APA Precludes New Theories Absent Requisite Notice § 554(b)(3)
The Patent Trial & Appeal Board (PTAB) will often change its construction of a disputed claim term over the course of an AIA patent trial proceeding. What was less clear, however, was whether or not the Board had the authority to advance an entirely new claim construction of its own—of a term not in dispute—for the first time, at final decision. This practice, occurring with increasing frequency as of late, was addressed last Friday by the Federal Circuit.
This decision will have significant impact on both PTAB trial and appeal practice going forward.
In SAS Institute Inc., v. ComplemenSoft LLC, the Board explained (here):
It is difficult to imagine either party anticipating that already-interpreted terms were actually moving targets, and it is thus unreasonable to expect that they would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent.
As background, SAS challenged all sixteen claims of ComplementSoft’s patent 7,110,936 in inter partes review (IPR). Trial was instituted for claims 1 and 3-10, but claims 2 and 11-16 were denied institution. At the conclusion of trial, the PTAB determined that claims 1, 3, and 5-10 were unpatentable as obvious, but that SAS did not carry its burden of showing that claim 4 was unpatentable.
As to claim 4, the PTAB found that the “prior art did not satisfy the ‘graphical representations of data flows’ limitation, which it ... construed to mean ‘a graphical representation comprised of icons depicting data processing steps and arrows to depict the movement of data through source code.’” This construction, however, was a departure from the construction applied by the PTAB at institution, which was “a depiction of a map of the path of data through the executing source code.” Neither party contested or disputed the Board’s original construction during the pendency of trial.
On appeal, SAS argued that the Board’s final construction of “graphical representation of data flows” was incorrect and that the Board erred in changing its interpretation of this claim term without allowing the parties to brief the issue and without either party contesting the Board’s original construction. Notwithstanding the Federal Circuit's agreement with the Board’s final construction of the “graphical representations of data flow” claim term, the court vacated and remanded the PTAB’s decision with respect to claim 4 “so that the parties may address a new construction that the Board adopted in its final written decision after interpreting the claim differently before.”
While the Court acknowledged that the Board is free to change its construction at the time of FWD, it took issue with the Board changing its mind mid-stream, without affording the parties notice, or an opportunity to respond to its unilateral construction. In reaching this conclusion, the court determined that the PTAB’s actions in this case ran afoul of the procedural requirements of the Administrative Procedure Act (APA). Specifically, APA § 554(b)(3), which states that “[p]ersons entitled to notice of an agency hearing shall be timely informed of ... the matters of fact and law asserted.”
In the context of IPR proceedings, the Court previously held in Belden Inc. v. Berk-Tek LLC that under § 554(b)(3) “an agency may not change theories in midstream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory.” 805 F.3d 1064, 1080 (Fed. Cir. 2015). Although the Federal Circuit has previously afforded protections to patent owners under APA § 554(b)(3), it held in SAS Institute that such protections also apply to IPR petitioners, whom “stand to lose significant rights in an instituted IPR proceeding because of the estoppel effects that trigger against them if the Board issues a final written decision.”
As to the impact of the APA’s requirements on this case, and as briefly noted above, the court found:
SAS focused its argument on the Board’s institution decision claim interpretation, a reasonable approach considering ComplementSoft agreed with this interpretation in its patent owner’s response and never suggested that the Board adopt the construction that eventually materialized in the final written decision. It is difficult to imagine either party anticipating that already-interpreted terms were actually moving targets, and it is thus unreasonable to expect that they would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent.
Given that the Federal Circuit agreed with the Board’s final construction of the “graphical representations of data flows” claim term, and noted that “it is uncertain” whether SAS will ultimately be able to show unpatentability under this construction, the court’s decision to vacate and remand is a nod to the importance of APA protections in AIA trial proceedings.