IP Law Daily IPR appeal hampered by jurisdiction, but obviousness rulings addressed in ‘creel’ patentability case
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Wednesday, March 23, 2016

IPR appeal hampered by jurisdiction, but obviousness rulings addressed in ‘creel’ patentability case

By Mark Engstrom, J.D.

The U.S. Court of Appeals for the Federal Circuit lacked jurisdiction to review the Patent Trial and Appeal Board’s denial of an inter partes review (IPR) of an Automated Creel Systems patent on a “Creel Magazine Supply System and Method,” to the extent that the IPR petitioner had argued that a review was warranted because eight of the patent’s claims were anticipated by prior art (Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., March 23, 2016, Moore, K.). Similarly, the circuit court lacked jurisdiction to review the Board’s finding that a second IPR was not time barred by 35 U.S.C §315(b). Finally, the circuit court affirmed the Board’s obviousness finding as to one patent claim and vacated the Board’s rejection of an obviousness finding as to eight additional claims.

Automated Creel Systems (ACR) owned U.S. Patent No. 7,806,360, which disclosed a system and method of using “creels” to feed yarn and other stranded materials to a manufacturing process. Eight claims (the “interposing” claims) involved creel magazines with more than two packages of stranded material at each level. Those magazines allowed stranded material to be transferred from one package to another, both across the frame and on the same side of the frame. Thirteen claims (the “non-interposing” claims) involved creel magazines with two packages of stranded material at each level. Those magazines allowed stranded material to be transferred from one package to another across the magazine frame, but not on the same side of the frame.

Shaw sought an IPR of 21 claims of ACR’s creel system patent. Shaw proposed fifteen grounds of rejection, three of which were directed at the eight interposing claims. The three grounds for rejection were alleged that: (1) all of the interposing claims would have been obvious over German Patent Application Publication DE 3429153 A1 (Munnekehoff), in view of U.S. Patent No. 5,624,082 (Ligon); (2) all of the interposing claims would have been obvious over German Patent DE 7413531 (Barmag) in view of Ligon; and (3) all of the interposing claims were anticipated by U.S. Patent No. 4,515,328 (Payne), an allegation that the court referred to as the “Payne-based ground” for rejection.

The Board instituted two IPR proceedings, consolidated those proceedings, and issued a final decision. In that decision, the Board found that: (1) Shaw had not shown that the interposing claims were unpatentable based on the instituted grounds and (2) Shaw had shown that the non-interposing claims were unpatentable based on the instituted grounds.

Shaw appealed the Board’s findings regarding the interposing claims. ACS appealed the Board’s obviousness findings regarding claim 4, a non-interposing claim. The PTO submitted a brief and presented oral argument as an intervenor.

Payne-based ground for rejection. Shaw argued the Federal Circuit had jurisdiction to review the Board’s final written decision, including its decision to ignore the Payne-based ground of rejection as “redundant of the instituted grounds.”

According to Shaw, the non-appealability provision of 35 U.S.C. §314(d) was inapplicable because Shaw was not seeking a review of the Board’s institution decision; it was asking the court to review the Board’s “authority, and correctness in exercising the same,” in deeming a subset of the asserted grounds “redundant” of instituted grounds. Shaw argued that a review of the Board’s authority to reject an asserted ground for an IPR proceeding based on a finding of redundancy, and whether the Board had properly exercised that authority, was not a review of the Board’s decision not to institute.

The Federal Circuit disagreed. Congress authorized the PTO to prescribe regulations regarding the institution and governance of inter partes reviews, the court explained, and the PTO exercised that authority in promulgating 37 C.F.R. § 42.108, which allowed the Board to institute an IPR based on some (but not all) of the challenged claims and to institute an IPR of a given claim based on some (but not all) of the proposed grounds.

In this case, Shaw had proposed three grounds of unpatentability for the “interposing” claims: (1) the Payne-based ground of anticipation and (2) two “multiple-reference” grounds of obviousness. The Board did not consider the substance of the Payne reference or compare it to the prior art that was cited in the other two proposed grounds, the court noted, and it made no specific findings that the three grounds overlapped with one another or involved overlapping arguments. The Board merely denied an IPR on the Payne-based ground “without making any specific findings” that the ground was “redundant” of the other two grounds.

The Federal Circuit could not say that it agreed with the PTO’s handling of Shaw’s petition. Nevertheless, the court found that it had no authority to review the Board’s decision to institute an IPR on some grounds but not on all grounds. Under 37 C.F.R. §42.108(b), denial of a ground for rejection was a decision “not to institute an inter partes review on that ground.” For that reason, the court lacked jurisdiction to review the Board’s decision not to institute an IPR on the Payne-based ground for rejection, which included the Board’s decision not to consider the Payne-based ground in its final written decision.

Writ of mandamus. Shaw alternatively sought a writ of mandamus to direct the PTO to reevaluate its redundancy decision and to institute an IPR based on the Payne-based ground for rejection. Shaw’s argument was predicated on its concern that the statutory estoppel provisions would prevent it from raising the Payne-based ground in future proceedings.

The PTO argued that Shaw’s statutory interpretation of the estoppel provision was incorrect because the denied ground “never became part of the IPR.” The court agreed with the PTO that 35 U.S.C. §315(e) would not estop Shaw from bringing its Payne-based arguments before the PTO or the district courts. According to the court, both parts of §315(e) created estoppel for arguments “on any ground that the petitioner raised or reasonably could have raised duringthat inter partes review.” Although Shaw raised its Payne-based ground in its petition for IPR, the PTO denied the petition as to that ground. Because an IPR did not begin until it was instituted, the court found that no IPR was instituted on that ground.

Consequently, Shaw did not raise—and could not have reasonably raised—the Payne-based ground during the IPR. The plain language of the statute prohibited the application of estoppel under those circumstances. In light of the court’s construction of the statute, mandamus was not warranted. Shaw’s petition for a writ of mandamus was therefore denied.

Obviousness of interposing claims. The Board concluded that Shaw had not shown that the interposing claims would have been obvious over Munnekehoff or Barmag in view of Ligon. Munnekehoff taught all of the limitations of the interposing claims except “the transfer of stranded material from one package to another on the same side of the frame,” the court observed.

Shaw argued that Ligon taught that limitation, but the Board rejected the argument. According to the Board, adding a second package, as taught in Ligon, to either side of the frame in Munnekehoff would, absent a complete redesign, cause tangling and result in an inoperable assembly.

Shaw’s expert testified that a “tube Q” could be used to prevent tangling, but the Board concluded that: (1) the use of tube Q was not disclosed in the cited references and (2) the expert did not provide any basis—in Ligon or otherwise—for adding the additional tube to the Munnekehoff assembly in the manner that the expert had proposed.

Nevertheless, the language of the Board’s decision regarding “tube Q” was ambiguous at best, according to the court. If the Board found that tube Q was not disclosed in Munnekehoff, its finding was an undisputed error. However, the parties disputed the impact of that error on the Board’s ultimate conclusion. Given the factual nature of the teachings of a reference, the court left those findings of fact to the Board. Accordingly, the court vacated, in part, the Board’s rulings on Shaw’s obviousness claims and remanded the case for further proceedings by the Board.

ACS cross-appeal. ACS challenged the Board’s ruling that the second IPR was not barred under 35 U.S.C. §315(b), which provided that an inter partes review could not be instituted if the petition was filed more than 1 year after the date on which the petitioner was served with a complaint that alleged the infringement of the patent at issue. ACS argued that the Federal Circuit had jurisdiction to review the Board’s timeliness decision because ACS was not challenging the Board’s institution decision; it was challenging the Board’s interpretation of §315(b).

The Federal Circuit faced a similar challenge in Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (2015). In Achates, the court held that it lacked jurisdiction to review the Board’s “determination to initiate IPR proceedings based on its assessment of the time-bar of §315(b), even if such assessment [wa]s reconsidered during the merits phase of the proceedings and restated as part of the Board’s final written decision.”

The court noted that §315(b) tied the time bar at issue to the service of the patent infringement complaint. In this case, the Board found that ACS’s voluntary dismissal, without prejudice, of its lawsuit against Shaw “nullifie[d] the effect of the service of the complaint.” For that reason, the Board concluded that Shaw’s petition was not time barred.

The Federal Circuit acknowledged that it had held in previous cases that dismissals without prejudice left the parties “as though the action had never been brought.” Although those cases did not address §315(b) or whether service of a complaint could be nullified based on Achates, the court found that it lacked jurisdiction to review that aspect of the Board’s decision.

The court noted that the U.S. Supreme Court’s decision to grant certiorari on Cuozzo Speed Technologies’ second question in its petition for review of the court’s decision in Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 890 (2016), could affect the court’s holding regarding the reviewability of the Board’s decision to institute in Achates. Currently, however, the court was constrained by its precedential decision in that case.

As to the merits of ACS’s cross-appeal, the Board found that Shaw had shown that claim 4 of the asserted patent was obvious over Munnekehoff or Barmag, in view of Bluhm. Because the Board’s factual findings were supported by substantial evidence, the court saw no error in the Board’s ruling that claim 4 was unpatenable as obvious over prior art. The court thus affirmed the Board’s obviousness decision regarding claim 4.

Concurring opinion. Circuit Judge Jimmie V. Reyna wrote separately to address the Board’s application of the “Redundancy Doctrine.” Judge Reyna noted that the Board’s “improper, conclusory statements” in declining to implement an IPR—on grounds that it found to be “redundant”—left him “deeply concerned” about the broader impact that the doctrine might have on the integrity of the patent system. In particular, other tribunals would have to decide whether estoppel applied based on the “cryptic statements” that PTO made under the guise of its “presumed” complete discretion over the institution of an IPR.

At a minimum, the Board should have provided a reasoned basis for how or why the proffered grounds were “redundant,” Judge Reyna opined. The Board’s failure to provide a reasoned basis for declining to implement an IPR on the Payne-based ground “deprived future tribunals of the necessary basis to determine whether estoppel should apply.” In Judge Reyna’s view, the PTO had lost sight of its obligation to consider the effect of its implementation of the IPR process on the integrity the patent system as a whole.

The case is Nos. 2015-1116 and 2015-1119.

Attorneys: Thad Charles Kodish, Erin Alper, and John A. Dragseth (Fish & Richardson, P.C.) for Shaw Industries, Group, Inc. Scott D. Smiley and Mark C. Johnson (The Concept Law Group, P.A.) for Automated Creel Systems, Inc. Monica Barnes Lateef, Nathan K. Kelley, Scott Weidenfeller, and William Lamarca, Office of the Solicitor, U.S. Patent and Trademark Office, for USPTO Director Michelle K. Lee, intervenor.

Companies: Shaw Industries, Group, Inc.; Automated Creel Systems, Inc.

MainStory: TopStory Patent FedCirNews

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