Update: Overruled in part byAqua Products, Inc. v. Matal.Pen shot on white background with high contrast cross process look

Earlier this week, we wrote about the post-hearing briefing the Federal Circuit invited in Microsoft Corp. v. Proxyconn, Inc., Case Nos. 2014-1542, -1543, Dkt. 49 (Fed. Cir. Apr. 13, 2015), and the questions it posed regarding the PTAB’s administration of inter partes review. The court issued its decision in that case yesterday, answering some of the questions it posed and, for the first time, reversed a PTAB claim construction, vacated the PTAB’s decision of unpatentability, and remanded the IPR for further proceedings. Further, the court affirmed the PTAB’s decision denying the patent owner’s motion to amend and concluded that the PTAB did not abuse its discretion in using (and applying) one of its earlier adjudicative decisions rather than traditional notice and comment rule-making to set forth all the conditions that a patentee must meet to obtain amended claims.

An Unreasonably Broad Claim Construction Will Not Pass Muster

According to the court, the intrinsic record was clear and fully determines the proper construction of the claims, thus compelling the court to review the PTAB’s construction de novo. Based on its review, the court concluded the PTAB erred in construing certain claims in an unreasonably broad manner that is inconsistent with what the claims recite and what the specification teaches. That incorrect construction, according to the court, lead the PTAB to decide a number of claims were unpatentable. The court vacated the PTAB’s decision on these claims and remanded the matter for further proceedings consistent with its proper claim construction. At the same time, the court affirmed the PTAB on other claim constructions that lead the PTAB to decide that certain claims were not unpatentable. Thus, the patentee prevailed on all issues of claim construction appealed—a first in the context of an AIA trial.

No Abuse of Discretion in Bypassing the Notice and Comment Rule-making Process

The most noteworthy aspect of the court’s decision—and the subject of the post-hearing briefing—is its review of how the Patent Office has promulgated certain rules to administer AIA trials and how the PTAB is using its adjudicative decisions to interpret and apply those rules. The court’s review is framed in the context of a motion to amend (substitute) claims that the PTAB denied. The PTAB denied the motion because the patentee did not address why the claims it sought to substitute were patentable over prior art that was already the subject of the proceeding, even though that prior art was not applied against the claims the motion sought to replace.

According to the court, two rules govern a grantable motion to amend, 37 C.F.R. §§ 42.20(c) and 42.121. Section 42.20(c) sets forth a substantive burden, requiring that any relief must be requested in the form of a motion and the moving party has the burden of proof to establish that it is entitled to the requested relief. Section 42.121(a)(2) sets for the procedural requirements, stating that a motion to amend may be denied where the amendment does not respond to a ground of unpatentability or either seeks to enlarge the scope of the claims or introduce new subject matter. The patentee argued that these procedural requirements constitute an exhaustive list. The Patent Office argued to the contrary, however, and further stated that the PTAB’s informative, yet non-precedential, final written decision in Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027 (PTAB 2013), sets forth additional requirements pertinent to the substantive burden that the PTAB has applied to decide motions to amend.

The patentee challenged the PTAB’s interpretation of Section 42.121(a)(2) in denying its motion over prior art that did not underlie the ground of unpatentability of the claims sought to be replaced. In response, the Patent Office justified its interpretation as being based on Section 42.20(c), as interpreted by the PTAB in Idle Free, and that it is permitted to use such PTAB decisions rather than traditional notice and comment rule-making to set forth all conditions that a movant must meet to obtain the relief it requests. Despite numerous problems attendant with this course, the court “[could] not say the [Patent Office] abused its discretion in choosing adjudication over rulemaking.”

Uncertainty, Without Ascertainable Standards and Adequate Notice to Comply

The Patent Office argued that application of Idle Free is appropriate because the PTAB has not had sufficient experience with motions to amend “to warrant rigidifying its tentative judgment into a hard and fast rule,” and that the PTAB must have the power to deal with such motions on a case-by-case basis. Despite numerous requirements in Idle Free that patentees must satisfy in filing a grantable motion to amend (substitute) claims, the court upheld the PTAB’s requirement set forth in Idle Free that the patentee must distinguish the claims it moves to substitute from prior art underlying the instituted grounds for the inter partes review. Here the patentee did not do this and, accordingly, the court affirmed the PTAB’s denial of the patentee’s motion. The court did not, however, decide whether every (or any) other requirement in Idle Free constitutes a permissible interpretation of the Patent Office’s rules, despite the court’s express acknowledgement that patentees deserve certainty and clarity in the requirements that they are expected to meet when moving to amend (substitute) claims.

The decision offers much needed guidance—sound or unsound—to the public not only in its ability to understand when a motion to amend may be granted, but how the Federal Circuit views the Patent Office’s interpretation and application of its own rules and informative, yet non-precedential decisions.

The court accepted the Patent Office’s actions in part because of its understanding that once the PTAB grants a motion to amend, the substituted claims are not subject to further examination. But that ignores, among other things, 35 U.S.C. §316(e), which states the petitioner shall have the burden of proving unpatentability, and which authorizes the Patent Office to devise rules to administer inter partes review in relation to other Patent Office proceedings—an example of which is reissue examination. Moreover, the court’s understanding ignores the PTAB’s long history and experience in issuing new rejections in appeals and ordering further examination. Accordingly, requiring the PTAB to examine a presumptively valid and narrower claim is hardly burdensome for all it requires is comprehension of the patent’s specification and what the applied prior art discloses—comprehension that hopefully is underlying the PTAB’s final written decisions anyways. The lack of further examination in the context of inter partes review as the court understands it is, thus, nothing more than an artifact of the Patent Office’s inaction. This inaction effectively abandons the patentee, and undermines the integrity of the patent system and the presumption of validity.

The court’s decision will pose challenges to the involved parties and the PTAB in administering a proceeding on remand as there are no rules in place and no apparent time limit by which the PTAB must issue a new final written decision. Despite these challenges, the decision offers much needed guidance—sound or unsound—to the public not only in its ability to understand when a motion to amend may be granted, but how the court views the Patent Office’s interpretation and application of its own rules and informative, yet non-precedential decisions. Those views should better shape the debate over patent reform legislation pending in Congress and the Patent Office’s forthcoming revisions to its AIA trial rules.