Federal Circuit Review - July 2020

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Unconstitutionally Appointed Judges Cannot Decide Ex Parte Appeals

In In Re Boloro Global Limited, Appeal No. 19-2349, When administrative patent judges are unconstitutionally appointed, their decisions in ex parte appeals must be vacated.

The PTAB issued decisions in ex parte appeals that affirmed an examiner’s rejection of Boloro Global Limited’s patent applications. Boloro appealed.

On appeal, the PTO Director conceded that administrative patent judges (APJs) were not constitutionally appointed when the PTAB issued its final decisions in the subject ex parte appeals. To determine the proper remedy for this constitutional violation, the Court looked to its decisions in Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019), and VirnetX Inc. v. Cisco Sys., Inc., No. 2019-1671, 2020 WL 2462797 (Fed. Cir. May 13, 2020). In Arthrex and VirnetX, the Federal Circuit held that when APJs are not constitutionally appointed, their decisions in inter partes review and in appeals from inter partes reexamination must be vacated and the matters must be remanded for a new hearing and decision from a different panel of APJs. The Director urged against extending that remedy to ex parte proceedings, arguing that the Director could have ordered that Boloro’s patents be issued but did not, consistent with the PTAB’s subsequent decisions.

The Federal Circuit disagreed with the Director, finding no principled reason to depart from the remedy applied in Arthrex and VirnetX. Thus, the Court vacated the PTAB’s decision and remanded for proceedings consistent with the decision in Arthrex.

PTAB Cannot Shortcut the Two-Step Obviousness Analysis

In Fitbit, Inc. v. Valencell, Inc., Appeal No. 19-1048, Notwithstanding its rejection of the Petitioner’s proposed claim construction, the PTAB may not end an obviousness inquiry without evaluating patentability in view of the asserted obviousness grounds.

Apple Inc. petitioned for IPR of a patent owned by Valencell. The Board instituted review of claims 1, 2, and 6–13 but denied review of claims 3–5. Fitbit subsequently petitioned for IPR for claims 1, 2, and 6–13 and moved for joinder with Apple’s IPR, which the Board granted. After the PTAB trial but before the Final Written Decision, the Board re-instituted the Apple/Fitbit IPR to add claims 3–5 pursuant to the Supreme Court’s holding in SAS Institute, Inc. v. Iancu, 138 S. Ct. 1348 (2018). The Board proceeded to conclude that claims 1, 2, and 6–13 were unpatentable and claims 3–5 were not unpatentable. The Board determined that claim 3 was not unpatentable based on the rejection of Fitbit’s proposed claim construction. The Board also determined that claims 4 and 5 were not unpatentable because the meaning of the claims was “subject to reasonable debate” due to a claim term lacking antecedent basis.

The Federal Circuit held that Fitbit’s rights as a joined party included the right to appeal, that the Board’s claim construction was not in error, and that the Board erred in making patentability determinations for claims 3–5 without considering the asserted grounds of obviousness. Valencell argued on appeal that Fitbit did not have standing to appeal the Board’s decision as to claims 3–5 because Fitbit’s petition omitted them. The Federal Circuit rejected Valencell’s argument, reasoning that such circumstances do not override Fitbit’s statutory right of appeal under 35 U.S.C. § 315 as a joined party. The Federal Circuit next affirmed the claim construction the Board adopted. However, the Federal Circuit found that the Board erred in its determination as to claim 3 by stopping its analysis after completing only the claim construction step. Because the Board failed to review the patentability of claim 3, as construed, on the asserted grounds of obviousness, the Federal Circuit vacated the Board’s decision with respect to claim 3 and remanded for a determination of patentability. Lastly, the Federal Circuit addressed the Board’s decision that claims 4 and 5 were not unpatentable. The Federal Circuit rejected the Board’s determination that there was reasonable debate as to the meaning of the claims due to the lack of antecedent basis, explaining that the correct antecedent basis of the claim term was clarified by referencing the prosecution history. The Federal Circuit highlighted that the Parties did not dispute the correct antecedent basis, but the Board declined to adopt this shared view. The Federal Circuit concluded that the Board’s treatment of this error as the basis of patentability was not a reasonable resolution and failed to comport with the Agency’s assignment under the AIA to resolve the merits of patentability. Accordingly, the Federal Circuit also vacated the Board’s decision that claims 4 and 5 were not unpatentable and remanded for a determination on the merits of patentability of corrected claims 4 and 5 on the asserted grounds of obviousness.

Substitute Claims in IPRs Are Subject to Section 101 Challenges

In Uniloc 2017 LLC v. Hulu, LLC, Appeal No. 19-1686, The Board did not exceed its statutory authority in an inter partes review proceeding by rejecting proposed substitute claims for lack of patent-eligible subject matter under 35 U.S.C. § 101.

Hulu, LLC and others (collectively, “Hulu”) petitioned for inter partes review (IPR) of a patent owned by Uniloc 2017 LLC. The Patent Trial and Appeal Board instituted the IPR and issued a final written decision finding some of Uniloc’s claims unpatentable over the prior art. During the IPR, Uniloc filed a motion to amend, requesting that the Board enter substitute claims if it found the patent’s independent claims unpatentable. Hulu opposed the motion and argued that the substitute claims were patent-ineligible under § 101. Uniloc replied that the § 101 challenge was barred by the IPR statutes, but did not respond to the substance of Hulu’s § 101 arguments. The Board denied Uniloc’s motion, finding the substitute claims unpatentable based solely on § 101. Uniloc appealed.

The Federal Circuit affirmed. The majority held that the IPR statutes permit the Board to review substitute claims more extensively than original claims (which are reviewed under §§ 102 and 103 only). The statutes require that all substitute claims be “patentable”—meaning that such claims must satisfy § 101.

Judge O’Malley dissented, asserting that the term “patentability” in the IPR statutes refers specifically to patentability under §§ 102 and 103, not § 101. The dissent also noted that substitute claims must be narrower than original claims, and if an original claim satisfied § 101, a narrowed claim would too. Thus, substitute claims could not raise any new problem of patentability under § 101 that did not exist in the original claims.

Eleventh Amendment Protects States from Involuntary Joinder in Patent Suits

In Gensetix, Inc. v. Baylor College Of Medicine, Appeal No. 19-1424, A state can invoke sovereign immunity under the Eleventh Amendment to protect against involuntary joinder from patent suits.

Gensetix is an exclusive licensee of a patent owned by the University of Texas (“UT”). Gensetix filed a patent suit against Baylor. UT refused to join the patent suit, so Gensetix joined UT under Rule 19 as a required party. In response, UT filed a motion to dismiss itself from the suit, arguing sovereign immunity from the Eleventh Amendment prohibited UT from being involuntarily joined. The district court agreed with UT and dismissed UT from the suit. The district court later dismissed the entire case, finding UT was an indispensable party and that the case could not proceed in UT’s absence. Gensetix appealed.

On appeal, Gensetix claimed that sovereign immunity does not preclude involuntary joinder of a sovereign under Rule 19. Gensetix argued that the Eleventh Amendment protects sovereigns against suits, but it does not prevent sovereigns from being joined as a plaintiff. Gensetix further argued that UT had an obligation to join the suit because of the license agreement between Gensetix and UT. In response, UT claimed sovereign immunity protections extend to joinder under Rule 19. UT further contended that, although it had entered into a license agreement with Gensetix, this agreement did not waive its sovereign immunity.

The Federal Circuit agreed with UT and held sovereign immunity protections extend to joinder. The Federal Circuit noted that the Eleventh Amendment is not limited to cases brought “against” a state. Rather, the purpose of the Eleventh Amendment is to prevent States from being brought into court against their will. Thus, even though no party brought a claim against UT, sovereign immunity still applied. The Federal Circuity further held UT was not obligated to join the suit because of the license agreement, noting that the license agreement expressly stated that UT was not waiving its sovereign immunity.

While the Federal Circuit affirmed the district court’s decision to dismiss UT, the Federal Circuit reversed the district court’s determination that the case could not proceed in UT’s absence. The Federal Circuit noted, among other things, that there was no risk of multiple suits under the agreement and that Gensetix had no recourse to assert the patent rights in UT’s absence. The Federal Circuit remanded for further proceedings.

Judge Newman dissented in part, arguing that UT did not have immunity under the Eleventh Amendment in this instance. In particular, Judge Newman argued that UT had a contractual obligation under the license agreement to join the suit.

Judge Taranto dissented in part, arguing that the case must be dismissed, as UT was an indispensable party and the case could not continue without UT.

Improvements to Operation of an Apparatus were Not Abstract

In Xy, LLC v. Trans Ova Genetics, LLC , Appeal No. 19-1789, Claims directed to improving a method of operating an apparatus may be patent-eligible subject matter.

In 2016, XY brought suit against Trans Ova alleging infringement of seven patents. At the time the suit was filed, an appeal was still pending on a 2012 lawsuit against Trans Ova in which XY had asserted infringement of different patents directed to a similar technology. Trans Ova moved for judgment on the pleadings that the asserted claims were ineligible under § 101, and moved to dismiss three of the asserted patents, arguing that the 2016 infringement allegations for those patents were barred by claim preclusion based on XY’s 2012 lawsuit. The district court granted judgment on the pleadings, holding that the claims were directed to an abstract idea and lacked an inventive concept. The district court also granted the motion to dismiss, finding the claims to be precluded. XY appealed.

The Federal Circuit found that the district court erred by holding the claims abstract and directed to a “mathematical equation that permits rotating multi-dimensional data.” Instead, the Federal Circuit held that the claims improved the method of operating an apparatus to classify and sort particles in two populations in real time, and included a detailed recitation of the means for doing so. The Federal Circuit further explained that, although the claims employed formulas to improve classification and separation of particles, the formulas operated to achieve the improved result of the claimed method only when combined with the specific improvements to the operation of the apparatus (i.e., use of specific detectors and other method limitations). Having determined that the asserted claims were not directed to an abstract idea, the Federal Circuit did not reach Alice step two. Accordingly, the Federal Circuit reversed the district court’s judgment of patent ineligibility.

The Federal Circuit also held that the district court erred in finding claim preclusion. The district court concluded claim preclusion applied because the patents issued before the filing of the 2012 lawsuit, addressed the same or substantially the same subject matter as the previously filed claims, and were directed to a previously accused product or process. The Federal Circuit rejected the district court’s findings, explaining that to determine whether the scope of the 2012 and 2016 lawsuits were “materially the same,” the district court was required to compare the scope of the patent claims asserted in 2016 with the scope of the patent claims asserted in 2012. The Federal Circuit then declined Trans Ova’s invitation to perform this comparison in the first instance. The Federal Circuit vacated the district court’s dismissal and remanded for further proceedings.

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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