With Notice and Opportunity to Respond, PTAB May Raise New Patentability Issues Based on Art of Record

By on April 23, 2020

In an opinion concerning the notice provisions of the Administrative Procedure Act (APA), the US Court of Appeals for the Federal Circuit held that the Patent Trial and Appeal Board (PTAB) may identify a new patentability issue regarding proposed substitute claims based on prior art of record—but must first notify the parties and provide an opportunity to respond. Nike, Inc. v. Adidas AG, Case No. 20-1262 (Fed. Cir. Apr. 9, 2020) (Stoll, J.).

The decision is part of a long-running battle between Nike and Adidas that began in 2012, when Adidas filed a petition for inter partes review (IPR) of a patent owned by Nike. Nike subsequently filed a motion to cancel the existing claims and substitute new claims. Particularly relevant is a new claim that recites a knit textile upper element of a shoe containing “apertures” that can be used to receive laces and that are “formed by omitting stitches” in the knit textile.

The PTAB earlier denied Nike’s request to substitute the new claims, holding that the claims were obvious over three prior art patents identified by Adidas. Nike appealed, and the Federal Circuit vacated and remanded the decision, finding that the PTAB did not properly consider some of Nike’s arguments. IP Update, Vol. 21, No. 8.

On remand, the PTAB articulated a new theory of invalidity based in part on a prior art knitting technology handbook (“Spencer”) that was of record but not earlier relied upon by either party. The PTAB acknowledged that none of the three references that Adidas relied upon disclosed apertures “formed by omitting stitches” as required by the new claim, but found that Spencer “demonstrates that skipping stitches to form apertures was a well-known technique.” Nike again appealed, asserting that the PTAB violated the APA notice provisions (5 U.S.C. §§ 554(b)(3) and (c)(1)) by failing to give notice that it would rely on Spencer.

The Federal Circuit agreed with Nike, and vacated and remanded to provide Nike with an opportunity to respond to the PTAB’s theory. The Court first explained that it was not error for the PTAB to rely on Spencer, reasoning that “it makes little sense to limit the Board, in its role with the agency responsible for issuing patents, to the petitioner’s arguments,” particularly if a petitioner does not oppose a motion to amend, as “the Patent Office would [then] be left with no ability to examine new claims.” Accordingly, the Court held that “the Board may sua sponte identify a patentability issue for a proposed substitute claim based on the prior art of record.”

However, the Federal Circuit found that the PTAB erred by failing to provide Nike with notice of its intent to rely on Spencer. In doing so, the Court discussed several of its prior decisions interpreting the APA notice provisions in the context of IPR proceedings. For example, citing its own precedent, the Court noted that “an agency may not change theories in midstream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory.” Moreover, the PTAB “must base its decision on arguments that were advanced by a party, and to which the opposing party was given a chance to respond.” Although these decisions did not involve a motion to amend, the Court found “no reason why their holdings and principles regarding fair notice and an opportunity to respond would not apply to all aspects of an IPR proceeding.” The Court held that the PTAB violated these principles, because its decision “rest[ed] exclusively on an argument that the Board itself raised, addressed, and decided in its decision on remand, thereby depriving Nike of notice or an opportunity to be heard at a meaningful point in the proceedings.”

Practice Note: Care should be taken in selecting (and challenging) prior art references in IPR proceedings, as the Federal Circuit confirmed that the PTAB may sua sponte identify validity issues based on any references that are on the record—so long as the affected party is provided notice and an opportunity to respond.