Nike, Inc. v. Adidas AG & Kathi Vidal, 21-1903 (Fed. Cir. 2022)
This ongoing dispute between the two athletic apparel companies has been ongoing since Adidas filed its IPR petition back in in 2012. IPR2013-00067. The decade is explainable procedurally–this is the third appeal in the case. The appeals have all centered on Nike’s proposed substitute claims. Initially, the Board refused to allow Nike to enter a substitute claim. That decision was partially vacated on appeal by Nike, Inc. v. Adidas AG, 812 F.3d 1326 (Fed. Cir. 2016) (Nike I) and then the doctrine of allowing substitute claims was substantially shifted by the court’s en banc decision in Aqua Prods., Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017). The Board then issued a second written decision concluding that the substitute claims were obvious. On appeal, the Federal Circuit again vacated based upon the PTAB’s failure to provide notice that it would rely upon a particular prior art reference (Spencer). Nike, Inc. v. Adidas AG, 955 F.3d 45 (Fed. Cir. 2020) (Nike II). Back on remand, the Board opened the case to additional briefing on obviousness and then concluded again that the new claims were obvious. The PTAB again relied upon Spencer to teach a particular stitch configuration for flat lace holes.
Ordinary IPR proceedings place the burden of proof on the petitioner who challenged the patents. 35 U.S.C. 316(e) (“petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.”). Things get a little bit tricky with amended and substitute claims. Originally (pre-Aqua), the Board had held that the patentee had the burden of showing the patentability of any new claims. However, in Aqua, the en banc Federal Circuit held that 316(e) applies also to amended claims. Aqua (the AIA “places the burden of persuasion with respect to the patentability of amended claims on the petitioner.”).
Who Has the Burden – Petitioner, Patentee, or the Board?: In adversarial proceedings, we typically argue about which party has the burden of proving some factual contention. At times, however, the burden is placed upon the judicial tribunal instead. In my civil procedure class yesterday we covered Rule 11 sanctions and discussed how the rules empower the judge to act sua sponte, but must issue a written order that “describe the sanctioned conduct and explain the basis for the sanction.” FRCP R. 11.
In this case, it was the Board that raised the use of Spencer to teach the lace-hole in the substitute claim. And, despite the seeming direct statement from Aqua that the petitioner bears the burden, the Board concluded that in that situation the Board could take-on the burden of persuasion itself. The Board noted the unusual circumstances of substitute claims that raise new issues not expected by the petition and that – at times petitioners “fail to raise certain evidence of unpatentability that is readily identifiable and persuasive.” In order to protect the integrity of the system, it is the Board’s responsibility to step-up and provide the evidence. The Board read Aqua as prohibiting any shifting of the burden onto the patentee, but failing to provide any guidance in the situation of patentability questions raised by the Board.
On appeal here, the Court refused to particularly answer this question. Rather, the court noted that the petitioner (Adidas) met the burden of proof in its briefing on remand. Thus, even if the Board’s statement regarding its burden is in error, that error is harmless.
The Board and Adidas’s arguments mirror each other, and therefore, the outcome below would have been the same regardless of whether the burden fell to Adidas or the Board. We thus find it unnecessary to determine here whether, in an inter partes review, the petitioner or Board bears the burden of persuasion for an unpatentability ground raised sua sponte by the Board against proposed substitute claims.
Slip Op. Obviousness affirmed.
= = = =
One reason why it is totally fine for the court to duck the question of burden allocation is that the Patent Office has adopted a revised rule that expressly allocates the burdens of persuasion. The rule codified at 37 C.F.R. § 42.121(d). Under the new rules a petitioner always has the burden: “A petitioner bears the burden of persuasion to show, by a preponderance of the evidence, that any proposed substitute claims are unpatentable.”
Ha! Some claims take us a little longer to kill . . . but kill ’em we will!
(Even if we have to do so over, and over, and over again.)
— PTAB Death Squad
(p.s. And a big “sorry” to all those independent inventors and small innovative companies who can’t afford to millions Nike can to defend their innovations.)
Note to Congress: Just look at what’s happened since you created the PTAB.
This can’t be what you intended, can it?
Easy answer: yes.
Pretending that the AIA was not an object of Congressional Capture is not very helpful.
Query if timing and due process may be more important in IPRs than the burden of persuasion re substituted claims. If a new rejection is needed for proper examination of the substituted claim’s alleged distinctions, then, irrespective of whether raised by the Board or the petitioner, the parties need an adequate new opportunity for responsive evidence and arguments.
Honestly, the idea of the Board raising a new issue sua sponte in an IPR just strikes me as counterproductive—full stop, without further considerations of timing. To my mind, the way it should play out is that Nike proposes the substitute claims, Adidas has a full and fair chance to shoot those claims down, and the PTAB adjudicates between Nike and Adidas. If the PTAB APJs believe that there is a defect in Nike’s claims that Adidas did not properly address, then the right way to deal with that is to pass on the substitute claims in the IPR, let the litigation between Nike and Adidas proceed in court, and pull the newly published substitute claims into an ex parte re-exam (which the PTO may always do at any time).
This is fair to all parties. It preserves the resources of the PTAB to do IPRs. It does not tie up the district court’s docket with a lot of unnecessary PTAB delay. It is fair to Adidas, because they have no one to blame but themselves if they missed a material flaw in Nike’s proposed claims, but also fair to the public because it does not just let the claims sit around until someone else knocks against them. Three back-and-forths between the CAFC and the PTAB, however, is not really consistent with the way that Congress intended IPRs to work. They are supposed to be faster than ordinary district court litigation, not an endless morass of errors and remands.
Greg, an issue with what you are proposing is that if the patent owner in an IPR introduces substitute claims that petitioner does not oppose [typically because it does not now infringe], that the PTO should re-issue patents with new claims that have never been examined at all by anyone per 35 USC 318(b), in spite of 35 USC 318(a) requiring a patentability opinion, and with a statutory presumption of validity! Also, the unusual amount of back and forth between PTAB and CAFC here was re a changing legal issue.
[A]n issue with what you are proposing is that if the… petitioner does not oppose…,… the PTO should re-issue patents with new claims that have never been examined at all…,… and with a statutory presumption of validity!
I confess that I do not see this as much of a problem. By necessity, the substitute claims do not extend beyond that which was examined pre-grant. Meanwhile, as I said, there is no problem with the PTO re-examining these claims—in a proper, ex parte re-examination. I am not proposing that the claims simply be left out there (although even that would not be a socially intolerable state of affairs). I just do not believe that an IPR is the right forum in which to tackle these issues. Sanding off the rough edges of as-yet unexamined claims is better handled in an actual examination setting, rather than an IPR/PGR.
Yet again, Greg has just not been paying attention:
“By necessity, the substitute claims do not extend beyond that which was examined pre-grant.”
So what?
Not “extending beyond” something being deemed not properly granted does ZERO to set the (new) limit of what is properly granted.
Let’s do a simple illustration.
For argument’s sake, let’s say a “truly grantable” patent has bounds of 500 feet.
Let’s say that the original (and now being stated to be improperly granted) claims had bounds of one mile.
Let’s further say (for this example), that the putative infringer is ‘happy’ with bounds of one mile less fifteen paces.
Query: what is the valid examined bounds?
Greg, issuing never-examined claims which may be invalid under 112 or 103 could certainly be a very expensive and time consuming problem for all other defendants sued on that patent. IPRs are supposed to be in rem decisions.
The patent owner obviously has no interest in subjecting its substitute IPR claims to a reexamination. I do not think PTAB APJs would even consider that they have authority to order the patent owner into an involuntary reexamination. The few rare times in which even the PTO Director has exercised his or her statutory authority to initiate a reexamination have been for some patent issuing that was a PR embarrassment for the PTO. So, even if subsequent reexaminations of substitute claims in IPRs is a good idea, it would have to be by statutory mandate, and I doubt if it would get much political support. For one thing, a reexamination and its PTAB appeal would add at least 2-3 more years of PTO prosecution. And then there is the “recapture rule” issue. So, I don’t see that a good fix for the [admitted] problem, but perhaps there are others?
My apologies, Paul, but I am not following. Only a small fraction of patents are ever challenged in IPR/PGR. Of those, only a fraction have substitute claims proposed. Of those, only a fraction have a situation where the IPR/PGR petitioner drops out with the substitute claims pending. In other words, you are envisioning “a very expensive and time consuming problem for… other defendants” arising from a fraction of a fraction of a tiny fraction of claims. As a matter of practical probabilities, this seems unlikely.
Meanwhile, I am totally lost as to why you contend that the Director’s existing power to declare re-exams sua sponte is not equal to dealing with this limited phenomenon problem. I also contest the characterization of these tiny number of claims as “never examined.” The substitute claims cannot extend in scope beyond that which was already examined, which means the utility, novelty, obviousness, subject matter eligibility, and scope of enablement of the whole claim has already been examined—perhaps not well, but it has been examined. The only aspect of the substitute claims that will not have been examined at all is the conformity to the clarity and written description requirements. Once again, it seems that these limited difficulties could be handled, where necessary, by the PTO exercising its existing authority to declare a re-exam.
Yes, its a small problem, but it’s legally interesting. And remember that more than 80% of IPRs are in response to the small percentage of patents that are actually sued on with real money involved.
Fair point.
Greg, you’re right that it’s not common that an IPR challenger drops when amended claims are pending, but it does happen from time to time. The patent may be broadly applicable against a potentially large number of defendants or an entire industry (such as an alleged SEP patent), and the IPR challenger may be a small fry in that market. The patentee in this situation have a strong incentive to offer the IPR challenger a sweetheart deal license in exchange for an agreement to refrain from further participation in the IPR, which inevitably increases the chances of the claims being allowed. (As everyone knows, no matter how good your examiner/PTAB judge is, sua sponte work by the PTO (including director-initiated reexam) just can’t substitute for the analysis, prior art, and theories provided by a motivated adversary who is part of the very industry to which the patent relates.) If the claims get allowed, even in a scenario where the challenger has dropped out, it still makes the allowed claims more difficult (although not impossible) to later challenge when later suits are brought against the bigger players.
The Board is in an awkward place when substitute claims are proposed but the IPR challenger has disappeared. It’s incorrect to say that “[t]he only aspect of the substitute claims that will not have been examined at all is the conformity to the clarity and written description requirements.” The prior art invalidity of the amended claim limitations has absolutely not been examined. As you know, at the stage where substitute claims are proposed, IPR was instituted, so the claims were already found “reasonably likely” invalid, preliminarily, based on the prior art identified by the IPR challenger. When the patentee amends its claims in response, it does so to get around that prior art. That means challenging those narrowed claims will often require a new prior art search and formulating a new invalidity theory that accounts for the as-amended claims. The PTAB is not in a great position to do that on its own, it forces PTAB judges to assume the role of patent examiners and prior art searchers but without the deep knowledge of the prior art that the IPR challenger had. Add to that the procedural challenges of the PTAB raising new prior art on its own, coupled with the strict statutory deadlines for completing IPRs, and it creates a number of unique challenges.
The upshot is that this just doesn’t happen that often, so there hasn’t been a big push to make any sweeping changes to account for it. One clear solution would be to not allow amendments in that narrow situation, where the IPR challenger has dropped out before filing its response to the amended claims, but it’s not clear if that would be consistent with the language of the AIA and would present yet additional problems.
It’s incorrect to say that “[t]he only aspect of the substitute claims that will not have been examined at all is the conformity to the clarity and written description requirements.”
I think that we disagree rather little in substance and are mostly just quibbling over terminology here. Nevertheless, I stand by my statement as 100% correct as originally formulated. “Claims which are broad enough to read on obvious subject matter are unpatentable even though they also read on nonobvious subject matter.” In re Lintner, 458 F.2d 1013, 1015 (C.C.P.A. 1972). Thereore, when the examiner signed off on the originally granted claims, s/he was signifying that s/he had examined all of that subject matter, and found all of it to be patentably useful, novel, and non-obvious. The subject matter captured by the substitute claims lies 100% within the boundaries of the subject matter captured by the originally granted claims, and therefore, all of that subject matter captured by the substitute claims has been searched and examined during prosecution.
Obviously, the fact that IPR has been instituted and the patentee feels it desirable to propose substitute claims suggests that the original search and examination was flawed. My only point, however, is that the that subject matter of the substitute claims was searched and examined for novelty and obviousness, and this point really is unassailably true. It is not unexamined subject matter, but rather poorly examined subject matter.
To be clear, you are quite correct that “[w]hen the patentee amends its claims…[,] challenging those narrowed claims will often require a new prior art search and formulating a new invalidity theory… .” You are also quite correct in your assertion that “[t]he PTAB is not in a great position to do that on its own,… without the deep knowledge of the prior art that the IPR challenger had.”
The point in relevant discussion here really comes down to what it is that we believe that the PTAB is charged to do in this process. I see two models being proposed: (1) the PTAB exists to adjudicate a dispute—comparatively quickly and cheaply—between two parties; and (2) the PTAB exists to serve as post-grant clean-up mechanism that will purify the challenged claims of all defects left over from a flawed prosecution.
I think that model #1 is much the better model. As you note above, the PTAB in an IPR is not really in a good position to play examiner, but model #2 requires them to play examiner. If we expect them to do that job, we are setting them up for failure.
I gather that you and Paul both wish to use that observation as a slantwise argument for preventing claim substitutions to be made, but that really is not fair to the patentee. My point is that it is fair to the patentee to grant the substitution motion when there is no opposition.
I gather that the counterpoint to my assertion there is that it is putatively unfair to the public to grant substitution motions in such a circumstance. My response is that it is not really all that unfair to the public.
Where the PTAB considers that it cannot do justice to the IPR parties within the statutory 18 month timeline, it is supposed to deny institution. Congress has given the PTAB unreviewable discretion to do just that. It is, in other words, not at all “unfair” to the public for the PTAB to take a pass.
By necessity, the substitute claims are no broader than the originally granted claims. As noted above, it is not “unfair” to the public if the PTAB had simply denied institution. Therefore, to grant the narrower claims leaves the public no worse off than it would have been in the next most likely scenario where it is impossible for the PTAB to act without injustice to the parties—viz. denial of institution.
The one place where it might fairly be said that the PTAB really does make things worse for the public relative to the deny-institution path is that the PTAB can send claims out into the world that are insufficiently clear, or that lack sufficient written description. Otherwise, however, along the dimensions of utility, subject matter eligibility, novelty, obviousness, and scope of enablement, the public is no worse off with the substitute claims than they would have been if the PTAB had simply taken a pass. To the extent that the PTO is worried that uncontested, substitute claims are creating difficulties of clarity or written description for the public, the Director could simply institute a policy that all such claims go into ex parte re-exam. There are not all that many of these claims to deal with in any event, so it would not overtax the resources of the re-exam division, and—as Paul observes—these claims are more likely than the mine run to be asserted, so they merit the extra scrutiny.
This achieves a result that is far to the patentee, fair to the public, and that does not overtax the resources of the PTAB, so that they are free to do their real work of faster and cheaper adjudication of disputes between litigants.
There STILL is no (True) examination, Paul.
(not even the tribunal are proper examiners)
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