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In Inter Partes Review Patent Owner Must Show Patentability of Substitute Claims and Prior Art References Known to Patent Owner Pursuant to Duty of Good Faith and Candor Must be Disclosed

IPR Substitute ClaimsOn February 11, 2016, the US Court of Appeals for the Federal Circuit (CAFC) decided the case of Nike, Inc., V. Adidas AG, 2014-1719 (CAFC, February 11, 2016), in which Adidas filed an inter partes review (IPR) of US Patent No. 7,347, 011 (the ‘011 patent), owned by Nike.

The USPTO Patent Trial and Appeal Board (Board) granted the IPR petition and Nike then filed a motion to amend in which it requested cancellation of claims 1 – 46 and proposed substitute claims 47 – 50. The Board granted Nike’s motion to cancel claims 1 – 46, but denied the motion as to the substitute claims for two alternate reasons. First, the board acknowledged the requirement announced in the Board’s Idle Free decision that a patent owner must “persuade the board that the proposed substitute claim is patentable over the prior art of record, and over prior art not of record but known to the patent owner.” Because Nike’s motion included only a conclusory statement that the proposed claims were patentable over prior art not of record but known to Nike, the Board denied Nike’s motion. Alternatively, the Board denied entry of the substitute claims because Nike failed to establish that the substitute claims were patentable over the references of record, namely Nishida and Schuessler.

Nike raised three primary arguments. First, Nike asserted that the Board erroneously shifted to Nike (the patent owner) the burden of proving patentability of the proposed substitute claims 47 – 50. Second, Nike contested the Board’s finding on the merits that the proposed substitute claims were unpatentable as obvious. Third, Nike objected to the Board’s practice of requiring a patent owner to establish patentability of substitute claims overall prior art known to the patent owner, including prior art not of record but known to the patent owner.

Regarding Nike’s first argument, the CAFC held that the PTO does have the specific authority to establish the standards and procedures with which a patent owner must comply to amend its patent during an IPR. Section 316 (a) (9) “directs the PTO to set ”standards and procedures… ensuring that any information submitted by the patent owner in support of any amendment entered under subsection (d) is made available to the public.” In this way, the patent owner carries an affirmative duty to justify why newly drafted claims which, unlike the issued claims, which had never been evaluated by the PTO, should be admitted.

Regarding Nike’s second argument, the CAFC analyzed the secondary evidence presented by Nike and held that the Board should have explicitly acknowledged and evaluated Nike’s secondary considerations evidence as applied to the patentability of the substituted claims.

Regarding Nike’s third argument, the CAFC held that a reference to prior art known to the patent owner should be understood is no more than the material prior art that the patent owner makes of record in the current proceeding pursuant to its duty of candor and good faith to the office under 37 C. F. R. § 42.11, in light of the motion to amend. The CAFC noted that the PTO acknowledged that the Board read ldle Free too aggressively. The CAFC also stressed that at the heart of Idle Free, as interpreted by Master Image 3D, is the question of whether the patent owner has submitted the necessary information to comply with its duty of candor to the USPTO. In this case, there is not and there never was an allegation that Nike violated its duty of candor.

Based on its conclusions, the CAFC vacated the Board’s obviousness determination and remanded the case back to the Board.

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