Takeaway: It is permissible for the Board to require a patentee to show that its proposed substitute claims are patentable over all prior art of record, even if certain prior art did not form the basis for institution of the proceeding with respect to the corresponding challenged claim.

In its Opinion, the United States Court of Appeals for the Federal Circuit affirmed-in-part, reversed-in-part, and vacated-in-part the Final Written Decisions of the Patent Trial and Appeal Board in the inter partes review of U.S. Patent No. 6,757,717 and remanded the case to the Board for further proceedings.

The ’717 patent relates to a system for increasing the speed of data access in a packet-switched network. The invention communicates “digital digests” of corresponding documents, which act as short digital fingerprints for the content of the corresponding documents, thereby reducing redundant transmission of data throughout the network.

In its Final Written Decision, the Board concluded that all of the challenged claims except claim 24 (claims 1, 3, 6, 7, 9–12, 14, 22, and 23) were unpatentable as anticipated or as obvious. See Microsoft Corp. v. Proxyconn, Inc., IPR2012-00026 and IPR2013-00109, Paper No. 73 (PTAB Feb. 19, 2014) (the “Board Decision”).  The Board also denied Proxyconn’s motion to amend, concluding, inter alia, that Proxyconn did not meet its burden of establishing that it was entitled to the amended claims, and rejecting Proxyconn’s argument that it did not need to establish patentability over a reference that was not part of the original bases of unpatentability for which review of claims 1 and 3 was instituted.

Microsoft appealed the Board’s determination that claim 24 is patentable, and Proxyconn cross-appealed, challenging the Board’s use of the broadest reasonable interpretation standard of claim construction during IPRs, its unpatentability determinations, and its denial of Proxyconn’s motion to amend. The Director of the United States Patent and Trademark Office (“Director”) intervened to address the Board’s use of the broadest reasonable interpretation standard and its denial of Proxyconn’s motion to amend.

The Court began its discussion with a reminder that it reviews the Board’s conclusions of law de novo and its findings of fact for substantial evidence. In addition, pursuant to Teva Pharms. U.S.A., Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015) and the Court’s review of Board determinations,  the Court reviews the Board’s ultimate claim constructions de novo and its underlying factual determinations involving extrinsic evidence for substantial evidence. Concerning claim construction, the Board concluded that the intrinsic record in this case “fully determines the proper construction” and that it “need not consider the Board’s findings” on any extrinsic evidence “because the intrinsic record is clear.”

Turning to the parties’ claim construction arguments, the Court first considered Proxyconn’s “threshold challenge . . . that the broadest reasonable interpretation standard of claim construction should not apply during IPRs.” The Court concluded that Proxyconn’s argument “is foreclosed by” and that it was “bound by” the Court’s recent decision in In re Cuozzo Speed Techs., LLC, 778 F.3d 1271 (Fed. Cir. 2015), which “held that the broadest reasonable interpretation standard in IPRs ‘was properly adopted by PTO regulation.’” The Court, however, reiterated that the Board is not permitted to “construe claims during IPR so broadly that its constructions are unreasonable under general claim construction principles.”

The Court then analyzed the Board’s construction of (1) “gateway . . . connected to said packet-switched network in such a way that network packets sent between at least two other computers,” (2) “sender/computer” and “receiver/computer,” and (3) “searching for data with the same digital digest in said network cache memory.”

With respect to the first disputed phrase, Microsoft contended before the Board that the phrase “two other computers” could be “any two computers connected on the network to the gateway, including the caching computer,” whereas Proxyconn contended that the term “two other computers” referred “only to the sender/computer and the receiver/computer.” The Court determined that “[t]he Board erred in concluding that the ‘two other computers’ could include the caching computer.” The Court first considered the language of the claims—which recite “a system comprising a gateway, a caching computer and ‘two other computers’”—and then determined that the “specification confirms that the phrase ‘two other computers’ is limited to the sender/receiver and computer/receiver.” The Court therefore concluded that “the Board’s determination that claims 6, 7, and 9 were unpatentable was based on an unreasonably broad construction of the term “gateway . . . connected to said packet-switched network in such a way that network packets sent between at least two other computers,” vacated the finding of unpatentability with respect to these claims, and remanded.

Next, the Court determined that the Board similarly had erred when it concluded that “the terms ‘sender/computer’ and ‘receiver/computer’ were broad enough to include the intermediary gateway and caching computers.” The Court concluded that “[t]he language of the specification consistently refers to the sender/computer, receiver/computer, gateway, and caching computers as separate and independent components of an overall system” and “nowhere does the ’717 patent indicate that the gateway and caching computer are the same as, or can be subsumed within, the sender/computer and receiver/computer.” The Court determined that “[t]he Board’s reliance on the specification’s statement that the gateway may be ‘integrally formed with the caching computer’” was “misplaced” because, in its view, “[t]he  cited sentence merely explains that the gateway and the caching computer can be integrated together; it says nothing about integration of those intermediaries with the sender/computer and receiver/computer.” The Court concluded that the Board had adopted “an unreasonably broad construction of the terms ‘sender/computer’ and ‘receiver/computer,’” and, as a result, vacated the Board’s findings of unpatentability of claims 1, 3, 10, 22, and 23 and remanded.

The Court then considered Microsoft’s challenge to the Board’s construction of the phrase “searching for data with the same digital digest in said network cache memory.” Microsoft had contended that “search” meant “check for” and that the searching step of claim 22 means “comparing only two individual digest values against one another to determine whether they match.” The Board, however, adopted Proxyconn’s proposed construction that the searching step “required the ability to identify a particular data object with the same digital digest from a set of potentially many data objects stored in the network cache memory.” As a result, the Board concluded that claim 24 was not rendered invalid by the cited references.  The Court concluded that the Board correctly construed this phrase in light of the usage of the word “searching” in the specification of the ’717 patent and that Microsoft’s proposed construction, “which would essentially equate ‘searching’ with  ‘comparing,’ would render the additional ‘comparing’ language in the specification meaningless.” Because the Court agreed with the Board’s construction, and Microsoft did not alternatively argue that claim 24 is unpatentable under the Board’s construction, the Court affirmed the Board’s determination that claim 24 is patentable.

After reviewing claim construction and the patentability of claims including the disputed phrases, the Court turned to reviewing the patentability determinations relating to remaining claims 11, 12, and 14. The Board concluded that these claims were anticipated by the DRP reference. On appeal, Proxyconn argued that DRP does not disclose “receiving a response signal,” which is a limitation of each of the remaining claims, because “the DRP protocol is client-driven” and therefore “there is no disclosure that DRP’s server ‘understands whether the files downloaded by the client are related to an index previously downloaded by the client, or not” and the downloaded file “cannot be considered a ‘response.’” The Court was not persuaded. It agreed with the Board “that the download requests that DRP’s client sends to the server after receiving the index from the server and comparing it to the local index meets the ‘receiving a response signal’ limitation.” Accordingly, the Court concluded “that the Board did not err in concluding that DRP anticipates claims 11, 12, and 14 of the ’717 patent.”

Finally, the Court addressed Proxyconn’s challenge to the Board’s denial of its motion to amend claims 1 and 3.  The Board began by discussing the “legal framework governing amendments during IPRs.” As the Court explained:

Relying on the authority granted by the AIA, the PTO has promulgated two regulations that are relevant to this appeal. First is 37 C.F.R. § 42.20, which applies generally to motions practice. Section 42.20 requires that any “[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.” § 42.20(a), (c). Second is 37 C.F.R. § 42.121, which imposes specific requirements on the amendment process. Section 42.121(a)(2) provides that: “A motion to amend may be denied where: (i) The amendment does not respond to a ground of unpatentability involved in the trial; or (ii) The amendment seeks to enlarge the scope of the claims of the patent or introduce new subject matter.”

In addition, a six-member panel of the Board issued a decision called Idle Free Systems, Inc. v. Bergstrom, Inc., IPR2012-00027, 2013 WL 5947697 (PTAB June 11, 2013), which has been designated as “informative” (but is not binding authority under the Board’s Operating Rules) and states that:

A patent owner should identify specifically the feature or features added to each substitute claim, as compared to the challenged claim it replaces, and come forward with technical facts and reasoning about those feature(s), including construction of new claim terms, sufficient to 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. The burden is not on the petitioner to show unpatentability, but on the patent owner to show patentable distinction over the prior art of record and also prior art known to the patent owner. Some representation should be made about the specific technical disclosure of the closest prior art known to the patent owner, and not just a conclusory remark that no prior art known to the patent owner renders obvious the proposed substitute claims.

A showing of patentable distinction can rely on declaration testimony of a technical expert about the significance and usefulness of the feature(s) added by the proposed substitute claim, from the perspective of one with ordinary skill in the art, and also on the level of ordinary skill, in terms of ordinary creativity and the basic skill set. A mere conclusory statement by counsel, in the motion to amend, to the effect that one or more added features are not described in any prior art, and would not have been suggested or rendered obvious by prior art, is on its face inadequate.

Turning to the merits of Proxyconn’s arguments concerning the Board’s denial of its motion to amend, the Court analyzed whether “the Board permissibly relied on the requirements of Idle Free and the DRP reference in denying Proxyconn’s motion to amend.” The Board Decision denied the motion to amend because (1) it “held that Proxyconn failed to meets its burden of establishing patentability of the substitute claims” and (2) “rejected Proxyconn’s argument that 42.121(2)(a)(i) precluded the Board from relying on the DRP reference” and found that “Proxyconn provide[d] no evidence to counter Microsoft’s contentions that DRP anticipated” the proposed substitute claims. With respect to the first basis, the Board concluded that:

Proxyconn has not: (i) construed the newly added claim terms; (ii) addressed the manner in which the claims are patentable generally over the art; (iii) identified the closest prior art known to it; (iv) addressed the level of ordinary skill in the art at the time of the invention; or (v) discussed how such a skilled artisan would have viewed the newly recited elements in claims 35–41 in light of what was known in the art. Instead, Proxyconn attempts to distinguish claims 35–41 only from the prior art for which we instituted review of corresponding claims. . . .

On appeal, Proxyconn argued “that § 42.121(a)(2) provides a complete list of the bases for which the Board can deny a motion to amend” and, as a result, “the Board exceeded its own regulation by imposing the additional requirements of Idle Free and by relying on the DRP reference.” Defending the Board’s actions, the Director argued that “§ 42.121(a)(2) is not exhaustive” and that “a patentee seeking to amend its claims during IPRs must meet both the ‘procedural requirements’ of § 42.121(a)(2) as well as the ‘substantive burden’ imposed by § 42.20(c), as it has been interpreted through adjudicative Board decisions like Idle Free.”

The Court reviews Board decisions using the standards set forth in in the Administrative Procedure Act, 5 U.S.C. § 706. Thus, the Court will “set aside actions of the Board that are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, and set aside factual findings that are unsupported by substantial  evidence” and “accept the Board’s interpretation of Patent and Trademark Office regulations unless that interpretation is ‘plainly erroneous or inconsistent with the regulation.”

Here, the Court “agree[d] with the Director that § 42.121(a)(2) is not an exhaustive list of grounds upon which the Board can deny a motion to amend.” Proxyconn did not argue that the PTO acted outside its authority in promulgating § 42.20 and § 42.121; instead, it challenges the Board’s interpretation of the regulations as permitting it to deny the motion to amend for failure to establish patentability over DRP, which was not a reference that the Board relied on when instituting review of the claims at issue. The Director argued that its authority “comes from § 42.20(c), as it has been interpreted in Idle Free—namely, as requiring the patentee ‘to show patentable distinction [of the substitute claims] over the prior art of record’” and that “it is permissible for the PTO to use adjudicative Board decisions like Idle Free, rather than traditional notice and comment rule-making, to set forth all the conditions that a patentee must meet in order to satisfy its burden of amendment under § 42.20(c).”  The Court concluded that the PTO had not “abused its discretion in choosing adjudication over rulemaking” and that “the Board’s interpretation of § 42.20(c) in Idle Free—requiring the patentee to “show patentable distinction [of the substitute claims] over the prior art of record” is not “plainly erroneous or inconsistent with the regulation or governing statutes.”  Further, the Court concluded that the Board had “reasonably interpreted [the provisions of the AIA and the regulations] as requiring the patentee to show that its substitute claims are patentable over the prior art of record” and noted, inter alia,  that “[i]f the patentee were not required to establish patentability of substitute claims over the prior art of record, an amended patent could issue despite the PTO having before it prior art that undermines patentability,” which would defeat the purpose of IPR. Moreover, “the prior art relied on by the Board was front and center throughout the course of the proceedings.”  Thus, the Court concluded that “the Board acted permissibly in requiring Proxyconn to establish the patentability of substitute claims 35 and 36 over the DRP reference” and “based on Proxyconn’s failure to do so” affirmed “the Board’s denial of Proxyconn’s motion to amend claims 1 and 3.”

Microsoft Corporation v. Proxyconn, Inc. v. Michelle Lee, Director, U.S. Patent and Trademark Office, Case Nos. 2014-1542, -1543 (Fed. Cir. June 16, 2015), appeals from IPR2012-00026 and IPR2013-00109

Patent: 6,757,717 Before: Prost, Chief Judge, Lourie, Circuit Judge, and Gilstrap,District Judge Written by: Prost, Chief Judge

Related Proceedings: IPR2012-00026; IPR2013-00109