Update: Overruled in part by Aqua Products, Inc. v. Matal.

In Nike, Inc. v. Adidas AG, Case No. 2014-1719 (Fed. Cir. Feb. 11, 2016) (appeal of IPR2013-00067), the Federal Circuit provided further guidance on the PTAB’s administrative procedures regarding motions to amend claims. After considering Nike’s argument that 35 U.S.C. § 316(e) places the burden of proving unpatentability on the petitioner in an IPR, the court reaffirmed its decision in Microsoft v. Proxyconn that the Patent Office has appropriately placed the burden on the patent owner to show patentability of substitute claims. The court also rejected as improper the PTAB’s denial of Nike’s motion to amend on the ground that its motion failed to address patentability over prior art not of record but known to Nike.  Finally, the Federal Circuit criticized the PTAB’s decision for lacking critical fact-findings needed for an adequate review of the basis for its substantive findings that the claims were obvious.

After considering Nike’s argument that 35 U.S.C. § 316(e) places the burden of proving unpatentability on the petitioner in an IPR, the court reaffirmed its decision in Microsoft v. Proxyconn that the Patent Office has appropriately placed the burden on the patent owner to show patentability of substitute claims.

In IPR2013-00067, the PTAB instituted review of all claims 1-46 of U.S. Patent No. 7,347,011, directed to footwear comprising an upper component that incorporates a flat knit textile element having particular features. Nike then filed a motion to amend in which it requested cancellation of claims 1–46 and proposed substitute claims 47–50. The PTAB granted Nike’s motion to cancel claims 1–46, but denied the motion as to the substitute claim, on two alternate grounds: (1) Nike failed to meet its burden of establishing that the substitute claims were patentable over two references of record, and (2) Nike’s motion included only a conclusory statement that the proposed claims were patentable over prior art not of record but known to Nike. The PTAB’s decision cited Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027 (PTAB 2013), designated as an “informative” decision by the PTAB, for the requirement that a patent owner “persuade the Board that the proposed substitute claim is patentable over the prior art of record, and over prior art not of record but known to the patent owner.”

 Burden of establishing patentability is appropriately placed on patent owner

In Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292 (Fed. Cir. 2015), the Federal Circuit upheld the PTAB’s practice of placing the burden of establishing patentability for substitute claims on the patent owner. The court decided that the PTAB’s procedure was permissible in light of 35 U.S.C. § 316(a)(9) and the language of the PTO’s implementing regulations, 37 C.F.R. § 42.20(c). Id. at 1306–08.

In Proxyconn, the court reasoned that § 316(a)(9) delegated authority to the PTO to prescribe regulations “setting forth standards and procedures for allowing the patent owner to move to amend the patent under [§ 316](d) to cancel a challenged claim or propose a reasonable number of substitute claims.” 35 U.S.C.  § 316(a)(9).  The PTO promulgated 37 C.F.R. § 42.20, which states that “[r]elief, other than a petition requesting the institution of a trial, must be requested in the form of a motion” and that “[t]he moving party has the burden of proof to establish that it is entitled to the requested relief.” 37 C.F.R. § 42.20(a), (c).  Part of the policy rationale for placing the burden on the patent owner was that IPRs do not include a typical examination procedure where a patent examiner independently performs a prior art search and considers patentability of all claims.  Amended claims could issue despite prior art undermining patentability if, for example, the petitioner chose not to challenge patentability of substitute claims.

However, the Proxyconn court did not consider whether this interpretation of the statute conflicted with 35 U.S.C. § 316(e).  In Nike v. Adidas, Nike argued that the understanding of the authority delegated in § 316(a)(9) from Idle Free and from Proxyconn was incorrect in light of § 316(e) which held that “In an inter partes review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.”

The Federal Circuit considered this argument, and stated that “[w]hen § 316(e) is read in isolation, Nike’s position is not without some merit. But after considering the entire statute, we disagree that this section has such a broad command.”  First, Nike’s interpretation conflicts with Congress’s delegation of authority to the PTO to prescribe regulations “setting forth standards and procedures for allowing the patent owner to move to amend.” § 316(a)(9). The specific language in § 316(a)(9) also references “ensuring that any information submitted by the patent owner in support of any amendment entered under subsection [316](d) is made available to the public.”  From this, the court inferred that the patent owner has some obligation to provide “information . . . in support of any amendment,” thus supporting an affirmative duty of the patent owner to justify why newly drafted claims should be entered into the proceeding.

Finally, the Federal Circuit reconciled the conflicting statutory provisions by deciding that the evidentiary standard of § 316(e), when read together with § 316(a)(9), does not necessarily apply to claims that were not in existence at the time a petition is filed, such as newly offered substitute claims proposed by a patent owner in a motion to amend.  Thus, the court concluded that the PTAB did not err by placing the burden on Nike to establish patentability of its substitute claims over the prior art.

The Federal Circuit decided a similar question in Synopsys, Inc. v. Mentor Graphics Corp., Case Nos. 2014-1516 and 2014-1530 (Fed. Cir. Feb. 10, 2016) (appeal of IPR2012-00042).  Among multiple issues raised in that appeal, Mentor argued that Proxyconn does not control because the opinion did not address the conflict with 35 U.S.C. § 316(e).  A completely different 3-judge panel rejected Mentor’s argument and applied the same reasoning as in Nike v. Adidas, that § 316(e) relates only to claims for which IPR was initiated and does not apply to newly proposed substitute claims.   Although Mentor also argued that the PTAB erred in placing the burden on patentee “to distinguish all prior art known to the patent owner,”  the panel did not decide the issue because an alternate ground (that Mentor had not met its burden to show that the claims were nonobvious over the Gregory reference cited in the IPR petition) was sufficient to sustain the decision.

Conclusory statement that claims are patentable over prior art known to patent owner is adequate

The PTAB denied Nike’s request to enter proposed substitute claims 47–50 in part because Nike’s motion failed to address any prior art reference that was not discussed in Adidas’s IPR petition or Adidas’s opposition to Nike’s motion to amend, i.e., any prior art not of record. Although Nike did include a statement that the proposed claims were patentable over prior art not of record but known to Nike, the PTAB rejected this “conclusory statement” as “facially inadequate” under the its understanding of Idle Free.

The Federal Circuit concluded that the PTAB’s decision on this point was in error, given the clarifying decision in MasterImage 3D, Inc. v. RealD Inc., IPR2015-00040, 2015 WL 4383224 (PTAB July 15, 2015), which has been designated by the PTO as a Representative Decision on Motions to Amend.  The court concluded that:

At the heart of Idle Free, as interpreted by MasterImage 3D, is the question of whether the patent owner has submitted the necessary information to comply with its duty of candor to the office. In this case, there is not, and there has never been, an allegation that Nike violated its duty of candor. Moreover, the PTO acknowledged that Nike’s statement about the substitute claims’ patentability over prior art not of record but known to Nike would satisfy the obligation as explained in MasterImage 3D. [cites omitted] After MasterImage’s explanation of Idle Free, we cannot see how the statement used by Nike would be inadequate, absent an allegation of conduct violating the duty of candor. We therefore conclude that this was an improper ground on which to deny Nike’s motion to amend.

Secondary considerations must be addressed

Neither Adidas nor the PTO disputed that the PTAB’s decision lacked an acknowledgment of Nike’s secondary considerations evidence. The court rejected Adidas’s argument this omission was not an automatically reversible error and the PTO’s argument that the PTAB “implicitly” made findings regarding lack of a long-felt need.

The court held that under the circumstances in this case, the PTAB “should have explicitly acknowledged and evaluated Nike’s secondary considerations evidence” or at least written a decision containing “some findings indicating a basis for why the Board had rejected Nike’s evidence of long felt need. However, such findings are absent in this case.”  The court therefore remanded for the PTAB to address the evidence regarding secondary considerations.