The PTAB Is Not an Article III Court, Part 2: Aqua Products v. Matal as a Case Study in Administrative Law

• Author: David Boundy - Andrew B. Freistein
• Position: David Boundy of Cambridge Technology Law LLC, in Cambridge, Massachusetts, practices at the intersection of patent and administrative law and consults with other firms on PTAB trials and appeals. In 2018, the Court of Appeals for the Federal Circuit asked Mr. Boundy to lead a panel of eminent academics and the president's chief regulatory...
• Pages: 46-66

Published in Landslide® magazine, Volume 10, Number 5 , a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.

This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

THE PTAB IS NOT AN

ARTICLE III COURT,

PART 2

AQUA PRODUCTS v. MATAL

AS A CASE STUDY IN

ADMINISTRATIVE LAW

BY DAVID BOUNDY AND ANDREW B. FREISTEIN

A

qua Products, Inc. v. Matal1 illustrates a principle raised in two recent

articles in Landslide®2—not every patent case is a patent law case. Aqua’s

briefs presented the case as statutory interpretation of the Patent Act. The

Federal Circuit en banc ruled against Aqua’s position. However, the court

threw Aqua a remarkable lifeline: despite near-complete silence in

Aqua’s briefs on administrative law principles, seven judges in three

opini ons sua sponte decided the case on those grounds. Only because of

that lifeline did the court decide in Aqua’s favor—the U.S. Patent and Trademark Ofce’s (USPTO’s)

attempt to give rulemaking authority to the Patent Trial and Appeal Board (PTAB) and the PTAB’s

attempt to make law by mechanisms outside the Administrative Procedure Act (APA) were invalid.

Aqua Products concerned the authority of the PTAB, in deciding a motion to amend claims

during an inter partes review (IPR), to place on the patent owner the initial burden to explain

patentability of proposed amended claims over prior art. This rule had not been promulgated

through notice and comment, as required by the APA. Instead, the PTAB acted by nonprec-

edential decision, in Idle Free Systems, Inc. v. Bergstrom, Inc.3 At the Federal Circuit, one

majority found that the Idle Free burden-allocation rule was not foreclosed by the patent law,

and thus satised “step one” of the Chevron test for judicial deference. However, a different

majority, in three opinions, found that the PTAB did not comply with its procedural obliga-

tions for rulemaking, and thus the Idle Free rule was invalid.

Aqua Products is an example of a case that is really tough on patent law grounds but a clear

winner on administrative law grounds. This article looks at issues presented in Aqua Prod-

ucts and explains various administrative law principles pertinent to PTAB proceedings, along

with opportunities for parties to present the law to the PTAB and to courts to guide better deci-

sion-making. The article also suggests several reforms that might be adopted by the PTAB to

promote procedural regularity.

The IPR/PGR Regulations, Idle Free, MasterImage, and Allocation of Burden

A century of ex parte patent prosecution establishes that the act of “amending claims” and

“establishing patentability” are distinct steps, with different burdens. An applicant may amend

claims relatively freely (limited by “nal rejection” practice under 37 C.F.R. §1.116). Appli-

cants have the burden of explaining 35 U.S.C. §112(a) support for claim amendments; many

voluntarily provide explanations with their amendments. However, the patent examiner has the

initial burden of production (for both evidence and explanation) to address patentability over

the art, and the ultimate burden of persuasion. This allocation makes intuitive sense—allo-

cating the procedural initial burden to the party who must make the afrmative substantive

showing avoids requiring a party to prove a negative. An amendment that is “entered” only

puts claims in play—the claims do not issue without the examiner’s approval.

Published in Landslide® magazine, Volume 10, Number 5, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.

This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

David Boundy of Cambridge Technology Law LLC, in Cambridge, Massachusetts, practices at the intersection of patent and administrative

law and consults with other rms on PTAB trials and appeals. In 2018, the Court of Appeals for the Federal Circuit asked Mr. Boundy to

lead a panel of eminent academics and the president’s chief regulatory oversight ofcer in a program on administrative law issues at the

court’s Judicial Conference. He may be reached at DBoundy@CambridgeTechLaw.com. Andrew B. Freistein is a partner at Wenderoth, Lind

& Ponack, LLP, in Washington, D.C., in the rm’s pharmaceutical and chemical practice group. His practice includes preparing and prosecuting patent

applications in the chemical and pharmaceutical arts, providing infringement and invalidity opinions, conducting due diligence, and analyzing patent term

adjustments and patent term extensions. He may be reached at AFreistein@wenderoth.com.

Conduct of IPRs is governed by 35 U.S.C. §316. Subsection

(e) provides that “the petitioner shall have the burden of prov-

ing a proposition of unpatentability by a preponderance of the

evidence.” Subsection (d) provides a right for the patent owner

to le a motion to amend claims, with several enumerated con-

ditions analogous to those of applicants in ex parte prosecution,

but does not demand any specic supporting showings and

is silent on burden of proof for the conditions. Subsection (a)

(9) delegates broad rulemaking authority to the USPTO: “The

Director shall prescribe regulations ... setting forth standards

and procedures for allowing the patent owner to move to amend

the patent....” Overall, §316 tracks the ex parte allocation of

burdens for amendments—not locking down all possible ambi-

guity, but enough that any other reading comes as a surprise.

When the USPTO promulgated its IPR and PGR (post-

grant review) implementing regulations in August 2012, the

regulations tracked traditional ex parte prosecution principles.

Entry of an “amended claim” and “determination of patent-

ability” are distinct legal concepts.4 The IPR regulations set

three elements for a motion to amend:

1. The amendment must “respond to a ground of unpat-

entability involved in the trial” (37 C.F.R. §42.121(a)

(2)(i))—the regulation does not require that the

“response” be explained.

2. The amendment may not “seek to enlarge the scope

of the claims ... or introduce new subject matter” (37

C.F.R. §42.121(a)(2)(ii)). Likewise, the regulation

only species content of claims, without calling for an

explanation.

3. The amended claims must have §112(a) support (37

C.F.R. §42.121(b))—this is the only element for which

the regulation calls for compliance by the amended

claims and for the patent owner to explain.5

For any motion, 37 C.F.R. § 42.20 provides that “the mov-

ing party has the burden of proof” but does not specify what

elements have to be proved. Nothing in the notice of proposed

rulemaking (NPRM) (or nal rule notice, for that matter)

suggests that §42.20, as applied to motions to amend, some-

how adds another element or explanation not explicitly set

forth in §42.121 in order for the amendment to be entered.

The NPRM itself does not mention “patentably distinct fea-

tures”—the public had no notice that the issue was even in

play, let alone an opportunity to comment on it.

Among the materials the USPTO published with the

NPRM, the closest antecedent to the Idle Free rule is in the

“Practice Guide for Proposed Trial Rules,” that the patent

owner “should clearly state the patentably distinct fea-

tures for proposed substitute claims.”6 At rule proposal, the

USPTO never suggested a patentability showing over the art

was required; rather, the proposed Trial Practice Guide only

recommends this statement as a means to comply with ele-

ments that are expressly stated in the proposed regulation, to

“aid the Board in determining whether the amendment narrows

the claims and if the amendment is responsive to the grounds

of unpatentability involved in the trial.”

In the nal rule notice, in August 2012, the preamble discus-

sion of §42.121 reiterated that the above list—three elements,

one explanation—is exhaustive,7 and contrasted these elements

for amendment against the burden of proof on nal patentabil-

ity.8 The nal rule notice further stated that “[t]he motion [to

amend claims] will be entered so long as it complies with the

timing and procedural requirements.”9 In the nal Trial Practice

Guide, the USPTO proposed an example motion to amend—

the example tracks the “three elements, one explanation,” with

no mention of patentability over the art.10 The “clearly state

patentably distinct features” statement is carried over from

the proposed Trial Practice Guide into the nal Guide as a

“should” recommendation, not a “must.”

There is one mislaid sentence in the nal rule notice. In a

comment on “policy” in the “umbrella rule” notice, tens of

pages away from the discussion of either the IPR or PGR spe-

cic “motion to amend” rules, the sentence reads:

In the event that a patent owner les a motion to amend the

claims, the patent owner must include a statement of the pre-

cise relief requested and a full statement of the reasons for the

relief requested, including a detailed explanation of the sig-

nicance of the amended claims (e.g., a statement that clearly

points out the patentably distinct features for the proposed

new or amended claims).11

Note that this sentence—which is only in the comments, not the

regulations—does not require a showing, only an identication of

a “feature.” The regulation does not expressly or even implicitly

support any burden on the patent owner.

The PTAB’s rst decision on a motion to amend came nine

months into the IPR regime. Idle Free12 explains that §42.121(a)

(2)(i) and (ii) requires that substitute claims “respond to a ground

of unpatentability involved in the trial” and not “seek to enlarge

the scope of the claims.” Idle Free then notes that §42.121(b)

requires showing §112(a) support for the amendment. Each of

these requirements properly ows from the “three elements, one

explanation” regulatory text itself.

Then, the PTAB announced a new element imposed on the

patent owner:

For each proposed substitute claim, we expect a patent owner:

(1)in all circumstances, to make a showing of patentable dis-

tinction over the prior art; (2)in certain circumstances, to make

a showing of patentable distinction over all other proposed