Federal Circuit Rules Petitioners Bear Burden of Proof to Establish Unpatentability of Claim Amendments in Inter Partes Reviews

Authored by Brian S. Mudge and Andrew D. Kasnevich

DA27JK US Court of Appeals for the Federal Circuit building - Washington, DC USA

In a long-awaited decision, the Federal Circuit, sitting en banc, has ruled that petitioners in AIA patent trials bear the burden of proving that proposed amended claims are unpatentable. The decision, Aqua Products v. Matal,[1] upends the PTAB’s practice, developed in prior Board opinions (and approved in Federal Circuit panel opinions), requiring patent owners to prove that amended claims are patentable.

Key Takeaway:  The Federal Circuit’s en banc ruling means that, at least in the near term, and possibly the long term as well, petitioners will have the burden of proving amended claims are unpatentable. While patent owners will continue to have an initial burden of production in drafting and supporting a motion to amend, the Board may not place the ultimate burden of persuasion on a patent owner to establish patentability of amended claims. Rather, once a patent owner has provided sufficient information, as provided by PTO rules, to justify a motion to amend, the burden of persuasion will lie with the petitioner to prove that amended claims are not patentable. This change is likely to have a substantial impact on the rate of successful motions to amend, which will impact AIA trials and district court proceedings.

Background:  As a streamlined and relatively inexpensive forum for an accused infringer to challenge the validity of a patent, inter partes reviews have become a highly popular alternative for challengers since first becoming available in 2012. IPRs are heard by the PTAB, and are governed by the patent statute and by rules promulgated by the PTO.

Unlike a trial in district court, a patent owner in an IPR may seek to amend the patent claims to address unpatentability grounds raised in the IPR. Under Section 316(d) of the patent statute, a patent owner may file one motion to amend claims in an IPR by proposing substitute claims, reasonable in number, so long as the amendment does not enlarge the scope of the claims or introduce new matter. Another section of the statute, § 316(a)(9), permits the PTO to implement § 316(d) by setting standards and procedures for motions to amend. Section 316(e) of the statute also provides that in an IPR “the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.” The statute does not otherwise specify how the burden of proof would apply in determining patentability of amended claims.

While the PTO has also adopted rules covering motions to amend, such as a rule permitting the PTAB to deny a motion to amend if the amendment does not respond to a ground of unpatentability in the trial, the PTO has not adopted a rule explicitly addressing the burden of proof regarding patentability of new claims to be added by amendment. However, the PTO adopted a rule, 42 C.F.R. § 42.20(c), providing that the moving party bears the burden of establishing its right to relief requested in a motion; this rule applies generally to all motions.

Through a series of prior decisions, the Board developed a framework for motions to amend, including Idle Free[2] and MasterImage[3] — two of the Board’s notable rulings on motions to amend.[4] In Idle Free, an expanded PTAB panel ruled that a patent owner has the burden of proving that a proposed amended claim is patentable, relying on the PTO’s general rule regarding motions, Rule 42.20(c), to apportion the burden upon the patent owner; and in MasterImage, the Board confirmed that the burden of persuasion remains with the patent owner to show patentability of amended claims. A Federal Circuit panel decision in Proxyconn[5] approved the Board’s approach in placing the burden on patent owners to establish patentability of amended claims.

Given that a very small percentage of motions to amend have been granted in AIA trials — a PTO study found that 95% of motions to amend have been denied[6] — the potential for successful amendments been viewed as largely illusory.  In Aqua Products the patent owner successfully sought en banc review of the Board’s allocation of the burden of showing patentability of proposed claim amendments on the patent owner. The court’s decision, discussed below, and any subsequent changes by the PTO to the current rules may have a far-reaching impact on a very popular forum for litigating patent validity as well as patent cases pending in district court.

Aqua Products – PTAB Follows its Prior Decisions on Patent Owner’s Burden.

Aqua Products owns U.S. Patent No. 8,273,183, directed to swimming pool cleaners used to filter water and scrub pool surfaces. The ’183 patent discloses an automated swimming pool cleaner using an angled jet drive propulsion system to move in a controlled pattern. Rather than using a motor to drive wheels, the disclosed cleaner shoots filtered water backwards at an angle to create both a forward force that propels the cleaner and a normal force that keeps the cleaner’s wheels in contact with the pool floor.

Zodiac Pool Systems petitioned for inter partes review of claims 1-14, 16, and 19-21 of the ’183 patent, and the PTAB instituted trial on all challenged claims except claims 10-12. Aqua moved to substitute new claims 22-24, which amended claims 1, 8, and 20 to require, inter alia, that the jet creates a downward vector force rear of the front wheels (referred to as the “vector limitation”). In its motion to amend, the Aqua argued that the prior art cited by Zodiac did not describe the vector limitation.

In its final written decision,[7] the Board denied Aqua’s motion to amend because Aqua did not establish patentability of the amended claims. The Board, following its Idle Free decision, placed the burden of persuasion squarely on Aqua Products, as movant, to demonstrate patentability. In particular, the Board found that the vector limitation would have been obvious over a prior art reference that described positioning the jet at an angle that satisfied this requirement, and that the other added limitations were within the skill of the ordinary artisan.

Aqua Products – Federal Circuit Panel Affirms PTAB.

Aqua appealed the Board’s denial of its motion to amend, arguing that the PTAB impermissibly placed the burden on the patentee to demonstrate that an amended claim is patentable, contrary to the statute.[8] In a relatively brief panel decision issued in May 2016, the Federal Circuit affirmed the PTAB’s final written decision, explaining that prior Federal Circuit decisions, including Proxyconn, had approved the PTAB’s allocation of the burden of proof on patentee.[9] Further, the Federal Circuit explained that in Nike v. Adidas[10] it had held that the PTAB’s regulations for motions to amend, and interpretation thereof, are consistent with an AIA framework, even though the statute generally placed the burden of proving unpatentability on the petitioner. Given the Federal Circuit’s precedent, the panel ruled that it could not revisit the question of whether the PTAB may require the patentee to demonstrate the patentability of amended or substitute claims over the cited prior art.

Aqua Products – Order for Rehearing and Arguments on En Banc Appeal.

Aqua petitioned for rehearing and rehearing en banc. The Federal Circuit granted the petition, vacated the panel decision and ordered rehearing en banc on two questions. The main question posed was:

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)?  [11]

Aqua’s primary argument on the main question, regarding the nature and placement of the burden to demonstrate patentability, was one of statutory interpretation. Aqua argued that the broad assignment of burdens in section 316(e), that the petitioner in an inter partes review “shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence,” unambiguously assigns that burden to the petitioner.  Under this view, this subsection establishes a universal burden for all propositions of unpatentability, encompassing both issued claims and proposed amendments to claims under review, and mandates, through the use of the word “shall,” that the petitioner bears this burden and that the PTO lacks discretion to change it.[12]

In contrast, the PTO argued that section 316(e) does not apply to amended claims at all, and instead applies only to issued claims that were challenged in the petition for review. Thus, according to the PTO, this section speaks only to the petitioner’s burden of proving unpatentability for existing claims and is silent towards the burden relating to new, unexamined substitute claims (i.e., amended claims).  Further, the PTO argued that its interpretation was entitled to Chevron[13] deference because Congress delegated authority for developing procedures for motions to amend to the PTO in section 316(a)(9).[14]

Aqua ProductsEn Banc Court Overturns Rulings on Patent Owner’s Burden.

More than a year after the order for rehearing, the en banc court issued its decision consisting of five opinions spanning 148 pages. These opinions show a deeply-divided court struggling with the statute and the PTO’s ability to issue regulations covering the burden of proof for patentability of amended claims. Because a detailed review of all of the opinions is beyond the scope of this article, we summarize below the main points from the decision.

A plurality opinion by five judges (Judges O’Malley, Newman, Lourie, Moore and Wallach) concluded that the statute unambiguously apportions the burden of proof upon the petitioner to prove that amended claims are unpatentable. The O’Malley plurality opinion reasoned that section 316(d)(1) of the statute permits a patent owner to file a motion to amend, which should be entered into the IPR if the statutory requirements under § 316(d)(1) and (3) are met; once these requirements are met, the amended claims then become part of the IPR to be reviewed along with the challenged claims. As explained by the O’Malley opinion, nothing in the statutory requirements for motions to amend under § 316(d) addresses burden of proof. Rather, according to Judge O’Malley, the only statutory section reflecting burden of proof, § 316(e), provides that the burden is on the petitioner to establish unpatentability of claims in the IPR — which, according to the O’Malley opinion, include claims added to the IPR by amendment. And, according to the O’Malley opinion, nothing in section 316(e) limits applicability to only those original claims existing at the time the IPR is instituted.[15]

Alternatively, because a majority of the judges (six) believe the statute is, instead, ambiguous on this point, the O’Malley plurality opinion also concluded that the PTO did not issue an appropriate interpretation of the statute warranting Chevron deference. The opinion explained that nothing in the rules issued by the PTO, or its commentary thereon, does anything more than parrot language in section 316(d)(3) (prohibiting enlarging scope of amended claims or introducing new matter) and does not explicitly refer to burden of proving patentability of amended claims. Similarly, the O’Malley opinion rejected the PTAB’s Idle Free and MasterImage decisions as reflecting PTO interpretations of the statute, because they failed even to mention section 316(e).  In sum, according to the opinion, the PTO did not, in connection with section 316(e), provide any cogent explanation for exercising discretion, and did not otherwise follow requirements for rulemaking under the APA.[16]

Two judges (Judges Reyna and Dyk) issued an opinion concurring in the decision to vacate and remand, but reached this result on wholly different reasoning than the O’Malley majority. They concluded that the statute is ambiguous as to which party bears the burden of proof for patentability of amended claims, and that the PTO has not issued any interpretation meriting Chevron deference. However, the Reyna concurrence also concluded that the statute permits the PTO to prescribe regulations establishing a burden of proof for amended claims, and that the PTO may assign the burden to the patent owner. Finally, the Reyna concurrence concluded in Part III of the opinion that the statute, § 316(d), and PTO Rules 42.20(a), 42.20(a), 42.22(a) and 42.121(a)(2)(i) place a burden of production on the patent owner in connection with any motion to amend, and that these rules are undisturbed and therefore applicable to the Board and the parties on remand.[17]

Four judges (Judges Taranto, Prost, Chen and Hughes) issued an opinion dissenting from the judgment of the court. The Taranto dissent disagreed with the O’Malley plurality opinion regarding ambiguity of section 316(e) of the statute. Rather, the Taranto dissent concluded that the statute permits the PTO to assign the burden of persuasion as to patentability of amended claims to the patent owner and that the PTO has, through Rule 42.20(c), appropriately assigned such burden of persuasion to the patent owner. The Taranto dissent further concluded that the PTO rule should be afforded Chevron deference as an appropriate interpretation of an ambiguous statutory provision, namely, § 316(e). These four judges also joined in Part III of the Reyna concurring opinion as to placement of a burden of production on the patent owner in connection with any motion to amend.[18]

So, What Did the En Banc Court in Aqua Products Actually Decide?

Since the Federal Circuit’s 148-page decision provided five opinions, none of the opinions fully commanding a majority of the court, it is not a straightforward task to discern what the court actually decided. However, by combining pieces of the respective opinions one may conclude that a majority of the court agreed as to these points:

  • Six judges (Judges Reyna, Dyk, Taranto, Prost, Chen and Hughes) agreed that section 316(e) of the statute is ambiguous as to which party is assigned the burden of proof for patentability of amended claims.
  • These six judges also agreed that the PTO may place the burden of persuasion on patent owner to prove that amended claims are patentable.
  • Seven judges (Judges O’Malley, Newman, Lourie, Moore, Wallach, Reyna and Dyk) agreed that, to the extent that section 316(e) of the statute is ambiguous as to whether it assigns the burden of persuasion on patent owner to prove patentability of amended claims, the PTO has not issued any rule or regulation interpreting the statute which is entitled to Chevron
  • These seven judges also agreed as to the judgment — that the final written decision below should be vacated (as to denial of the motion to amend) and remanded to the Board to assess patentability of the amended claims without placing the burden of persuasion on the patent owner.
  • Six judges (Judges Reyna, Dyk, Taranto, Prost, Chen and Hughes) also agreed that the statute and PTO rules place an initial burden of production on the patent owner in connection with any motion to amend.

Notably, less than a majority of the court agreed on the following points and, thus, they would not form part of the judgment in the case:

  • Only five judges (Judges O’Malley, Newman, Lourie, Moore and Wallach) agreed that statute unambiguously apportions the burden of persuasion upon the petitioner to prove that amended claims are unpatentable. According to these five judges, the PTO may not contravene the statute by assigning the burden of proving patentability of amended claims to the patent owner.
  • Only four judges (Judges Taranto, Prost, Chen and Hughes) agreed that PTO has, by rule, assigned the burden of persuasion to the patent owner. These judges also agreed that the PTO rule should be afforded Chevron deference as an appropriate interpretation of an ambiguous statutory provision.

Implications Flowing From the Aqua Products Decision.

Aqua Products will have a significant impact on AIA trials, at least in the near term — and possibly for the long term as well. While patent owners will continue to have an initial burden of production in drafting and supporting a motion to amend, the Board may not place the ultimate burden of persuasion on a patent owner to establish patentability of amended claims. Rather, once a patent owner has provided sufficient information, as provided by PTO rules, to justify a motion to amend, the burden of persuasion will lie with the petitioner to prove that amended claims are not patentable. This change to the current practice of the PTAB should necessarily result in an increase — perhaps a substantial increase — in the success rates  of motions to amend. In turn, an increase in successful claim amendments should result in an increased survival rate of claims subject to review in AIA trials. And increased viability of motions to amend may have a significant impact on co-pending district court litigation, including not only greater odds that claims asserted in litigation would survive any remaining validity challenges in district court, but also (potentially) greater odds of a stay in litigation because of increased likelihood that claims would be amended during AIA trials. There may be a countervailing argument, however, in that the greater likelihood that at least some (amended) claims would survive inter partes review and remain in the case, the more likely a district court judge may refuse to completely stay the case and instead allow discovery to proceed, perhaps on a limited basis.

Allocation of the burden of persuasion to the petitioner, as now required by the en banc Aqua Products decision, will remain at least until such time as the PTO may undertake to change that allocation by rulemaking. However, given the diverging opinions as to whether, and how, the PTO may be able to enact by rule such a change in allocation, it is not clear exactly what the PTO would need do to satisfy requirements of the APA. It appears that, as a minimum, the PTO would need to follow procedures for notice-and-comment rulemaking, including specific commentary on the statute and the PTO’s rationale for allocating the burden of persuasion on the patent owner to prove patentability of amended claims. This may be a lengthy and involved process, and even if the PTO undertakes such a change by rule it is unclear whether such a change would survive legal challenge. Since five Federal Circuit judges have opined that the statute unambiguously places the burden of proof on the petitioner, any challenge to the legality of such a new PTO regulation would necessarily depend on the makeup of the Federal Circuit panel reviewing the challenge, or would otherwise have to be determined through en banc review.

From a litigation standpoint, easier claim amendments will likely have substantial strategic implications.  A plaintiff whose patent is subject to inter partes review may take advantage of the opportunity to submit amendments based on litigation considerations, in order to obtain claims that are more focused on the products accused of infringement or that are more likely to survive the defendant’s invalidity defenses. The further discovery advances in the district court case, the better informed a plaintiff will be and, accordingly a defendant’s incentive to petition for inter partes review and to move to stay the litigation as early as possible will become even more important. In addition, the shift in the burden to defeat proposed claim amendments may discourage some defendants from filing petitions in the first place, although this will likely have a minor effect, given the other benefits inter partes review provides.

Overall, the Federal Circuit’s resolution of In re Aqua Products merits close attention going forward, both as to how the case impacts motions to amend and as to whether the PTO will undertake to change the burden of persuasion by rule. The ramifications of this decision will be significant for district court patent litigation as well as PTAB proceedings.

 

[1]   Aqua Products, Inc. v. Matal, No. 15-1177, 872 F.3d 1290 (Fed. Cir. Oct. 4, 2017) (en banc).

[2]   Idle Free Sys, Inc. v. Bergstrom, Inc., IPR2012-00027, Paper 26 (P.T.A.B. June 11, 2013).

[3]   MasterImage 3D, Inc. v. RealD Inc., IPR2015–00040, Paper 42 (P.T.A.B. July 15, 2015).

[4]   We have previously written about requirements for motions to amend.  See, e.g., B. Mudge, “CAFC Rejects Strict Requirement for Motions to Amend,” Andrews Kurth Kenyon IPR Blog (Sept. 15, 2016), available at http://interpartesreviewblog.com/cafc-rejects-strict-requirement-motions-amend; and B. Mudge, “CGH Wins Rare Grant Of Motion To Amend,” Andrews Kurth Kenyon IPR Blog (Sept. 15, 2016), available at http://interpartesreviewblog.com/cgh-wins-rare-grant-motion-amend/.

[5]   Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015).

[6]   USPTO, Patent Trial and Appeal Board Motion to Amend Study (April 30, 2016), available at https://www.uspto.gov/sites/default/files/documents/2016-04-30%20PTAB%20MTA%20study.pdf.

[7]   Zodiac Pool Sys., Inc. v. Aqua Products, Inc., IPR2013-00159, Paper 71 (P.T.A.B. Aug. 22, 2014).

[8]   Zodiac dropped out of the appeal, and the PTO intervened to support the Board’s decision below.

[9]   In re Aqua Products, Inc., 823 F.3d 1369 (Fed. Cir. 2016).

[10]   Nike, Inc. v. Adidas AG, 812 F.3d 1326, 1333-34 (Fed. Cir. 2016).

[11]   In re Aqua Products, Inc., 833 F.3d 1335 (Fed. Cir. 2016). The en banc order also posed a second question regarding the scope of the Board’s power to sua sponte challenge the patentability of an amended claim in the absence of (or inadequate) challenge by the petitioner; however, the parties gave this issue limited treatment in the briefs, and the en banc court essentially ignored the issue.

[12]   In re Aqua Products, Inc., No. 2015-1177, Supplemental Brief for Appellant Aqua Products Inc. on Rehearing En Banc at 11-13 (Fed. Cir. Sept. 26, 2016).

[13]   Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

[14]   In re Aqua Products, Inc., No. 2015-1177, Supplemental Brief on Rehearing En Banc for Intervenor – Director of the United States Patent and Trademark Office at 21-22 (Fed. Cir. Oct. 26, 2016).

[15]   See generally Aqua Products, 872 F.3d at 1303-1308.

[16]   See generally id. at 1316-1322.

[17]   See generally id. at 1335-1341.

[18]   See generally id. at 1342, 1345-1354.