In re Aqua Products, Inc. -- CAFC Grants Rehearing En Banc to Consider PTAB Motions to Amend

By Andrew Williams --

On Friday, August 13, 2016, the Federal Circuit granted a petition for rehearing en banc filed in the In re Aqua Products, Inc. case to consider two questions related to the PTAB's treatment of Motions to Amend in IPR proceedings.  Specifically, the Court requested that Appellant (Aqua Products, Inc.) and Intervenor (the Director of the U.S. Patent and Trademark Office) file supplemental briefs directed to the following two questions:

(a) 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)?

(b) When the petitioner does not challenge the patentability of a proposed amended claim, or the Board thinks the challenge is inadequate, may the Board sua sponte raise patentability challenges to such a claim?  If so, where would the burden of persuasion, or a burden of production, lie?

Aqua's supplemental brief is due by noon, September 26, 2016.  Any party wishing to file an amicus brief supporting Aqua's position or supporting neither position must be filed by noon, October 5, 2016.  The Patent Office must file its supplemental brief by noon, October 26, 2016, and any amicus briefs in support of the Office must be filed by noon, November 2, 2016.  Finally, Aqua's reply brief is due by noon, November 10, 2016.  Oral argument will be Friday, December 9, 2016 at 10:00 am.

As readers of this blog are aware, these questions have previously been addressed by various three-judge panels on the Court.  The first case to squarely address the issue of the PTAB's practice related to motions to amend was Microsoft Corporation v. Proxyconn, Inc.  In that case, the Federal Circuit approved the PTAB's interpretation of its regulations as found in the early, "informative" decision, Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027, Paper 26 (PTAB June 11, 2013).  Specifically, the Board in Idle Free had indicated that the burden is on the patent owner to show "a patentable distinction over the prior art of record and also prior art known to the patent owner."  Among other reasons, the Court found that this interpretation was consistent with the very nature of IPR proceedings -- because if the motion to amend is granted, the claims will be added to an issued patent without further examination.  The Microsoft case was decided by Chief Judge Prost, Circuit Judge Lourie, and District Judge Gilstrap (sitting by designation).

Likely due to outcries from the patent community, the Board subsequently appeared to relax the patent owner's burden to amend the claims in MasterImage 3D, Inc. v. RealD Inc., IPR2015-00040, Paper 42 (PTAB July 15, 2015).  In this case, instead of requiring the patent owner to identify how its claim amendments were patentable over all prior art, it only had to show patentability over the "prior art of record," which could include "any material art in the prosecution history of the patent."  The MasterImage 3D opinion was ultimately designated as precedential by the Board.  The Federal Circuit, in Nike v. Adidas (Fed. Cir. 2016), also acknowledged the clarification of Idle Free as made by the MasterImage 3D decision.  In the Nike case, the Board had rejected a motion to amend because Nike had failed to address prior art references that were not of record in the case.  That rejection occurred before the decision in MasterImage 3D, and the Patent Office conceded during the Federal Circuit oral argument that its reading of the Idle Free decision had been too aggressive.  Correspondingly, the Federal Circuit found the Board's ground for denying the motion to amend improper and remanded for further proceedings.  Nevertheless, the Court found the Board's interpretation of its regulations was still consistent with the statutory framework, even if it required the patentee to demonstrate the patentability of the substitute claims.  The Nike case was decided by Circuit Judges Chen, Mayer, and Stoll.

Not every Federal Circuit judge, however, has been approving of the PTAB's motion-to-amend practice.  In Prolitec Inc. v. Scentair Technologies, Inc. (Fed. Cir. 2015), a case from late 2015, Judge Newman authored a scathing dissent for the Court's apparent acquiescence to the Board with regard to the burden shift for motions to amend.  "[T]he purpose of [the] post-grant review [system] is not to stack the deck against the patentee, but to achieve a correct and reliable result–for innovative enterprise is founded on the support of a system of patents," Judge Newman emphasized.  She had at least four main arguments.  First, she thought the America Invents Act limits the reasons that a motion can be denied, and that none of the reasons existed in the present case.  Second, Judge Newman complained that the placement of burden of proof for claim amendments on the patentee was contrary to the statute.  Third, she criticized the Court for using the "substantial evidence" standard to review these motion denials instead of reviewing these cases to determine whether the "preponderance of the evidence" standard had been correctly applied.  Finally, Judge Newman did not believe that MasterImage 3D was being followed because it had not yet been designated precedential by the Board.  Interestingly, a petition for rehearing en banc was also pending in the Prolitec case.  That petition was stayed by the Aqua order pending resolution of the issues in that case.

For its part, the sole issue in the Aqua Federal Circuit opinion (which was vacated by the order) turned on the denial of the motion to amend.  The technology at issue in the case involved automated swimming pool cleaners.  Specifically, the patent disclosed cleaners that used angled jet drive propulsion systems to move the system in a controlled manner.  This was a less expensive alternative to cleaners in the art that required the use of motor-driven wheels.  Moreover, the motorless prior art cleaners that did exist allegedly used suction or water jets, which caused the units to move erratically.

The three judge panel that rendered the Aqua opinion was Chief Judge Prost, Circuit Judge Reyna, and Chief District Judge Stark (sitting by designation).  The opinion did note that the because of the precedent of Microsoft and Nike, "this panel cannot revisit the question of whether the Board may require the patentee to demonstrate the patentability of substitute claims over the art of record."  Instead, the Court only considered whether the Board abused its discretion by not evaluating "objective indicia of non-obviousness and various new limitations in the proposed claims . . . ."  Ultimately, the Federal Circuit affirmed the PTAB because the Court found that the Board adequately rebutted Aqua's argument that a new limitation related to the downward vector force rear of the front wheels would make the claims patentable over the two cited prior art references.  And the Court concluded that because Aqua's arguments rested exclusively on this limitation, the Board need not have addressed the other amendments or the objective indicia of non-obviousness.

The activity of amici should be substantial in this case.  Patent owners have been concerned about the low rates of motions to amend.  In fact, the PTAB commissioned a study to look into the issue that issued a report dated April 30, 2016.  As of the date of the study, the Board reported instituting and completing 1539 trials.  And in those cases, the Board decided the merits of a motion to amend in 118 trials (8%).  Of those, the motions were granted (or granted-in-part) in only six.  This amounts to 5% of the cases in which a motion was filed, and significantly less when considering all PTAB trials to that date.  And, even though no amicus briefs were filed in support of en banc review in the Aqua case, the Biotechnology Innovation Organization did file an amicus brief in the Prolitec case in an effort to obtain review of these issues.  Of course, the presence of a dissent in the Prolitec case made it the more conventional type of case to hope for review by the full court.  Now that an en banc petition has been granted, it would not be surprising to see a significant number of amicus briefs filed in this case.  Patent Docs will continue to monitor this case and provide any updates as warranted.

Comments

[Paul F. Morgan]

This en banc review is desirable of the most criticized procedural aspect of IPRs in the Cuozzo briefs, which the Sup. Ct. did not directly address. But it will NOT have a significant effect on IPR practice in general irrespective of the outcome. Claim amendments are only even requested in a very small percentage of IPRs, for good reasons, and those good reasons will continue. The claims cannot be broadening in any respect per the IPR statute, they cannot normally even be introduced or be of any help in existing litigation [which triggers 80% of IPRs], they eliminate the original claims for which they are substituted, they risk creating non-infringement defenses, and last but not least they trigger the serious recovery restraints of the IPR "intervening rights" statute for any and all assertions of the amended claims.
Nor is any decision in this case likely to ignore the issue of due process for the other party if a changed claim is inserted during an inter partes trial without an adequate rebuttal opportunity.

[skeptical]

Mr. Morgan,

There is an even more fundamental problem with claims being added to a granted patent that have only been vetted by the patent owner: such is just not a true examination by the only body - under law - allowed (required) to DO claim examination to allow claims to reach the granted stage.

I realize that your viewpoint is typically on the accused infringer's side, but this much more fundamental problem affects everyone - patent holder and any accused infringer.

[Paul F. Morgan]

Skeptical, that is a important addition to my last sentence above. The PTAB does not do, nor has any capacity for, prior art searches or initial claim examinations of new claims. In an IPR only the petitioner can [and thus must] provide that function for the "substitute" claims that the IPR statute and the PTAB allow to be entered in an IP, in order for the PTO to meet its agency duties.

[skeptical]

Mr. Morgan,

Your view does not suffice - the "can and must" is simply not in accord with the grant of power from the Legislative branch to the Executive branch and the power to have a granted patent.

The PTO is NOT meeting its agency duties when it does not do the examination itself.