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It Can Take Three Appeals to Make a Claim Construction Go “Right”—or Three Bites by Apple

In a nonprecedential opinion on remand from the US Court of Appeals for the Federal Circuit and a US Patent & Trademark Office (PTO) Director-granted request for review, the Patent Trial & Appeal Board (Board) reconstrued claim terms it had previously construed in consideration of the patent specification, prosecution history and Federal Circuit construction of similar terms in a related case. Apple Inc. v. Personalized Media Communications, LLC, IPR2016-00754, IPR2016-01520 (P.T.A.B. Sept. 8, 2022) (Turner, APJ.)

In March 2016, Apple filed a petition to institute an inter partes review (IPR) against a patent (’635 patent) owned by Personalized Media Communications, LLC (PMC). After PMC filed its Patent Owner Preliminary Response (POPR), the Board instituted the IPR on some, but not all, of Apple’s requested grounds. Per Board procedure, PMC filed its Patent Owner Response (POR) and a contingent motion to amend its patent’s claims. In response, Apple filed a reply and an opposition to the contingent motion, and PMC filed a reply to Apple’s opposition. After oral argument the Board issued a Final Written Decision (754-FWD) finding all challenged claims unpatentable and denying the contingent motion to amend. PMC first sought rehearing of the Board’s decision and, after rehearing was denied, appealed the Board’s decision to the Federal Circuit.

Similarly, in July 2016, Apple filed another petition against the same PMC patent. After considering PMC’s POPR, the Board instituted an IPR on some of Apple’s requested grounds. PMC again filed a POR and a contingent motion to amend, to which Apple filed a reply and opposition (to which PMC filed its reply and Apple a sur-reply). Again, the Board held an oral hearing and issued a Final Written Decision (FWD) finding all challenged claims unpatentable and denying the contingent motion to amend. PMC again sought rehearing of the Board’s decision and, after rehearing was denied, appealed the Board’s decision to the Federal Circuit.

On appeal of each proceeding, PMC moved, and the Federal Circuit granted remand in light of and consistent with the 2021 Supreme Court decision in U.S. v. Arthrex, Inc., where a five-justice majority found that the appointment of Board administrative patent judges was unconstitutional and a seven-justice majority concluded that the remedy was to vest the PTO Director with authority to overrule Board decisions.

On remand to the PTO, PMC filed a request for director review, which the Commissioner for Patents (performing the functions and duties of the PTO Director) granted. The Commissioner’s Granting Order agreed with PMC’s argument that the Board, in these two cases, had construed the claim terms “encrypted” and “decrypted” in a manner that could include “scrambling and descrambling operations on digital information, but could also include … on analog information” and was inconsistent with the Federal Circuit’s partial reversal of the Board’s construction in yet another IPR proceeding (755-IPR regarding another related PMC patent) between Apple and PMC. As to the related patent IPR, the Federal Circuit ultimately construed “encrypted digital information transmission including encrypted information” as “… limited [...]

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Not “Use It or Lose It”: Even if Unexercised, Director’s Authority over Institution Decisions Remains

The US Court of Appeals for the Federal Circuit denied mandamus relief, finding that a party is not entitled to petition the director for review of a Patent Trial & Appeal Board (Board) decision denying institution of an inter partes review (IPR) or post-grant review (PGR) proceeding. This ruling reflects the Court’s ongoing consideration of the Supreme Court’s decision in United States v. Arthrex, Inc., which held that Board judges cannot constitutionally render final decisions in IPRs without US Patent & Trademark Office (PTO) Director oversight. Click here for our discussion of the case on remand, for which the Federal Circuit just denied en banc rehearing. In re Palo Alto Networks, Inc., Case No. 22-145 (Fed. Cir. Aug. 16, 2022) (Dyk, Chen, JJ.) (Reyna, J., concurring).

After being sued by Centripetal Systems for patent infringement, Palo Alto Networks filed petitions for IPR and PGR of some of the asserted patents. The Board denied institution, and Palo Alto Networks filed requests for Director rehearing. Although the PTO acknowledged receipt of the request, it informed Palo Alto Networks that the Director was not considering requests for rehearing of institution decisions “at this time.” Thereafter, Palo Alto Networks sought a writ of mandamus from the Federal Circuit. Between the request for mandamus and the Court’s decision, the PTO issued guidance explaining that although the PTO was not considering requests for rehearing, “the Director has always retained and continues to retain the authority to review such decisions sua sponte after issuance (at the Director’s discretion),” and indeed, exercised its authority to initiate sua sponte review since.

The Federal Circuit rejected Palo Alto Networks’ claim that the Director’s refusal to consider petitions for rehearing of institution decisions amounted to an abdication of authority prohibited by the Appointments Clause. Even assuming that institution decisions were “final decisions on how to exercise executive power” implicating the Appointments Clause, the Court found that the Director maintains statutory and regulatory authority to review institution decisions (unlike in Arthrex), and that the Board renders such decisions only based on the Director’s delegation of authority (also unlike Arthrex). Accordingly, the structural authority maintained by the Director is sufficient, even if such authority goes unexercised, according to the Court.

Writing separately, Judge Reyna agreed that no Appointments Clause violation had occurred but on different grounds. Although Judge Reyna noted that a categorical rejection of requests for rehearing by the Director might raise constitutional concerns, he concluded that mandamus was inappropriate for several reasons. First, the Director’s caveat that she refused to accept requests “at this time” did not constitute a categorical refusal but rather an exercise of discretion. Second, the Director’s invocation of her sua sponte authority to review belied a lack of exercise of discretion. The Director did in fact exercise sua sponte authority to consider Palo Alto Networks’ request, even though briefing in the Federal Circuit was pending, and thus a writ of mandamus was inappropriate.




PTO’s Financial Benefits from IPR Don’t Render PTAB Unconstitutional

A split panel of the US Court of Appeals for the Federal Circuit concluded that the structure and functions of the Patent Trial & Appeal Board (PTAB) survived yet another constitutional challenge, this time based on the PTAB’s fee and compensation structure, lack of director review over the institution decision and applicability of the Takings Clause. Mobility WorkX, LLC v. Unified Patents LLC, Case No. 20-1441 (Fed. Cir.) (Dyk, J.) (Newman, J., dissenting).

With the dust barely settled after the Supreme Court’s ruling in US v. Arthrex, Inc. that the PTAB’s rendering of final written decisions without director review violated the Appointments Clause, this case presented a whole new slate of potential deficiencies with the PTAB. Although none of these deficiencies were initially raised with the PTAB, the Court exercised its discretion to nonetheless consider the challenges based on publicly available records that it could judicially notice.

The first challenge, already made in many other cases, was that the Federal Circuit remand for the director to consider a rehearing petition in view of Arthrex. This remedy, already afforded in other post-Arthrex challenges, was a simple grant. Yet, here, Mobility asked for something more, arguing that because the director did not resolve the inter partes review (IPR) within the 12-month statutory period, the director must confirm the claims or dismiss the IPR. The Court declined to rule on this issue, instructing Mobility to raise the issue on remand.

The issue receiving the most attention by the Federal Circuit was Mobility’s claims that the PTAB’s fee structure and bonus payments to administrative patent judges (APJs) based on their workload violated the Due Process Clause. According to Mobility, the APJs have a financial incentive to institute IPRs (i.e., significant fees), which provide a significant benefit to the agency. But the Court concluded that the APJs (even the leadership APJs) have only an attenuated role in budget control and thus have an insignificant interest in the financial health of the US Patent & Trademark Office as a whole. Because Congress holds the purse strings and the more significant budget responsibilities fall on the director and the president, the majority held that little connection existed between institution decisions and the agency’s overall financial health, which was consistent with the Court’s own precedent regarding reexaminations and other circuits’ precedents regarding executive agency fee collection. This attenuated connection differentiated the PTAB’s collected fees from Supreme Court cases that found due process violations based on the structure of certain executive courts presided over by a mayor who also held concomitant budget responsibilities.

Similarly, the Federal Circuit held that the APJs’ incentive to render a certain number of decisions—i.e., APJs receive bonus payments if they earn at least 84 decisional units, and the number of decisions is part of performance evaluation—did not provide an unconstitutional incentive to institute. The majority reasoned that ample alternative means existed for the APJs to earn their bonuses, namely, the ability to volunteer for non-America Invents Act (AIA) decisions (such as [...]

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TTAB Judicial Appointments are Determined Constitutionally Sound

Addressing for the first time whether the Supreme Court of the United States’ recent decision in United States v. Arthrex, Inc. also applied to the Trademark Trial and Appeal Board (TTAB), the US Court of Appeals for the Federal Circuit held that it did not, upholding the constitutionality of TTAB judicial appointments and affirming the TTAB’s cancellation of the SCHIEDMAYER trademark. Piano Factory Group, Inc. v Schiedmayer Celesta GMBH, Case No. 20-1196 (Fed. Cir. Sept. 1, 2021) (Bryson, J.)

Schiedmayer Celesta is the remaining corporate entity from a centuries-old line of German keyboard instrument manufacturers that uses the SCHIEDMAYER trademark in connection with the sale of its products. Sweet 16 Musical Properties and Piano Factory Group (collectively, Piano Factory) operated Hollywood Piano retail outlets where it sold “no-name” pianos purchased from China that were affixed with “Schiedmayer” labels. The owner of Piano Factory, believing the SCHIEDMAYER mark had been abandoned, applied to register the SCHIEDMAYER mark, and the registration issued in 2007.

In 2015, Schiedmayer filed a petition to cancel Piano Factory’s registration, alleging that it falsely suggested a connection with Schiedmayer and, thus, violated Section 2(a) of the Lanham Act. After the TTAB granted the petition to cancel, Piano Factory appealed.

Between the time that the parties filed their appeal briefs and the Federal Circuit issued its decision, the Supreme Court issued its decision in United States v. Arthrex, holding that the appointment of Patent Trial & Appeal Board (PTAB) administrative judges violated the Appointments Clause of Article II of the Constitution. On appeal, Piano Factory argued that the appointment of TTAB administrative judges (specifically, the administrative judges who issued the decision Piano Factory was appealing) was likewise unconstitutional. However, the Court disagreed, citing language from the Arthrex decision that “effectively confirmed that . . . the statutory scheme governing TTAB decision-making is not subject to the Appointments Clause problem the Court identified with regard to the PTAB.”

Additionally, Piano Factory cited the Trademark Modernization Act of 2020 (TMA)—which explicitly addressed this issue—for support. Piano Factory argued that since the TMA was not enacted until after the TTAB’s decision to cancel the SCHIEDMAYER registration, its enactment indicated that the TTAB was previously flawed. Again, the Federal Circuit disagreed, stating “the 2020 legislation itself makes clear that it merely confirmed, and did not alter” the framework that was in place prior to the TMA.

Piano Factory also challenged the merits of the TTAB’s decision, including its application of the four-factor test for false association, which considers:

  1. Whether the challenged mark is identical or nearly identical to a name previously used by another person;
  2. Whether the mark would be understood as a unique and unmistakable reference to that person;
  3. Whether the person referenced by the challenged mark was connected with the applicant’s activities and
  4. Whether the earlier user’s name has sufficient fame such that a connection with applicant would be presumed when the contested mark was used to identify the applicant’s goods.

Piano Factory disputed the [...]

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Arthrex Argument May Be Available in Round Two

The US Court of Appeals for the Federal Circuit found that a party did not waive the Patent Trial & Appeal Board’s (Board) constitutionality argument by raising it for the first time in its opening brief because the Court’s decision in Arthrex, Inc. v. Smith & Nephew, Inc. was issued after the party sought rehearing. New Vision Gaming v. SG Gaming, Inc., Case Nos. 20-1399, -1400 (Fed. Cir. May 13, 2021) (Moore, J.) (Newman, J. concurring in part, dissenting in part)

New Vision appealed two covered-business method (CBM) review final written decisions in which the Board found that all claims of the patents, as well as its proposed substitute claims, were directed to patent ineligible subject matter under 35 U.S.C. § 101. In its opening brief before the Federal Circuit, New Vision requested the Court vacate and remand the Board’s decisions in light of Arthrex. SG Gaming argued New Vision had waived its right to a challenge under Arthrex since it raised it for the first time on an appeal. The Court disagreed, finding that New Vision had not waived its ability to challenge the Board’s decision under Arthrex since Arthrex was issued after the Board’s final written decisions and after New Vision sought Board rehearing. The Court vacated the Board’s final written decisions in the CBMs and remanded for further proceedings consistent with Arthrex without reaching the merits or any other issues.

In her partial dissent, Judge Pauline Newman agreed that Arthrex applied and vacating the Board’s final written decisions was appropriate. She also argued that another threshold issue (venue) should have been resolved, rendering the remand under Arthrex unnecessary and unwarranted. Additionally, Judge Newman agreed with New Vision that since the parties agreed to a different forum for dispute resolution in their license agreement, compliance with the parties’ patent license agreement would be appropriate. Under that agreement, if “any dispute” arose, jurisdiction would be “exclusive” in the appropriate federal or state court in the state of Nevada. New Vision filed suit in the federal district court in Nevada before SG filed CBM petitions before the Board. The Board stated it “[does] not discern, nor has Patent Owner pointed to, any portions of chapter 32 or § 18 of the AIA, or authority otherwise, that explicitly provide for a contractual estoppel defense,” in its decision and proceeded to a final decision despite the forum selection agreement.

Both parties briefed the forum selection question, with New Vision citing the Federal Circuit 2019 decision in Dodocase VR v. MerchSource in which a case was removed from the Board based on an agreed choice of forum. SG countered that the Board’s rejection of choice of forum is an unreviewable “institution” decision under Thryv vs. Click-to-Call. Andrei Iancu, the Director of the US Patent and Trademark Office (USPTO), intervened in the appeal, arguing that the Board’s decision is “final and nonappealable” under 35 U.S.C. § 324(e). As to the Board’s “conduct” in declining to [...]

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Federal Circuit Extends Arthrex to Ex Parte Re-Examination Proceedings

The US Court of Appeals for the Federal Circuit vacated and remanded a decision issued by the Patent Trial and Appeal Board (PTAB), holding that its decisions in Arthrex and VirnetX also apply to ex parte examinations at the PTAB. In re: Boloro Global Ltd., Case Nos. 19-2349, -2351, -2353 (Fed. Cir. July 7, 2020) (Dyk, J.).

The issue regarding ex parte appeals started to take shape in October 2019—in the context of an inter partes review (IPR) proceeding—when the Federal Circuit held that the appointment of administrative patent judges (APJs) at the PTAB is unconstitutional. Arthrex v. Smith & Nephew (IP Update, Vol. 22, No. 11). APJs are appointed by the secretary of commerce in consultation with the director of the US Patent and Trademark Office (PTO) pursuant to 35 USC § 6(a). In Arthrex, The Federal Circuit determined that APJs are principal officers and are not constitutionally appointed, because as principal officers they must be appointed by the president with the advice and consent of the Senate.

Having concluded that the appointment of APJs violated the Appointments Clause, the Federal Circuit held that “where the final decision was rendered by a panel of APJs who were not constitutionally appointed,” and “where the parties presented an Appointments Clause challenge on appeal,” the decision below “must be vacated and remanded.” The Court further instructed that, on remand, a new panel of APJs must be designated and a new hearing granted. The Court put a bookend on its holding, ruling that where an Appointment Clause challenge was not raised in an opening brief, the challenge was waived. So PTAB decisions that issued before Arthrex, if timely appealed and subject to an Appointment Clause challenge in the opening brief, could be vacated as unconstitutional and remanded for a new panel of APJs.

In May 2020, the Federal Circuit extended its decision in Arthrex to final decisions issued by APJs in inter partes re-examination proceedings (VirnetX v. Cisco Systems). In VirnetX, the Court discerned no differences between the duties of an APJ in an IPR proceeding as compared to an inter partes examination proceeding, because both proceedings involve third-party challenges to an issued patent and in both proceedings APJs exercise significant authority by issuing final decisions that decide the patentability of the challenged claims, and the PTO director does not have an independent way of reviewing those final determinations.

The present case arose in the context of an appeal from an examiner in ex parte prosecution. Boloro argued that APJs in ex parte appeals also exercise significant authority by virtue of the matters on which they are asked to render judgment, and carry out similar functions when they carry out their function of deciding IPRs. Boloro asserted that although ex parte appeals were not specifically addressed in Arthrex, the PTAB also has the power in ex parte appeals to disqualify counsel, to admit people pro hac vice, and to order appellants to additionally brief any matter that the PTAB considers to [...]

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Arthrex Extended to Inter Partes Re-examination

The US Court of Appeals for the Federal Circuit denied a petition for panel rehearing regarding the constitutionality of decisions issued by the United States Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB), holding that its decision in Arthrex, Inc. v. Smith & Nephew, Inc. (IP Update, Vol. 22, No. 11) also applies to final decisions issued by administrative patent judges (APJs) in inter partes re-examinations. Virnetx v. Cisco Systems, Inc., Case No. 19-1671 (Fed. Cir. May 13, 2020) (O’Malley, J.). The Court also denied (per curiam) a concurrently filed petition for rehearing en banc.

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“Waive” Goodbye to Belated Argument that Administrative Patent Judges’ Appointment is Unconstitutional

Addressing whether a party can waive a challenge to the constitutionality of Administrative Patent Judges’ (APJs’) appointment, the US Court of Appeals for the Federal Circuit found that the issue is non-jurisdictional and therefore waivable. Ciena Corp. v. Oyster Optics, LLC, Case No. 19-2117 (Fed. Cir. Jan. 28, 2020) (O’Malley, J.) (reissued as precedential May 5, 2020).

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