PTAB May Assert New Grounds of Unpatentability of Amended Claims in IPR Proceedings, but Must Give Patent Owner Notice and Opportunity to Respond

By Kevin M. Szymczak and Peter C. Schechter

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The U.S. Court of Appeals for the Federal Circuit has ruled that in the context of Inter Partes Review proceedings, the Patent Trial and Appeal Board may raise new grounds of unpatentability with respect to a patent owner’s proposed amended claims.  However, any new grounds must be limited to prior art already of record in the proceeding, and the patent owner must be given adequate notice and an opportunity to respond to the new grounds, in order to satisfy the requirements of the Administrative Procedure Act.

In the recent decision Nike, Inc. v. Adidas AG (“Nike II”),[1] the U.S. Court of Appeals for the Federal Circuit (“CAFC”) has ruled that in the context of Inter Partes Review (“IPR”) proceedings, the Patent Trial and Appeal Board (“PTAB” or “the Board”) may raise new grounds of unpatentability with respect to a patent owner’s proposed amended claims.  Unlike its consideration of challenged original patent claims, the Board is not limited to grounds or theories of unpatentability raised by the petitioner.  However, any new grounds of unpatentability must be limited to prior art already of record in the proceeding, and the patent owner must be given adequate notice and an opportunity to respond to the new grounds, in order to satisfy the requirements of the Administrative Procedure Act (“APA”).

The Nike II decision has a complicated procedural history spanning more than eight years.  In 2013, Adidas filed a petition for IPR in the PTAB challenging patentability of claims 1–46 of Nike’s U.S. Patent No. 7,347,011 (“the ’011 Patent”).  The Board instituted an IPR trial.  During the IPR proceedings, Nike filed a motion to amend claims pursuant to 35 U.S.C. § 316(d), in which Nike requested cancellation of original claims 1–46 of the ’011 Patent and entry of substitute claims 47–50.  In opposition to Nike’s request, Adidas argued that the substitute claims were unpatentable under 35 U.S.C. § 103 as being obvious over a combination of three prior are U.S. patents.  Years of litigation followed, mostly focused on the issue of whether the patent owner (Nike) bears the burden of establishing patentability of the proposed substitute claims or, alternatively, the petitioner (Adidas) must prove unpatentability of the proposed substitute claims.  That issue was finally resolved by the CAFC in 2017, with the court deciding that the petitioner has the burden of persuasion with respect to the patentability of proposed amended claims.[2]

Eventually, the PTAB determined that “the entirety of the record demonstrates the unpatentability of substitute claim[s]….”[3]  In its Final Written Decision, the Board stated that while one prior art U.S. patent relied upon in Adidas’ original petition does not disclose all of the elements of the substitute claims, another prior art document referred to as Spencer, which was of record in the IPR but not relied upon by Adidas in opposition to the proposed claims, demonstrated that the elements of the substitute claims missing from the primary prior art reference were directed to a well-known technique.  The Board’s assertion of this new combination of prior art references for the first time in the Final Written Decision, where neither the Board nor Adidas had ever raised or argued the same combination of prior art as negating patentability, was then appealed to the CAFC by Nike as constituting a violation of its procedural rights under the Administrative Procedure Act (“APA”), 5 U.S.C. § 554.

APA Section 554(b)(3) provides that “persons entitled to notice of an agency hearing shall be timely informed of … the matters of fact and law asserted.”  Section 554(c) requires that “the agency shall give all interested parties opportunity for (1) the submission and consideration of facts [and] arguments … and (2) to the extent that the parties are unable so to determine a controversy by consent, hearing and decision on notice….”

In Aqua Products, the CAFC had previously held that the Board may not base its patentability determinations regarding proposed substitute claims solely on the contents of a patent owner’s motion to amend, but instead must consider the entirety of the IPR record.  In its recent Nike II decision, the CAFC has extended this principle by holding that the Board may, on its own accord, identify a patentability issue for a proposed substitute claim based on the entire universe of prior art identified anywhere in the IPR record.[4]  However, the Court further held that if the Board chooses to rely on a new ground of unpatentability of a proposed amended or substitute claim, it may not do so for the first time in the Final Written Decision.  Instead, the Board must provide notice of the specific ground of unpatentability to the patent owner, and must provide an opportunity for the parties to respond before issuing a Final Writen Decision under 35 U.S.C. § 318(a).  While the burden of establishing unpatentability of proposed substitute claims still rests with the petitioner, the Board itself may provide the grounds to be relied upon by the petitioner in meeting that burden. This result stands in contrast to the rule that the IPR proceeding with respect to the challenged original claims of a patent is limited to the grounds asserted by the petitioner in its original IPR petition.[5]

The CAFC Explicitly declined to decide whether the Board may look outside of the IPR record, as that issue was not presented by Nike’s appeal.

The Nike II decision may be viewed as favoring IPR petitioners.  The decision allows the PTAB to assert grounds of unpatentability for proposed substitute claims that the petitioner may not have recognized, or may have considered or cursorily suggested but did not have sufficient resources (with respect to strict page limits and other procedural limitations) to fully raise or adequately discuss.  The Nike II decision also allows the Board to raise its own grounds of unpatentability for proposed substitute claims in circumstances where the petitioner is no longer participating in the IPR proceeding, a situation which occurs when the parties reach a private settlement of their dispute during the later stages of the IPR proceeding, and the petitioner withdraws.  At least in this situation, the holding of the CAFC’s Nike II decision may be considered necessarily correct.

In addition, it would seem clear that the petitioner will have an easier time satisfying its burden of persuasion with respect to unpatentability for grounds already independently put forward by the Board, i.e., by the decision-making tribunal itself.  All that is required is that the Board give adequate notice of its new ground of unpatentability based on evidence found in the totality of the IPR record, and that the parties have an opportunity to address the newly raised ground before the Board issues its Final Written Decision.  Prior to issuing a Final Written Decision is such cases, the Board should inform the parties that it intends to rely on other prior art found in the IPR record, and either request supplemental briefing from the parties regarding the newly proposed ground for unpatentability, or hold an oral hearing on the matter, or both.  Either of these courses of action should satisfy the APA’s notice and procedural requirements under 5 U.S.C. § 554.

The Nike II decision highlights the importance for the petitioner in IPR proceedings to include as much prior art as is reasonably possible into the initial petition.  Thus, in the event that the patent owner later files a motion to amend, the larger universe of available prior art would give the PTAB more flexibility to refuse substitution of the proposed new claims based on theories of unpatentability not already raised by the petitioner.  The Board is no longer limited to relying on the grounds and arguments raised by the petitioner in the original petition or in opposition to the patent owner’s motion to amend.  However, both parties should be ready to submit supplemental briefs on the issue and/or participate in an oral hearing.

[1] Appeal No. 2019-1262, __ F.3d __, 2020 WL 1802796 (Fed. Cir. Apr. 9, 2020).

[2] Aqua Prod., Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017), overruling Nike, Inc. v. Adidas AG (“Nike I”), 812 F.3d 1326 (Fed. Cir. 2016).

[3] Adidas Ag v. Nike, Inc., No. IPR2013-00067, 2018 WL 4501969, at *7 (P.T.A.B. Sept. 18, 2018).

[4] Nike II, 2020 WL 1802796, at *4 (Fed. Cir. Apr. 9, 2020).

[5] See SAS Institute Inc. v. Iancu, __ U.S. ___, 138 S. Ct. 1348, 1356 (2018), in which the U.S. Supreme Court stated that “the petitioner’s petition, not the Director’s discretion, is supposed to guide the life of the litigation.”