On June 16, 2015, the Federal Circuit issued an opinion in Microsoft Corporation v. Proxyconn, Inc., in which it reversed the Patent Trial and Appeal Board’s (“PTAB”) final written decision in an Inter Partes Review (“IPR”).1 The Federal Circuit’s opinion addresses two important issues in IPR proceedings, holding that: (1) although the PTAB applies the broadest reasonable interpretation (“BRI”) standard, the PTAB’s claims constructions cannot be “unreasonably broad,” and (2) the PTAB is permitted to promulgate certain requirements for motions to amend in informative opinions, rather than in regulations.

Background

Proxyconn, Inc. (“Proxyconn”) filed suit against Microsoft Corporation (“Microsoft”) and several other defendants, accusing Microsoft of infringing U.S. Patent No. 6,757,717 (“the ’717 Patent”).2 Microsoft filed two separate petitions for inter partesreview, each challenging different claims of the ’717 Patent.3 The PTAB instituted IPR for some of the challenged claims and joined the two proceedings.4 Proxyconn filed a motion to amend two claims.5 The Board issued a final written decision finding all but one of the instituted claims to be unpatentable, and denying Proxyconn’s motion to amend.6 Both Proxyconn and Microsoft appealed, contesting, among other issues (1) the PTAB’s constructions of various terms, and (2) the PTAB’s denial of Proxyconn’s motion to amend.7 The PTO Director intervened in the appeal pursuant to 35 U.S.C. § 143.8

The Board Cannot Apply Unreasonably Broad Constructions To Claim Terms

For the first time, the Federal Circuit reversed the PTAB in an appeal from a final written decision in an IPR, reasoning that the PTAB’s construction of certain claim terms was unreasonably broad.9

At issue was the PTAB’s construction of the phrase a “gateway . . . connected to said packet-switched network in such a way that network packets sent between at least two other computers...”10 Before the PTAB, Proxyconn argued that the term “two other computers” referred only to the sender and receiver computers, while Microsoft contended that those “two other computers” could be any two computers connected on the network to a gateway, including a caching computer.11 The PTAB sided with Microsoft, concluding that the “two other computers” were not limited just to the sender and the receiver and thus that the reviewed claims were unpatentable.12

A brief review of the asserted patent provides context for the Federal Circuit’s determination that the PTAB’s construction was too broad. The ’717 Patent relates to a system for increasing the speed of data access in a packet-switched network.13 To achieve this goal, the ’717 Patent discloses systems for sending a “digest” of a document over a network, rather than the document itself.14 The receiving computer searches its memory for data with the same digest.15 If it finds such data, it uses that data as if it were received from the sending computer.16 If the receiver does not find such data, it sends a negative indication to the sender, prompting the sender to transmit the actual data to the receiver.17 In some embodiments, the network also includes other intermediary computers between the sender and receiver, such as a gateway computer and a caching computer.18 In these embodiments, the gateway intercepts the digest sent from the sender to the receiver and passes it on to the receiver.19 If the receiver indicates that the data is not stored at the receiver, the gateway and caching computers (rather than the sending computer) perform the search for the data.20

The Federal Circuit determined that “the Board erred in concluding that the ‘two other computers’ could include the caching computer.”21 The Court noted that one claim of the patent separately recited the “two other computers” and the caching computer.22 The Court reasoned that, “[n]ot only are the ‘two other computers’ recited independently from, and in addition to, the gateway and caching computers, the word ‘other’ denotes a further level of distinction between those two computers and the specific gateway and caching computers recited separately in the claim.”23The Court also reviewed the specification of the ’717 Patent, concluding that each time the phrase “two other computers” was used, “the phrase . . . describe[d] components that are separate and distinct from the gateway and the caching computer.”24

Accordingly, the Federal Circuit concluded that “[t]he Board’s construction, which expands the ‘two other computers 42 and 46’ to include the separately identified caching computer, is unreasonably broad in light of the language of the claims and specification.”25 Because the PTAB’s unpatentability determination depended on this erroneous claim construction, the Federal Circuit vacated the final written decision, and remanded to the PTAB for further proceedings.26

The PTAB Can Issue Guidance On Motions To Amend in Opinions Rather Than Regulations

Proxyconn also appealed the PTAB’s denial of its motion to amend certain claims of the ’717 Patent.27 Specifically, Proxyconn argued that the PTAB exceeded its authority by evaluating the motion based on guidelines established in a prior PTAB opinion rather than basing its decision exclusively on the statutes and regulations governing motions to amend.28

Proxyconn’s motion to amend offered substitute claims 35 and 36 as replacements for claims 1 and 3.29 In opposition, Microsoft argued that the substitute claims were unpatentable for anticipation by the “DRP” reference.30 “DRP was not one of the references over which the PTO originally instituted review of claims 1 and 3,” but it was part of certain grounds of unpatentability for other claims.31 In reply, Proxyconn argued that under 37 C.F.R. § 42.121(a)(2)(i), the Board is only empowered to deny substitute claims if they are unpatentable over a ground that was instituted against the original claim.32 Thus, “because DRP was not one of the references over which the PTO had instituted review of claims 1 and 3,” Proxyconn contended that it was not required to demonstrate the patentability of the replacement claims over DRP.33 Proxyconn did not argue that substitute claims 35 and 36 were patentable over DRP.34

The Court first reviewed the legal framework governing motions to amend in inter partes review.35 Specifically, pursuant to its statutory authority to issue regulations governing motions to amend, the PTO has promulgated 37 C.F.R. § 42.121, which 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.”36 Additionally, in Idle Free Systems, Inc. v. Bergstrom, Inc., IPR2012-00027, 2013 WL 5947697 (PTAB June 11, 2013), a six-member panel of the Board provided a further recitation of several important requirements for a patent owner’s motion to amend claims.37 In addition to the requirements in Section 42.121, under Idle Freethe Board requires a patentee to prove, inter alia, that the proposed amended claims are patentable over prior art that is known to the patentee.38 The Idle Free decision has been designated as “informative,” which means that the decision is not binding authority; but the Board frequently relies on Idle Free when denying motions to amend.39

Proxyconn contended that the only reasons that the PTAB could reject a motion to amend were those expressly recited in Section 42.121.40 The Court rejected Proxyconn’s argument, and agreed with the PTO that Section 42.121 is not an exhaustive list of grounds upon which the Board can deny a motion to amend.41 The Federal Circuit held that, in Idle Free, the PTAB “reasonably interpreted” the governing regulations “as requiring the patentee to show that its substitute claims are patentable over the prior art of record, at least in the circumstances in this case.”42 The Federal Circuit found this interpretation proper for two reasons.43“First, nothing in the statute or regulations precludes the Board from rejecting a substitute claim on the basis of prior art that is of record, but was not cited against the original claim in the institution decision.”44 “Second, the very nature of IPRs makes the Board’s interpretation appropriate.”45 Specifically, petitioners may not oppose motions to amend that narrow the claims so that petitioners no longer infringe, and these unopposed motions would not be subject to any further examination by the PTO.46 Accordingly, “[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.”47 “Such a result would defeat Congress’s purpose in creating IPR as part of ‘a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs.’”48

The Court recognized the countervailing interests of patentees in having a clear and certain framework governing motions to amend.49 “A fluid, case-based interpretation by the PTO of its own regulations risks leaving interested members of the public in a state of uncertainty, without ascertainable standards and adequate notice to comply.”50 These concerns were overcome, however, by the PTO’s explanation that the PTAB “has not had sufficient experience with motions to amend to warrant rigidifying its tentative judgment into a hard and fast rule,” and that the PTO “must retain power to deal with such motions on a case-by-case basis if the administrative process is to be effective.”51 The Court recognized that “there is merit to these arguments,” and thus held that the PTO did not “abuse[] its discretion in choosing adjudication over rulemaking.”52

Conclusion

The Federal Circuit’s reversal of the Board’s construction is a reminder that claim construction under the BRI standard must be “reasonable.” Going forward, IPR petitioners will benefit from using the intrinsic record to support proposed constructions and addressing conflicts between proposed constructions and the intrinsic record. Otherwise, patentees may successfully win narrower constructions by citing the Court’s decision and analysis.