April 13, 2020Client Alert

PTAB’s New Grounds Against Substitute Claims Require Notice and Opportunity to Respond

The United States Court of Appeals for the Federal Circuit (CAFC) recently determined the Patent Trial and Appeal Board (Board) cannot reject a proposed substitute patent claim in an inter partes review (IPR) based on its own novel ground of unpatentability unless it provides the parties with proper notice and an opportunity to respond. Nike, Inc. v Adidas AG, Appeal No. 2019-1262 (Fed. Cir. April 9, 2020).

In 2012, Adidas (Petitioner) filed a Petition for IPR challenging the patentability of claims 1-46 of U.S. Patent No. 7,347,011, assigned to Nike (Patent Owner) and relating to articles of footwear having a textile “upper.”  After the Board instituted IPR, Patent Owner cancelled claims 1-46 and requested the Board add four substitute claims. The Board denied the request in view of three prior art references. On appeal, the CAFC vacated the Board’s decision and remanded the case to the Board because it failed to consider certain pieces of Patent Owner’s evidence.

On remand, the Board found Patent Owner’s substitute claims obvious in light of a knitting handbook (Spencer). While Spencer was in the IPR record, Petitioner did not rely on it in arguing the substitute claims were invalid, and Spencer was not proposed as a ground for unpatentability until the Board’s final decision. Patent Owner argued on appeal that the Board’s decision was improper because Patent Owner did not have notice of the new ground. This case presented the CAFC with the opportunity to address an issue it left undecided in its en banc decision in Aqua Prods., Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017), in which the CAFC held the Board may not “base its patentability determinations with respect to amended claims solely on the face of the motion to amend, without regard to the remainder of the IPR record.” Id. at 1325. Nike, therefore, allowed the CAFC to address whether the Board “may sua sponte raise patentability challenges to a proposed amended claim” based on the entire IPR record.

The CAFC found the Board is permitted to raise novel patentability issues based on evidence in the IPR record, provided that it gives proper notice to the parties and allows them to respond. Under the Administrative Procedures Act (APA), “[p]ersons entitled to notice of an agency hearing shall be timely informed of . . . the matters of fact and law asserted,” and the agency “shall give all interested parties opportunity for . . . the submission and consideration of facts [and] arguments.” 5 U.S.C. § 554(b)(3) and (c). Additionally, “an agency may not change theories in mid-stream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory.” SAS Institute, Inc. v. ComplementSoft, LLC, 825 F.3d 1341, 1351 (Fed. Cir. 2016), rev’d on other grounds, 138 S. Ct. 1348 (2018). As a result, the CAFC saw “no reason why [its] holdings and principles regarding fair notice and an opportunity to respond would not apply” in the context of a motion to amend. Nike at 12.

In the Nike case, “although the parties’ experts and Nike’s counsel cited certain disclosures in Spencer for other reasons, those disclosures were entirely different from the disclosures on which the Board relied” in its final decision. Nike at 13. “By including this new theory for the first time in its decision on remand, the [B]oard denied [Patent Owner] notice of the issues that the [B]oard would consider and an opportunity to address the factual and legal arguments on which the [B]oard’s patentability determination would rest.” Id.

Under Nike, the Board can sua sponte raise new patentability issues for a substitute claim based on evidence in the IPR record as long as it provides the parties with proper notice and an opportunity to respond. At bottom, the Nike decision is a straightforward application of the APA, which guarantees notice and the right to be heard regarding potential grounds in the decision.

The CAFC left open the question of whether the Board may go beyond the IPR record in determining the patentability of proposed substitute claims.

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