IP Law Daily Substitute claims proposed during IPR may be rejected as ineligible under Section 101
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Wednesday, July 22, 2020

Substitute claims proposed during IPR may be rejected as ineligible under Section 101

By Cheryl Beise, J.D.

PTAB was authorized to find that substitute claims proposed by patent owner Uniloc during IPR were directed to ineligible subject matter.

The Patent Trial and Appeal Board did not err in concluding during inter partes review of a patent owned by Uniloc that three proposed substitute claims were patent-ineligible under 35 U.S.C. § 101, the U.S. Court of Appeals for the Federal Circuit has held. While 35 U.S.C. § 311(b) restricts the grounds for cancellation of existing patent claims in IPR to anticipation and obviousness, Section 311 does not apply to proposed claims. Rather, the IPR provisions of the America Invents Act (AIA) permit the PTAB to review proposed substitute claims for overall "patentability"—including under Section 101. The court also found that the case was not rendered moot by an intervening district court decision finding that all of the claims of the patent under review were directed to a patent-ineligible abstract concept. In a dissenting opinion, Circuit Judge O’Malley opined that the district court decision estopped the PTAB from issuing substitute claims in place of the invalidated claims once the Federal Circuit affirmed the district court’s ineligibility determination, and after the time expired for Supreme Court review of that affirmance. Judge O’Malley also would hold that Section 311(b) limits the "scope" of inter partes review to challenges of patentability based on anticipation and obviousness (Uniloc 2017 LLC v. Hulu, Inc., July 22, 2020, Wallach, E.).

Uniloc 2017 LLC ("Uniloc") owns U.S. Patent No. 8,566,960 (the ’960 patent), entitled "System and Method for Adjustable Licensing of Digital Products." The ’960 Patent explains that a license can be adjustable over time in terms of the number of devices that may access the licensed product. The three independent claims of the ’960 Patent recite a system (claim 1), a method (claim 22) and a computer program product (claim 25) "for adjusting a license for a digital product over time."

Hulu, LLC and Netflix, Inc. (together, "Hulu") filed a petition to institute inter partes review of claims 1–25 of the ’960 patent. The PTAB instituted review of all challenged claims. During the course of review, in January 2018, Uniloc filed a motion to amend to enter substitute claims 26-28 for independent claims 1, 22, and 25 if the original claims were found unpatentable. Hulu opposed the motion, arguing among other things, that the substitute claims were patent-ineligible under Section 101.

On August 1, 2018, the PTAB issued a Final Written Decision, finding claims 1–8, 18–22, and 25 unpatentable over the prior art. In addition to explaining why the challenged original claims were unpatentable, the Board denied Uniloc’s motion to amend the claims, solely on the ground that Hulu had shown by a preponderance of the evidence that the substitute claims were directed to non-statutory subject matter under Section 101. Uniloc requested a rehearing. On January 18, 2019, the PTAB denied Uniloc’s request for a rehearing, concluding that the Board in an IPR proceeding may consider Section 101 eligibility in determining proposed substitute claim patentability. The USPTO Director designated the rehearing denialdecision as precedential.

After the Board issued its final written decision, but before Uniloc filed its motion for rehearing, the federal district court in Marshall, Texas found that all claims of the ’960 patent were unpatentable because they were directed to a patent-ineligible abstract idea and failed to recite an inventive concept. Uniloc USA, Inc. v. Amazon.com, Inc., 243 F. Supp. 3d 797, 811 (E.D. Tex. 2017). The Federal Circuit summarily affirmed that decision on August 9, 2018.

Uniloc appealed the Board’s rehearing denial to the Federal Circuit, arguing that the Board misapprehended the law in concluding that in an IPR proceeding, the PTAB may consider a Section 101 challenge to proposed substitute claims.

Mootness. In response to an order from the Federal Circuit directing the parties to address whether the case is moot, Hulu asserted that the appeals court lacked jurisdiction on the ground of mootness. Hulu pointed to the timing of Uniloc’s motion to amend and the district court’s final judgment of invalidity. The USPTO Director and Uniloc disagreed. The Federal Circuit rejected Hulu’s arguments. First, the arguments were waived because Hulu did not make them before the PTAB or earlier in the appeal.

Second, in assessing whether there is an Article III case or controversy, a court ordinarily assumes the correctness of the plaintiff’s contentions on the merits. In this case, Uniloc argued the PTAB was statutorily barred from rejecting a substitute claim based on Section 101. The court noted that if Uniloc were correct, it would be entitled to a certificate adding its substitute claims since the Board rejected all other grounds for finding the substitute claims unpatentable. "[T]he PTAB has authority to entertain the substitute claims even once the original claims are finally invalidated and ... the PTAB lacks authority to consider § 101 before issuing the substitute claims," the court said.

The court also found no problem with Uniloc’s motion to amend and enter substitute claims couched as an alternative pleading, contingent upon the Board’s rejection of the original claims. Such pleading did not end the IPR the moment the original claims were found invalid, as Hulu contended. "The USPTO treats such a request to consider proposed substitute claims as having an independent continuing presence in the proceeding, not dependent on a live controversy continuing as to the original claims," the court said. This principle applies, even where the original claims are invalidated in a parallel district court proceeding.

Eligibility of substitute claims. In this case, the PTAB concluded that, under the IPR statutory provisions, it was permitted to review and deny proposed substitute claims during IPR proceedings for patent ineligibility pursuant to Section 101. Uniloc argued that the PTAB was limited in its review of the proposed substitute claims to anticipation or obviousness, as provided by Section 311(b).

The Federal Circuit sided with the Board, concluding that in its review of proposed substitute claims in an IPR, the Board may consider Section 101 eligibility. According to the court, this interpretation was supported by the text, structure, and history of the IPR provisions of the AIA, "which indicate Congress’s unambiguous intent to permit the PTAB to review proposed substitute claims for overall ‘patentability’—including under § 101." For example, Section 318 requires the PTAB "issue a final written decision with respect to the patentability of any new claim added under [§] 316(d)." 35 U.S.C. § 318(a). It further states that "[a]ny proposed amended or new claim determined to be patentable and incorporated into a patent following an [IPR]" will "have the same effect as" if it had been originally granted. Id. § 318(c) (emphasis added).

The Federal Circuit explained that while Section 311(b) confines the grounds for cancellation of existing patent claims to anticipation and obviousness, Section 311 does not apply to proposed claims. "The plain language of the statute limits the provision to the IPR petitioner’s ‘request to cancel’ a claim that is ‘of a patent,’ but it does not so limit the PTAB’s evaluation of proposed substitute claims," which are not part "of the patent," the court said. "Section 311, as a provision applying to the petition phase of the proceedings, should not therefore bind a separate adjudication-stage provision, such as § 316," the court added.

The court further explained that substitute claims proposed in an IPR proceeding have not undergone a patentability review by the USPTO, including Section 101 eligibility and Section 112 invention. Prohibiting the PTAB from reviewing patent eligibility would strip the PTAB of "a critical legal tool," and provide a means for patent owners to circumvent full review, the court noted. Finally, contrary to Uniloc’s assertion, the Federal Circuit’s en banc plurality decision in Aqua Products Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017did not address whether a petition may raise a patent-ineligibility challenge to a proposed substitute claim. The Aqua Products language Uniloc relied upon only addressed whether a petitioner challenging the proposed substitute claims bears Section 316(e)’s burden of proof, the court said.

The appeals court affirmed the PTAB’s rehearing denial decision.

Dissenting opinion. Circuit Judge Kathleen O’Malley filed a dissenting opinion to express her views (1) that the district court decision ended the inter partes review, rendering the case moot and (2) that it was improper for the PTAB in inter partes review to consider 35 U.S.C. § 101.

According to Judge O’Malley, once the Federal Circuit affirmed the district court’s ineligibility determination, and after the time expired for Uniloc to seek Supreme Court review of that affirmance, Uniloc no longer possessed any patent rights that it could give up in exchange for a substitute claim. "Because mootness implicates Article III’s case or controversy requirement—a threshold jurisdictional issue—a party cannot waive it," and it can be raised at any time, Judge O’Malley said.

Regarding inter partes review, Judge O’Malley opined that Section 311(b) limits the "scope" of inter partes review to challenges of patentability based on "sections 102 or 103 and only on the basis of prior art." The Board "simply does not have statutory authority to review substitute claims based on § 101," she said.

The case is No. 2019-1686.

Attorneys: Brian Matthew Koide (Etheridge Law Group) for Uniloc 2017 LLC. Nathan K. Kelley (Perkins Coie, LLP) for Hulu, LLC and Netflix, Inc.

Companies: Uniloc 2017 LLC; Hulu, Inc.; Netflix, Inc

MainStory: TopStory Patent FedCirNews GCNNews

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