Once The Federal Circuit Affirms A PTAB Finding Of Invalidity, Collateral Estoppel Prevents Patent Owner From Asserting The Claims In Any Further Proceeding

By Reza Mollaaghababa
On May 23, 2018, in XY, LLC v. Trans Ova Genetics, L.C., CAFC held that its affirmance of PTAB’s invalidity decision regarding certain claims of a patent owned by XY in a separate appeal involving a different defendant must be given “immediate issue preclusive effect” with respect to the same claims in the present case even though XY and Trans Ova had not raised the collateral estoppel issue.

XY owns patents that relate to methods of sorting mammalian sperms into X- and Y-chromosome-bearing populations based on their DNA content. In 2004, Trans Ova, which provides services related to embryo transfer and in-vitro fertilization for cattle, entered into a five-year licensing agreement with XY for the use of the technology embodied in the XY’s patents. The licensing agreement was subject to automatic renewal in 2009. In 2007, XY sent a letter to Trans Ova to terminate the licensing agreement alleging certain breaches by Trans Ova.  Although the parties negotiated over the next several years, they failed to resolve their dispute.  In 2012, XY sued Trans Ova for patent infringement of a number of its patents, one of which (U.S. Patent No. 7,820,425) relates to a method of freezing separated sperm cells.

The jury found that none of the asserted patent claims was invalid and that Trans Ova willfully infringed those claims. CAFC held that as a threshold matter, it did not need to address Trans Ova’s invalidity arguments as to the ‘425 patent in view of its affirmance in a separate appeal invalidating those same claims, “which collaterally estops XY from asserting the patent in any further proceedings.”  CAFC indicated that “in this separate case appealed to us and argued on the same day as the instant appeal, the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office (Board) held that these claims are unpatentable in a final written decision from an inter partes review proceeding … [and] [i]n a separate order issued today, we affirm the Board’s decision.”

In support of its decision, the CAFC reasoned that a patentee, having been afforded the opportunity to exhaust his remedy of appeal from a holding of invalidity has had his “day in court,” and a defendant should not have to continue defending a suit for infringement of an adjudged invalid patent.

Judge Newman dissented and indicated that this holding of “estoppel is based on a PTAB ruling in a separate case involving non-mutual parties, and contravenes not only the America Invents Act’s estoppel provision, but also the general law of collateral estoppel.” Judge Newman emphasized that “collateral estoppel was not pleaded and was not argued, yet is imposed on appeal without opportunity for response – contrary to precedent requiring that the precluded party ‘had a full and fair opportunity to present its arguments’ concerning estoppel.”

The majority responded that “[a]s to the Dissent’s concern of applying estoppel without briefing, both precedent and the parties’ positions allow application of collateral estoppel sua sponte here.  A remand for briefing is not a requirement to applying estoppel when there is no indication from the Patent Owner that ‘it did not have a full and fair opportunity to litigate the validity’ of its patent in the parallel case.”

Federal Circuit Slams PTAB Amendment Policy

By Tom Engellenner
On October 4, 2017, the Court of Appeals for the Federal Circuit, sitting en banc, overruled an earlier panel decision and found that the Patent Trial and Appeal Board (PTAB) had been impermissibly placing the burden of proving the patentability of amended claims on the Patent Owner, rather than the Petitioner.   See, Aqua Products v. Matel, 2015-1177.

In four separate opinions spanning 148 pages, the eleven judges expressed their views on the PTAB amendment practice. Despite differing rationales, it is clear that a majority of the Federal Circuit judges were exasperated by the way the U.S. Patent and Trademark Office (USPTO) has been considering claim amendments in the new administrative trial procedures provided by the America Invents Act (AIA).

As Judge O’Malley noted in the plurality opinion, the PTAB had granted only 6 amendments in inter partes review (IPR) proceedings as of February, 2017 – a period of almost five years since the inauguration of IPR proceedings during which over 6500 petitions were filed.

A great deal of the Aqua Products opinion was devoted to the so-called Chevron standard of review.  Under Chevron and Aura v. Robbins, 519 U.S. 452 (1997), a court reviewing a federal agency’s construction of a statute must first determine whether the statute is at all ambiguous.  If the statute is not ambiguous, the agency’s interpretation is entitled to no weight.  On the other hand, if the statute is ambiguous, the agency’s interpretation is reviewed under a “clearly erroneous” standard.  To complicate things further, the Chevron standard of review is only applicable if the agency has reached its interpretation via a formal rule-making process, i.e. by notice in the Federal Register and taking public comments into account.

Judge O’Malley, joined by four other judges, concluded that the pertinent sections of the AIA (35 U.S.C. 316(d) and 316(e)) were not ambiguous and Congress clearly intended to give Patent Owners a right to amend their claims in AIA proceedings and that the burden of proving invalidity of the amended claims lay with the Petitioner. Judges Reyna and Dyk concluded that the statute was ambiguous on this point but the USPTO had not engaged in formal rule-making and, hence, no Chevron deference was warranted and the most reasonable interpretation of the statute was that Congress intended that the Petitioner should have the burden of proving amended claims were not patentable.  The remaining four judges would have given the USPTO Chevron deference and upheld the PTAB policy of placing the burden of persuasion on the patentability of amended claims with the Patent Owner.

For some patent owners (e.g., plaintiffs in patent infringement suits), the Aqua Products decision may not be of strategic importance.  Roughly 85 percent of IPR petitions are filed by defendants who have been sued for patent infringement.  Since amending claims in a post-grant review proceeding can extinguish a plaintiff’s right to past infringement damages in an underlying federal court litigation, many patent owners may still be reluctant to amend their claims.

However for other patent owners, Aqua Products may change the calculus of how a patent owner responds to a challenge to its patent.  One thing for sure, the ability to amend a patent should put to the test the USPTO oft-repeated position that the PTAB’s use of the broadest reasonable interpretation almost never affects the outcome of an AIA proceeding.  Patent owners faced with what they consider to be an unreasonably broad interpretation of a claim element will now have an ability to correct the record – and defend their patents on their own terms.

Federal Circuit Criticizes PTAB for Failing to Properly Weigh Objective Evidence of Non-Obviousness

By Tom Engellenner
The Federal Circuit Court of Appeals again vacated a Patent Trial and Appeal Board (PTAB) panel decision for failing to properly evaluate “objective evidence of non-obviousness” and remanded the case for determinations consistent with its opinion. Specifically, the Fed. Cir. panel faulted the PTAB’s analysis Patent Owner’s objective evidence of unexpected results and further found that Board had applied a “legally erroneous” standard by placing the burden on the patent owner to show that one skilled in the art would have expected “failure.”  (See, Honeywell International v. Mexichem Amanco (Fed. Cir.  No. 2016-1996, August 1, 2017).

The case involved an appeal to the PTAB of one of the last inter partes re-examinations to be rendered before the new America Invents Act (AIA) went into effect and provided new proceedings for challenging patents.  Nonetheless, the standards for evaluation of objective evidence of non-obviousness are equally applicable to inter partes review (IPR) and post grant review (PGR) proceedings.  And this case can be seem as yet another volley in the Federal Circuit’s ongoing criticism of how the PTAB has treated objective evidence of non-obviousness in many of its decisions.

The patents at issues involved a novel combination of an environmentally-friendly HFO hydroflurocarbon: 1,1,1,12-tetrafluorpropene (HFO-1234yf) and a polyalkylene glycol (PAG). The Patent Owner, Honeywell International, had argued that HFO compounds were known to be reactive and unstable and, hence, were considered a disfavored class of refrigerants.  Similarly, PAGs were known to hygroscopic and likewise unstable.  Honeywell submitted evidence showing that one of ordinary skill in the art would have expected the combination to result in peroxide formation and degradation of the refrigerant.  Honeywell further showed that the combination did not degrade and was in fact superior to similar refrigerants combined with PAG.

The Federal Circuit panel appeared particularly vexed by the logic of the PTAB reasoning on the obviousness issue:

[T]he Board erred in dismissing Honeywell’s evidence of unpredictability in the art when it stated that one of ordinary skill would no more have expected failure than success in combining the references. The Board made what amounts to a finding that one of ordinary skill would not have had a reasonable expectation of success in combining HFO-1234yf with PAG lubricants, but then seemed to make a burden-shifting argument that Honeywell did not persuasively establish that one of ordinary skill would have expected failure. . . . . The Board rejected Honeywell’s evidence, concluding that, because there would have been no reasonable expectation of success, one of ordinary skill would have arrived at the claimed combination by mere “routine testing.” . . . Thus, the Board seems to have determined that, because stability in the art was entirely unpredictable, one of ordinary skill would have made no predictions at all, but rather would have expected to undertake efforts to find an optimal combination and thus that “routine testing” would have led the skilled artisan to the claimed combination. Id.

In an inter partes reexamination involving obviousness, the standard is not whether the patent owner can persuasively show that one of ordinary skill would have expected failure. Rather, the burden is on the Examiner to show that one of ordinary skill would have had a motivation to combine the references with a reasonable expectation.

The Court of Appeals for the Federal Circuit has now criticized the PTAB several times now for not properly evaluating objective evidence of non-obviousness in inter partes review and/or reexamination proceedings.  For example, In PPC Broadband v. Corning Optical (Fed. Cir. 2015-1364) the Federal Circuit found that the PTAB erred in rejecting the Patent Owner’s commercial success evidence.  The Petitioner had failed to argue that the successful product did not embody the claimed invention and the Board erred in reaching that conclusion on its own.

In ClassCo v. Apple, Fed. Cir. 2015-1853 (September 2016), the Fed. Cir. nixed a stringent “nexus” requirement erected by early PTAB decisions. (These early decisions had suggested that it was not enough that a commercial product embodying the invention be successful, the Patent Owner had to prove that the success was due exclusively to the patented feature.)  In a precedential decision in the ClassCo class, the Federal Circuit made it clear that a nexus exists between the claimed invention and the objective evidence whenever the evidence is reasonably commensurate with the scope of the claims.  “[W]e have consistently held that a patent applicant ‘need not sell every conceivable embodiment of the claims in order to rely upon evidence of [objective indicia of nonobviousness].”