IP lawyer: Heavy burden lifted from patent owners’ shoulders – for now

On October 4 2017 the Court of Appeals for the Federal Circuit handed down its en banc opinion in Aqua Products Inc v Joseph Matal, addressing who has the burden of proof when a patent owner proposes amended claims in an inter partes review proceeding before the US Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB). Perhaps the most remarkable aspect of the 148-page opinion is that – as the lead opinion states – “very little said… has any precedential weight”. The 11 judges splintered on basic questions of administrative law, resulting in a majority for the outcome, but no majority for the underlying reasoning. The court held that when a patentee in an inter partes review moves to amend claims, the burden is on the challenger to prove that the proposed amended claims are unpatentable. Beyond that, the Aqua Products decision creates more questions than it answers.

Under the America Invents Act, if the PTAB institutes review of the claims of a patent, the patent owner may file one motion to amend the claims by:

• cancelling the challenged claims; or
• proposing substitute claims that are narrower than those challenged.

However, patent owners rarely succeed in amending their claims. An April 2016 study by the USPTO reported that out of more than 1,500 inter partes review proceedings that were decided on the merits, the PTAB completely denied 112 out of 118 motions filed by patent owners seeking to amend claims. Aqua Products Inc was one of those unsuccessful owners. The PTAB denied Aqua Products’ motion to amend on the grounds that the company had failed to prove that the substitute claims were patentable.

Split opinion

The core issue was whether 35 USC Section 316(e), which states that a petitioner in an inter partes review proceeding “shall have the burden of proving a proposition of unpatentability”, also applies to the claims that a patent owner proposes in a motion to amend. The court split on this question. In a five-judge opinion, Judge O’Malley concluded that the statute is unambiguous and always places the burden of proof on the petitioner to prove the unpatentability of any proposed amended claim. Taking the opposite view, Judge Taranto’s four-judge opinion concluded that the statute is ambiguous on the burden of proof and that a general USPTO regulation governing motions therefore applied and required patent owners to prove the patentability of proposed amended claims.

However, because neither group had the minimum of six judges necessary to have a controlling opinion, the outcome was controlled by the opinions of Judge Reyna and Judge Dyk. These judges split with the others on the key points, concluding that the statute is ambiguous, but also that the USPTO’s general regulation on burdens of proof in motion practice does not govern the burdens in a motion to amend. Without an applicable regulation, the judges held that the burden fell on petitioners by default. However, they suggested that the USPTO could issue new regulations interpreting the statute, which could re-impose on patent owners the burden of proving that amended claims are patentable.

What next?

The outcome is a clear win for patent owners – at least for the time being. Now petitioners must prove that proposed substitute claims are unpatentable. This shift may result in more successful motions to amend claims, particularly in view of the judges’ criticism that the PTAB has been too strict in allowing amendments.

Although relatively few motions to amend have been filed in inter partes review proceedings, more will likely be filed as the probability of success increases. Patent owners may see a new strategic benefit in filing a motion, such as by using an inter partes review proceeding to replace broad, weaker claims with narrower claims targeting a suspected infringer’s products. In addition, patent owners whose motions to amend have been denied may have additional arguments for challenging the PTAB’s decision on appeal.

The Aqua Products decision increases the costs and stakes of inter partes review challenges for petitioners. Now a petitioner should not only identify the best prior art to apply to the existing claims, but should also search for prior art to cover the patent owner’s likely proposed amended claims. A petitioner should also consider that the patent owner may be more likely to succeed in obtaining claims that target its products. In fact, the stakes could be higher, as Judge O’Malley suggested that petitioners may face estoppel arguments from raising some prior art challenges to those substitute claims should they be found patentable.

It remains to be seen how the decision will affect inter partes review practice over the coming year. Since amendments have rarely been granted, many patent owners have decided not to pursue motions to amend and therefore few are pending. However, with the burden reversed, the incentive to file has increased. The USPTO may have an opportunity to redo its rule making and restore the burden on patent owners. Nevertheless, with the Supreme Court expected to issue a decision on the constitutionality of the whole inter partes review regime next spring, the USPTO may be content to maintain the status quo for now.