PTAB/USPTO suffer reverse in Magnum Oil Tools

The decision of PTAB was reversed:


The Patent Trial and Appeal Board
(“Board”) instituted review and issued a final written
decision holding all challenged claims of the ’413 patent
obvious under 35 U.S.C. § 103. Subsequently, McClinton
and Magnum settled their dispute over the ’413 patent
and other patents not at issue here. Magnum now appeals
the Board’s judgment regarding the ’413 patent.
The Director of the U.S. Patent and Trademark Office
(“PTO”) intervened in the appeal pursuant to 35 U.S.C.
§ 143. For the following reasons, we reverse.



An important procedural issue was at stake:


On the merits, Magnum argues that the Board erred
in cancelling the claims of the ’413 patent because “neither
McClinton nor the [Board] ever established a prima
facie basis for the rejection.” Appellant Br. at 12. Magnum
further contends that McClinton failed to specifically
argue why a skilled artisan would have been motivated to
combine Lehr with Cockrell and Kristiansen. Instead,
Magnum contends, McClinton attempted to improperly
incorporate by reference its separate arguments concerning
its assertion of obviousness based on Alpha in view of
Cockrell and Kristiansen. Magnum asserts that Lehr
could not be the basis for a finding of obviousness because
Lehr fails to disclose key limitations recited in the ’413
patent, and a skilled artisan would not have sought to
combine Lehr with the other prior art references.
The PTO disagrees with Magnum’s proposed burdenshifting
framework. The PTO takes the view that upon
institution of an IPR, the Board necessarily finds that the
Petitioner has demonstrated a “reasonable likelihood of
success.” The PTO urges that this finding operates to
shift the burden of producing evidence of nonobviousness
to the patentee. Intervenor Br. at 32.

(...)

In making this argument,
the PTO implies that the Board’s conclusion on
obviousness in an IPR can be based on less than a preponderance
of the evidence if the patent holder does not
affirmatively disprove the grounds upon which the IPR
was initiated. Id. at 31-33.



The CAFC noted:


“In an inter partes review, the burden of persuasion is
on the petitioner to prove ‘unpatentability by a preponderance
of the evidence,’ 35 U.S.C. § 316(e), and that
burden never shifts to the patentee.” Dynamic Drinkware,
800 F.3d at 1378. Indeed, “the Supreme Court has
never imposed nor even contemplated a formal burdenshifting
framework in the patent litigation context.” In re
Cyclobenzaprine Hydrochloride Extended-Release Capsule
Patent Litig., 676 F.3d 1063, 1075 (Fed. Cir. 2012) (reversing
district court’s determination of obviousness because
“the court imposed a burden-shifting framework in a
context in which none exists”). We have noted that “a
burden-shifting framework makes sense in the prosecution
context,” where “[t]he prima facie case furnishes a
‘procedural tool of patent examination, allocating the
burdens of going forward as between examiner and applicant.’”
Id. at 1080 n. 7 (citing In re Oetiker, 977 F.2d
1443, 1445 (Fed. Cir. 1992)). As the PTO concedes, however,
that burden-shifting framework does not apply in
the adjudicatory context of an IPR. Intervenor Br. at 30
(citing In re Jung, 637 F.3d 1356, 1362 (Fed. Cir. 2011)
(holding the prima facie case during patent examination
“is merely a procedural device that enables an appropriate
shift of the burden of production” from the PTO to the
patent applicant)).

Next, we resolve the parties’ arguments about the related
but distinct burden of production. The PTO incorrectly
contends that “the burden of production—or the
burden of going forward with evidence, shifts between the
petitioner and the patent owner,” as soon as the Board
institutes an IPR. Intervenor Br. at 31 (discussing Dynamic
Drinkware, 800 F.3d at 1379). In Dynamic Drinkware,
we noted that, in the context of establishing
conception and reduction to practice for the purposes of
establishing a priority date, the burden of production can
shift from the patent challenger to the patentee. 800 F.3d
at 1379. This is because a patent challenger has the
burden of producing evidence to support a conclusion of
unpatentability under § 102 or § 103, but a patentee bears
the burden of establishing that its claimed invention is
entitled to an earlier priority date than an asserted prior
art reference. See id. (discussing Tech. Licensing, 545
F.3d at 1327). In such a case, the shifting of the burden of
production is warranted because the patentee affirmatively
seeks to establish a proposition not relied on by the
patent challenger and not a necessary predicate for the
unpatentability claim asserted—effectively an affirmative
defense. In the context of the present case, however, the
notion of burden-shifting is inapposite because the patentee’s
position is that the patent challenger failed to
meet its burden of proving obviousness.

Applying a
burden-shifting framework here would introduce unnecessary
confusion because the ultimate burden of persuasion
of obviousness must remain on the patent challenger
and “a fact finder must consider all evidence of obviousness
and nonobviousness before reaching a determination.”
In re Cyclobenzaprine, 676 F.3d at 1077; see also
Nike Inc., 812 F.3d 1335 (“Importantly, we have repeatedly
emphasized that an obviousness inquiry requires
examination of all four Graham factors and that an
obviousness determination can be made only after consideration
of each factor.”) (citing, inter alia, Kinetic Concepts,
Inc. v. Smith & Nephew, Inc., 688 F.3d 1342, 1360
(Fed. Cir. 2012))).
Where, as here, the only question presented is whether
due consideration of the four Graham factors renders a
claim or claims obvious, no burden shifts from the patent
challenger to the patentee. This is especially true where
the only issues to be considered are what the prior art
discloses, whether there would have been a motivation to
combine the prior art, and whether that combination
would render the patented claims obvious. We thus
disagree with the PTO’s position that the burden of
production shifts to the patentee upon the Board’s conclusion
in an institution decision that “there is a reasonable
likelihood that the petitioner would prevail.” See Intervenor
Br. at 32 (citing 35 U.S.C. § 314(a)). The PTO’s
proposed burden shifting framework is also directly at
odds with our precedent holding that the decision to
institute and the final written decision are “two very
different analyses,” and each applies a “qualitatively
different standard.” TriVascular, Inc. v. Samuels, 812
F.3d 1056, 1068 (Fed. Cir. 2016).



No need to request a rehearing:


We briefly dispose of the PTO’s argument that Magnum
was required to raise its concerns with the Board in
its request for rehearing prior to filing the instant appeal.
See Intervenor Br. at 36. “A party to an inter partes
review . . . who is dissatisfied with the final written
decision of the Patent Trial and Appeal Board under
section 318(a) . . . may appeal the Board’s decision only to
the United States Court of Appeals for the Federal Circuit.”
35 U.S.C. § 141(c). Nowhere does the statute
granting parties the right to appeal a final written decision
in an IPR require that the party first file a request
for rehearing before the Board, especially a rehearing of
the initial institution decision. Instead, a party who is
dissatisfied with the final written decision of the Board
can elect to directly appeal that decision. Magnum may
advance on appeal its argument concerning motivation to
combine, since it raised this argument before the Board in
the IPR. Thus, we reject the PTO’s contention that Magnum
was required to raise the present challenge to the
Board’s actions in a request for rehearing of the institution
decision before it could challenge a final Board opinion
relying on the same rationale given in the institution
decision.



AND


We agree with Magnum that the Board improperly shifted
the burden to it, as the patentee, to prove nonobviousness.
Because McClinton failed to separately meet its
burden of establishing obviousness in view of Lehr,
Cockrell, and Kristiansen, we reverse.