In its recent decision, In re Magnum Oil Tools International, No. 2015-1300, the Federal Circuit clarified the burden of proof for IPR proceedings. In particular, it held that the PTAB improperly shifted the burden of proof to the patent owner to disprove obviousness.
When filing its petition with the PTAB, McClinton argued that the claims at issue would have been obvious over a first and second set of prior art. While McClinton and its expert appeared to have fully addressed the first set of prior art, they only “incorporated by reference” the arguments from the first set onto the second set of prior art. In responding, patent owner Magnum contended, among other things, that McClinton’s analysis for the second set of prior art failed to “specify where each element of the claim is found” and to describe how a skilled artisan would have modified the second set of prior art. Despite these shortcomings, the PTAB found that McClinton had established a reasonable likelihood of success based on only the second set of prior art and instituted the IPR. Relying on that analysis in the Final Written Decision, the PTAB held that the claims at issue were invalid as being obvious over the second set of art.
Subsequently, McClinton and Magnum settled the dispute, in which McClinton agreed to not participate in any appeal.
On appeal, Magnum argued that the “PTAB erred in cancelling the claims at issue because ‘neither McClinton nor the [PTAB] ever established a prima facie basis for the rejection’” for the second set of prior art. By doing such, Magnum contended that the PTAB improperly shifted the burden of proof to Magnum. The PTO intervened, alleging that the burden of producing nonobviousness evidence shifted to the patent owner when the PTAB found a reasonable likelihood of success in its Institution Decision. It reasoned that once the PTAB found a reasonable likelihood that McClinton would ultimately carry its burden of persuasion, the burden of production shifted to Mangum to argue or produce evidence indicating otherwise.
To begin its analysis, the Federal Circuit stated that the burden of proof involves two burdens: The burden of persuasion and the burden of production. “The burden of persuasion ‘is the ultimate burden assigned to a party who must prove something to a specified degree of certainty’ [while] the burden of production may entail ‘producing additional evidence and presenting persuasive argument based on new evidence or evidence already on the record.’”
Regarding the burden of persuasion, the Court held that the ultimate burden must remain on the patent challenger and that burden-shifting is not suitable. The Court further held that “the petitioner continues to bear the burden of proving unpatentability after institution, and must do so by preponderance of the evidence at trial.”
Regarding the burden of production, the Federal Circuit disagreed with the PTO’s proposed burden of production shifting from the petitioner to the patent owner upon the PTAB’s conclusion in an institution decision that “there is reasonable likelihood that the petitioner would prevail.” The Court held that the PTO’s proposed shifting of the burden would be directly at odds with precedent holding that the institution decision and the final written decision are two different analyses and each applies a qualitatively different standard. Accordingly, the Court held that the petitioner continues to bear the burden of proving unpatentability after institution, and must do so by a preponderance of the evidence at trial.
Relying on that analysis, the Federal Circuit reversed the PTAB decision, concluding that the PTAB had improperly shifted the burden to Magnum as McClinton only provided “conclusory statements” without “articulat[ing] specific reasons, based on evidence of record to support the legal conclusion of obviousness” over the second set of prior art. Moreover, it explicitly rejected the PTO’s position that the PTAB is free to adopt arguments on behalf of petitioners that could have been, but were not, raised by the petitioner. That is, the PTAB “must base its decision on arguments that were advanced by a party, and to which the opposing party was given a chance to respond.”
*Shayda Shahbazi is a Technical Specialist at Finnegan