims patentable.

On appeal, the analysis was largely straightforward and typical of a Federal Circuit appeal from an IPR. The Court affirmed the PTAB’s obviousness finding for claims 1–4 and 6–7 based on substantial evidence. As to claim 8, the Court reversed, finding no substantial evidence to justify claim 8 being found patentable. As to the motion to amend, there were procedural arguments about the scope of matters raised in the briefing before the PTAB, but those were rejected for lack of prejudice and harmless error. The Court also held that substantial evidence supported the finding that the substitute claims were patentable over the prior art references, Talukdar and Li. So far, so good—a normal appeal largely disposed of by the substantial evidence standard and analysis of typical procedural rules.

Where this case becomes particularly interesting is in the section entitled “Further Proceedings,” where the Court’s actions take an unforeseen twist. The Court noted the petitioner’s position, which was only raised during oral arguments, that “if claim 8 were held to be unpatentable (as we now hold), we should remand to the [PTAB] to consider whether the substitute claims are unpatentable.” The rationale was that the substitute claims were a combination of the limitations of claims 1–4 and 6–8 that were held unpatentable.

The Court then explained that, with the IPR decision now final following the appeal, the decision regarding claims 1–4 and 6–8 is entitled to collateral estoppel effect against the new substitute claims. The Court pointed out that, despite petitioner’s failure to raise the issue prior, the petitioner could not have forfeited such an argument because the potential to raise the issue was unavailable until after the appeal. Thus, the Court remanded the proceeding to the PTAB “to determine if, in light of our conclusion that claim 8 is unpatentable as obvious (together with the unpatentability of claims 1–4 and 6–7), collateral estoppel should apply, and the substitute claims should be deemed unpatentable.” The Court even went a step further and suggested the PTAB “may also wish to consider” the patentability of the substitute claims in view of a different combination of references: Talkudar, Li and Nystrom. The Court made this suggestion despite acknowledging that petitioner did not argue that combination before the PTAB but noted that the PTAB was empowered to do this sua sponte.

Interestingly, despite invoking the general concept of issue preclusion, and specifically collateral estoppel, the Court never mentioned the pertinent statutory provision that applies against the petitioner after a PTAB decision is made final. 35 U.S.C. §315(e)(1) states:

“The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” (emphasis added).

A fair reading of the statutory language and the Court’s opinion suggests that the Court remanded the case to the PTAB with instructions to take actions contrary to the statute’s explicit prohibitions. The Court’s opinion is final in various respects, namely that the original claims were unpatentable and that the substitute claims were patentable over the Talukdar and Li references that were raised. But the Court noted that the argument of Talkudar, Li, and Nystrom rendering the new claims unpatentable was not raised below. Yet the Court instructed that to be considered, which would seemingly be prohibited as “maintain[ing] a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” 35 U.S.C. §315(e)(1). That is, on remand, the PTAB is being instructed to keep the proceeding alive and consider grounds that the Court expressly noted has not been raised prior.

That is also consistent with the USPTO’s own rule on the issue. 37 C.F.R. §42.73(d)(1) similarly states:

“A petitioner … is estopped in the Office from requesting or maintaining a proceeding with respect to a claim for which it has obtained a final written decision on patentability in an inter partes review, post-grant review, or a covered business method patent review, on any ground that the petitioner raised or reasonably could have raised during the trial.” (emphasis added).

Clearly, the patentee in ZyXEL obtained a decision that the substitute claims were patentable, and the Court affirmed that aspect of the PTAB’s decision as to the grounds that were actually raised.

However, the PTAB also has another rule, §42.73(d)(3), which establishes estoppel against the patent owner: “A patent applicant or owner is precluded from taking action inconsistent with the adverse judgment, including obtaining in any patent: (i) A claim that is not patentably distinct from a finally refused or canceled claim.” Reading these two PTAB rules together creates further confusion. If the PTAB applies both rules, it raises the question: which estoppel applies? Is it the one against the petitioner for losing on the substitute claims, or the one against the patent owner precluding it from obtaining a patentably indistinct claim? This ambiguity appears central to the Court’s decision to remand the substitute claims for collateral estoppel consideration.

So, what should litigants be considering in view of this case? For starters, a patentee in a similar situation with substitute claims should raise the statutory language in §315(e)(1) (and the rule in 37 C.F.R. §42.73(d)(1)) to argue the petitioner is at least estopped from arguing any new prior art combinations it could have raised. For patentees in ongoing proceedings, substitute claims should be drafted to have some differences above and beyond the original claims. This may be one of those cases where “bad facts make bad law,” as the Court appeared to be wrestling with the practical problem that, on one hand it found the original claims unpatentable, while on the other hand it was affirming a patentability decision for substitute claims with the same limitations. If this case stands for any proposition, hopefully it is the narrow one that substitute claims of the same scope should fall with the original claims if the original claims are rendered unpatentable. Therefore, patentees should ensure their substitute claims contain distinct differences to avoid such an outcome.

From the petitioner’s standpoint, clearly the petitioner was saved from some of its own mistakes. The petitioner knew about all three prior art references, Talkudar, Li, and Nystrom, because it relied on them in two different combinations (Talkudar and Li, and then Talkudar and Nystrom) against the original claims. But the petitioner apparently did not allege any grounds relying on all three to challenge the substitute claims. If they did that, this case likely would have ended in the application of the substantial evidence standard just like most appeals from the PTAB. Moving forward, petitioners should still not expect lifelines like this from the Court and should always raise the best grounds it can.

Also, from the petitioner’s standpoint, this decision leaves open the potential argument that, in cases with split decisions, collateral estoppel is available on remand more generally. Take a case where claims 1–2 are held unpatentable on appeal but claim 3–4 were held patentable (and perhaps for reasons like the ZyXEL petitioner where an argument was not made below). If the two claim sets are sufficiently similar in scope, arguably, Zyxel’s language leaves the door open for a new collateral estoppel argument, as the Court stated, “the potential for collateral estoppel did not become available until our reversal of the [PTAB’s] finding as to claim 8, we conclude that Zyxel’s did not forfeit the argument by failing to raise it earlier.” This is consistent with the statutory language in the language of §315(e)(1), which is limited to grounds that were raised or could have been raised—and as the Court pointed out collateral estoppel could not have been available during the IPR.

Yet perhaps there is some room within the statutory language of §315(e)(1) for this decision to be compatible. The statutory language refers to “a claim in a patent” and imposes the estoppel “with respect to that claim.” §315(e)(1) (emphasis added). One could justify ZyXEL by arguing that the substitute claim was not “in a patent” and thus a proceeding against such claim can be maintained. However, the same “a claim in a patent” or “that patent” language is used in §315(e)(2), which is the estoppel provision that governs civil actions and ITC proceedings. If ZyXEL is justified based on that statutory language, this also opens the door for defendants to argue that estoppel from IPR proceedings should have no effect in litigation under §315(e)(2) because the same language is used in each section of that statute. Such a reading, however, is largely foreclosed by Aqua Products, Inc. v. Matal, which treated an estoppel argument against the petitioner as part of the rationale for placing the burden of establishing the unpatentability of substitute claims on the petitioner. 872 F.3d 1290, 1310 (Fed. Cir. 2017) (en banc). Such an interpretation would gut the estoppel effect against the petitioner for substitute claims, which no case to the authors’ knowledge has ever approved and seems inconsistent with the intent of using IPRs to streamline parallel litigation.

At bottom, this case is an odd fact pattern that created an unusual outcome, and clearly the Court was trying to fashion a remedy to fit the facts before it. But it is an outcome that leaves the door open to further proceedings and further confusion about what issues might remain in an IPR post-appeal. Let us hope all this preclusion confusion is eventually resolved.

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