IP Law Daily PTAB erred in shifting burden of proof on obviousness to patentee
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Monday, July 25, 2016

PTAB erred in shifting burden of proof on obviousness to patentee

By Peter Reap, J.D., LL.M.

In an inter partes review of a patent directed to oil drilling technology owned by Magnum Oil Tools International, the Patent Trial and Appeal Board erred by holding all challenged claims of the patent invalid as obvious because it improperly shifted the burden of proof from the petitioner, McClinton Energy Group, to Magnum, the U.S. Court of Appeals for the Federal Circuit has decided. Additionally, the Board did not explain why a skilled artisan would have sought to combine the asserted prior art to achieve the claimed invention, applied an incorrect obviousness standard, and the Board’s factual findings regarding the alleged motivation to combine lacked substantial evidence. The Board’s final written decision was reversed (In re: Magnum Oil Tools International, Ltd., July 25, 2016, O’Malley, K.).

Magnum’s U.S. Patent No. 8,079,413 ("the ’413 patent") is directed to technology in the field of oil drilling through use of hydraulic fracturing, commonly known as "fracking." The ’413 patent teaches a bottom-set plug in which the setting tool fits through a hollow passageway in the body of the plug and attaches near the bottom of the plug. Once the downhole plug is set, the setting tool must be disengaged from the plug and extracted from the wellbore. The ’413 patent at issue describes a mechanism for releasing the setting tool from the downhole plug.

The Board instituted IPR based on the following three primary references: U.S. Patent Application Publication No. 2007/0151722 to Lehr et al. ("Lehr"); U.S. Patent No. 4,437,516 to Cockrell ("Cockrell"); and U.S. Patent No. 4,595,052 to Kristiansen ("Kristiansen"). In its petition for institution, McClinton also relied on a reference known as the Alpha Oil Tools Catalog (1997), "Standard Frac Plug" ("Alpha").

Finding that McClinton had established a reasonable likelihood of success in its petition, the Board instituted IPR of all challenged claims based on Lehr in view of Cockrell and Kristiansen, but not on the basis of Alpha. After trial and the completion of briefing, the Board issued a final written decision holding all challenged claims unpatentable under 35 U.S.C. §103.

Jurisdiction. As an initial matter, the USPTO argued that Magnum challenged only the Board’s decision to institute the IPR, which is an unreviewable decision. Magnum responded that it did not only challenge the Board’s decision to institute the IPR, but rather the Board’s statements made regarding obviousness of the claimed invention, some of which were made in the Board’s institution decision and later relied upon in the Board’s final written decision.

Magnum was correct that the Federal Circuit has jurisdiction to review determinations made during institution that are subsequently incorporated into the Board’s final written decision, the court observed. In Versata, the Federal Circuit held that "[w]e have jurisdiction to decide the [merits of a final written decision] even though it is decided . . . initially by the [Board] at the decision to institute stage." Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 1329 (Fed. Cir. 2015).

Burdens of proof and production. The USPTO argued that upon institution of an IPR, the Board necessarily finds that the petitioner has demonstrated a "reasonable likelihood of success." The USPTO contended that this finding operates to shift the burden of producing evidence of nonobviousness to the patentee. However, "[i]n an inter partes review . . . , the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence," the Federal Circuit clarified. 35 U.S.C. §316(e).

Next, the court turned to the parties’ arguments about the burden of production. In the context of the present case, the notion of burden-shifting is inapposite because the patentee’s position was that the patent challenger failed to meet its burden of proving obviousness, the appellate court observed. Applying a burden-shifting framework here would introduce unnecessary confusion because the ultimate burden of persuasion of obviousness must remain on the patent challenger.

Where, as here, the only question presented was whether due consideration of the four Graham factors renders a claim or claims obvious, no burden shifts from the patent challenger to the patentee. This is especially true where the only issues to be considered are what the prior art discloses, whether there would have been a motivation to combine the prior art, and whether that combination would render the patented claims obvious. The court therefore disagreed with the USPTO’s position that the burden of production shifts to the patentee upon the Board’s conclusion in an institution decision that "there is a reasonable likelihood that the petitioner would prevail."

Furthermore, because of the significant difference between the standards of proof at institution and trial during an IPR, it was inappropriate to shift the burden to the patentee after institution to prove that the patent is patentable, the court opined. Instead, the petitioner continues to bear the burden of proving unpatentability after institution, and must do so by a preponderance of the evidence at trial. And, the Board has an obligation to assess the question anew after trial based on the totality of the record.

Obviousness. Magnum argued that the Board improperly shifted the burden to Magnum to prove nonobviousness. Magnum contended that the Board never required McClinton to explain why a skilled artisan would have sought to combine the asserted prior art references.

Magnum cited to several examples in the Board’s decision where the Board required Magnum to rebut petitioner McClinton’s assertions that a skilled artisan would have been motivated to combine the prior art references, without first requiring McClinton to provide evidence to support its assertions. The appellate court agreed with Magnum that the Board improperly shifted the burden to it, as the patentee, to prove nonobviousness. Because McClinton failed to separately meet its burden of establishing obviousness in view of Lehr, Cockrell, and Kristiansen, the Board’s decision was reversed, the court held.

The Board’s final written decision was replete with examples where, rather than require McClinton to prove its assertion of obviousness, the Board improperly shifted the burden to Magnum to disprove obviousness. For example, the Board expected Magnum to explain, and faulted Magnum for allegedly failing to explain, why an obviousness argument based on a first set of prior art references (Alpha, Cockrell, and Kristiansen) that the Board did not adopt would not be applicable to a second set of prior art references (Lehr, Cockrell, and Kristiansen). This constituted an improper shifting of the burden to Magnum, the patentee, to prove that the claimed invention would not have been obvious, the court reasoned.

Furthermore, the record showed that McClinton failed to articulate a motivation to combine the specific teachings of Lehr, Cockrell, and Kristiansen to achieve the claimed invention, according to the Federal Circuit. Indeed, McClinton merely attempted to incorporate its arguments based on Alpha to its obviousness analysis based on Lehr, without presenting particularized arguments explaining why those arguments from Alpha would be cross-applicable to the Lehr reference.

Alpha and Lehr are different, as the Board’s institution on the latter, but not the former, showed, the court explained. McClinton failed to provide any analysis of how or why the deformable release device of Lehr could be combined with Cockrell or Kristiansen in the same manner as the Alpha insert, nor did McClinton articulate a different rationale for why a skilled artisan would be motivated to combine Lehr with Cockrell or Kristiansen. Instead, McClinton attempted to provide the motivation to combine merely by noting surface similarities between the Alpha and Lehr references.

McClinton also failed to articulate why a skilled artisan would have sought to combine Lehr with Cockrell and Kristiansen, the court found. Cockrell and Kristiansen do not disclose setting tools. In contrast to Lehr, which discloses a setting tool, Cockrell is hydraulically set and Kristiansen is set with a charge. In light of McClinton’s failure to explain why a skilled artisan would have sought to combine the prior art references to achieve the claimed invention, the Board had no basis for its conclusion that McClinton met its burden of proving by a preponderance of the evidence that the claimed invention would have been obvious. Because McClinton’s conclusory statements could not satisfy the petitioner’s burden of demonstrating obviousness, the Board did not have sufficient evidence on which to base its legal conclusion of obviousness, the court held.

Finally, the USPTO’s contention that the Board did not err in making an obviousness argument on behalf of McClinton based on Lehr because this argument "could have been included in a properly-drafted petition," was rejected. While the USPTO has broad authority to establish procedures for revisiting earlier-granted patents in IPRs, that authority is not so broad that it allows the PTO to raise, address, and decide unpatentability theories never presented by the petitioner and not supported by record evidence, the court said.

The case is No. 2015-1300.

Attorneys: Nathaniel St. Clair, II (Jackson Walker LLP) for Magnum Oil Tools International, Ltd. Kristi L.R. Stewart, USPTO, for Michelle K. Lee.

Companies: Magnum Oil Tools International, Ltd.; McClinton Energy Group, LLC

MainStory: TopStory Patent FedCirNews

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