Aqua Products v. US PTO, Post-Grant Amendment Burdens

In early October the Court of Appeals for the Federal Circuit decided another hot button issue regarding AIA post-grant proceedings at the US PTO. Sitting en banc, the Court of Appeals answered many a burning question regarding the amendment process for inter partes reviews, post-grant reviews and covered business method patent proceedings in Aqua Products v. Matal, US PTO, Case No.: 2015-1177 (Fed. Cir. Oct. 4, 2017). One will recall the issue of the amendment process coming up in Cuozzo as the US Supreme Court examined whether the broadest-reasonable-interpretation standard for claim construction at the Office was constitutional. 136 S.Ct. 2131 (2016). The Supreme Court reasoned that the BRI standard was constitutional partly by recognizing the amendable quality of reviewed claims during the Office’s post-grant proceedings. Id. at 9 (quoting Cuozzo: “The patent holder may, at least once in the process, make a motion to []amend… This opportunity to amend… means that use of the broadest reasonable construction standard is… not unfair to the patent holder in any obvious way.”). In other words, the argument went that because claims can be amended at the Office, the Office was justified in using the broadest-reasonable-interpretation standard for claims, rather than the plain-and-ordinary meaning which is used to construe issued claims in courts. At that time, many disgruntled amici argued that the amendment process for patent owners held bleak outcomes and the right should not be considered when assessing the BRI standard. See e.g., Brief of Amicus AIPLA at 12, Cuozzo Speed v. Lee, Case No.: 15-446 (2015) as covered in the Just Intellectuals eNewsletter, Sept. 2016 ed.; see also Aqua supra at 12 citing two studies on motions to amend. The US Supreme Court ultimately disagreed with the disgruntled-amici proposition and now the Court of Appeals has reviewed en banc the post-grant amendment process, specifically its burden-shifting structure. Aqua Products.

Prior to this decision the Patent Trial and Appeal Board placed the burden of establishing patentability on the patent owner. The required level of proof before the Office is by a preponderance of the evidence or approximately 51+% of the proofs. The court in Aqua Products has placed that burden instead upon the petitioner to establish unpatentability also by a preponderance of the evidence. This one percent difference shifted to the petitioner is hoped – by patent owners like Aqua – to make all the difference on allowance but truthfully skepticism is suitable.

A total of eleven (11) honorable judges participated in the decision, with Hon. Judge Stoll not participating. The two questions raised with the petition for en banc review are as follows:

(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?

Id. at 8.

The answers (though murky, as Hon. J. Hughes pointed out) are as follows: (a) No, the burden of unpatentability is placed upon the petitioner, however, most of the court believes the patent owner has some burden of production; and (b) the question as to patentability issues raised sua sponte was not adequately briefed in this case, the burden of establishing unpatentability remains with the petitioner. Additionally, a majority clarified that the Board is obligated to consider all evidence before it on motions to amend, even grounds not originally presented in the petition: “an agency’s refusal to consider evidence bearing on the issue before it is, by definition, arbitrary and capricious within the meaning of 5 U.S.C. §706, which governs review of agency adjudications.” Id. at 61-62. The Board decision, denying Aqua’s motion to amend finding the proposed substitute claims unpatentable and refusing to consider some evidence of record, was vacated with remand instructions to place the burden of proving unpatentability on the petitioner, not the patent owner. Id. at 7.

Regarding the most heavily contested 1% ever seen, the seven-judge majority Opinion authored by Hon. J. O’Malley walked us through the Chevron analysis that is most often employed when courts are asked to interpret statutes. Under Chevron, the court first considered whether Congress directly spoke to the question of burden allocation on post-grant motions to amend. Section 316 discusses conduct in an IPR. Specifically, 316(d) states that “[d]uring an inter partes [sic] review instituted under this chapter, the patent owner may file 1 motion to amend the patent…” but Subsection (d) is silent as to any burden of persuasion. Subsection (e) goes on to discuss evidentiary standards: “In an inter partes [sic] review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.” The court looked at the literal text of the Code and interpreted Sec. 316(e) to place the burden of proving unpatentability upon the petitioner in an IPR for all claims, including proposed amended claims. Id. at 19. The court further pointed to §316(d)’s silence as to burdens and the in-court burden-shifting structure on invalidity to reinforce its theory that Congress never intended to place the burden of establishing patentability of an amended claim upon the patent owner. Id. at 19-26.

Secondly under Chevron, the court asked whether the PTO’s interpretation was a permissible construction of the statute. Here the Office’s interpretation was shown no deference, construed as a misinterpretation and found to be plainly erroneous or inconsistent with the regulation. Id. at 42-56. Namely, the Code of Federal Regulations § 42.20(c) to “general” “motion practice” and § 42.121 to “amending the patent” were not interpreted to “unambiguously assign [the] burden to the patent owner” because in its regulations the Office was not clear that the general rules regarded burdens in the motion to amend process. Id. at 44.

A majority joined J. O’Malley’s interpretation of §316 but not without controversy. Five separate opinions were filed, with arguably five separate rules of law and two opinions dissenting. Of interest, the Hon. J. Reyna’s Concurrence had a majority of the court going one step further than the O’Malley opinion by interpreting § 316(d) to require the patent owner to have a burden of production to produce evidence pertinent to patentability even though the ultimate burden of proof on unpatentability still rests with the petitioner. J. Reyna Concurrence at 2 & 13-14 and Taranto Dissent.

Arguably as many as nine members of the court are also of the opinion that the PTO’s efforts to give the patent owner the burden of persuasion on motions to amend – though through regulation only – are not completely beyond the Office’s “jurisdiction” due to the ambiguous language of §316(d)/(e). J. Reyna Concurrence at 3 & 8-10; J. Moore Concurrence at 4-6 and J. Taranto Dissent.

Finally, Hon. J. Taranto and three others dissented from J. O’Malley’s majority Opinion, reasoning that 37 CFR 42.20(c) to general motion practice was sufficient to be an unequivocal assignment of the burden of persuasion (and production) to the patent owners moving for an amendment. Hon. Judges Hughes and Chen wrote separately to indicate that deference should even be given to PTAB decisions on burden of persuasion, not just PTO regulations.

As the number of separate opinions demonstrate, this was an extremely contentious case for the Court of Appeals. Perhaps the most controversial decision since Alice if not Moore so (pun). Surprisingly, sometimes even something as small as one tiny, little percentage is significant enough for attorneys to argue over. Ah, the joys of private practice. The regulation-drafting “ball” appears to be in the Patent Office’s “court” from here. Stay tuned to see what ensues.