In In Re Magnum Oil Tools International Ltd., the Federal Circuit reversed the PTAB’s final decision cancelling challenged claims for obviousness because the record did not include substantial evidence of a motivation to combine references, and because the PTAB improperly shifted the burden of proof on this issue to the patent owner.

Petitioner McClinton Energy Group filed an IPR petition challenging claims of a patent relating to technology for “fracking” (oil drilling using hydraulic fracturing). In fracking, a wellbore is drilled into the earth, and a fluid mixture is injected into the wellbore. Downhole plugs are used to divide the wellbore into separate sections so that different sections of the wellbore may be fracked at different times.

The challenged claims recite a wellbore plug that includes an insert with shearable threads disposed on an inner surface, which are adapted to deform when exposed to an axial force, to release a setting tool that is used to position the plug in in the wellbore.

The petition included six grounds relying on a primary reference “Lehr” and three grounds relying on a primary reference “Alpha,” each primary reference combined with the same two secondary references. Alpha teaches a wellbore plug that includes a shear ring with shearable threads, which can be separated from the rest of the plug by applying force to the shear ring. Lehr teaches a washer-shaped, deformable release device that can be used to release a setting tool from a wellbore plug, however Lear does not disclose a device with shearable threads. The petitioner did not participate in the appeal, however, the Patent Office intervened in the appeal to defend the PTAB’s decision.

For motivation to combine the references, the petition included detailed arguments and supporting expert testimony concerning a motivation to combine Alpha with the secondary references. However, with respect to Lehr, the petition largely “incorporated by reference” its arguments on motivation to combine that had been articulated with respect to Alpha. The PTAB instituted review based on the Lehr grounds only, not on the Alpha grounds. On appeal, the Patent Owner argued that substantial evidence does not support the PTAB’s finding that a skilled person would have a motivation to combine the deformable release device of Lehr with the shearable threads taught in the secondary references. The court determined that this issue was properly raised on appeal, and that the Patent Owner was not required to first raise this issue in a request for rehearing.

In an IPR, the petitioner has the burden of proving unpatentability by a preponderance of the evidence under 35 U.S.C. § 316(e), and that burden never shifts to the patent owner. As the court explained, there are two burdens of proof: a burden of persuasion (the “ultimate burden assigned to a party who must prove something”); and a burden of production (which may require producing additional evidence and presenting arguments). Contrary to the PTO’s argument on appeal, after the PTAB issues its institution decision, there is no shifting of a burden of production to the patent owner, unlike the burden-shifting framework that applies in the prosecution context. After institution, the PTAB has an obligation to consider all evidence of record pertinent to obviousness and to determine if the petitioner has satisfied its burden of proof. In this case the PTAB erred in shifting the burden when it faulted the patent owner for failing to explain why the petitioner’s obviousness arguments based on Alpha would also not apply to Lehr.

The petitioner failed to satisfy its burden of proof on obviousness because the petition did not articulate a motivation to combine the teachings of the specific references in the instituted grounds. The petitioner merely attempted to incorporate its obviousness analysis for other, non-instituted grounds (based on Alpha), without presenting particularized arguments explaining why those arguments concerning Alpha would also be applicable to combinations involving Lehr. The petition’s conclusory statements that the “same analysis” applies cannot satisfy the petitioner’s statutory burden of proof.