Originally published in Law360 on May 6, 2015By Robert Barnes
Even though hundreds of motions to amend have been filed before Patent Trial and Appeal Board panels, only one opposed motion has ever been granted (and then only in part). As these decisions reach the Federal Circuit, appellate judges have questioned the validity of the PTAB’s requirements effectively neutralizing patentees’ ability to amend their claims and avoid an unpatentability ruling. According to Judge Pauline Newman, “It is reported that the ability to amend claims in Inter Partes Review (IPR) proceedings, as administered by the PTO, is almost entirely illusory.” In re Cuozzo Speed Technologies LLC, 778 F.3d 1271, 1291 (Fed. Cir. 2015) (Newman, J. dissenting).
If, as seems likely, the Federal Circuit were to hold that the PTAB’s application of its regulation governing motions to amend is fatally overbroad, dozens of IPR decisions face reversal and remand to the PTAB for consideration of amendments to claims the PTAB has rejected. Going forward, a more accommodating procedure for claim amendments would reduce the procedural advantages patent challengers now enjoy in IPRs and could bring greater balance to the IPR risk-reward equation.
In the America Invents Act, Congress provided that the patentee could file a motion to amend to “cancel any challenged patent claim” or “propose a reasonable number of substitute claims,” as long as the amendment did “not enlarge the scope of the claims of the patent or introduce new matter.” 35 U.S.C. § 316(d). The statute directed the U.S. Patent and Trademark Office director to regulate “standards and procedures for allowing the patent owner to amend the patent under subsection (d).” The current regulation is found at 37 C.F.R. § 42.121.
Section 42.121(a)(1) permits one motion to amend to “be filed no later than the filing of a patent owner response.” This timing requirement forces the patentee to decide its strategy upfront. The patent owner can defend the challenged claims and try to turn around the PTAB’s findings that prompted institution of the IPR. Alternatively, the patentee can concede unpatentability, and cancel and then seek to amend the challenged claims. Or, as more typically happens, the patent owner will defend the claims, but also file a contingent motion to amend that is to be considered if the PTAB finds the original claims unpatentable.
The regulation does not allow the patent owner to recalibrate its contingent motion to amend to take account of the grounds the PTAB finds persuasive in determining that the original claims are unpatentable. Thus, for the patentee to have a realistic amendment opportunity, the PTAB must reasonably and consistently apply the regulatory language on when a motion to amend will be denied or granted. IPR appellants have protested that the PTAB has routinely gone beyond what its regulation allows — and several Federal Circuit judges seem sympathetic to this critique.
For example, in Idle Free Systems Inc. v. Bergstrom Inc., IPR 2012-0027, Paper 26 at 7 (June 11, 2013), the most comprehensive and widely cited of the PTAB’s four amendment-related “informative” opinions, the PTAB required the patentee to prove both “that the proposed substitute claim is patentable over the prior art of record, and [also] over the prior art not of record but known to the patent owner.” As Chief Judge Sharon Prost pointedly inquired at the Federal Circuit’s recent oral argument in Microsoft Corp. v. Proxyconn Inc.¸ No. 2014-1542 (argued April 7, 2015), “Isn’t that a little broad?”
The patent owner in Idle Free did not appeal the denial of the motion to amend. Idle Free has, nonetheless, become the lightning rod for the debate over the almost-zero success rate of motions to amend. A review of 75 IPR decisions denying motions to amend found that “the most common reason the Board cited for denial was the patent owner’s failure to meet its burden establishing patentability over the prior art,” citing to Idle Free. See G. Lantier and J. Leblanc, Observations on Amendments in an Inter Partes Review, Intellectual Property Today at 8 (February 2015). This hurdle as well as “impractical type-face and page-count constraints ... have made it almost impossible to amend claims.” S. Patel, The amendment conundrum of inter partes review, Inside Counsel Online (Oct. 3, 2014). “Therefore, it is understandable that most practitioners view the prospect of amending claims as futile.” A. Williams, PTAB Update-Amending Claims in an IPR Proceeding, PatentDocs.Org (Dec.4, 2014).
The epicenter of the Federal Circuit’s unease over the PTAB’s approach to claim amendment is how the PTAB has applied the regulatory language defining when a motion to amend “may be denied.” Section 42.121(a)(2) states:
(i) the amendment does not respond to a ground of unpatentability involved in the trial; or
Proxyconn argued to the Federal Circuit that Section 42.121(a)(2) constitutes a complete statement of the grounds on which the PTAB can deny a motion to amend. If this is correct, the Idle Free requirement that the patent owner must demonstrate patentability over prior art that is not “involved in the trial” exceeds the PTAB’s authority, and the regulation as applied should be invalidated as arbitrary and capricious. The PTO position is that Section 42.121(a)(2) provides two examples of when a motion may be denied, is not exhaustive, and has been reasonably construed to ensure the PTAB considers only genuinely patentable amended claims. Further, the PTO notes, the burden of proving patentability after amendment rests with the patentee.
At oral argument, Chief Judge Prost observed that, while the PTO “could write a regulation to cabin amendments” tightly along the lines of Idle Free, “it hasn’t done so yet. ... They could do it, but maybe they haven’t done so yet.” A day earlier, in oral argument in Helferich Patent Licensing v. CBS Interactive, No. 2014-1556 (argued April 6, 2015), Judge Timothy Dyk expressed a similar concern, stating that “on the face of it, the regulation is not entirely clear.”
The Federal Circuit panel in Proxyconn issued a post-argument order directing the parties and the PTO to file supplemental briefs on “the proper interpretation of 37 C.F.R. § 42.121(a)(2).” The parties were also directed to brief whether the regulation is “an exhaustive list of grounds upon which the Board can deny a motion to amend,” and “what is the Board’s authority to impose prior art disclosure requirements as in Idle Free?”
This order suggests that the court is seriously considering overturning Idle Free. A holding limiting Section 42.121(as) to its plain language would limit prior art inquiries on motions to amend only to the prior art the challenger had cited in seeking the IPR. It would also preclude PTAB panels from denying motions to amend based on other unpatentability grounds not at issue in IPRs, such as Section 101.
Ironically, broadening the right of amendment in IPRs would enable the PTAB to defend with greater authority the most significant (and, in practice, the most pro-patent-challenger) distinction between attacking a patent in district court or in an IPR before the PTAB. Other than seeking deference to a century of tradition in re-examination and similar proceedings, the PTO has relied on the supposed availability of claim amendment in IPR proceedings to justify the use of the “broadest reasonable interpretation” standard in IPR claim construction. As the Federal Circuit’s Cuozzo majority explained, approval for the BRI standard “relied on the availability of amendment.” 778 F.3d at 1280. Indeed, the Proxyconn post-argument order asked the parties to brief how “the Board’s interpretation of 37 C.F.R. § 42.121 comport[s] with the rule of broadest reasonable interpretation, one of the rationales for which is the right to amend?”
Celebrations of the demise of Idle Free and of an imminent opening up of IPRs to claim amendments are, however, premature. While Chief Judge Prost’s skepticism of the way the PTAB has applied Section 42.121(a)(2) was apparent at the Proxyconn oral argument, neither of the other panel members, Judge Alan Lourie and Eastern District of Texas Judge Rodney Gilstrap, said anything from the bench. The supplemental briefs, filed on April 24, break no new ground but may convince the panel to punt the issue for now. As both Microsoft and the PTO argued, the Federal Circuit could affirm without reaching the regulation’s overbreadth and find that Proxyconn’s amendment impermissibly broadened its claims. In Helferich, despite Judge Dyk’s stated concerns about the amendment standard, the panel summarily affirmed the PTAB’s unpatentability decision.
Even so, modification of the PTAB’s procedures for dealing with motions to amend in IPRs now seems inevitable. The only question — especially for those patent owners with IPRs on appeal or about to be resolved before the PTAB — is whether reform will come immediately through the Federal Circuit invalidating the amendment regulation as the PTAB has applied it, or whether the PTO will be allowed to manage the transition gradually to a more amendment-friendly IPR regime.
In her Director’s Forum blog for March 27, PTO Director Michelle Lee announced that the page limits on motions to amend will be increased from 15 to 25. As PTO Associate Solicitor William LaMarca told the Helferich panel, “policies and procedures are evolving to make the process work,” and “refinements will take place.”
In her March 27 blog post, the director also disclosed that the PTO is “contemplating proposed amendments [to the regulation] to emphasize that a motion to amend will always be allowed to come before the Board for consideration (i.e. be ‘entered’).” This revised regulation — which still has to navigate the often-lengthy notice and comment periods required in all agency rulemaking—would reverse Idle Free. The new regulation will confirm that “for the amendment to result in the issuance (‘patenting’) of amended claims, a patent owner will not be required to make a prior art representation as to the patentability of the narrowed amended claims beyond the art of record before the Office.”
In the interim, as the PTO’s supplemental brief in Proxyconn asserts, the PTAB will continue to maintain that Idle Free constitutes a reasonable construction of the current regulation to which deference is due, especially now that the patentee has extra pages to argue its case for claim amendment. The PTO’s position is that the Federal Circuit should not second-guess the PTAB’s interpretation of its own regulation, and that Idle Free should be upheld unless and until a new regulation comes into effect. Based on what Judges Newman, Dyk and Prost have said publicly, the Federal Circuit seems unsympathetic to this plea for absolute deference.
Rather, a fair reading of the tea leaves suggests that we may soon see a Federal Circuit decision rejecting the PTAB’s construction of Section 42.121 as applied in Idle Free. Such a holding could require the reversal and remand of many IPR decisions now on appeal.
A likely consequence of a Federal Circuit rejection of the PTAB’s current restrictive attitude to amendments would be the importation into IPRs of the amendment procedures applied in re-examination and reissue proceedings. This would change the dynamic of many IPRs. The patent holder would be provided with a realistic opportunity to save its patent by adding targeted limitations to the claims, so long as they do not introduce new subject matter. The all-or-nothing nature inherent in IPRs now would be less acute. Patent owners could make contingent motions to amend with an understanding that amendment could realistically be achieved if its defense of the original claims was unsuccessful. This would add teeth to the estoppel risk faced by patent challengers.
The net result could be a more complicated IPR process. But it would be an IPR process more consistent with the PTO’s traditional role as an administrative agency that assesses and grants appropriately limited patent rights rather than as a dispute adjudicator that, more often than not, strips patent owners of their previously granted rights.
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