Adidas AG v. Nike, Inc. (Fed. Cir. 2020)

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Although the Federal Circuit faced obviousness issues that were simple to resolve in Adidas AG v. Nike, Inc., it saw an opportunity to continue to clarify its jurisprudence regarding standing on appeal from an adverse final written opinion in inter partes review.  Thus, while the merits of the case will have little impact beyond the parties -- apart from a reminder of the burden of proof on appeal for an aggrieved petitioner -- it will go down as another clarifying brick in the wall of the law of standing in circumstances for a petitioner not involved in active litigation.

In 2012, Nike introduced its Flyknit technology -- shoes with one-piece uppers woven out of lightweight fibers that can provide greater flexibility, support, or durability through the specific weaving of the fibers.  Instead of traditional shoe upper design, which had a tongue separate from the rest of the upper, Flyknit shoes required an athlete's foot to slip into the shoe like a sock.  Nike has protected its technology with a portfolio of more than 300 patents.  But five months after Nike's introduction of Flyknit, adidas introduced a similar product called Primeknit.  And adidas's desire to market its Primeknit shoes free of a threat from Nike's patents gave rise to two inter partes review proceedings filed in 2016.

adidas challenged U.S. Patent Nos. 7,814,598 and 8,266,749, asserting that both patents were invalid due to obviousness.  Claims 1 and 4 of the '598 patent are illustrative of the base weaving claims and unitary construction claims:

1.  A method of manufacturing an article of footwear, the method comprising steps of:
    mechanically-manipulating a yarn with a circular knitting machine to form a cylindrical textile structure;
    removing at least one textile element from the textile structure;
    incorporating the textile element into an upper of the article of footwear.

4.  The method recited in claim 1, wherein the step of mechanically manipulating includes forming the textile element to include 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 textures to a surface of the textile element.

adidas asserted two grounds of obviousness based on different combinations of prior art.  Originally, the Patent Trial and Appeal Board instituted review on only the first ground and issued a final written decision against adidas on that ground.  adidas appealed, and the Federal Circuit reversed and remanded based on SAS Institute Inc. v. Iancu, 138 S. Ct. 1348 (2018).  The PTAB then considered both grounds and reached a final written decision adverse to adidas on both grounds.  adidas again appealed.

Before considering the merits of the appeal, the Federal Circuit first was required to determine whether adidas had standing to appeal.  Almost anyone can petition for inter partes review,[1] but only a party that has the concrete interest traditionally required for Federal court litigation can pursue an appeal against an adverse IPR decision.  Standing requires that the appellant from an IPR show that it has (1) suffered an injury in fact, (2) that the injury is fairly traceable to the adverse IPR decision, and (3) that the injury is likely to be redressed by a favorable judicial decision on appeal.  For a patent owner, that showing is straightforward: an adverse final written decision invalidates its patent claims.  For an IPR petitioner, however, the showing can be more of a challenge.  It must show that it runs some risk of loss from the patent remaining in force.  And while that does not require a showing of a specific threat of infringement litigation, the petitioner generally must "show that it has engaged in, is engaging in, or will likely engage in activity that would give rise to a possible infringement suit."

Here, Nike had not accused adidas of infringing the reviewed patents in the seven years between the launch of adidas's Primeknit line and the filing of its appeal.  However, adidas and Nike are direct competitors, not only in athletic footwear but even athletic shoes with knit, unitary uppers.  And when adidas had launched its Primeknit line, Nike had sued adidas in Germany for infringement of one of the patents in the Flyknit portfolio.  Nike had also sued a third party for infringement of one of the challenged patents based on a design similar to an adidas design.  Finally, Nike refused to provide adidas a covenant not to sue.  Thus, the Federal Circuit found the facts made the dispute sufficiently concrete to establish standing for appeal.

On the merits, however, adidas had far less success.  It asserted two combinations of art that involved different references that teach "pre-seaming" shoe uppers with a reference that teaches seaming a textile element after it is cut from the textile structure.  Important, the unitary construction claimed in the challenged patents avoided any seams like those disclosed in the "pre-seaming" art.  For that reason, the PTAB had found that there would be no motivation to combine, especially because it would either alter the principles of the "pre-seaming" art or render it inoperable for its intended purpose.

adidas argued that the PTAB decisions were not supported by substantial evidence because the references would be compatible due to their relation to knitting multiple layers and a person of ordinary skill in the art would be motivated to combine them to avoid waste.  The Federal Circuit did not agree.  adidas had focused on the similarities between the references, but had ignored their fundamental differences.  In doing so, it relied on considerations that the PTAB had considered and rejected and did nothing to overcome the finding of a lack of motivation to combine.  Because the final written decisions were therefore supported by substantial evidence, the Federal Circuit affirmed them.

While this case does not break any new ground on substantive post-grant proceedings, it is a helpful clarification on both standing issues and a useful reminder on how to challenge PTAB decisions.  While the legal requirements for standing to appeal adverse PTAB decisions are settled, the application of that legal doctrine to the facts of IPRs is still developing. This case provides another useful guidepost regarding the facts that need to be established to ensure appealability.

And it also provides a reminder:  when appealing a decision under the "substantial evidence" standard, you not only must identify strong evidence to support your position, but also -- and more importantly -- must show that the PTAB's decision was unsupportable under the record evidence.  It is simply not enough to have the better argument, there must not be substantial evidence to support the counterargument.

A petitioner's standing to appeal from post-grant proceedings has been a particularly tricky issue, both for the Federal Circuit and petitioners.  Being a competitor is an important, but not sufficient, condition to make a dispute sufficiently concrete.[2]  Nor is it enough to have plans eventually to launch a product that might fall within the scope of the patent's claims.[3]  Instead, a petitioner's infringement must be "sufficiently imminent" to make the dispute concrete, an amorphous concept that has led the Federal Circuit to render seemingly conflicting decisions on standing.  But it is even more of a difficult decision for the petitioner:  to make the validity dispute concrete, it must establish that it is at risk should an infringement claim be asserted.  That is, the petitioner must do the patentee's traditional job of establishing the credibility of an infringement claim if it wants to be assured of standing to appeal.  That threat itself -- either sacrifice the power to appeal an adverse final written decision or argue against one's own interest in infringement litigation -- has been enough to prevent some parties from bringing post-grant proceedings in the first place.

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

[1] One notable exception is that the agencies of the Federal government are not permitted to prosecute post-grant review proceedings, including IPRs.  See https://www.patentdocs.org/2019/06/return-mail-inc-v-united-states-postal-service-2019.html

[2] In 2019, the Federal Circuit rejected the assertion of "competitor standing" in AVX Corp. v. Presidio Components, IncSee https://www.patentdocs.org/2019/05/avx-corp-v-presidio-components-inc-fed-cir-2019.html

[3] See https://www.patentdocs.org/2020/05/argentum-pharmaceuticals-llc-v-novartis-pharmaceuticals-corp-fed-cir-2020.html.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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