The procedural niceties of the U.S. Patent and Trademark Office's implementation of the post-grant review features of the Leahy-Smith America Invents Act continue to be explicated in the Federal Circuit (and of course, the Supreme Court).  Most recently, the question before the Federal Circuit in Nike, Inc. v. Adidas AG was whether the Patent Trial and Appeal Board (PTAB) complied with the due process provisions of the Administrative Procedures Act, finding that it did not, and remanding for further proceedings that did so comply.

The case arose on remand from an earlier opinion from the Court affirming-in-part and vacating-in-part the Board's decision in an inter partes review initiated by Adidas against Nike' U.S. Patent No. 7,347,011.  In the earlier proceedings, Nike moved that all claims of the '011 patent be cancelled and, on motion to amend, submitted new claims 47-50.  The claims are directed to articles of footwear having textile upper portions knitted to reduce waste in manufacturing.  The Court opinion set forth the new proposed claims in their entirety (wherein the italicized portion of claim 49 was at issue before the Court):

47.  An article of footwear comprising
    an upper incorporating a flat knit textile element, the flat knit textile element
        (1) having flat knit edges free of surrounding textile structure such that the flat knit edges are not surrounded by textile structure from which the textile element must be removed, some of the flat knit edges joined together to form an ankle opening in the upper for receiving a foot, the ankle opening having an edge comprised of one of the flat knit edges; and
        (2) having a first area and a second area with a unitary construction, the first area being formed of a first stitch configuration, and the second area being formed of a second stitch configuration that is different from the first stitch configuration to impart varying properties to the textile element; and
    a sole structure secured to the upper.

48.  The article of footwear recited in claim 47, wherein at least one of the first stitch configuration and the second stitch configuration forms an aperture in the flat knit textile element and the joined edges shape the flat knit textile element to form a lateral region, a medial region, an instep region and a heel region of the upper.

49.  The article of footwear recited in claim 47, wherein at least one of the first stitch configuration and the second stitch configuration forms a plurality of apertures in the flat knit textile element, the apertures formed by omitting stitches in the flat knit textile element and positioned in the upper for receiving laces.

50.  The article of footwear recited in claim 47, wherein the flat knit textile element is one of an exterior layer, an intermediate layer, and an interior layer of the upper, and the joined edges shape the flat knit textile element to form a lateral beforeregion, a medial region, an instep region and a heel region of the upper.

In the earlier proceedings, the PTAB granted Nike's motion to cancel all claims in the '011 patent and denied Nike's motion to amend, on the grounds that Nike had not sustained its burden of showing new claims 47-50 to be patentable.  Adidas asserted three prior art references in making this determination:  U.S. Patent No. 5,345,638 (Nishida); U.S. Patent No. 2,178,941 (Schuessler I); and U.S. Patent No. 2,150,730 (Schuessler II).  The Federal Circuit vacated the Board's decision due to two errors:

First, the Board failed to determine how substitute claims 48 and 49 "should be treated per the standard set forth in" the Board's then-informative decision Idle Free Systems, Inc. v. Bergstrom, No. IPR2012-00027, 2013 WL 5947697 (P.T.A.B. June 11, 2013).  Nike I, 812 F.3d at 1342.  Second, the Board failed to examine Nike's long-felt need evidence.

Initially neither party requested additional briefing, but before the Board could issue another Final Written Decision the Federal Circuit handed down its decision in Aqua Prods., Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017) (en banc).  The effects on the law occasioned by this decision prompted both parties to submit briefing, and thereafter the Board again denied Nike's motion to amend.

Relevant to this appeal, the Board held claim 49 to be unpatentable over disclosure in a reference, a knitting technology handbook by Spencer, that was of record in the proceeding but not asserted not relied upon by either party.  The Board relied on this reference to show what was well known in the art, and the Court's jurisprudence in Genzyme Therapeutic Prods. Ltd. v. Biomarin Pharm. Inc., 825 F.3d 1360, 1369 (Fed. Cir. 2016), that it could consider this evidence.

In addition, the Board found (and the Federal Circuit affirmed) that Nike's claims did not show satisfaction of long-felt need because the art showed that the need had been satisfied prior to the date of invention.

The Federal Circuit affirmed in part, vacated in part, and remanded in an opinion by Judge Stoll joined by Judges Lourie and Chen.  The opinion sets out the issue, and its decision, succinctly:

Nike asserts that the Board erred by relying on Spencer to find substitute claim 49's requirement of forming apertures "by omitting stitches" was a well-known technique.  According to Nike, the Board violated the APA by failing to give notice that it would rely on Spencer to support its obviousness conclusion for substitute claim 49.  We agree.

The opinion acknowledges that in Aqua Products it had left open the question of whether the Board could sua sponte raise patentability challenges to claims in a motion to amend.  While further acknowledging that this case presents only a part of this question, the Federal Circuit held that "the Board may sua sponte identify a patentability issue for a proposed substitute claim based on the prior art of record" but "[i]f the Board sua sponte identifies a patentability issue for a proposed substitute claim[] it must provide notice of the issue and an opportunity for the parties to respond be-fore issuing a final decision under 35 U.S.C. § 318(a)."  The Court recognizes that the Board must not be "constrained" to the arguments raised by petitioner, particularly in view of the ability of a petitioner to not oppose a motion to amend (in that case the Office would have no procedural avenue for examining the patentability of claims proposed in the motion).  "It makes little sense to limit the Board, in its role within the agency responsible for issuing patents, to the petitioner's arguments in this context," according to the opinion.  Thus, the Board's consideration of the patentability of claim 49 was not its error, nor was it error to consider for the Board to consider the patentability of claim 49 in view of the Spencer reference teachings, that reference having been made of record in the IPR.  The error was the Board's failure to provide Nike with notice and an opportunity to be heard, under 5 U.S.C. §§ 554(b)(3) and (c)(1).  This is consistent with the Court's prior admonishments that ""an agency may not change theories in midstream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory," citing SAS Institute, Inc. v. ComplementSoft, LLC, 825 F.3d 1341, 1351 (Fed. Cir. 2016), and Genzyme.  This rubric is also consistent with the Court's decision in In re Magnum Oil Tools Int'l, Ltd., 829 F.3d 1364, 1373 (Fed. Cir. 2016) (that the Board could not hold claims to be unpatentable for obviousness in view of a combination of prior art different from the combination asserted by petitioner) and in In re IPR Licensing, Inc., 942 F.3d 1363, 1369 (Fed. Cir. 2019) (that the Board could not rely on a reference not asserted in the only ground instituted in the petition).  That none of these cases involved a motion to amend did not deter the panel from reaching its decision, the Court affirmatively adopting these "holdings and principles" to apply to Board review of motions to amend.  Again the Court spoke directly to its holding:

We therefore adopt these holdings and principles to apply in the context of a motion to amend.  Accordingly, we hold that it is appropriate for the Board to sua sponte raise unpatentability grounds based on the IPR record and not be limited to the unpatentability grounds asserted by the petitioner in its petition or opposition to the motion to amend, provided that the Board gives the parties notice and an opportunity to respond.

Applying this decision to the facts before it, the Court held that the Board had violated these principles in relying on the Spencer reference in determining claim 49 was obvious, and remanded to the Board for further proceedings.  The panel noted that Petitioner Adidas had not made the invalidity argument asserted by the Board against claim 49, nor had it relied upon the Spencer reference (even though both parties had relied on other disclosure in Spencer.  "By including this new theory for the first time in its decision on remand, the Board denied Nike notice of the issues that the Board would consider and an opportunity to address the factual and legal arguments on which the Board's patentability determination would rest," in contravention of 35 U.S.C. § 554(b)–(c) according to the opinion.  Nike had no notice that the Board would rely on the Spencer reference for certain teachings and this was the source of the Board's error, according to the panel, which distinguished the factual predicates here from those in Genzyme.  '[T]he Board's decision here rests exclusively on an argument that the Board itself raised, addressed, and decided in its decision on remand, thereby depriving Nike of 'notice or an opportunity to be heard at a meaningful point in the proceedings'" in the Court's view.  For these reasons the Federal Circuit vacated the Board's obviousness determination that claim 49 was obvious and remanded to the Board for further proceedings.

Nike, Inc. v. Adidas AG (Fed. Cir. 2020)
Panel: Circuit Judges Lourie, Chen, and Stoll
Opinion by Circuit Judge Stoll