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How Far Is Too Far? Institution Decision to Final Written Decision
May 31, 2017

In making a final written decision of AIA proceedings, the Patent Trial and Appeal Board (“the Board”) is not bound by findings made in an institution decision.  In three recent decisions, the Federal Circuit considered the Board’s changes of its reasoning between an institute decision and a final written decision.  These three cases are SAS Institute, Inc. v. ComplementSoft, 825 F.3d 1341 (Fed. Cir. 2016); In re Magnum Oil Tools International, Ltd., 829 F.3d 1364 (Fed. Cir. 2016); and Intellectual Ventures II LLC v. Ericsson Inc. et al., 2017 U.S. App. LEXIS 8106 (Fed. Cir. May 8, 2017).

With respect to the issue of whether the Board is bound by initial findings from its institution decision, the relevant case law states:

The Board is not bound by any findings made in its Institution Decision.  At this point, the Board is considering the matter preliminarily without the benefit of a full record.  The Board is free to change its view of the merits after further development of the record, and should do so if convinced its initial inclinations were wrong.  TriVascular, Inc. v. Samuels, 812 F.3d 1056, 1068 (Fed. Cir. 2016):

Furthermore, the Board is not constrained by the parties’ proposed constructions and is free to adopt its own construction.  SAS, 825 F.3d at 1351.

SAS Institute Inc. v. ComplementSoft

In SAS Institute Inc. v. ComplementSoft, the Federal Circuit found that the Board construed a claim term one way in its Institution Decision and, unexpectedly, a different way in its Final Written Decision.  825 F.3d at 1351.   More specifically, in the institution decision, the Board construed “data flow diagram” as “a map of the path of data through the executing source code” and also equated this interpretation of “data flow diagram” with the claim limitation of “graphical representation of data flows.” SAS Institute Inc., 825 F.3d at 1350.  

In the final written decision, the Board newly construed “graphical representation of data flows” as “a graphical representation comprised of icons depicting data processing steps and arrows to depict the movement of data through source code,” which is significantly different from the initial construction. Id. at 1350-1351.  Petitioner, SAS Institute filed a request for rehearing, but the Board denied the request because SAS could have made construction arguments for the claim limitation in its IPR petition and therefore, the new construction did not prejudice SAS Institute.  Id. at 1351.   

The Federal Circuit disagreed with the Board’s approach.   The Federal Circuit noted that IPR proceedings are formal administrative adjudications subject to the procedural requirements of the Administrative Procedure Act (“APA”).  Id.  Under the relevant provision of the APA, persons entitled to notice of an agency hearing shall be timely informed of the matters of fact and law asserted.  5 USC §554(b)(3).  The Federal Circuit then stated that the interpretation of § 554(b)(3) means that “an agency may not change theories in midstream without giving respondents reasonable notice of the change” and “the opportunity to present argument under the new theory”(emphasis added).  Id. 

In this case, the Federal Circuit noted that “[w]hat concerns us is not that the Board adopted a construction in its final written decision, as the Board is free to do, but the Board changed theories in midstream.”  Id.  The Federal Circuit found that SAS focused its arguments on the Board’s claim construction in the institution decision and that such approach was reasonable considering that the patent owner, ComplementSoft agreed with this claim interpretation and never suggested that the Board adopt the new construction set in the final written decision.  Id.   The Federal Circuit further found that it was “difficult to imagine either party anticipating the already-interpreted terms were actually moving targets, and it was thus unreasonable to expect that either party would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent” (emphasis added). Id. at 1351-1352.   The Federal Circuit remanded the case to the Board so that the parties would address the Board’s construction of “graphical representations of data flows.” Id. at 1352.  

In In re Magnum Oil Tools International, Ltd.

In In re Magnum Oil Tools International, Ltd., the Federal Circuit found that the Board supplied completely new arguments that the petitioner never raised.  829 F.3d at 1381.

In Magnum Oil, the petitioner, McClinton filed an IPR petition presenting two grounds of obviousness based on the combination of three references, A+B+C and D+B+C.  829 F.3d at 1372.  In presenting the second ground, D+B+C, the petitioner largely “incorporated by reference” its arguments on D from its earlier arguments based on A.  Id.  The Board instituted a trial based on the second ground, D+B+C, but not on the basis of the first ground, A+B+C.  Id. 

In the final written decision, the Board found all claims unpatentable based on D+B+C. Id. at 1373.  The patent owner, Magnum Oil requested a rehearing and argued that the Board had relied on a new ground of unpatentability as there was no evidence supporting the Board’s finding that one skilled in the art would have had a reasonable expectation of success in modifying D with B’s disclosure.  Id.  The Board disagreed and denied the request for rehearing. Id.   

Magnum Oil appealed.  The PTO intervened the appeal and asserted that the Board did not err in making an obviousness argument on behalf of Petitioner based on the primary reference D because this argument “could have been included in a properly-drafted petition.” Id. at 1377.   The Federal Circuit disagreed.  The Federal Circuit held that “the Board must base its decision on arguments that were advanced by a party, and to which the opposing party was given a chance to respond.” Id. at 1380 (citing SAS Institute Inc., 829 F.3d at 1381).  The Federal Circuit concluded that “while the PTO has broad authority to establish procedures for revising earlier-granted patents in IPRs, that authority is not so broad that it allows the PTO to raise, address, and decide unpatentability theories never presented by the petitioner and not supported by record evidence.”  Id.

Intellectual Ventures II LLC v. Ericsson Inc. et al.

Relying on SAS and Magnum Oil, the patent owner asserted denial of procedural due process.   Intellectual Ventures II LLC, 2017 U.S. App. LEXIS 8016.  The Federal Circuit disagreed with the patent owner and differentiated the Board’s approach from SAS and Magnum Oil in light of notice and opportunity to be heard given to the patent owner. Id. at *9.    

In Intellectual Ventures, during an IPR trial, the construction of the claim term, “an indication of an operating bandwidth” was disputed.  Id. at *6.  During the oral argument, the Board asked “whether it would be sufficient for us to say that enough information is conveyed from the transmitter to the receiver so that the receiver can configure itself to receive that which is transmitted.” Id. at *6-7.  The patent owner disputed the Board’s proposed construction and made assertions as to the construction of the disputed claim limitation.  Id. at *7. 

In the final written decision, the Board construed “an indication of an operating bandwidth” to mean that “the first signal portion contains sufficient information so that when it is received, the receiver is able to configure itself to receive the data portion of the signal (or further signal portion or transport channel) at approximately the same frequency range or bandwidth at which it will be transmitted by the transmitter.”  Id.  The Board noted that the key consideration is that “the receiver is able to receive the data that the transmitter transmits.” Id.    Then, the Board concluded that all challenged claims would have been obvious.  Id.    

The patent owner appealed.  The patent owner argued that the Board erred by adopting a surprise construction that denied the patent owner due process because construction of “an indication of an operating bandwidth” was something no party argued for or expected. Id. at *8.  The patent owner further argued that the Board’s construction is “completely untethered from the claim language or any proposed construction.”  Id. at *9.  In making the arguments, the patent owner relied on Magnum Oil and SAS.  

The Federal Circuit found no violation of due process.   In this case, the Federal Circuit found that the patent owner had notice and an opportunity to be heard.  Id. at *10.  The Federal Circuit found that “the parties engaged in ‘a vigorous dispute over the proper construction’ of an indication of an operating bandwidth.” Id. at *10-11.  The Federal Circuit further noted that the Board questioned about the construction of the claim term at issue at the oral argument and the patent owner could have sought a sur-reply and rehearing.  Id. at *11. 

The Federal Circuit differentiated this case from Magnum Oil and SAS.  The Federal Circuit found that unlike Magnum Oil, this is not the situation where the Board supplied new arguments that the petitioner never raised and that unlike SAS, this is not the situation where the Board construed a claim term one way in its institution decision and a different way in its final written decision.  Id. at *11-12.  

In light of the above decisions, practitioners should be aware that the Board is not bound by initial findings in its institution decision and can change its view of the merits as long as the Board provides notice and opportunity to be heard to parties.  The Board may utilize oral hearings to question about parties’ claim construction positions and hear parties’ arguments as to the Board’s ultimate claim construction to be included in a final written decision.   Thus, at the oral argument, practitioners should be prepared to present their own claim construction and express clear voice about the Board’s proposed claim construction.  Moreover, if a notice is given that the Board’s position in its institution decision may be changed during a trial, parties should consider seeking opportunity to respond to the Board’s changed position via oral hearing, briefing such as a sur-reply, for example.    

The above decisions also indicate that the Board’s review must be based on parties’ arguments and the record evidence, even though the Board is not constrained by parties’ arguments.  Practitioners should avoid using “incorporation by reference” of arguments raised in different unpatentability ground(s), especially if such arguments relate to a different combination of different prior art.       

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