Aqua Products: Amendments For the Rest of Us

Kenneth R Adamo, Eugene Goryunov and Noah S Frank, Kirkland & Ellis LLP*

In a Leahy–Smith America Invents Act (AIA) post-grant review, section 316(d) of the Patent Act allows patent owners to file a motion to amend the challenged claims by “propos[ing] a reasonable number” of substitute claims. Section 316(e) also provides that “the petitioner shall have the burden of proving a proposition of unpatentability.” Until late 2017, the Patent Trial and Appeal Board (PTAB) placed the burden of showing the patentability of proposed substitute claims on patent owners. In Aqua Products v Matal, however, the Federal Circuit held that the PTAB must “assess the patentability of the proposed substitute claims without placing the burden of persuasion on the patent owner.” In other words, the Federal Circuit held that petitioners, not patent owners, bear the burden to show proposed substitute claims are unpatentable, a 180-degree shift.


Procedural Background

Aqua Products is the owner of a patent directed to automated swimming pool cleaners. Aqua sued Zodiac Pool Systems in the Southern District of New York. During the pendency of that litigation Zodiac petitioned the board for inter partes review (IPR) of the patent. In the IPR, Aqua moved to substitute new claims for the challenged claims of the patent. While the board found that the substitute claims were procedurally proper, it found that Aqua had failed to prove that the claims were patentable. 

On appeal to the Federal Circuit, Aqua argued that the board’s regulations, which the board had interpreted to put the burden on patent owner to show that any proposed amendments are patentable, were unsupported by the statute. A panel of the Federal Circuit rejected Aqua’s arguments, holding that “[o]ur precedent has upheld the Board’s approach of allocating to the patentee the burden of showing that its proposed amendments would overcome the art of record.” Aqua petitioned for rehearing en banc, which the court granted to consider the following question: 

When the patent owner moves to amend its claims under 35 USC § 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?

Plurality Opinion

Judge O’Malley wrote the plurality opinion, in which Judges Newman, Lourie, Moore, and Wallach joined, and in which Judges Dyk and Reyna concurred. 

The plurality began by discussing the legislative history of motions to amend, noting that the availability of an amendment was what justified the PTO’s use of the broadest reasonable interpretation claim construction standard. The plurality also noted that “[d]espite repeated recognition of the importance of the patent owner’s right to amend during IPR proceedings … patent owners largely have been prevented from amending claims in the context of IPRs.” 

The plurality then discussed the statutes and regulations governing motions to amend, specifically rule 42.121, which governs motions to amend, and rule 42.20(c), which provides: “The moving party has the burden of proof to establish that it is entitled to the requested relief.” The plurality noted that the rules do not expressly place the burden of persuasion on the patent owner to show that amended claims are patentable. However, two board decisions, Idle Free and MasterImage, interpreted the rules to place the burden on the patent owner, and the US Patent and Trademark Office (PTO) claimed that the director had endorsed those interpretations. The plurality noted, however, that those decisions were not published in the Federal Register nor discussed in the comments relating to the promulgation of the rules. 

Because Congress delegated authority to the director to enact regulations regarding motions to amend, the first step under a Chevron analysis required the court to determine whether “Congress explicitly places the burden of persuasion to prove propositions of unpatentability on the petitioner for all claims, including amended claims.”  According to the plurality, the plain language of section 316(d) does not impose any burden of proof on patent owners regarding the patentability of amended claims. Rather, the PTO was improperly conflating the relief sought by a motion to amend (ie, the entry of the amended claims) with the ultimate question of patentability. Further, the plain language of section 316(e), which refers to “unpatentability,” clearly placed the burden on the petitioner to prove that amended claims are invalid, as “unpatentability” applies to both pending and issued claims, whereas “invalidity” refers only to issued claims.

After considering the text of the statute, the plurality analysed section 316(e) in the overall context of the AIA, making several notable points: 

  • The petitioner controls the scope of the IPR, and any claim amendments by the patent owner must be responsive to the grounds raised by the petitioner. 
  • The patent owner may only propose claim amendments once the IPR is instituted. 
  • Because the petitioner is estopped from raising grounds that reasonably could have been raised, “it would be illogical to say that the petitioner is thereafter estopped” if the patent owner bore “the burden to demonstrate the patentability of proposed amended claims and to do so by reference to prior art not addressed in the IPR”. 
  • In the case where the petitioner settles, the board must justify the unpatentability of all original and amended claims. 
  • As the PTO testified before Congress, the AIA’s goal was to “preserve the merited benefits of patent claims better than the win-all or lose-all validity contest in district court.”

According to the plurality, all of these observations together supported placing the burden to prove the unpatentability of amended claims on the petitioner.

The legislative history of the AIA convinced the plurality that “the intent of Congress is clear” such that further inquiry was unnecessary. The plurality addressed concerns that placing the burden on the petitioner would result in “untested” amended claims. It found the concerns unwarranted; first, because the board can reopen the record to allow the entry of additional art and additional briefing; and second, since the proposed amended claims must be narrower in scope, “they necessarily were subjected to that same earlier examination and are reassessed to determine whether they are supported by the patent’s written description.” 

In the situation where the petitioner withdraws from the proceeding, the worst-case scenario is that previously examined claims are further narrowed, subject to intervening rights, and may be challenged in a subsequent IPR or litigation. 

However, because six of the 11 judges disagreed, analysis under the second step of Chevron was required. If “the PTO has adopted a rule or regulation through APA-compliant procedures that have the force and effect of law,” which is “within the scope of the PTO’s rulemaking authority,” and that “rule is based on a permissible construction of the statute,” then deference is required. Because “[n]either Rule 42.20 nor Rule 42.121 addresses the burdens of proof or persuasion with respect to propositions of unpatentability once an amended claim has been entered,” the PTO had not adopted a rule placing the burden on the patent owner, and therefore no deference was required. And the PTO’s decisions in Idle Free and MasterImage were insufficient, as Idle Free was an “interpretive” decision and MasterImage did not interpret the statute at all. Judges Dyk and Reyna agreed that there was no interpretation to which deference was due, although relying on Encino rather than Chevron

The court thus held that the board erred by putting the burden of proving patentability of amended claims on the patent owner. 

The plurality went on to further discuss two points. First, it declined to consider whether the board may raise patentability challenges to a proposed amended claim on its own, concluding that the record did not present that question. The plurality did consider whether the board may base its patentability determinations regarding the amended claims solely on the face of the motion to amend. The plurality concluded that “[b]asic principles of administrative law” require the board to consider the entirety of the record as an agency must explain its reasoning and refusing to consider evidence would by definition be arbitrary and capricious. Second, the plurality discussed Part III of Judge Reyna’s concurrence, pointing out that it is dictum.

Judge Moore's Concurrence

Judge Moore wrote a concurring opinion, in which Judges Newman and O’Malley joined. Judge Moore’s concurrence dealt only with why the PTO’s designation of MasterImage as precedential was not entitled to Chevron deference. Judge Moore pointed out that because MasterImage was not a “regulation”, it was therefore not entitled to Chevron deference:

A majority of judges agree; where a statute delegates to the Director the authority to prescribe regulations adopting standards, only notice and comment rulemakings by regulation will be given Chevron deference.

Judge Reyna’s Concurrence

Judge Reyna wrote a concurrence joined by Judge Dyk, where Judges Prost, Taranto, Chen and Hughes joined only as to Part III. The concurrence came to three conclusions. First, section 316(e) is ambiguous on whether the PTO may promulgate rules on the burden of persuasion regarding amended claims. Second, the PTO did not properly promulgate rules entitled to deference. Third, section 316(d) and Rule 42.121 place a burden of production on Patent Owner. Notably, Judge Reyna concluded that the PTO’s “attempt to promulgate a rule through ad hoc adjudication is too procedurally defective to receive Chevron deference,” and thus the proper analysis was under Encino

While Judge Reyna agreed to vacate and remand, he would have done so with instructions for the board to review the motion to amend with only a burden of production on the patent owner, as opposed to a burden of persuasion. Because Judges Prost, Dyk, Taranto, Chen and Hughes agreed with the conclusion regarding the burden of production, Judge Reyna stated that portion of the decision was the judgment of the court, even though Judge O’Malley called that holding dictum.

Judge Taranto’s Dissent

Judge Taranto dissented, joined by Judges Prost, Chen and Hughes, and joined in part by Judges Dyk and Reyna. According to the dissent, section 316(a) allows the director to address who has the burden of persuasion regarding amended claims and section 316(e) does not prevent the director from assigning that burden to the patent owner. Because section 316(e) was ambiguous, the next step in Chevron was to determine whether the PTO had issued reasonable regulations. Judge Taranto concluded that Rule 42.20(c) assigned the burden of persuasion to the patent owner and that the regulation was reasonable. 

According to the dissent, section 316(e) had to be interpreted against the background of the board’s obligation to determine the patentability of proposed substitute claims. In certain instances, the petitioner might not even challenge the patentability of substitute claims, so section 316(e) might not even apply in those scenarios. However, because the petitioner necessarily challenges the patentability of issued claims, section 316(e) must apply to those claims. Similarly, if no petitioner opposes the motion to amend, or if the opposition is not sufficient, then the record may not contain all the relevant art that could render the substitute claims unpatentable. Because the dissent read the relief under rule 42.20(c) as proving patentability, as opposed to simply the entry of the amended claims, that rule properly put the burden of persuasion on the patent owner. And because the dissent independently concluded that the regulation was proper, there was no need to resort to deference under Chevron.

Judge Hughes’ Dissent

Judge Hughes also wrote a dissent, joined by Judge Chen, to make two points. 

First, even if the scope of rule 42.20(c) were ambiguous, the PTO would still be entitled to Auer deference as “an agency’s interpretation of its own regulation is ‘controlling unless plainly erroneous or inconsistent with the regulation.’” According to the dissent, Auer required the court to “defer to the PTO’s interpretation” of rule 42.20 as placing the burden of motions to amend on the patent owner, as “[a]n agency’s view need only be reasonable to warrant deference.” 

Second, the term “regulation” in the statute does not require an agency to promulgate only “regulations,” but allows the agency to engage in other rule-making procedures, such as the MasterImage and Idle Free decisions at issue. The dissent pointed out that limiting all rule-making to “regulations” would force the PTO to codify rules regarding every issue, even if they were procedural or merely interpretations of existing regulations.

As Judge O’Malley recognised, much of the discussion in Aqua Products is dictum. Indeed, only two holdings are actually binding: 

(1) the PTO has not adopted a rule placing the burden of persuasion with respect to the patentability of amended claims on the patent owner that is entitled to deference; and (2) in the absence of anything that might be entitled deference, the PTO may not place that burden on the patentee.

All the rest of what was “said over the course of the many pages that form the five opinions” are “cogitations”. 

The five separate opinions do not help provide much guidance as to whether the PTO may properly place the burden to prove the patentability of proposed amended claims on the patent owner. But until the PTO properly promulgates rules placing that burden on the patent owner, patent owners do not bear the burden to prove the patentability of proposed amended claims.


* This article reflects only the present considerations and views of the authors, which should not be attributed to Kirkland & Ellis LLP, or to any former or present clients of the authors or the firm.

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