Shaw Industries Group v. Automated Creel Systems, Inc.


On March 23, 2016, the Federal Circuit held it lacks jurisdiction to review a decision from the Patent Trial and Appeal Board (“Board”) denying institution of inter partes review (“IPR”) on grounds the Board deems redundant.  It further held that 35 U.S.C. § 315(e) does not prevent a petitioner from later raising such denied grounds before the Patent & Trademark Office (“PTO”) or a district court.


Shaw Industries Group (“Shaw”) filed two petitions for IPR of Automated Creel Systems’ U.S. Patent No. 7,806,360, proposing fifteen grounds of rejection in one petition and six grounds in the other. The Board instituted both IPRs on some, but not all, of the proposed grounds.  In particular, the Board denied one of Shaw’s petitions on a ground alleging anticipation by a patent issued to Payne, deeming the Payne-based ground redundant.  After the Board issued a consolidated final written decision, Shaw appealed the Board’s decision not to institute on the Payne-based ground, and also petitioned for a writ of mandamus instructing the Board to reevaluate its redundancy decision.

Federal Circuit Opinion

The Federal Circuit held it had no authority to review the Board’s decision to institute on some but not all grounds. Citing 35 U.S.C. § 314(d) and St. Jude Med., Cardiology Div., Inc. v. Volcano Corp., 749 F.3d 1373 (Fed. Cir. 2014), the Court stated it lacks jurisdiction to review the Board’s decisions instituting or denying IPR, regardless of whether the Board has issued a final written decision.  In this case, the Court interpreted the Board’s redundancy denial to be a decision denying institution for efficiency purposes, and not a substantive decision on patentability over the Payne reference.  The Court stated that, pursuant to Congress’s authorization, the Patent & Trademark Office (“PTO”) had promulgated 37 C.F.R. § 42.108, which allows the Board to institute IPR on only some of the challenged claims and, for any given claim, based on only some of the proposed grounds.  The Court commented that it saw a benefit in the PTO having this ability, particularly given the Board’s statutory obligation to complete proceedings in a timely and efficient manner.

The Federal Circuit also denied Shaw’s petition for a writ of mandamus, which was predicated on Shaw’s concern that 35 U.S.C. § 315(e) would estop Shaw from raising the Payne-based ground in future proceedings. The Court agreed with the PTO that § 315(e) creates estoppel only for arguments “that the petitioner raised or reasonably could have raised” during an IPR. As the Board denied institution on the Payne-based ground, it was not raised, nor could it have been raised, “during” the IPR, and thus § 315(e) would not apply.

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Ethicon Endo-Surgery, Inc. v. Covidien LP


In Ethicon Endo-Surgery, Inc. v. Covidien LP, Slip Op. 2014-1771 (Fed. Cir., Jan. 13, 2016) the Federal Circuit majority held that 35 U.S.C. § 314(d) did not preclude the Federal Circuit from hearing Ethicon Endo-Surgery, Inc.’s (“Ethicon”) challenge to the authority of the Patent Trial and Appeals Board (“PTAB”) to render a final decision, and that neither statute nor the Constitution precludes the same panel of the PTAB that made the decision to institute inter partes review (“IPR”) from making the final determination.

Ethicon owns U.S. Patent No. 8,317,070 (“the ’070 patent”). The claims of the ’070 patent are directed to a surgical device used to staple, secure, and seal tissue that has been incised. The claimed invention is a combination of the use of staples of different pre-formed and formed heights and the use of staples with non-parallel legs. Covidien LP (“Covidien”) sells surgical staplers that Ethicon alleged embody the claimed invention.

PTAB Decision
On March 25, 2013, Covidien requested IPR of claims 1–14 of the ’070 patent. On August 26, 2013, a PTAB panel granted Covidien’s petition for IPR. On June 9, 2014, the same PTAB panel that instituted the IPR issued a final decision finding the challenged claims of the ’070 patent obvious. Ethicon appealed.

Federal Circuit Decision
First, the majority of the Federal Circuit addressed the jurisdictional issue raised by the United States Patent and Trademark Office (“PTO”), as intervenor. The PTO argued that the Federal Circuit was prohibited from hearing the appeal by 35 U.S.C. § 314(d), which provides that the determination whether to institute an IPR shall be final and nonappealable. The majority rejected this argument because on appeal, Ethicon did not challenge the institution decision, but rather alleged a defect in the final decision and 35 U.S.C. § 319 specifically provides for an appeal of a final PTAB decision.

Next, the Court considered whether the same panel that instituted the IPR could decide the merits. Citing the Supreme Court and other appellate court decisions, the majority found that combining the decision to institute and the final decision in a single panel did not raise constitutional due process concerns and is akin to “a district court determining whether there is a ‘likelihood of success on the merits’ and then later deciding the merits of the case.” The majority further rejected the argument that the PTAB’s exposure to a limited record on the decision to institute should disqualify the same panel from making the final decision. To show actual bias, a challenger must show that “an adjudicator is exposed to unofficial, ‘extrajudicial’ sources of information.” Because Ethicon did not allege any exposure to extra-judicial information, there were no due process concerns. The majority also concluded that there is “nothing in the [America Invents Act (“AIA”)] or the legislative history of the statute indicating a concern with separating the functions of initiation and final decision.” Indeed, there is a long-standing rule that agency heads have implied authority to delegate to other officials within their agency. Further, the majority noted that even prior to the AIA, Congress assumed that the Director of the PTO would delegate. Therefore, as a matter of inherent authority and general rulemaking authority, the Director had authority to delegate institution decisions to the PTAB.

Finally, the Court addressed Ethicon’s argument that the PTAB did not properly take into account the secondary considerations of non-obviousness. The majority agreed with the PTAB that there was no credible evidence that the commercial success of Covidien’s device was a result of the claimed invention, and that there was insufficient evidence to demonstrate a long-felt but unresolved need.

Judge Newman dissented. Referring to the language of the statute, Judge Newman concluded that the first decision, to institute an IPR, was required to be made by the Director, and the second final decision, regarding patent validity, was required to be made by the PTAB.

Judge Newman stated that Congress “unambiguously placed these separate determinations in different decision makers, applying different criteria.” Judge Newman argued that this bifurcation is necessary because IPRs were intended to be a new, quick, and cost-effective way to challenge the validity of patents. Threatening the viability of this new system created by the AIA, Judge Newman argued, threatens the existence of this “new frontier of patent litigation.”

Judge Newman further noted that practitioners have criticized the practice of allowing the same PTAB panel to both institute and finally decide the IPR because of the potential bias against the patent owner. Due process is supposed to guarantee “a fair trial in a fair tribunal.” And allowing the same body to review its own decision may not provide an impartial adjudicator.

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Versata v. SAP


Federal Circuit Issues Its First Opinion from a Final Decision in a USPTO Covered Business Method (“CBM”) Review, Comprehensively Addressing Its Appellate Jurisdiction, the Requirements for Instituting CBM Review, and Permissibility of § 101 Challenges in a CBM Review.

On July 9, 2015, the Federal Circuit issued its first opinion from an appeal of a final decision in a USPTO Covered Business Method (“CBM”) review proceeding, addressing several issues related to CBM proceedings and providing its opinion as to whether the USPTO Patent Trial and Appeal Board’s (“PTAB”) decision was correct that Versata’s patent, directed to determining a price using organizational and product group hierarchies, is invalid under 35 U.S.C. § 101 as being directed to “abstract ideas.” Versata Development Group, Inc. v. SAP America, Inc., No. 2014 1194 (Fed. Cir. July 9, 2015).

Quoting 35 U.S.C. § 324(e), which provides that “[t]he determination by the Director whether to institute a post-grant review . . . shall be final and nonappealable,” the Court made clear that it was not going to review the determination by the PTAB whether to institute a CBM review, but rather the merits of the final written decision that were appealed. The Court, however, did hold that it has the power to review on appeal the PTAB’s decision in a CBM proceeding of whether the challenged patent is a “covered business method.”

The Federal Circuit did not disturb its prior decision that the “broadest reasonable interpretation” standard for construing claim language used by the USPTO is appropriate, as opposed to the stricter standard used by district courts.

The Federal Circuit next responded to Versata’s challenge to whether the PTAB is authorized to invoke 35 U.S.C. § 101 as basis for a finding of invalidity, and the USPTO’s challenge to whether the Court could review this issue on appeal. The Court answered both questions in the affirmative.

Having resolved those threshold issues, the Court affirmed the USPTO on the merits of the CBM challenge, ruling that the patent was a covered business method subject to CBM review; that the USPTO properly construed the disputed claim terms; and that the claims were unpatentable under § 101 as directed to ineligible subject matter.

Senior Judge Plager wrote the majority opinion, joined by Judge Newman, while Judge Hughes wrote an opinion concurring in part and dissenting in part. Judge Hughes agreed that the patent claims were ineligible under § 101, but asserted that the Federal Circuit was not empowered to review the PTAB’s decision of whether the patent is directed to a covered business method.


The Leahy-Smith America Invents Act (“AIA”) establishes new proceedings in the USPTO to enable challenges to granted patents, one of which is CBM review. CBM proceedings are available only for a “covered business method patent,” which the AIA defines as “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service . . . .” “Patents for technological inventions” are excepted from CBM review under the statute. The USPTO has defined a technological invention as one in which “the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.”

When a challenger files a petition for CBM review, the review proceeds in two phases. First, the PTAB determines whether to grant the petition and institute review. As part of this institution decision, the PTAB considers whether the requirements for CBM review are met, including whether the claims are directed to a “covered business method patent” rather than a “technological invention.” If those requirements are met, and the PTAB determines that at least one challenged claim is more likely than not unpatentable, the PTAB institutes the CBM review. Second, after the CBM review is instituted, the PTAB proceeds to consider the merits and renders a final decision on whether the challenged claims are patentable over the grounds stated in the petition.

As part of the AIA, Congress hoped to streamline post-grant proceedings including CBM review and decided that only certain aspects of the proceedings should be appealable. As such, 35 U.S.C. § 324(e) provides that “[t]he determination . . . whether to institute a post-grant review under this section shall be final and nonappealable.”

Proceedings Below

Versata Development Group, Inc. (“Versata”) owns U.S. Patent No. 6,553,350 (“’350 patent”), which is generally directed to pricing products in multi-level product and organizational groups. SAP America, Inc. and SAP AG (“SAP”) filed a petition for CBM review of claims 17 and 26-29 of the ’350 patent on September 16, 2012 (the first day CBM procedures took effect). The PTAB granted the petition and instituted CBM review on January 9, 2013. On June 11, 2013, the PTAB issued a final written decision cancelling the challenged claims as unpatentable under 35 U.S.C. § 101 as being directed to “abstract ideas.” Versata appealed.

Federal Circuit Opinion

On appeal, the Federal Circuit addressed the following four issues:

Issue 1—Scope of Appellate Review. The Court held that § 324(e)’s prohibition of appellate review of CBM institution decisions does not prevent the Court from reviewing issues that the PTAB considers during the institution phase, and that serve as limitations on the PTAB’s authority to issue a final written decision. Thus, while the Court could not review the PTAB’s institution decision per se, the Court held that it nevertheless could—as part of its review of the PTAB’s final written decision—determine whether the challenged patent constituted a “covered business method patent.”

Issue 2—Definition of “Covered Business Method Patent.” The Court agreed with the PTAB that the statutory definition of “covered business method patent” is broad and covers a range of finance-related activities. The Court rejected Versata’s contention that the phrase “financial product or service” limited a covered business method to products or services of the financial services industry, or to patents owned by or directly affecting financial institutions. The Court next considered the “technological invention” exception. While criticizing the USPTO’s definition as circular and unhelpful, the Court nevertheless agreed with the PTAB’s determination that the challenged patent (specifically, representative claim 17) did not solve a technical problem using a technical solution.

Issue 3—Claim Construction Standard. The Versata Court approved the PTAB’s use of the “broadest reasonable interpretation” claim construction standard for CBM review.

Issue 4—The Merits Determination. Similar to Issue 1, the Court first questioned whether it could review whether the PTAB is authorized to invoke § 101 as a test of validity in CBM proceedings. For the same reasons as in Issue 1, the Court answered in the affirmative: the PTAB’s authority to apply § 101 speaks to a limitation on the PTAB’s authority to invalidate a patent. Having decided it was allowed to answer the question, the Court next turned to the answer itself, holding that failure to comply with § 101 is a proper ground of invalidity in a CBM review. The Court held that, despite language in 35 U.S.C. § 321(b) that seemed to exclude § 101 from the scope of CBM proceedings, the Court drew on broader language in § 328(a), the case law surrounding § 101, and legislative intent to conclude that § 101 may also be applied in CBM reviews.

Finally, the Court reached the merits of the PTAB’s invalidity finding using the Supreme Court’s so-called Alice/Mayo framework for determining whether claimed subject matter is patent-eligible. Under that framework, first, a determination is made as to whether the claims at issue are directed to a patent-ineligible concept; second, if the claims are directed to such a patent-ineligible concept, a determination is made as to whether the claim includes a limitation or combination of limitations that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the patent-ineligible concept itself. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2355 (2014). Applying the Alice/Mayo Framework, the Court first held that the challenged ’350 patent claims were not directed to patent-eligible subject matter, and instead covered the “abstract idea” of determining a price using organizational and product group hierarchies, which the Court deemed a basic conceptual framework for organizing information. Next, the Court found that none of the claims included sufficient additional limitations that would have transformed their nature into a patent-eligible application of that abstract idea.

The Dissent-in-Part

Judge Hughes dissented in part by noting that the plain language of § 324(e), as well as the distinct institution and merits phases of CBM proceedings, barred appellate review of the PTAB’s threshold decision of whether the challenged patent is directed to a covered business method. He also asserted that such review was contrary to Congress’s intention that CBM proceedings provide quick and cost-effective alternatives to district court litigation.

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Westlake Services, LLC v. Credit Acceptance Corp


In this decision that it designated as “representative”, the PTAB clarified its stance on the application of estoppel in covered business method (CBM) reviews.

CBM proceedings operate under the rules for Post-Grant Reviews (PGRs), with a few specifically articulated exceptions. One of those exceptions pertains to the estoppel. In further proceedings in district court or in the ITC, estoppel for PGRs attaches to issues that were raised or reasonably could have been raised, whereas estoppel for CBMs attaches only to issues actually raised. In further proceedings in the Patent Office, however, estoppel is exactly the same for PGRs and CBMs, and is set forth in 35 U.S.C. § 325(e)(1). The section states that, in a case “that results in a final written decision,” the Petitioner “may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised.”

Westlake addresses only estoppel in a CBM proceeding as applied against a Petitioner in further proceedings in the Patent Office. Even with this narrow focus, Westlake still provides important insights, holding as it does that, under the facts presented there, estoppel in a CBM proceeding applies only on a claim-by-claim basis, and not as against the patent as a whole. Estoppel thus does not apply to claims for which institution was denied in a prior proceeding.

Westlake presents a situation where a second CBM proceeding was preceded by a first CBM proceeding in which Petitioner Westlake petitioned to invalidate all of the claims in Credit Acceptance’s patent. In this first CBM proceeding, PTAB instituted on only some of the claims, not all claims as requested by Westlake, and ultimately issued a final written decision finding that the instituted claims were unpatentable under 35 U.S.C. § 101.

In the second CBM proceeding, which is the subject of the Westlake decision, Westlake sought institution on the remaining claims. Credit Acceptance filed a motion to terminate, arguing that estoppel applied to all claims challenged in the first CBM proceeding by Westlake, and not just those claims on which the first proceeding had been instituted.

The PTAB disagreed and held that the final written decision in the first CBM proceeding established estoppel only as to those claims for which the first proceeding had been instituted. In the view of the PTAB, the argument by Credit Acceptance was wrong because under § 325(e)(1), there was no “final written decision” with respect to the claims that were not instituted. In the second CBM proceeding, therefore, Westlake was free to pursue its petition, without hindrance from estoppel.

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Mitsubishi Plastics, Inc., v. Gelgard, LLC


Inter partes review, unlike inter partes reexamination which it replaced, is an adjudicative proceeding. The Board relies on the evidence submitted by the parties, and it is thus incumbent upon petitioners to present both argument and evidence sufficient to establish a reasonable likelihood of unpatentability of the challenged claims. This is particularly true where the petitioner alleges a claimed feature is inherent in the prior art. Despite relying upon the same prior art with the same expert witness as another instituted IPR proceeding, the statements in the expert declaration were not identical and therefore petitioner in this case failed to establish the critical link between what the prior art explicitly taught and the claimed feature, which was alleged to be inherent in the prior art.

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