The Federal Circuit has issued its long-awaited ruling in Aqua Products, Inc. v. Matal, No. 2015-1177, with the majority of the en banc court agreeing that the requirement by the Patent Trial and Appeal Board (PTAB) that patent owners have the burden to prove the patentability of amended claims proffered during inter partes review (IPR) proceedings could not stand. The PTAB’s decision denying the patent owner (Aqua)’s proposed amended claims was therefore vacated and remanded to the PTAB to “assess the patentability of the proposed substitute claims without placing the burden of persuasion on the patent owner.”
Although the slim, seven-judge majority agreed on the result, it did not agree on much else, as the Court’s five separate opinions attest. Importantly, there was no majority agreement with the conclusion of the principal opinion (authored by Judge O’Malley) that the operative statute (Section 316 of the America Invents Act of 2011) requires that the patent challenger prove the unpatentability of any amended claims that the patent owner proffers during an IPR. In the end, as Judge O’Malley summarized,
The only legal conclusions that support and define the judgment of the court are: (1) the PTO has not adopted a rule placing the burden of persuasion with respect to the patentability of amended claims on the patent owner that is entitled to deference; and (2) in the absence of anything that might be entitled deference, the PTO may not place that burden on the patentee.
Perhaps lost in the shuffle of multiple opinions, however, is that the seven-judge majority (O’Malley, Newman, Lourie, Moore, Wallach, Dyk, and Reyna) also agreed that the PTAB adjudicative decisions relied on by the U.S. Patent and Trademark Office (USPTO) in defense of the PTAB’s decision—including one involving an expanded panel of judges that the PTAB designated “precedential” (MasterImage 3D, Inc. v. RealD Inc., No. IPR2015–00040, 2015 WL 10709290 (P.T.A.B. July 15, 2015)—were not the proper mechanism for agency decision-making on the burden of proof for amendments. Rather, only notice-and-comment rulemaking consistent with the Administrative Procedure Act could suffice to promulgate a burden of proof rule on amendments. In other words, the majority effectively agreed with the arguments in some of the briefing that the USPTO could not cede this kind of rulemaking to the PTAB’s administrative law judges.
Takeaways: (1) The Federal Circuit’s ruling can be characterized as a victory for those who believe that certain aspects of IPR proceedings had become unbalanced in favor of the patent challenger, and out of sync with similar patent challenge proceedings in the European Patent Office. As Judge O’Malley’s opinion makes clear, the burden of proof on amended claims going forward may not be placed on the patent owner “unless and until the Director engages in notice-and-comment rulemaking.” However, the victory is likely to be pyrrhic in that IPR amendment practice is a very limited aspect of IPR practice generally and, as others have pointed out, is restricted by the patent owner’s concern that amendments can create intervening rights that could limit the ability to collect damages in litigation; and (2) while the Federal Circuit majority disapproved the use of PTAB adjudications as a substitute for notice-and-comment rulemaking in the circumstances of this case, it is unclear whether the shadow cast by this aspect of the opinion will have any impact on the PTAB’s seemingly ad hoc practice of convening expanded panels on certain issues perceived as important or on the agency’s determination of which of those adjudications should carry precedential weight.