Federal Circuit Update (September 2016)

September 29, 2016

This September 2016 edition of Gibson Dunn’s Federal Circuit Update discusses the steep rise in appeals from the Patent Trial & Appeal Board due to the America Invents Act.  The Update also includes a practice tip regarding the procedure for seeking rehearing of an adverse panel decision.  Also included are summaries of the pending en banc case involving motions to amend claims during inter partes review as well as a trio of key recent decisions including two recent developments in Federal Circuit jurisprudence on patent eligibility under Section 101 and one recent decision on the application of common sense in an obviousness inquiry.

Federal Circuit News

On September 16, 2012, the Leahy-Smith America Invents Act ("AIA") became effective and established the Patent Trial & Appeal Board ("PTAB") as a new administrative body for disputing patentability of patent claims at the U.S. Patent and Trademark Office ("PTO").

The first AIA appeal at the Federal Circuit, St. Jude Medical v. Volcano Corporation (2014-1183), was docketed on December 27, 2013.  Since then, the Federal Circuit has seen a large increase in appeals from the PTO as compared with other origins, due primarily to an increase in appeals from PTAB decisions.  The number of appeals from the PTO docketed at the Federal Circuit rose from 132 in FY 2013 to 411 in FY 2015.  In FY 2016, appeals from the PTO for the first time exceeded those from district courts.  If the trend for FY 2016 continues in September (the last month of the Federal Circuit’s fiscal year), the court will have docketed 639 appeals from the PTAB this year, as compared with 557 from district courts.

Below is a chart detailing Federal Circuit appeals filed from major origins for the past decade (further statistics available at http://www.cafc.uscourts.gov/the-court/statistics):

Federal Circuit Appeals

Upcoming En Banc Federal Circuit Cases

In re Aqua Prods., Inc., No. 15-1177 (Fed. Cir.):  Allocations of the burdens of persuasion and production when a patent owner moves to amend in an inter partes review ("IPR") proceeding.

The PTAB instituted an IPR proceeding against Aqua’s patent, which relates to automated swimming pool cleaners.  Aqua moved to amend the challenged claims to distinguish the cited prior art.  The PTAB, however, denied Aqua’s motion, determining that Aqua failed to carry its burden of showing patentability of the proposed substitute claims over the prior art of record.  On appeal, the PTO intervened to defend the PTAB’s decision.  The Federal Circuit affirmed, holding that the PTAB properly considered all of the arguments that Aqua had raised and that precedent upheld the PTAB’s approach of allocating to the patentee the burden of showing that the proposed amendments would overcome the prior art of record (decision available here).  Amicus briefs in support of neither party or in support of Aqua must be filed by October 5, 2016, and amicus briefs in support of the PTO must be filed by November 2, 2016.

Questions Presented:

  1. When the patent owner moves to amend its claims under 35 U.S.C. § 316(d), may the PTO require the patent owner to bear the burden of persuasion, or a burden of production, regarding patentability of the amended claims as a condition of allowing them? Which burdens are permitted under 35 U.S.C. § 316(e)?
  2. When the petitioner does not challenge the patentability of a proposed amended claim, or the PTAB thinks the challenge is inadequate, may the PTAB sua sponte raise patentability challenges to such a claim? If so, where would the burden of persuasion, or a burden of production, lie?

Federal Circuit Practice Update

Following a panel decision, a party may petition for panel rehearing, rehearing en banc, or both (a combined petition).  In each case, the petition must be filed within 30 days after entry of judgment and is limited to 15 pages.  See Fed. R. App. P. 35(b)(2); Fed. R. App. P. 35(c); Fed. R. App. P. 40(b); Fed. Cir. R. 40(e); Fed. Cir. R. 35(d).  Note that these deadlines are unique to the Federal Circuit, and differ from the Federal Rules of Appellate Procedure and local rules of other circuits. 

Panel rehearing. The preferred contents and organization for a petition for panel rehearing are set forth in Federal Circuit Rule 40(a).  The petition for panel rehearing is decided by the original panel that issued the opinion and requires a majority of the panel to agree to rehear the case.  When a panel votes to grant a petition (other than to make mere language changes without change in result), the court will invite a response from the non-petitioning parties and will not issue the order granting the petition until ten working days following distribution of a response.  Rehearing before the panel may take place with or without further briefing or oral argument, as the court directs.

Rehearing en banc. The preferred contents and organization for a petition for a rehearing en banc are set forth in Federal Circuit Rule 35(e)(2). The petition must state either that the panel decision is contrary to Supreme Court or Federal Circuit precedents (citing specific decisions) or that the appeal requires an answer to one or more precedent-setting questions of exceptional importance.  Note that petitions for rehearing en banc are generally appropriate only if the appeal was the subject of a precedential panel opinion.  A petition for rehearing en banc that is not combined with a petition for panel rehearing will be presumed to request relief that can be granted by the panel that heard the appeal, and action on the petition for rehearing en banc will be deferred until the panel has had the opportunity to grant the relief requested.  If the panel either takes no action or grants less than all of the relief requested, the petition will be considered by the active judges of the court and any judge who was a member of the panel that heard the appeal. See IOP #14(2).

Combined petition.  The preferred contents and organization for a combined petition are set forth in Federal Circuit Rule 35(e)(3).  When a combined petition is filed, the petition is decided first as a petition for panel rehearing.  If the panel grants the requested relief, the petition for rehearing en banc is deemed moot.  See Fed. Cir. R. 35 (practice notes).  If the panel votes to deny the petition, the petition will then be treated as a petition for rehearing en banc.  Note that the combined petition must stay within the 15 page limit, and any time a party seeks both rehearing and rehearing en banc, the petitions must be combined.  If a party files both a petition for panel rehearing and a petition for rehearing en banc separately, they are considered a single document anyway for purposes of the page limit.  See Fed. R. App. P. 35(b)(3); Fed. Cir. R. 35(d).

Key Case Summaries (Aug. – Sept. 2016)

McRO, Inc. v. Bandai Namco Games Am. Inc., No. 2015-1080 (Fed. Cir. Sept. 13, 2016): Analysis of the claims as a whole under the "directed to" inquiry of step one of the Alice framework.

Plaintiff McRO, Inc. is the assignee of two patents covering methods of automating a 3-D animator’s task of synchronizing the lip and facial expressions of animated characters.  McRO asserted these patents against several video game developers and publishers.  The cases were consolidated for pre-trial purposes.  Following claim construction, the defendants jointly filed a motion for judgment on the pleadings under Fed. R. Civ. P. 12(c) that the asserted claims were directed to patent ineligible subject matter under Section 101.  The district court granted the defendants’ motion, finding that the claims were "drawn to the abstract idea of automated rules-based use of morph targets and delta sets for lip-synchronized three-dimensional animation," and that the claims preempted all uses of such a "rules-based" approach in the field of automated lip-synchronization.

The Federal Circuit (Reyna, J.) reversed the district court’s decision and deemed all asserted claims patentable under Section 101.  The court’s analysis focused on the first step of the Alice framework.  The court explained that "in determining the patentability of a method, [it] must look to the claims as an ordered combination, without ignoring the requirements of the individual steps."  Here, the court "look[ed] to whether the claims in these patents focus on a specific means or method that improves the relevant technology or are instead directed to a result or effect that itself is the abstract idea and merely invoke generic processes and machinery."  In finding that the claims focused on the former (and were thus not directed to an abstract idea), the court emphasized the specificity of the claimed process.  The claims, according to the court, "focused on a specific asserted improvement in computer animation, i.e., the automatic use of rules of a particular type."  The court similarly explained that the claims are "limited to a specific process for automatically animating characters using particular information and techniques and do[] not preempt approaches that use rules of a different structure or different techniques."  Because the court determined that the claims were not directed to an abstract idea–and were thus patent eligible–it did not address step two of the Alice framework.

Arendi S.A.R.L. v. Apple Inc., No. 2015-2073 (Fed. Cir. Aug. 10, 2016): Role of common sense in obviousness findings.

Apple filed a petition for inter partes review of a patent owned by Arendi.  The patent at issue disclosed a computer program that analyzes information in a document to determine if that information can be used in another program to find a related piece of information.  By way of example, if a name is detected, a database can be searched for that name to find the corresponding address for that name.  The prior art reference disclosed detecting a phone number in an email and providing a drop down menu that would allow the user to add the phone number to an address book.  The PTAB found that the claims at issue would have been obvious because "it would be ‘common sense’ to a person of ordinary skill  in the art to search for the telephone number that is detected in a document when the ‘add to address book’ option disclosed in [the prior art reference] is selected."

The Federal Circuit (O’Malley, J.) reversed the PTAB’s decision, explaining that the PTAB misapplied Federal Circuit law on the permissible use of common sense in an obviousness analysis.  The court acknowledged that it is appropriate to consider common sense, common wisdom, and common knowledge in analyzing obviousness.  There are, however, at least three caveats to applying common sense in an obviousness analysis.  "First, common sense is typically invoked to provide a known motivation to combine, not to supply a missing claim element."  Second, in the one case in which common sense was invoked to supply a limitation that was missing from the prior art, "the limitation in question was unusually straightforward" (the missing limitation was an instruction to repeat the previous steps until the desired quantity was met).  Third, Federal Circuit cases repeatedly warn that "references to common sense–whether to supply a motivation to combine or a missing limitation–cannot be used as a wholesale substitute for reasoned analysis and evidentiary support, especially when dealing with a  limitation missing from the prior art references specified."  Because the PTAB’s presumption that adding the missing limitation would be common sense was conclusory and unsupported by substantial evidence, and the missing limitation was not a "peripheral" one, the court reversed the PTAB’s finding that the claims at issue were obvious. 

Electric Power Group, LLC v. Alstom S.A., No. 2015-1778 (Fed. Cir. Aug. 1, 2016): Ineligibility under Section 101 for solution-based patent claims.

Electric Power Group sued Alstom in the Central District of California, alleging infringement of three patents relating to real-time performance monitoring of electric power grids by collecting data from multiple data sources, analyzing the data, and displaying the results.  Alstom moved for summary judgment, arguing that the patent claims at issue were directed to ineligible subject matter.  The district court granted the motion.  Electric Power Group appealed.

The Federal Circuit (Taranto, J.), affirmed the district court’s decision.  In reviewing the decision, the court focused on claim 12 of U.S. Patent No. 8,401,710 as representative.  At step one of Alice, the court explained that each of the core steps of the patent claim (collecting information, analyzing information, and presenting information) was abstract: collecting information, even when the information is limited to particular content, is abstract; analyzing information, such as how people would analyze similar information in their head, is an abstract mental process; and presenting information is an "ancillary part of such collection and analysis."  At step two of Alice, the court concluded that, even though the claim language was exceedingly verbose (covering more than an entire page), there was nothing in the claim language to transform the subject matter into patentable material.  As the court explained, while "a large portion of the lengthy claim is devoted to enumerating types of information available . . . within a power-grid environment," "merely selecting information, by content or source, for collection, analysis, and display does nothing significant to differentiate a process from ordinary mental processes."

After performing the Section 101 analysis as dictated by Alice, the court cited approvingly the district court’s result-vs.-solution analysis.  In granting summary judgment, the district court had noted that "there is a critical difference between patenting a particular concrete solution to a problem and attempting to patent the abstract idea of a solution to the problem in general."  While the court was careful not to adopt this language as controlling in a Section 101 inquiry, the court did describe it as a "helpful way of double-checking" the application of the Section 101 framework.  The fact that the claim language at issue was "result-focused" confirmed the correctness of the Section 101 analysis previously performed.

Upcoming Oral Argument Calendar

For a list of upcoming arguments at the Federal Circuit, please click here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert:

Blaine H. Evanson – Los Angeles (213-229-7228, [email protected])
Blair A. Silver – Washington, D.C. (202-955-8690, [email protected])

Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: 

Appellate and Constitutional Law Group:
Mark A. Perry – Washington, D.C. (202-887-3667, [email protected])
James C. Ho – Dallas (214-698-3264, [email protected])
Caitlin J. Halligan – New York (212-351-4000, [email protected])

Intellectual Property Group:
Josh Krevitt – New York (212-351-4000, [email protected])
Wayne Barsky - Los Angeles (310-552-8500, [email protected])
Mark Reiter – Dallas (214-698-3100, [email protected])

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