CAFC: PTAB Improperly Shifted Burden of Proof on Obviousness to Patent Owner in IPR

Federal CircuitIn re Magnum Oil Tools Int’l  (Fed. Cir. July 25, 2016) (Before O’Malley, Newman, and Chen, J.) (Opinion for the court, O’Malley, J.)

In a July 26, 2016 decision, the Federal Circuit reversed a Patent Trial and Appeal Board (“Board”) final written decision, on the grounds that the Board improperly shifted the burden of proof on the issue of obviousness to the Patent Owner.  Petitioner McClinton Energy Group originally filed an inter partes review (“IPR”) petition challenging the validity of claims in a patent owned by Magnum Oil Tools and directed to hydraulic fracturing, or “fracking.”  The IPR was instituted, and the Board found all of the challenged claims unpatentable as obvious in view of several prior art references.  Following trial, McClinton and Magnum entered into a settlement agreement, which provided that McClinton would not participate in an appeal of the Board’s decision.  When Magnum appealed, the Patent Office intervened to defend the Board decision.

The Federal Circuit reversed the Board’s obviousness ruling, finding that the Board had improperly shifted burdens onto Magnum, the Patent Owner, in several instances.  For example, Petitioner McClinton asserted that a motivation to combine argument made with respect to a first set of prior art references was also applicable to a second set of prior art references, but did not explain why the rationale applied to both sets of references.  The Federal Circuit found that the Board improperly “expected [the Patent Owner] to explain, and faulted [the Patent Owner] for allegedly failing to explain” why the motivation to combine argument made by Petitioner based on the first set of prior art references would not be applicable to the second set of prior art references.  The Board’s obviousness finding thus constituted an improper shifting of the burden to Magnum, the patentee, to prove that the claimed invention would not have been obvious.

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The Court clarified that there exists both a burden of persuasion and a burden of production, the latter of which may entail producing additional evidence and presenting persuasive argument based on new evidence or evidence already of record.  In an IPR, the petitioner bears the ultimate burden of persuasion on the issue of unpatentability by a preponderance of the evidence under 35 U.S.C. § 316(e). This burden never shifts to the Patent Owner.  The Patent Office contended on appeal, however, that “the burden of production—or the burden of going forward with evidence, shifts between the petitioner and the patent owner” as soon as the Board institutes an IPR on the basis that “there is a reasonable likelihood that the petitioner would prevail.”  The Court disagreed, finding that burden-shifting is inapposite in the context of an IPR because the appropriate patentee position in response to an IPR is to assert that the Petitioner failed to meet its burden of proof.

Finding no basis for the Board’s decision apart from conclusory statements from McClinton, which could not satisfy the petitioner’s burden of demonstrating obviousness, the Federal Circuit reversed.

The Court’s ruling (i) clarifies that Patent Owners bear no burden for proving that challenged claims are not obvious in response to an instituted IPR Petition, and (ii) counsels that Petitioners must adequately develop arguments during trial to support burdens that the Petitioner alone bears.

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Robert Schaffer

Robert Schaffer is an intellectual property partner at Troutman Sanders. Bob applies more than 30 years of experience to IP counseling and litigation. His work includes patent procurement, strategic planning and transactional advice, due diligence investigations, district court patent cases, and Federal Circuit appeals. He regularly handles complex and high-profile domestic and international patent portfolios, intellectual property agreements and licensing, IP evaluations for collaborations, mergers, and acquisitions. In disputed court cases Bob’s work includes representing and counseling client in ANDA litigations, complex patent infringement cases and appeals, and multidistrict and international cases. In disputed Patent Office matters his work includes representing and counseling clients in interferences, reexaminations, reissues, post-grant proceedings, and in European Oppositions. For more information and to contact Bob please visit his profile page at the Troutman Sanders website.

Robert Schaffer

Joseph Robinson has over 20 years of experience in all aspects of intellectual property law. He focuses his practice in the pharmaceutical, life sciences, biotechnology, and medical device fields. His practice encompasses litigation, including Hatch-Waxman litigation; licensing; counseling; due diligence; and patent and trademark prosecution. He has served as litigation counsel in a variety of patent and trademark disputes in many different jurisdictions, and has also served as appellate counsel before the Court of Appeals for the Federal Circuit. Joe also focuses on complex inter partes matters before the U.S Patent and Trademark Office, inventorship disputes, reexaminations and reissues. His experience includes numerous interferences, a particular advantage in new U.S. Patent and Trademark Office post-grant proceedings. He also counsels on patent–related U.S. Food and Drug Administration issues, including citizen petitions, Orange Book listing, and trademark issues. For more information and to contact Joe please visit his profile page at the Troutman Sanders website.

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Discuss this

There are currently 5 Comments comments.

  1. Curious July 29, 2016 1:12 pm

    This is an interesting case — and reflects some of the shenanigans going at the Board. I’m glad someone commented on it.

  2. Edward Heller July 29, 2016 4:25 pm

    Curious, agreed. The patent owner does not have to prove patentabilty. The patent onwer only has to deny that the petitioner has proved unpatentability. The Board, and you had I both know this, often acts like the petitioner is an examiner, and that their allegations are established fact; moving the burden of proof/persuasion to patent owner. The Federal Circuit reminded the PTAB that IPRs are not like ex parte examinations were a rejection puts the onus on the applicant to move forward with argument and evidence of patentability (unless the examiner did not demonstrate all claim limitation.) The petitioner in IPRs must establish that all patent limitations are in the prior art, establish all Graham factors and/or all KSR factors. Only then might the burden shift to the patent owner to provide counter-evidence.

    The Federal Circuit also admonished the PTAB that it cannot construct arguments for the petitioner on the basis that the petitioner could have made the arguments themselves. If the petition did not make the arguments sufficient to prove unpatentability, the patent owner must prevail.

  3. Eric Berend July 30, 2016 1:43 pm

    Rotten to the core, is this sinister PTAB. Not far away, is most of the USPTO: ready to ride shotgun for whatever illicit power abuse favoring wealthy infringers is fancied by its nefarious cousin.

    When I was wrongfully sued by a billionaire landlord and had to discover valid defenses and counterclaims while cramming up to speed on the applicable portions of civil law, no Court would ever have “…construct[ed] arguments…” for my benefit “…on the basis that…” I “…could have made the arguments [myself]”.

    Where in Hades’ name, did the USPTO and the PTAB pull this practice out of? There exists no statutory, judicial nor common law basis for such presumption; none whatsoever. What is this?! Public-defender-for-billionaire-infringers-club? Outrageous!!

    Multiple veils of secrecy are promulgated by the USPTO in treacherous fashion, as is demonstrated by such abominations as the supposedly non-existent SAWS program, and now further revealed by the trier-of-fact function actually performed quite adequately by the CAFC (who’uv thunk it…golly gee willikers) in this case.

  4. Curious July 31, 2016 8:51 am

    The Federal Circuit reminded the PTAB that IPRs are not like ex parte examinations were a rejection puts the onus on the applicant to move forward with argument and evidence of patentability (unless the examiner did not demonstrate all claim limitation.)
    In ex parte prosecution, the Examiner still doesn’t get a pass on presenting a prima face case of unpatentability. They still need to present evidence. However, time and time again, I’ve seen the Board ignore arguments directed to the Examiner’s lack of evidence.

    The Board presumes that the Examiner is correct — although that is not the approach to take per Ex parte Frye.

  5. staff August 3, 2016 8:17 pm

    ‘The Court’s ruling (i) clarifies that Patent Owners bear no burden for proving that challenged claims are not obvious in response to an instituted IPR Petition, and (ii) counsels that Petitioners must adequately develop arguments during trial to support burdens that the Petitioner alone bears.’

    We applaud the court for another exemplary decision. Ignoring for a moment the question of the legality of administrative review of issued patents, in a patent dispute whether in court or admin review the burden should always be on the requestor or defendant to prove that issued claims are invalid -not for the patent owner to prove that they are patentable. That is why patents are presumed valid in court and why traditionally the decision of an examiner to allow a case is given full faith and credit at the PTO though in present post issue reviews they now ignore those earlier decisions and even ignore the arguments of the requestor and force patent holders into proving their claims are valid. The PTO has thereby breached their duty of impartiality by not placing the burden on requestors which is where by any application of justice it should rightfully be placed, assuming admin review is legal which we argue it is not. These admin reviews and this practice which places the burden on patentees has stood American traditions and jurisprudence on their heads. Until these issues and others we enumerate in our position statement have been Congressionally corrected, inventors and small entities will continue to be illegally and unjustly stripped of our property rights.

    For our position and the changes we advocate to truly reform the patent system, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com/category/our-position/
    or, contact us at aifj@mail.com