Fractured Federal Circuit Holds Patent Owner Does Not Bear Burden of Persuasion in IPR Motions to Amend
In Aqua Products, Inc. v. Matal, Appeal No. 2015-1177, the Federal Circuit, sitting en banc, held that a patent owner does not bear the burden of persuasion with respect to the patentability of amended claims in inter partes review (IPR).
Aqua filed a motion to amend its claims during an inter partes review proceeding. The Board determined that Aqua had failed to demonstrate the patentability of the amended claims and denied the motion. Aqua appealed and a Federal Circuit panel affirmed. Aqua sought rehearing en banc.
Sitting en banc, the Federal Circuit vacated and remanded the Board’s denial of Aqua’s motion to amend. The court instructed the Board to issue a final decision assessing the patentability of the amended claims without placing the burden of persuasion on the patent owner.
The decision to vacate and remand was supported by seven judges. Various judges had different views on the judgment and the rationale supporting that judgment.
Judge O’Malley, joined by four judges, believed that the AIA statute authorizing claim amendments unambiguously requires the petitioner to prove the unpatentability of amended claims, and the PTO’s contrary position placing the burden on the patent owner was not entitled to Chevron deference.
The remaining six judges determined that the statute is ambiguous on the allocation of the burden of persuasion. Judge Taranto, joined by three judges, referred to Rule 42.20(c). This rule places the burden of proof for a motion on the moving party, and the PTO made it clear that this rule applies to motions to amend. Judge Taranto therefore argued that the PTO’s position on the burden for motions to amend belonging to the patent owner was entitled to Chevron deference. Judge Reyna, joined by Judge Dyk, argued that the PTO had not proffered a fully considered interpretation of the statute authorizing amendments, and the PTO’s position was therefore not entitled to Chevron deference.
Part III of Judge Reyna’s opinion instructed the Board to keep the burden of production for amending claims on the patent owner. This portion of Judge Reyna’s opinion was joined by five judges (constituting a majority of the court), and Judge Reyna therefore believed Part III set forth the judgment of the court on the burden of production. Judge O’Malley, joined by four judges, disagreed and believed that Part III of the Reyna opinion was merely dictum because there was no proposed judgment attached to this portion of the Reyna opinion.
Broadest Reasonable Interpretation of Claim Term Cannot Be Limited to a Preferred Embodiment
In Owens Corning v. Fast Felt Corporation, Appeal No. 2016-2613, the Federal Circuit held that the broadest reasonable interpretation must be consistent with the specification and not limited to a preferred embodiment.
Owens filed an IPR petition challenging the claims of Fast Felt’s patent relating to methods for printing polymer nail tabs onto a roofing or building cover material. The Board construed “roofing or building cover material” to mean substrates that were coated in asphalt. As a result, the Board held the claims were not obvious over a reference that disclosed depositing polymer nail tabs onto substrate materials not covered in asphalt. Owens appealed.
Owens argued that the Board erred by applying an unduly narrow claim construction. The Federal Circuit agreed, holding that the broadest reasonable interpretation of “roofing or building cover material” included substrates with or without asphalt. The Federal Circuit noted that the claim language and specification was not limited to asphalt substrate materials, so the Board should not have excluded non-asphalt substrates. Accordingly, the Federal Circuit reversed the Board’s decision and held that the challenged claims were unpatentable as obvious.
Ambiguous Language in Specification Leads to Narrower Construction in IPR
In Organik Kimya AS v. Rohm And Haas Company, Appeal Nos. 2015-1983, 2015-2001, the Federal Circuit affirmed a narrow claim construction based on the specification’s grammatical ambiguity in the phrase “suitable swelling agents include, are those which, . . .”
Organik filed two related IPR proceedings on Rohm patents related to processes for preparing certain emulsion polymers having improved opacity. The Board held the claims were not obvious or anticipated based on its interpretation of the term “swelling agent.” Organik appealed and argued that interpretation was based on an improperly narrow reading of a grammatical ambiguity in the specification.
The Federal Circuit affirmed. The specification stated that “suitable swelling agents include, are those which, in the presence of the multistage emulsion polymer and monomer, are capable of permeating the shell and swelling the core.” Organik argued that the word “include” means this language identified non-limiting examples. The Federal Circuit disagreed and held that the words “are those which” modified “include” such that a “suitable swelling agent” only included agents that were “capable of permeating the shell and swelling the core.” As a result, the Federal Circuit affirmed because none of the cited references disclosed a suitable “swelling agent.”
Federal Circuit Finds Claims Relating to Mail Identification Patent Ineligible
In Secured Mail Solutions LLC v. Universal Wilde, Inc., Appeal No. 2016-1728, the Federal Circuit held that claims directed to the generation of identifiers for mail objects using only conventional elements were patent ineligible.
Secured Mail Solutions sued Universal Wilde for infringement of seven patents in three categories: (1) the “Intelligent Mail Barcode” patents; (2) the “QR Code” patents; and (3) the “Personalized URL” patents. All patents involved methods of affixing an identifier to a mail object (e.g. an envelope or package) before the mail object is sent. Secured Mail appealed from the district court’s grant of a motion to dismiss on the ground that the claims are directed to subject matter ineligible under 35 U.S.C. § 101. The Federal Circuit affirmed.
The Federal Circuit found that the claims were directed to the abstract idea of “using a marking affixed to the outside of a mail object to communicate information about the mail object, i.e., the sender, recipient, and contents of the mail object.” The Federal Circuit differentiated the instant case from the patent-eligible claims of Enfish, where the claims focused on an improvement to computer functionality itself instead of economic or other tasks for which a computer is used in its ordinary capacity, and from McRo and Thales, where the claims focused on the application of special rules for computers and sensors. The Federal Circuit further found that, under step two of Alice, Secured Mail’s patent claims did not recite anything to transform the abstract idea into a patentable concept. Secured Mail argued that the district court misunderstood the step two analysis by not searching for an inventive concept. The Federal Circuit rejected this argument because Secured Mail had identified only the sender-generated identifier as the inventive concept and the district court correctly found the related claim elements were conventional. The claims lacked any inventive concept, reciting only conventional elements such as barcodes, personalized URLs, bi-directional communication lines, and the idea of responding to or inquiring about mail using a personalized identifier.
Formation of Financial Transactions and Collection of Related Data Found Ineligible Under Alice
In Smart Systems Innovations, LLC v. Chicago Transit Authority, Appeal No. 2016-1233, the Federal Circuit held that claims directed to “the formation of financial transactions . . . and data collection related to such transactions” are ineligible under § 101.
Smart Systems Innovations (SSI) sued the Chicago Transit Authority (CTA), alleging infringement of patents that claimed systems and methods that use bankcards (e.g., credit or debit cards) to authorize entry into mass transit systems instead of the typical tokens or fare cards. The district court granted CTA’s motion for judgment on the pleadings, and held the claims ineligible under § 101.
At the Federal Circuit, SSI argued that the claims were not directed to an abstract idea. In particular, it argued that the district court had impermissibly viewed the claims at a high level of abstraction, that the claims operated in the real world and overcame real-world problems, and that they represented an improvement over prior systems. The Federal Circuit disagreed, holding that (1) the district court properly viewed the claims as relating to financial transactions and the collection of data relating to such transactions; (2) that the field of an invention does not necessarily render it non-abstract; and (3) that mere improvement of a prior system does not necessarily render an idea non-abstract, particularly in non-computer applications where Enfish and DDR Holdings do not apply.
SSI also argued that, in any event, the claims recited a sufficient inventive concept that transformed the claims into a patent-eligible application. Again, the Federal Circuit disagreed, holding that SSI’s claims merely used conventional computer technology to carry out an abstract idea. Accordingly, the Federal Circuit affirmed the district court’s holding of ineligibility.
ITC May Expressly Adopt Administrative Law Judge’s Determination in Its Excursion Order
In Cisco Systems, Inc., v. ITC, Appeal Nos. 2016-2563, 2016-2539, the Federal Circuit affirmed the scope of the ITC’s limited exclusion order against Arista Networks, which was based on the ITC’s determination that Arista infringed three of Cisco’s patents, but did not infringe two others.
Cisco complaint in the International Trade Commission alleged that Arista’s importation of certain network switches and related software infringed several of its patents. The ITC instituted an investigation and an Administrative Law Judge found that the accused products violated § 337 with respect to certain asserted claims. Cisco and Arista requested review by the Commission, which affirmed the ALJ’s findings and entered a limited exclusion order against Arista’s importation of its network switches, related software, and “components thereof.”
On appeal, Arista argued that the ITC exceeded its authority by including the components of the network switches in its exclusion order without making a specific finding that they contributed to and/or induced infringement. The Federal Circuit disagreed, finding that the ITC had sufficiently articulated its findings on the components based on its finding that Arista’s “switch hardware” induced infringement by employing the infringing software. Although the ITC opinion did not separately define “switch hardware,” the ALJ’s final initial determination did: “Switch hardware…includes all the individual components, such as a processor, memory, CPU card, chassis, switch card, and fan modules.” The Federal Circuit explained that the ITC’s express adoption of this determination by the ALJ was sufficient to properly bar the importation of Arista’s components.
Federal Circuit Finds Evidence of Commercial Success and Copying Insufficient to Overcome Strong Showing of Obviousness
In Merck Sharp & Dohme Corp. v. Hospira, Inc., Appeal No. 2017-1115, the Federal Circuit found a claim invalid as obvious, even where the prior art failed to disclose the claimed chemical-formation method’s individual steps, because the method as a whole recited broad, general processing steps that reflect a routine way a skilled artisan would have implemented the prior art teachings.
Hospira filed an ANDA seeking approval to manufacture and sell generic versions of Merck’s Invanz product. Merck sued Hospira for infringing a patented method of formulating the principal component of Ivanz. The district court held that the asserted claim was invalid as obvious over another of Merck’s patents and other prior art. The district court found that, while none of the steps of the claim were individually taught by prior art, the “recipe” for the final formulation was disclosed, and the steps leading to the formulation were conventional manufacturing steps that would have been obvious from the disclosures and were the product of routine experimentation. Merck presented objective evidence of commercial success and copying, but the district court found this evidence insufficient to overcome the strong showing of obviousness based on the prior art. Merck appealed.
The Federal Circuit affirmed and found substantial evidence to support the district court’s conclusion that the claimed process would have been obvious at the time the invention was made. The elements of the process not disclosed in the prior art were only experimental details that would have been utilized via routine experimentation while implementing known principles. The Federal Circuit also found that, although the district court did not give the evidence of commercial success its full weight, such evidence was still insufficient to overcome the showing of obviousness. The Federal Circuit agreed that the evidence of copying of Merck’s second patent could not overcome the obviousness of the claimed process because the claimed process differs from the disclosure of the second patent only in routine details.
Accordingly, the Federal Circuit affirmed the district court’s decision. Judge Newman dissented, arguing that objective considerations should not be used to “rebut” the other three Graham factors. Instead, objective evidence must be considered as part of all the evidence when determining obviousness.
Federal Circuit Reiterates That Apparatus Claims May Contain Functional Language
In MasterMine Software, Inc. v. Microsoft Corporation, Appeal No. 2016—2465, the Federal Circuit held that apparatus claims were not invalid for indefiniteness simply because they included functional language.
MasterMine sued Microsoft Corporation for infringement of two patents describing methods and systems that allow users to mine and report data maintained by a customer relationship management (CRM) application. The district court construed “pivot table” to mean “an interactive set of data displayed in rows and columns that can be rotated and filtered to summarize or view the data in different ways.” The district court also held several of MasterMine’s system claims invalid as indefinite because the claims each covered both an apparatus and a method of using that apparatus. MasterMine appealed the district court’s claim construction and indefiniteness determination.
First, the Federal Circuit affirmed the district court’s construction, holding that it was proper and supported by the intrinsic evidence, including the claim language, specification and prosecution history.
Next, the Federal Circuit addressed MasterMine’s appeal of the district court’s indefiniteness determination. The Federal Circuit explained that it had previously held a single claim covering both an apparatus and a method of use of that apparatus indefinite because claiming both an apparatus and a method of using the apparatus in a single claim made it unclear whether infringement occurs when the apparatus is created or when the apparatus is used in an infringing manner. However, the Federal Circuit had also explained that apparatus claims are not necessarily indefinite for using functional language. In particular, where claims recited an apparatus and a functional capability of the apparatus, the claims were not necessarily indefinite. Here, the Federal Circuit found that, although the claims included active verbs such as “presents,” “receives” and “generates,” the verbs represented permissible functional language used to describe the capabilities of the claimed “reporting module,” rather than activities performed by the user. The Federal Circuit also highlighted that here the functional language was specifically tied to the structure. Accordingly, the Federal Circuit reversed the district court’s indefiniteness determination.