In a First, Federal Circuit Reverses PTAB Claim Construction in IPR

June.23.2015

In only its second substantive decision on an appeal of a final inter partes review (IPR) decision, the Federal Circuit in Microsoft Corp. v. Proxyconn, Inc., signaled its willingness to engage with substantive issues of claim construction, while deferring to the Patent Offices interpretation of administrative regulations.

The patent at issue in Microsoft relates to a system for increasing the network data access speed. The Board found all but one of the 11 challenged claims to be unpatentable as anticipated or rendered obvious. The parties cross-appealed the Boards rulings on patentability and its application of the broadest reasonable interpretation standard of claim construction. Patent Owner Proxyconn also appealed the Boards denial of its motion to amend two of the invalidated claims.

On claim construction, the Federal Circuit confirmed that the broadest reasonable interpretation standard applies equally to IPRs, citing In re Cuozzo Speed Techs., LLC, 778 F.3d 1271 (Fed. Cir. 2015). Following a detailed claim-by-claim examination of the intrinsic evidence, the Federal Circuit concluded the Board had misapplied the standard, giving constructions that were so broad as to be unreasonable. Writing for the panel, Judge Prost urged that claim constructions be consistent with the one that those skilled in the art would reach and instructed the Board to consult the patents prosecution history in proceedings in which the patent has been brought back to the agency for a second review. Microsoft, 2014-1542, -1543, slip op. at 7.

The Federal Circuit also reviewed the decision to deny Proxyconns motion to amend two claims. The Board had denied the motion based on the requirements articulated in Idle Free Systems, Inc. v. Bergstrom, Inc., IPR2012-00027, 2013 WL 5947697 (PTAB June 11, 2013). Notably, the Idle Free decision was not binding precedent but merely informative.[1] Proxyconn challenged the Boards authority to deny its motion to amend over prior art that was not one of the references over which the PTO had instituted review. Microsoft, slip op. at 21. Since the Boards regulations did not explicitly require the Patent Owner to show the substitute claims were patentable over this other prior art of record, Proxyconn argued, the Board had run afoul of its own regulations.

The Federal Circuit disagreed, confirmed the Boards freedom to promulgate standards through adjudicative Board decisions rather than solely through traditional rule-making procedures, and upheld the Boards interpretation in Idle Free of 37 C.F.R.  42.20(c), the regulation governing amendment of challenged claims in IPRs. The Federal Circuit found the Boards interpretation in this case reasonable because if Patent Owners were not required to show patentability over all prior art of record, an amended patent could issue despite the PTO having before it prior art that undermines patentability. Id. at 26. However, the Court was careful to cabin the scope of its ruling: it noted that the Boards practice of making rules via Board decisions risks leaving interested members of the public in a state of uncertainty. Id. at 24.Also, in a footnote the Court emphasized that its decision does not address whether every requirement announced by the Board in Idle Free constitutes a permissible interpretation of the PTOs regulations nor the specific requirement in Idle Free that the patentee shows patentable distinction over all prior art known to the patent owner, as these issues were not before the Court. Id. at 25, n. 4.

Litigants in Patent Office administrative proceedings should be aware of the Microsoft decision for a number of reasons:

  • It confirms the applicability of the broadest reasonable interpretation standard to IPRs.
  • The Federal Circuit will pay attention to detail when reviewing claim construction, despite a tendency to issue summary affirmances of Board decisions.
  • The court acknowledges the Boards broad latitude in setting standards and practices in IPRs.
  • The decision reveals the Courts reservations about the Boards requirements for amending claims in IPRs, suggesting it might be receptive to future arguments challenging the rules reasonableness.

The Federal Circuits opinion is available here.

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[1] Informative Board decisions provide guidance on Board norms on recurring issues, but are not binding on Board panels.