On October 4 2017 a divided en banc Federal Circuit issued several opinions addressing the burden of proof concerning a motion to amend claims in inter partes review proceedings. While none of the opinions garnered a full majority in all respects, the leading opinion, authored by Judge O'Malley, held that:
"In the absence of any required deference, the most reasonable reading of [35 USC Section 316] is one that places the burden of persuasion with respect to the patentability of amended claims on the petitioner."
In doing so, the Federal Circuit overruled those of its previous decisions on motions to amend in inter partes review proceedings that conflicted with this ruling. O'Malley was joined by Judges Newman, Lourie, Moore and Wallach, and Judges Dyk and Reyna concurred in the result.
While the leading opinion asserts that "§ 316(e) unambiguously requires the petitioner to prove all propositions of unpatentability, including for amended claims", which would not trigger Chevron deference, that position did not garner a majority. The concurring opinion did not find the America Invents Act unambiguous on this issue, leading to a deeper analysis of whether the US Patent and Trademark Office (USPTO) had promulgated a proper rule that placed the burden of proving patentability on the patentee, which would be entitled to Chevron deference. With this division, O'Malley acknowledged that the ruling was "narrow" and that:
"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."
In addition to the leading opinion, the en banc court generated four additional opinions, which were joined in full or in part by other judges.
Aqua Products, Inc is the owner of US Patent 8,273,183, which discloses and claims an automated swimming pool cleaner. In response to an infringement suit, Zodiac Pool Systems, Inc filed an inter partes review petition with the Patent Trial and Appeal Board, in which it challenged the patentability of certain claims of Patent 8,273,183. Following institution, Aqua Products defended the patentability of the original claim and filed a motion to amend, setting out three substitute claims.
Zodiac opposed the motion to amend on various grounds. The board ultimately found the challenged claims unpatentable and denied the motion to amend. In its analysis, the board determined that the substitute claims satisfied the formal requirements of Section 316(d) regarding claim scope and the formalities for presenting the motion. However, the board ruled that Aqua Products had failed to prove the patentability of the substitute claims over the prior art of record. Therefore, the board found that Aqua Products had satisfied the patent owner's burden of production (by complying with Section 316(d)), but had failed to satisfy the burden of proof.
On appeal, Aqua Products argued that the plain language of 35 USC Section 316(e) places the burden of proving any proposition of unpatentability on the petitioner. The initial panel rejected Aqua Products' argument. Writing for the panel, Reyna held that court precedent precluded revisiting the issue of whether the board may require a patentee to demonstrate patentability of substitute claims over the art of record. The panel also rejected Aqua Products' assertion that the board had erred in failing to consider the entirety of the record when determining the patentability of the proposed substitute claims.
On August 12 2016 the Federal Circuit vacated the panel decision and ordered a rehearing en banc. The Federal Circuit requested that the parties file supplemental briefing directed to the following questions:
- When the patent owner moves to amend its claims under 35 USC Section 316(d), may the USPTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding the patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 USC Section 316(e)?
- When the petitioner does not challenge the patentability of a proposed amended claim, or the board deems the challenge inadequate, may the board sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?
The leading opinion had various bases for believing that Congress intended for the burden to be placed on the petitioner for proving the unpatentability of all claims, whether original or amended. O'Malley noted that both Congress and the Supreme Court had emphasised the importance of a patent owner's right to propose claim amendments during inter partes review proceedings. The leading opinion also noted that the claim construction standard for inter partes reviews is predicated on the availability of claim amendments, but that patent owners have largely been prevented from making amendments. Additionally, the opinion discussed the legislative history for earlier versions of the American Invents Act, which contemplated language that, if adopted, may have placed the burden on the patentee, but ultimately excluded such language in favour of language that focused on the burden of the petitioner.
O'Malley next turned to the relevant USPTO rules. While the USPTO asserted that 37 CFR Sections 42.20 (generally referring to the burden of a "moving party") and 42.121 (setting out the procedures for submitting a motion to amend) placed the burden of persuasion on a patent owner to demonstrate patentability, the court disagreed. O'Malley explained that the USPTO imposed the burden of proof through two inter partes review decisions (Idle Free and MasterImage). Those interpretations of the statute are not set out in the actual regulations, and were therefore not subject to the notice-and-comment rule-making requirements.
With this framework in place, the opinion turned to a Chevron analysis, which considered two questions:
- whether Congress directly spoke to the precise question at issue; and if not
- whether the agency resolved the question using a permissible construction of the relevant statute.
The judges on the leading opinion would have resolved the matter with the first step of Chevron, ruling that "Congress explicitly placed the burden of persuasion to prove propositions of unpatentability on the petitioner for all claims, including amended claims". Specifically, Section 316(d)(1) provides patent owners with the right to file a motion to amend in inter partes review proceedings, and does not impose any burden of proof regarding the patentability of the proposed amended claims. O'Malley also rejected the USPTO's argument that because substitute claims are introduced via a "motion", the burden of persuasion must fall on the patent owner as the moving party. As explained in the leading opinion, the statutory language described only a threshold burden for introducing substitute claims into the proceedings. If the judges on the leading opinion had their way, the patentee would need only to satisfy the statutory criteria set out in Section 316(d) and any reasonable procedural obligations imposed by the USPTO director in order to enter the amendment into the inter partes review proceedings – at which point the burden would fall on the petitioner to prove the unpatentability of the amended claims. The leading opinion also rejected the notion that this scheme would result in the issuance of "untested" amended claims, as amended claims are necessarily narrower in scope than the original claims.
While those that joined the leading opinion would have ended the Chevron analysis at step one – finding the America Invents Act unambiguous on this issue – there was no majority support for finding clarity in the statute. This lack of consensus necessitated step two of the Chevron analysis: determining whether deference should be given to any USPTO interpretation of Sections 316(d) or (e). On this point, a majority agreed that the USPTO had not adopted any rules or regulations governing the burden of proof in the context of motions to amend. The opinion stated that 37 CFR Sections 42.20 and 42.121 do not address patentability determinations, and further, the Idle Free and MasterImage inter partes review decisions are not entitled to Chevron deference. Therefore, the majority concluded that the USPTO had failed to make any proper determination on the ambiguity of either Section 316(d) or Section 316(e). With that finding, no basis existed to accord deference to the USPTO's interpretation of those sections.
With no deference warranted, the court applied a de novo review of Section 316 and determined that "the burden of proving the unpatentability of all claims in an inter partes review – both original and amended – is on the petitioner".
This conclusion seems to allow for the USPTO to issue rules adopting its interpretation of Section 316, which could be accorded deference if challenged in a later case. However, the leading opinion suggested that even if the USPTO were to engage in formal agency rulemaking to establish its interpretation, it may not have the statutory authority to do so, as setting a different "burden of proof" was arguably outside the scope of Congress's direction to the USPTO in Section 316(a)(9) to establish "standards and procedures". This view was not expressed by a majority, but it was not entirely rejected by every judge that did not join the leading opinion.
The leading opinion also touched on the question of whether the board may raise patentability challenges to a proposed amended claim of its own accord. Because the record did not present that precise question, the court declined to address it. However, O'Malley did address the question of whether the board may base patentability determinations concerning the amended claims solely on the face of the motion to amend, without regard to the remainder of the inter partes review record. The opinion held that final substantive decisions (such as the patentability of proposed amended claims) must be based on the entirety of the record. An agency's refusal to consider evidence bearing on an issue before it is "by definition, arbitrary and capricious". Therefore, the board's rejection of Aqua Products' proposed amended claims without consideration of the full inter partes review record provided an independent basis for vacating the board's decision and remanding for further consideration.
Moore issued a separate opinion, in which Newman and O'Malley joined. Moore joined in O'Malley's opinion and concluded that 35 USC Section 316(e) places the burden of proving unpatentability of an amended claim on the petitioner. However, Moore wrote separately to address the question of whether board opinions were entitled to Chevron deference in this case – concluding that Congress unambiguously required the USPTO to establish standards through regulations and not through other means such as inter partes review decisions.
Reyna also issued a separate opinion, in which Dyk joined, and in which Prost, Taranto, Chen and Hughes joined in part. Reyna concurred with Taranto's determination that Section 316(e) was ambiguous, and that Section 316(a)(9) authorised the USPTO to promulgate regulations on the burden of persuasion. He also agreed that the USPTO's discussion of burdens in inter partes review decisions did not qualify as substantive rulemaking, although he did not believe that a full Chevron analysis was necessary in order to reach that conclusion. Finally, Reyna concluded that Section 316(d) and 37 CFR Section 42.121 only placed a default burden of production on the patentee (ie, meeting the burden for entry of the claims into the trial for consideration). However, he acknowledged that Chevron deference may be warranted if the USPTO promulgated its interpretation through regulations under the Administrative Procedures Act.
Taranto issued a dissent, in which Prost, Chen and Hughes joined, and in which Dyk and Reyna joined in part. Taranto found that the statutory language of Section 316(d) did not dictate who bears the burden of proof on motions to amend, and that the statute was therefore sufficiently ambiguous to clear the first step of Chevron. He further determined that Section 316(a) allowed the USPTO director to address who bears that burden, and that Section 316(e) did not unambiguously rule out assigning that burden to the patentee. He supported this interpretation by examining:
- the context in which Section 316(e) is applied (ie, the existence of a petitioner challenge to the patentability of existing claims);
- the related statutory provisions requiring the board to adjudicate the patentability of amended claims; and
- what he viewed as incorrect or improper assumptions applied in the leading opinion.
Taranto further stated that, in his view, 37 CFR Section 42.20(c) properly assigned the burden of persuasion to the patent owner when filing a motion to amend, and Chevron deference should therefore apply to the USPTO's interpretation. Therefore, Taranto would affirm the board's decision to deny the motion to amend.
Hughes also issued a dissent, in which Chen joined. Hughes joined in Taranto's opinion that Section 316(d) did not dictate who bears the burden of proof on motions to amend, and that Chevron deference should apply to the USPTO's interpretation of the statutory language in view of its adoption of 37 CFR Section 42.20(c). Hughes criticised the opinions of O'Malley and Reyna as suggesting that "specific magic words" were required before Chevron deference could be applied. Instead, Hughes believed that Chevron's step two should be limited to testing the reasonableness of the agency's conclusions, rather than the mode of its reasoning. Hughes further stated that the board's application of Section 42.20(c) should be accorded Auer deference, which gives controlling weight to an agency's interpretation of its own regulation unless it is plainly erroneous or inconsistent with the regulation. Finally, Hughes rejected the notion that by using the word 'regulation' in the statute, Congress intended to foreclose all means of statutory or regulatory interpretation other than formal agency rulemaking. Therefore, like Taranto, Hughes would affirm the board's decision.
In light of these conflicting opinions, the fate of motions to amend remains uncertain. In the short term, this de novo judgment places the burden on the petitioner to prove the unpatentability of amended claims. This is likely to affect a number of cases with motions to amend in play at present. However, the various opinions do not preclude the USPTO from issuing proper regulations that shift the burden to the patentee nor do they guarantee that any new regulations would withstand scrutiny in a later case.
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