CAFC Reverses PTAB Obviousness Finding as Unsupported by Substantial Evidence

On November 23, the Court of Appeals for the Federal Circuit (CAFC) reversed the Patent Trial and Appeal Board’s (PTAB) ruling in a pair of inter partes review (IPR), which had invalidated all claims of two related patents, U.S. Patent Nos. 9,014,243 and 8,718,158.

TQ Delta, the patent owner, appealed the PTAB’s holding that all claims of the challenged patents would have been obvious when viewed in light of the prior art references, including U.S. Patent Nos. 6,144,696 (Shively) and 6,625,219 (Stopler), asserted by Cisco System Inc. and the other appellees (collectively, “Cisco”). Admissibility of evidence, claim construction, and due process were among several other challenges raised by TQ Delta on appeal. Because the PTAB’s determination of obviousness was not supported by substantial evidence, the CAFC reversed.

The Patent and PAR

The utility of the challenged patents “relate to certain improvements to electronic communications systems that lower the peak-to-average power ratio (PAR) of the transmitted  signals.” Thus, by “lowering the PAR of a communications system… it reduces power consumption [,] the likelihood of transmission errors” and potential data loss.

The challenged patent particularly addressed “a PAR problem that arises during the transmitting of digital data using multicarrier communication systems, such as digital subscriber line (DSL) systems.” In a multicarrier communications system, bits are transmitted across a series of narrow frequency bands called “carriers,” a method referred to as “Discrete Multitone Modulation” (DMT). Each carrier is independently modulated according to its assigned bits and then combine into a singular multicarrier to transmit data. When bits have the same value, mostly either 0 or 1, at the same or near the same time, they sum up to form a multicarrier waveform with a high amplitude. A high amplitude presents a risk of “clipping,” a phenomenon where the peak of the transmitted single is truncated, leading to a series of transmission failures and potential data loss. In terms of the DMT system, when one reduces the probability of clipping, they primarily “reduce the PAR of the signals transmitted by the system.”

TQ Delta purported to reduced PAR in the DMT system by utilizing a novel technique where a variety of scrambling algorithms shifts the phases of each carrier, carrying the bits, by some independent amount. Shively, the prior art raised by Cisco in the IPRs, does not discuss PAR or clipping, the CAFC raised. Additionally, Stopler, the second prior asserted in the IPRs, never mentioned PAR or clipping either, said the court.

The PTAB’s Analysis

TQ Delta brought suit against a number of telecommunications companies, including Cisco Systems and Cisco, for the infringement of the challenged patents, among others, in a parallel lawsuit in the U.S. District Court for the District of Delaware. Cisco subsequently filed two IPR petitions challenging all the claims of the challenged patents in May 2016. Every ground raised in the petition referenced Stopler and Shively, either individually or combined with other prior art references not at issue on appeal. A decision to invalidate all the challenged claims as obvious in view of Shively, Stopler, and other references which were not at issue on appeal was handed down by the PTAB in October 2017. In establishing its ruling, the PTAB took the testimony of Cisco’s expert, Dr. Tellado, refuting TQ Delta’s contention that “a person of ordinary skill would not have been motivated to combine Shively and Stopler almost exclusively.” Furthermore, the PTAB dismissed TQ Delta’s motion to exclude a particular portion of Cisco’s expert testimony. TQ Delta thereafter appealed to the Federal Circuit.

CAFC Application of Substantial Evidence Standard

Cisco’s primary contention regarding motivation to combine relied heavily on disclosures of Stopler and Dr. Tellado’s declaration. In doing so, the court examined the substantial evidence standards followed by the application of it to expert testimony in supporting an obviousness determination. The substantial evidence standard considers “whether a reasonable factfinder could have arrived at the agency’s decision” and examines the records in totality, taking into account evidence that “justifies and detracts from an agency’s decision.”

The Court then asserted that “it is of the utmost importance” that petitioner adheres to the IPR rule of “identifying with particularity the evidence that supports the grounds for challenge to each claim.” In doing so, the CAFC did not consider evidence provided by Cisco that was not considered by the PTAB. From Mobilemedia Ideas LLC v. Apple Inc., the Court held that conclusory testimony does not account as substantial evidence, and from KSR Intern. Co. v. Teleflex Inc., mere conclusory statements in the rejection of obviousness cannot be sustained; instead, there must be “some articulated reasoning” with some rational foundation to support its legal conclusion for obviousness. The Court further stated that a conclusory assertion is inadequate in supporting a finding of a motivation to combine because this type of outcome falls within the ex-post reasoning KSR warned of and failed to provide sufficient evidence amounting to why a skilled artisan would have combined such elements.

Unsupported by Substantial Evidence

The PTAB’s obviousness determination rested on an array of key findings in terms of scope and content of the prior art. The PTAB, based on the Cisco petition and the supporting expert declaration, found that a person of ordinary skill could have extracted Stopler’s disclosure of phase scrambling and apply it as a solution to reduce PAR of Shively. The Court argued that no reasonable factfinder could have arrived at the PTAB’s decision and accordingly reversed the PTAB’s conclusions of obviousness.

Dr. Tellado’s testimony provided a brief, high-level explanation of how randomizing the phase of each subcarrier in Shively would reduce its PAR. The CAFC said that the brief was unsupported by any evidence aside from the disclosure of the invention in the patents-in-suit. Dr. Tellado then stated, without adequate support once more, that “the combination ‘would have been a relatively simple and obvious solution to reduce Shively’s PAR.’” Dr. Tellado’s declarations, when viewed in light of InTouch and ActiveVideo, respectively,

“fail[s] to provide any meaningful explanation for why one of ordinary skill in the art would be motivated to combine   these   references at   the   time   of   this   invention”; “fails to explain why a  person  of  ordinary  skill  in  the  art  would have combined elements from specific references in the way the claimed invention does”; and, ultimately, “fails ‘to resist the temptation to read into the prior art the teachings of the invention in issue,’” as outlined in Graham v. John Deere Co. of Kan. City, 383 U.S. 1, 36 (1966), said the Court.

Therefore, Dr. Tellado’s conclusory statement, followed by his unspecific expert testimony, was not adequate to support the PTAB’s fact finding motivation to combine, and the PTAB provided no additional evidence other then Stopler and Dr. Tellado’s declaration to warrant that a person of ordinary skill would have recognized a solution to reduce PAR from Stopler’s disclosure.