Federal Circuit Shifts Burdens for Motions to Amend

On October 4, 2017, the Federal Circuit, sitting en banc, issued its long-awaited decision in Aqua Products, Inc. v. Matal. Appeal No. 2015-1177. The court was fractured in its analysis, issuing five opinions. Seven judges, a majority of the en banc court, determined that the Patent Trial and Board (PTAB) improperly places the burden of persuasion on patent owners in inter partes review (IPR) proceedings to prove that proposed substitute claims submitted with a motion to amend are patentable.

However, the majority of judges could not reach consensus on why the PTAB’s practice of requiring patent owners to have the ultimate burden of persuasion in motions to amend is improper. Judge O’Malley emphasized that the court’s decision was “narrow.” The court vacated the PTAB’s final written decision insofar as it denied the patent owner’s motion to amend, and remanded the case to the PTAB to assess the patentability of the proposed substitute claims without placing the burden of persuasion on the patent owner.

Background

In the America Invents Act (AIA) of 2011, Congress created post-grant proceedings such as IPRs to serve as a relatively expedient, cost-effective option for parties seeking to contest the validity of issued patents. The PTAB institutes trial if it determines that the petitioner has met a threshold burden of demonstrating a reasonable likelihood that at least one of the challenged claims of an issued patent is unpatentable. 35 U.S.C. § 314(a). If the PTAB institutes trial, the patent owner has a statutory right to pursue at least one motion to amend. 35 U.S.C. § 316(d).

Congress specified that in an instituted IPR, “the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.” 35 U.S.C. § 316(e). Congress did not separately set forth a different burden of persuasion for motions to amend that are filed under 35 U.S.C. § 316(d). Rather, Congress specified only two requirements for motions to amend: (i) the patent owner may only propose a reasonable number of substitute claims for each challenged claim, 35 U.S.C. § 316(d)(1)(B), and (ii) the patent owner’s proposed substitute claims “may not enlarge the scope of the claims of the patent or introduce new matter.” 35 U.S.C. § 316(d)(3).

Congress granted the Director of the U.S. Patent and Trademark Office (PTO) authority to “prescribe regulations setting forth standards and procedures for allowing the patent owner to move to amend the patent under [§ 316(d)].” 35 U.S.C. § 316(a)(9). The PTO promulgated rules for motions to amend consistent with the statutory requirements of §§ 316(a)(9) and 316(d). In particular, the PTO’s regulations provide that a motion to amend may be denied where (i) the proposed amendment is not responsive to an instituted ground of unpatentability, (ii) the amendment seeks to enlarge the scope of the claims or introduce new matter, or (iii) the patent owner does not set forth the support in the original disclosure of the patent or earlier priority application for each amended feature. 37 C.F.R. § 42.121.

However, the PTO’s regulations do not set forth which party should have the burden of persuasion for motions to amend. Rather, the PTAB created policy by interpreting the PTO’s rules to require patent owners to have the burden of persuasion for motions to amend. In Idle Free Sys., Inc. v. Bergstrom, Inc., Paper 26 at 7 (PTAB June 11, 2013), the PTAB explained that “[f]or a patent owner’s motion to amend, 37 C.F.R. § 42.20(c) places the burden on the patent owner to show a patentable distinction of each proposed substitute claim over the prior art.” The PTAB explained that 37 C.F.R. § 42.20(c) governs the burden of persuasion for motions to amend, because a patent owner is the moving party in a motion to amend. Id. 37 C.F.R. § 42.20(a) provides that “[r]elief, other than the petition requesting the institution of a trial, must be requested in the form of a motion.” 37 C.F.R. § 42.20(c) provides that “[t]he moving party has the burden of proof to establish that it is entitled to the requested relief.” In Masterimage 3D, Inc. v. RealD Inc., IPR2015-00040, Paper 42 (PTAB July 15, 2015) (precedential), the PTAB further defined the requirements of patent owners as set forth in Idle Free to demonstrate patentability over the prior art of record and prior art known to the patent owner.

In Aqua Products, the en banc Federal Circuit set out to answer whether the PTAB can require a patent owner to bear the burden of persuasion, or a burden of production, with respect to the patentability of proposed substitute claims.

Majority View of the Federal Circuit

Ultimately, seven of the eleven participating judges agreed that the PTAB cannot place the burden of persuasion with respect to the patentability of proposed substitute claims on the patent owner in IPR proceedings, at least for now. The basis upon which this agreement is premised was summarized by a frustrated Judge O’Malley as follows:

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.

The court’s majority opinion is limited to the above determination.

Whether § 316(e) is Ambiguous for Motions to Amend

The judges disagreed on whether the 35 U.S.C. § 316(e) is ambiguous as to which party bears the burden of persuasion for motions to amend. Five of the judges (O’Malley, Newman, Lourie, Moore and Wallach) determined that § 316(e) unambiguously places the burden of persuasion on petitioners for a motion to amend, and therefore the PTO is not entitled deference under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).

On the other hand, six of the judges (Reyna, Dyk, Prost, Taranto, Chen and Hughes) determined that § 316(e) is ambiguous as to whether the burden of persuasion for motions to amend should be placed on the petitioner in an IPR proceeding, and that § 316(a)(9) authorizes the PTO to promulgate a regulation on the burden of persuasion. Thus, a majority of the eleven judges (6-5) determined that § 316(e) is ambiguous as to which party should carry the burden of persuasion for motions to amend. This six-judge majority also determined that 35 U.S.C. § 316(d) and 37 C.F.R. § 42.121 place a default burden of production on the patentee with respect to motions to amend.

Thus, the Aqua Products decision leaves the door open for the PTO to prescribe a regulation, via notice and comment rule-making, which shifts the burden of persuasion for motions to amend back to the patent owner, in line with what has been the practice of the PTAB that spurred the petition for rehearing in Aqua Products in the first instance.

Accordingly, it would come as no surprise if the PTO were to promulgate a rule which expressly places the burden of persuasion with respect to amended claims on the patent owner in the coming months.  If that happened, the opinions in Aqua Products imply that such a rule, if properly established, would likely be entitled to Chevron deference.

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