Ethicon loses appeal at CAFC

As a first matter, J&J/Ethicon lost the appeal at the CAFC:


We first hold that 35 U.S.C. § 314(d) does not preclude
us from hearing Ethicon’s challenge to the authority of
the Board to render a final decision. On the merits we
hold that neither the statute nor the Constitution precludes
the same panel of the Board that made the decision
to institute inter partes review from making the final
determination. We also find no error in the Board’s
determination that the ’070 patent claims would have
been obvious over the prior art. Accordingly, we affirm.


link to decision: http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/14-1771.Opinion.1-8-2016.1.PDF

The CAFC reviewed the AIA;



Ethicon challenges the final decision of the Board, arguing
that the final decision should be set aside because it
was made by the same panel that made the decision to
institute inter partes review.

The America Invents Act1 (“AIA”) gives the Director
the authority to determine whether an inter partes review
should be initiated, and the Director has delegated this
authority to the Board.2 The statute specifically gives the
Board the power to decide the ultimate question of patent
validity. See 35 U.S.C. § 318 (requiring that “the Patent
Trial and Appeal Board shall issue a final written decision
with respect to the patentability of any patent claim
challenged by the petitioner”). The PTO has determined
that, in the interest of efficiency, the decision to institute
and the final decision should be made by the same Board
panel, in line with the purposes of the AIA, which requires
the Director consider the “efficient administration
of the [PTO], and the ability of the [PTO] to timely complete
proceedings” in promulgating regulations. 35 U.S.C.
§ 316(b). Ethicon contends that this combination of
functions is improper because the statutory text and
structure, guided by constitutional principles, require that
the decision to institute not be made by the same panel of
the Board that makes the ultimate decision and, in fact,
that the statute does not authorize the Director to delegate
the institution decision to the Board at all.



The panel majority affirmed the obviousness conclusion of PTAB,
with the disputed point being "how" secondary considerations
were handled:


Ethicon does not challenge the Board’s finding that all
of the claim elements are found in the prior art, nor does
it challenge the Board’s determination that a person of
ordinary skill would have been motivated to combine
those prior art elements to come up with the invention in
the ’070 patent. Ethicon instead argues that the Board
did not properly take into account the secondary considerations
of non-obviousness.

(...)

Ethicon argues that the Board failed to afford Ethicon
a presumption of nexus between the commercial success
of an allegedly infringing product made by Covidien and
the patented features. It contends that because it showed
that the Covidien devices were infringing, the commercial
success of those devices is a strong secondary indication of
non-obviousness which the Board ignored. However,
regardless of any presumption of nexus, Ethicon’s own
evidence demonstrates that other non-patented features
and features known in the prior art underlay the commercial
success of Covidien’s allegedly infringing product.
“[I]f the commercial success is due to an unclaimed feature
of the device” or “if the feature that creates the
commercial success was known in the prior art, the success
is not pertinent.” Ormco Corp. v. Align Tech., Inc.,
463 F.3d 1299, 1312 (Fed. Cir. 2006).


The text from Ormco might seem to preclude the patentee
of a combination claim (with all elements known in the prior art)
from ever showing secondary considerations to overcome
obviousness.

The cited case Ormco in turn cites to other cases: See J.T. Eaton, 106 F.3d at 1571
("[T]he asserted commercial success of the product must be
due to the merits of the claimed invention beyond what was
readily available in the prior art."); Richdel, Inc. v. Sunspool Corp.,
714 F.2d 1573, 1580 (Fed.Cir.1983) (holding claims obvious despite
purported showing of commercial success when patentee failed to show that
"such commercial success as its marketed system enjoyed was due to anything
disclosed in the patent in suit which was not readily available in the prior art").

Neither of these cited cases establishes: “if the feature that creates the
commercial success was known in the prior art, the success
is not pertinent.”

Richdel does NOT speak of a feature (individual claim element) but rather
anything disclosed in the patent, which would include the entire claimed
combination (all elements taken as a whole).

This opinion of Judge Dyk could have significant implications
in obviousness cases.

The dissent of Judge Pauline Newman began:


I respectfully dissent, for the majority’s holdings are
contrary to the Leahy-Smith America Invents Act, Pub. L.
No. 112-29, 25 Stat. 284 (2011) (codified at Title 35 of the
United States Code). The post-grant proceedings established
by the Act were intended as “quick and cost effective
alternatives to litigation.” H.R. Rep. No. 112–98, pt.
1, at 48 (2011). That legislative plan has been repeatedly
thwarted by the implementing bodies, administrative and
judicial.



As to bifurcation of responsibilities, Judge Newman agreed
with Ethicon:


The panel majority states that “there is nothing in the
Constitution or the statute that precludes the same Board
panel from making the decision to institute and then
rendering the final opinion.” Maj. Op. at 18. That is
incorrect. The statute requires that these proceedings be
separated, the first decision required to be made by the
Director, and the second decision made by the Board.
This court has now endorsed proceedings in which the
Board makes both decisions. This procedure cannot be
reconciled with the statute.

(...)

The threshold determination to institute post-grant
review requires the Director to find that there is morelikely-than-not
an error in the grant of at least one claim
of the patent. When such finding is made by the Director,
the newly created independent tribunal in the PTO conducts
a full trial, with discovery, testimony, experts, and
other trappings of district court litigation. This trial, and
the ensuing Board decision, are independent of and give
no deference to the Director’s decision “to institute” the
proceeding. In turn, the Board’s decision is not subject to
review by the Director or in the district courts, and can be
appealed only to this court. Our decision, in turn, cannot
be challenged in infringement litigation between these
parties.

The bifurcated design of post-grant review is clear not
only from the language of §§ 314(a) and 316(c), but pervades
the structure of these post-grant proceedings.
Congress unambiguously placed these separate determinations
in different decision-makers, applying different
criteria. The majority’s endorsement of the PTO’s statutory
violation departs not only from the statute, but also
from the due process guarantee of a “fair and impartial
decision-maker.”



Of numbers, Judge Newman's footnote 1 states


As of October 31, 2015, the PTO had received
more than 4000 petitions under this statute, see Patent
Trial and Appeal Board Statistics, at 2 (Oct. 31, 2015)
available at http://www.uspto.gov/sites/default/files/
documents/2015-10-31%20PTAB.pdf. Of the 2,450 completed
proceedings, the Office instituted more than 1200
trials. Id. at 9.



Of due process:


Due process guarantees “a fair trial in a fair tribunal.”
In re Murchison, 349 U.S. 133, 136 (1955). Permitting the
same decision-maker to review its own prior decision may
not always provide the constitutionally required impartial
decision maker. “The right to an impartial decision
marker is unquestionably an aspect of procedural due
process. . . . This applies to administrative proceedings as
well as judicial trials.” NEC Corp. v. United States, 151
F.3d 1361, 1371 (Fed. Cir. 1998) (internal citations omitted).
As stated in Matthews v. Eldridge, “identification of
the specific dictates of due process generally requires
consideration of three distinct factors,” 424 U.S. 319, 335
(1976). The three factors are “the private interest that
will be affected by the official action,” the “risk of an
erroneous deprivation,” and the “fiscal and administrative
burdens that the additional or substitute procedural
requirement would entail.” Id. Here, the first two factors
weigh heavily in favor of the divided decision-making of
the America Invents Act, with scant additional burden.



The Supreme Court case of Withrow is cited:



In Withrow v. Larkin, 421 U.S. 35, 58 n.25 (1975), the
Court expressly reserved the question of “[a]llowing a
decisionmaker to review and evaluate his own prior
decision.” We need not decide this question here, for the
possible potential conflict was foreseen by the legislators,
and by statute was forestalled. All that is needed is to
apply the statute as it was written. The statute divides
post-grant authority between the Director, who is responsible
for deciding whether to institute review, and the
Board of administrative patent judges, charged with
conducting the trial and rendering a decision on patent
validity. The statute bars the Board from rendering both
the institution and final decisions. As this court has
recognized, “institution and invalidation are two distinct
actions.” Versata Dev. Grp., Inc. v. SAP Am., Inc., 793
F.3d 1306, 1319 (Fed. Cir. 2015) (“In addition to being
deeply embedded in federal administrative law, the
distinction is bui