Federal Circuit Holds That Patent Owner’s Substitute Claims Presented During IPR Are Subject To A Full Examination
On July 22, 2020, the Court of Appeals for the Federal Circuit (CAFC) affirmed the Patent Trial and Appeal Board’s (PTAB) denial of a rehearing on a motion to amend the claims of a patent challenged in an inter partes review (IPR). Uniloc 2017 LLC v. Hulu, LLC & Netflix, Inc., No. 19-1686, __ F.3d __ (Fed. Cir. Jul. 22, 2020). The CAFC held that the PTAB may consider any ground of unpatentability—not just anticipation or obviousness grounds based on patents or printed publications under Section 311(b)—when considering the patentability of substitute claims during an IPR.
During an instituted IPR, a patent owner may seek to replace any challenged claim with one or more substitute claims under Section 316(d). The substitute claims may not enlarge the scope of the claims or add new matter. Under Section 318, the PTAB’s final written decision must address the patentability of the substitute claims. If the substitute claims are found patentable, they will be incorporated into the patent through a certificate issued after the IPR.
In May 2016, Patent Owner filed a series of actions in the United States District Court for the Eastern District of Texas (EDTX) alleging infringement of U.S. Patent No. 8,566,960 (the ’960 patent). In February 2017, Petitioners—all defendants in the EDTX actions—petitioned for IPR of the ’960 Patent, which the PTAB instituted in August 2017. In March 2017, the Texas court invalidated the ’960 Patent under Section 101, a decision that Patent Owner appealed to the CAFC.
The IPR proceeded and, in January 2018, Patent Owner moved under Section 316(d) to replace three challenged claims with three substitute claims (the “Substitute Claims”). Petitioners opposed the motion, arguing that, inter alia, the Substitute Claims were invalid under Section 101. Patent Owner replied that Petitioners are not permitted to raise a Section 101 argument against the Substitute Claims, but did not argue that the Substitute Claims are patent-eligible.
On August 1, 2018, the PTAB issued a Final Written Decision finding unpatentable the remaining challenged claims and denying Patent Owner’s motion to amend because the Substitute Claims were invalid under Section 101. A week later, the CAFC affirmed the EDTX’s March 2017 judgment invalidating all original claims of the ’960 patent under Section 101, which the Patent Owner did not further appeal.
Patent Owner requested rehearing before the PTAB, arguing that the PTAB legally erred in finding that it could consider a Section 101 challenge to substitute claims proposed in an IPR. The PTAB denied rehearing, finding—in a precedential decision—that Section 101 may be considered. Patent Owner appealed, and the CAFC affirmed, finding that “[t]he PTAB correctly concluded that it is not limited by § 311(b) in its review of proposed substitute claims in an IPR, and that it may consider § 101 ineligibility.”
First, the CAFC found that the IPR Statutes “plainly and repeatedly require the PTAB to determine the ‘patentability’ of proposed substitute claims,” where patentability means overall patentability, including Section 101. The CAFC rejected Patent Owner’s argument that section 311 applies to the Substitute Claims because “Section 311 is confined to the review of existing claims [of a patent], not proposed ones” that are not yet part of the patent.
Second, the CAFC found that statutes applying to one phase of an IPR do not bind statutes applying to another phase. Thus, Section 311 (petition phase) does not bind to Section 316 (trial phase).
Third, the CAFC noted that Congress’ purpose for IPRs was to review “substantial new questions of patentability” that have not been previously considered by the U.S. Patent and Trademark Office (PTO). Since proposed substitute claims in an IPR have not been reviewed by the PTO, the “substantial new questions of patentability” for such claims include all patentability questions, including Section 101.
The CAFC also rejected Patent Owner’s argument that the CAFC’s 2017 en banc decision in Aqua Products forecloses Section 101 review of its Substitute claims. In Aqua Products, the CAFC held that challenges to substitute claims should be limited because they are necessarily narrower than the original claims. The CAFC found that, because Aqua Products did not have a majority opinion, the language relied upon by Patent Owner was merely dicta.
Judge O’Malley dissented. Analogizing to real property, Judge O’Malley argued that since the original claims of the ’960 patent were already invalidated under Section 101 in an earlier CAFC decision, the appeal was moot because Patent Owner had no patent rights that it could give up in exchange for its Substitute Claims. Judge O’Malley also argued the CAFC’s decision would introduce numerous inefficiencies into the IPR process, including by improperly placing an examination process in the hands of the PTAB. Instead, to the extent any defects exist in the substitute claims, they may be challenged in future proceedings, such as future IPRs, ex parte reexaminations, or district court litigation.