Not Crossing the Wire: Petitioner Merely “Expanded” on Previously Filed Arguments Rather Than Making “New” Arguments

Holding

In Everstar Merchandise Co. Ltd. v. Willis Electric Co. Ltd., No. 2021-1882, 2022 WL 1089909 (Fed. Cir. Apr. 12, 2022) (non-precedential), the Court of Appeals for the Federal Circuit (“the Federal Circuit”) vacated a Final Written Decision of the Patent Trial and Appeal Board (“the PTAB”) in PGR2019-00056. The PTAB found that Everstar failed to show the challenged claims of Willis’ patent were unpatentable as obvious. The Federal Circuit held that the PTAB abused its discretion when it refused to consider whether cost reduction would have motivated one of ordinary skill in the art to combine the asserted references, and vacated and remanded the PTAB’s decision.

Background

Everstar (“Petitioner”) petitioned for post-grant review of all claims of U.S. Pat. No. 10,222,037 (“the ’037 patent”) and asserted obviousness based on a combination of two prior art references. Id. at *2−3. The ’037 patent claimed the use of a single internally-reinforced wire in decorative net lights, which reduced material costs, bulk, and weight without sacrificing strength. Id. at *2. According to the petition, one of ordinary skill in the art would have been motivated to combine the teachings of the cited references in an effort to increase strength and durability. Id. at *3.

The PTAB granted the petition, finding that the cited combination of references involved a “simple substitution of one known element for another to obtain the predictable and desirable result of a more durable wire.” Id. The PTAB noted that both references described a “desire to reduce manufacturing costs” of a wire with good strength and conductivity. Id. at *3−4.

In the Patent Owner Response, Willis (“Patent Owner”) argued that the references only recognized a reduction in cost when there is excess copper in the wire, and Petitioner did not argue that there was excess copper in the prior art’s wires that could be reduced. Id. at *4.

In its Reply, Petitioner argued that one of ordinary skill in the art “would be motivated to incorporate the polymer reinforced wire of [reference 1 with reference 2] in order to improve durability and reduce cost.” Id. (emphasis in original). Petitioner argued that the cost would be reduced because the modification would reduce the total amount of copper in the second reference’s system. Id.

By Sur-Reply, Patent Owner addressed the cost reduction argument on the merits but also argued that Petitioner’s motivation to combine argument based on reduction in cost was an improperly raised new argument that should not be considered. Id. at *4−5.

The PTAB’s Final Written Decision concluded that Petitioenr failed to show the challenged claims were unpatentable for obviousness. The PTAB found Petitioner’s argument that one of ordinary skill in the art would have wanted to improve wire durability an insufficient motivation to combine. Id. As for the cost reduction motivation, the PTAB did not consider that argument, agreeing with Patent Owner that Petitioner had not made that argument in its petition. Id. at *5.

Federal Circuit

The Federal Circuit agreed with Petitioner that the PTAB abused its discretion by refusing to consider cost reduction as a motivation. Id. at *6. According to the Federal Circuit, Petitioner’s Reply merely “expand[ed] on a previously argued rationale,” which is not prohibited. Id. at *7. “[T]he Board should have considered cost reduction in its motivation to combine analysis because the record shows that increased wire strength and reduced material cost are intertwined benefits of the claimed invention.” Id. In their briefs and submitted expert testimony, both parties noted the relationship between more wire leading to higher costs and the merits of cost reduction as a potential motivation to combine. Id. at *8. 

Further, “[a]ny ambiguity as to whether a reply constitutes a new argument is eliminated when the reply is a legitimate reply to arguments introduced in a patent owner’s response or the Board’s institution determination.” Id. (citing Apple Inc. v. Andrea Elecs. Corp., 949 F.3d 697, 706−07 (Fed. Cir. 2020)). According to the Federal Circuit, Petitoiner’s cost reduction argument was a legitimate reply to issues raised in Patent Owner’s Preliminary Response, Patent Owner’s Response, and the Institution Decision. Id. at *9.

The Federal Circuit vacated the PTAB’s Final Written Decision and remanded for the PTAB to consider “whether cost, in addition to increased strength and durability, would have presented a sufficient motivation to combine.” Id.

Takeaways

Parties should note 37 C.F.R. § 42.23(b), which the Federal Circuit cited in its decision. This rule was modified in 2020 in response to SAS Institute v. Iancu and allows the petitioner to address, in its Reply, issues raised in the Institution Decision. See 85 Fed. Reg. 31,728, 31,729 (May 27, 2020). If an argument raised in the Petitioner’s Reply may be characterized as responding to arguments raised in the Patent Owner’s Preliminary Response, Patent Owner’s Response, or PTAB’s Institution Decision, the argument should be permitted.

But petitioners should beware that the line between being “responsive” and raising a “new” argument may not always be clear. In this case, both parties addressed the argument in submitted expert testimony, which supported the Federal Circuit’s conclusion that Petitioner was merely “expanding” on a previous argument, and weakened Patent Owner’s position that it did not receive notice and a fair opportunity to address the argument.