Federal Circuit Review - April 2020

Knobbe Martens

Knobbe Martens

Secret Third-Party Processes May Not Trigger Pre-AIA § 102 Public Knowledge or Use Bars

In Basf Corporation v. SNF Holding Company, Appeal No. 19-1243, the Federal Circuit ruled that a third party’s sale of products made by a secret process may not create a bar to another inventor patenting the process under pre-AIA § 102, unless the essential features of the claimed process are embodied in a product sold or offered for sale before the critical date.

BASF Corporation (“BASF”) filed a complaint in district court alleging infringement of its patent directed to an improved process for preparing high-molecular-weight polymers. Defendants filed a motion for summary judgment, arguing unpatentability under pre-AIA § 102(a) and § 102(b). Defendants asserted that a third party’s (Sanyo’s) process for manufacturing preparing high-molecular-weight polymers anticipated and rendered obvious claims in the BASF patent, and that Sanyo had entered into an exclusive license allowing another to make, use, and sell its polymers in the Americas. The licensee was obligated to protect the secrecy of Sanyo’s confidential information for ten years and was only allowed to disclose such information to its employees and subcontractors to the extent necessary to build and operate the plant. Based on the Sanyo license agreement, the district court granted SNF’s motion for summary judgment on all issues. BASF appealed.

On appeal, BASF argued the district court misinterpreted the phrase “known or used” in § 102(a) and erroneously disregarded the confidentiality of the licensee’s knowledge and use. The Federal Circuit agreed with BASF, stating the “known or used” prong of § 102(a) means “knowledge or use which is accessible to the public.” As such, prior knowledge or use that is not accessible to the public upon reasonable inquiry confers no benefit on the public, and thus does not suffice as a defense under § 102(a). BASF next argued that the district court misinterpreted the public-use bar of § 102(b) to apply to a third party’s secret commercial use. The Federal Circuit agreed with BASF, stating the public-use bar only applies to uses “not purposely hidden.” The court also stated a third party’s sale of products made by a secret process does not create a bar to another inventor patenting the process. Finally, BASF argued that neither the Sanyo license agreement itself, nor the acquisition of the licensee by another company, is a sale of the invention within the meaning of § 102(b). The court agreed, noting that although in certain circumstances, a process may be sold in a manner which triggers the on-sale bar, in this case, the essential features of the claimed process were not embodied in a product sold or offered for sale before the critical date. The court ultimately determined that the record revealed genuine issues of fact as to whether the Sanyo process was “known or used” or was publicly used in accordance with the court’s guidance and remanded for further proceedings.

Ignoring Antecedent Basis in the Claim Results in Reversal of Patentability Determination

In Technical Consumer Prods., Inc. v. Lighting Science Grp Corp., Appeal No. 19-1361, the Federal Circuit ruled that a term with a narrow antecedent basis in an open-ended claim may allow a wider range of prior art references to anticipate

Technical Consumer Products (“TCP”) petitioned for IPR of the claims of the ’968 patent owned by Lighting Science Group (“LSG”), based on anticipation or obviousness in view of the Chou reference. The Board determined that TCP failed to demonstrate that Chou disclosed a single limitation, referred to as the “H/D limitation,” which required a particular height to diameter ratio of “the heat sink.” The Board determined that the only way Chou could meet the H/D limitation was to remove an essential element of Chou (the second heat sink) and ruled the claims were not unpatentable.

The Federal Circuit vacated and remanded. The court looked to the plain language of the claim and determined that the H/D limitation required “the heat sink” to have a particular ratio of H/D. The court further explained that antecedent basis for “the heat sink” could be found in earlier claims and required “the heat sink” to have a particular structure. The parties agreed that Chou had two structures that functioned as heat sinks, however, only one heat sink in Chou had the particular structures required to be “the heat sink,” as claimed. LSG argued that both heat sinks in Chou needed to be included in the H/D calculation because both components provided the “heat sink” feature in Chou, and separating them would render Chou inoperable. The court rejected this argument because TCP’s theory of anticipation did not require removing the second heat sink. Rather TCP’s theory of anticipation did not include the second heat sink in the H/D calculation because only the first sink had the required structures to be “the heat sink,” as recited by the claim. In addition, because the claim was open-ended, it did not preclude the presence of additional heat sinks. Accordingly, the court agreed with TCP’s claim construction and position regarding Chou and remanded to the Board for further consideration.

The court also noted that the Board reached the opposite conclusion regarding Chou’s disclosure when reviewing a nearly identical limitation in a related patent. The court found it “difficult to reconcile [the Board’s] seemingly inconsistent findings” and agreed with the Board’s analysis in the other case.

PTAB Must Give Notice and Opportunity to Respond When Raising Its Own Theory of Unpatentability

In Nike, Inc. v. Adidas AG, Appeal No. 19-1262, the Federal Circuit ruled that, while the Patent Trial and Appeal Board may sua sponte identify a patentability issue for a proposed substitute claim based on the prior art of record, it must provide notice and an opportunity for the parties to respond before issuing a final decision.

The PTAB granted Adidas’s IPR against a Nike patent. Nike moved to amend, cancelling all claims and substituting four new claims. Adidas opposed on the ground that the proposed substitute claims were obvious. The PTAB agreed and denied Nike’s substitution. In a first appeal, the Federal Circuit remanded for the PTAB to reevaluate obviousness. The Federal Circuit then decided Aqua Products en banc, which held that the patent owner does not have the burden of persuasion on patentability of proposed amended claims during IPR. Then the PTAB issued its decision after remand, finding a proposed substitute claim obvious based on a prior-art reference that was of record but not cited by Adidas. On a second appeal, Nike argued that the Board violated the notice provisions of the Administrative Procedure Act by finding obviousness based on a prior-art reference that was of record but never cited by Adidas as disclosing the limitation at issue.

The Federal Circuit held that, while the Board is permitted to raise its own theory of obviousness, the Board must the parties with notice and an opportunity to respond as required by the APA. The Federal Circuit vacated as to the substitute claim at issue and remanded for the Board to determine whether the claim was obvious after providing the parties with an opportunity to respond.

No Waiver of Patent Eligibility Challenge Under § 101

In Ericsson Inc. v. TCL Communication Technology, Appeal No. 18-2003, the Federal Circuit ruled that the issue of patent eligibility under § 101 may be preserved for appeal even if not raised for decision or mentioned in the district court’s final judgment if there is an "effective grant of summary judgment" in favor of the non-moving party.

Ericsson sued TCL for infringement of patent claims directed to controlling access to resources in a telecommunications system. TCL moved for summary judgment that the claims were patent ineligible under § 101. The district court denied the motion, finding that the claims were not directed to an abstract idea under step one of Alice. The case proceeded to trial and the jury found the claims infringed. TCL did not raise the issue of ineligibility under § 101 in a motion for judgment as a matter of law under Federal Rule of Civil Procedure 50. TCL appealed the district court’s decision denying summary judgment that the patent claims were ineligible under § 101.

Ericsson argued that TCL waived its right to appeal the issue of ineligibility. The Federal Circuit found that TCL had not waived the right to appeal the issue of ineligibility under § 101 for two reasons. First, the district court had effectively granted summary judgment in favor of the non-moving party by deciding the issue because, once the district court found that the patent was not directed to an abstract idea under step one, there was no set of facts that could have been raised at trial to change the conclusion. Second, the Federal Circuit has discretion to hear issues that have been waived, and this was an appropriate case for the exercise of that discretion because the issue was fully briefed and the district court had addressed the issue with finality.

The Federal Circuit found that the claims were patent ineligible under § 101. Under step one of Alice, the Federal Circuit found the claims were directed to the abstract idea of controlling access to, or limiting permission to, resources. The Federal Circuit found the claims required "a system for controlling access to a platform" and were not limited to mobile platform technology as argued by Ericsson. Under step two of Alice, the Federal Circuit found that the claims did not contain an inventive concept. The Federal Circuit rejected Ericsson's arguments that the layered architecture of the software provided the necessary inventive step, noting that this architecture was not recited in the claims.

Judge Newman dissented, arguing that the patent eligibility issue was not preserved, raised for decision or mentioned in the district court’s final judgment and therefore was not appealable. Judge Newman also argued the majority erred in holding the claims are patent ineligible under § 101.

Supreme Court Rejects Appeals of IPR Time-Bar Decisions

In Thryv, Inc., Fka Dex Media, Inc. v. Click-To-Call Technologies, Lp, Et Al., Appeal No. 18-916, the Supreme Court ruled that a decision to institute an IPR, even if it violates the statutory time bar, is not appealable.

Thryv, Inc. requested inter partes review (“IPR”) of a patent owned by Click-To-Call Technologies (“CTC”) in 2013. Under §315(b) of the Leahy-Smith America Invents Act (“AIA”), an IPR may not be instituted if it is requested more than one year after the requesting party is served with a complaint alleging infringement of the challenged patent. Based on this statute, CTC argued that the IPR was time barred. The PTAB disagreed, so it instituted the IPR and cancelled 13 of CTC’s patent claims. CTC appealed, challenging only the Board’s decision that the IPR was not time barred. In 2016, the Federal Circuit dismissed the appeal for lack of jurisdiction, holding that §314(d) of the AIA bars review of an IPR institution decision. Subsequently, in a separate case decided en banc, the Federal Circuit held that time bar determinations are appealable. In light of that decision, the Federal Circuit granted a panel rehearing on CTC’s case and held that the Board had erred in instituting review. Thus, the Federal Circuit vacated the Board’s decision, including the invalidation of CTC’s claims.

The Supreme Court granted certiorari to resolve the appealability issue. The Court started its analysis with §314(d), which states that determinations whether to institute an IPR are final and non-appealable. The Court had previously held that this statute applies to matters “closely tied to the application and interpretation of statutes related to” the institution decision. Cuozzo Speed Techs. LLC v. Lee, 136 S. Ct. 2131 (2016). Since the time bar expressly governs institution of IPRs, the Court held that judicial review of the PTAB’s decision is improper under Cuozzo. Considering Congressional intent and the purpose of the AIA, the Court further stated that allowing time bar appeals would “operate to save bad patent claims.” Thus, the Court vacated the Federal Circuit’s judgment and remanded with instructions to dismiss the appeal for lack of jurisdiction.

Justice Gorsuch dissented, with Justice Sotomayor joining in part. Gorsuch argued that §315(b) is meant to affirmatively limit the PTAB’s authority and disagreed with the Court’s decision because it eliminated checks and balances.

USPTO Guidance Cannot Modify or Supplant the Alice/Mayo Framework

In In Re: Christopher John Rudy, Appeal No. 19-2301, the Federal Circuit ruled that the Patent and Trademark Office’s October 2019 Revised Patent Subject Matter Eligibility Guidance cannot be used to modify or supplant case law regarding patent-eligibility requirements.

Christopher Rudy (“Rudy”) filed a patent application related to fishing hooks. During prosecution, a patent examiner rejected claims related to selecting a fishing hook as ineligible under 35 U.S.C. § 101. Rudy appealed the Examiner’s rejection to the Patent Trial and Appeal Board (“PTAB”). The Board conducted its review of Rudy’s appeal under a dual framework for patent eligibility, examining Rudy’s claims under (1) the Alice/Mayo framework and (2) the PTO’s October 2019 Revised Patent Subject Matter Eligibility Guidance (“Office Guidance”). The Board affirmed the Examiner’s rejection and Rudy appealed, arguing that both the Board’s reliance on the October Revised Guidance and its ultimate conclusion were improper.

Although the Federal Circuity affirmed the Board’s finding of patent ineligibility, it also agreed with Rudy that the Office Guidance does not carry the force of law and is not binding on the courts. On the contrary, the Federal Circuit explained that when determining whether a judicial exception under 35 U.S.C. § 101 applies, the courts are bound to follow the Supreme Court’s two-step framework set forth in the Alice and Mayo decisions, as well as the Federal Circuit’s precedent on the proper application of these tests. Moreover, the Federal Circuit explained, to the extent the Office Guidance contradicts or does not fully agree with case law, Federal Circuit or Supreme Court precedent must control. Nonetheless, the Federal Circuit found that, although the Board’s analysis was framed as a recitation of the Office Guidance, the Board’s reasoning and conclusion were consistent with the relevant case law. In particular, the Federal Circuit agreed with the Board that Rudy’s claim for selecting a fishing hook did not amount to anything more than an abstract idea. Specifically, the Federal Circuit found Rudy’s claim for selecting a fishing hook was equivalent to collecting information (determining water clarity and light transmittance) and analyzing that data (applying a chart from the claims), which collectively amounted to the abstract idea of selecting a fishing hook based on the observed water conditions. Accordingly, the Federal Circuit held Rudy’s claim failed the Alice/Mayo test and affirmed the Board’s ruling.

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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