Federal Circuit Explains Burden Shifting in IPRs

In re Magnum Oil Tools International, Ltd., __ F.3d __ (Fed. Cir. July 25, 2016) (Newman, O'MALLEY, Chen) (PTAB) (4 of 5 stars)

The highly truncated nature of inter partes review (IPR) proceedings has led to concerns about parties changing their positions unfairly and about the Board unfairly relying on an analysis that neither party advocated.

In the present case, the problem arose because the Board instituted the IPR and found obviousness based on a primary reference that was the second of the Petitioner's two primary references and different from the first reference in meaningful ways, and that the IPR petition addressed mainly by referring back to the analysis for the first primary reference.

The panel began by noting that Magnum's challenge was reviewable —€“ it was a challenge from the Board's final written decision under Versata even though Magnum's briefing referred to statements from the Board's institution decision. The Board had referred to those prior statements in its final written decision, and the work of the Board at institution thus became part of the final decision too. (The arguments came only from the PTO because Petitioner settled out during the appeal.)

The panel then provided a long discussion about burdens in IPR proceedings, because the PTO had argued that the decision at institution regarding a "reasonable likelihood of success" shifted to Magnum the burden to prove patentability (or at least shifted the burden to present evidence of patentability). The upshot of the panel's discussion is that the burden of persuasion remains at all times on a Petitioner (which is different than in normal prosecution), and the burden of production for obviousness does not shift at institution because a Patent Owner's evidence simply counters Graham evidence provided by the Petitioner and does not open separate issues (in contrast to Patent Owner claims for pre-filing priority, where the burden of production can be on the Patent Owner because it is introducing a new issue).

With this background, the panel concluded that the Board improperly shifted to Magnum a burden to disprove obviousness, because the Petitioner's arguments about the two primary references were different in material ways, so that the Petitioner's mere referencing of its arguments for the first reference in its arguments for the second reference did not make out a case for obviousness based on the second reference. As a result, the Board's criticism of Magnum for failing to show that the prior art combination would not produce a predictable result (among other points) showed that the Board had improperly shifted the burden to the Patent Owner. The court noted:

To satisfy its burden of proving obviousness, a petitioner cannot employ mere conclusory statements. The petitioner must instead articulate specific reasoning, based on evidence of record, to support the legal conclusion of obviousness.

The panel also rejected the PTO's argument that the Board could back-fill for the Petitioner since the proper arguments could have been made in a properly-drafted petition: "[T]he Board must base its decision on arguments that were advanced by a party, and to which the opposing party was given a chance to respond." Slip Op. at 26.

Finally, the panel rejected the PTO's argument that the proper time to challenge the Board's action was in a Request for Rehearing of the Institution Decision. Nothing in the statute or rules requires a rehearing request at any point, even though the rules permit such a challenge.

This decision is notable for several reasons. First, it contains explicit statements that a party does not have to seek rehearing if it thinks the Board erred. Second, it provides fairly hard limits on how much work the Board can do on behalf of a party, and in particular, on behalf of a petitioner. Third, it makes clear that, at least for regular obviousness points (and presumably anticipation), there is no burden shifting like that present in normal prosecution. And fourth, it serves as a real warning for parties seeking to make incomplete arguments to fir within space limitations in an IPR petition.