A Tale of Two Federal Circuit Affirmances

Jul 31, 2017

It is rare that the Patent Trial and Appeal institutes an inter partes review, but then issues a Final Written Decision finding all the subject claims not invalid. Since the inter partes review process began, such a resolution has happened in less than 20% of Final Written Decisions issued by the Patent Trial and Appeal Board (PTAB). However, recently, the Federal Circuit affirmed two such Final Written Decisions. While these two decisions involved the same parties and the same panel of judges (Judges Dyk, Reyna, and Taranto), different technologies were at issue and the reasons for the affirmances tell different tales.

Affirmance #1 – Evidence needed of inherent disclosures

On June 9, 2017, the Federal Circuit issued a one sentence per curium opinion affirming the underlying Final Written Decision. (HTC Corp., ZTE (USA) Inc. v. Cellular Communications Equipment, LLC1, _____ (Fed. Cir. June 9, 2017). Thus, the reasons for the affirmance have to be gleaned from the underlying Final Written Decision (IPR2014-01135, Paper 43). The tale of this affirmance is that a party should make sure it introduces record evidence of every necessary fact, even facts that are arguably simple common knowledge.

The patent at issue (U.S. Pat. No. 6,377,804) involved cellular technology that allowed a cellular phone to “roam for service” by transferring from a cellular network operating on one standard to a different cellular network operating on a different standard based on the type of service requested. However, importantly, the claims require that preference must first be given to the cellular phone’s home network prior to looking to other networks.

While HTC, among others, sought invalidation of all the claims, the PTAB instituted an inter partes review on whether claims 1, 3, 4-9 were anticipated by two different pieces of prior art. Both of these pieces of prior art described systems that allowed a cellular phone to choose from a variety of cellular networks based on the type of service requested (such as quality of signal or resource availability). Notably missing from either piece of prior art was any explicit discussion of a preference for any home network.

In light of this deficiency, HTC argued that it is simply common knowledge that all cellular phones must be subscribed to a service provider, else the cellular phone is inoperable, and that this service provider is the home network. Unfortunately for HTC, the Taiwanese consumer electronics company did not submit this as part of the record of evidence (such as expert testimony or otherwise) to support this common knowledge. The PTAB rejected this “judicial notice” type argument on two grounds. First, the PTAB questioned the legal proposition that “if a gap in a prior art reference represents functionality that is so well-known that it exceeds a certain threshold, not only does it not need to be taught explicitly in the reference, but it also need not be supported by evidence in the record.” Second, the PTAB was not persuaded that such a preference for a home network could even be considered such a well-known fact. HTC’s choice to not submit evidence of simple common knowledge proved fatal to its argument.

Affirmance #2 – The Risk of an All or Nothing Strategy

On July 17, 2017, the Federal Circuit issued a 15-page decision (and a 9-page dissent) affirming the underlying Final Written Decision. (HTC Corp. HTC Am., ZTE (USA) Inc. v. Cellular Communications Equipment, LLC, _______ (Fec. Cir. July 17, 2017) affirming IPR2014-01133. The tale of this affirmance is that, whether admitting it or not, when making a broad argument that may apply to multiple different issues, choosing to ignore discussing how the argument more strongly applies to some issues than others may result in an “all or nothing” approach where the weaker application is highlighted and dooms your stronger application. In short, the party needs to carefully weigh the risks of such an “all or nothing” approach.

The patent at issue (U.S. pat. No. 7,218,923) involved a system and method to prevent a third-party application on a smartphone from sending fraudulent or other problematic messages. This was done by diverting messages being sent from a third-party application to a separate a controlling unit in a tamper resistant area on the smartphone. The controlling unit then examines the message to determine whether to allow the message, modify it, or stop it.

HTC, among others, sought invalidation of the patent claims under both anticipation and obviousness grounds, including independent claim 1 (a method claim) and independent claim 24 (a system claim). The disclosures of the prior art were not contested; the prior art disclosed a component that diverted and examined messages to see if they should be allowed, modified, or stopped before sending. The question at issue for the PTAB was whether the “diverting unit” and the “controlling unit” in the patent were separate components or whether they could be met by the component disclosed in the prior art that performed both functions.

In answering this question, the Federal Circuit (and the PTAB below) found that the patent at issue requires that the diverting unit and controlling unit must be separate components on three grounds: (1) the use of separate names of the two structures strongly implies separate structures; (2) the specification does not give any example of both functions being performed by the same structure; and (3) the specification teaches that the controlling unit should be part of a tamper resistant area and the diverting unit be part of the open platform area.

While all of these arguments hold true for independent claim 24 (a system claim) they do not automatically follow for independent claim 1 (a method claim). The method claim does not talk in term of separate structural units, but instead requires a step of “diverting a message” and the step of “controlling.” Both steps could theoretically be performed by the same entity. The dissent (by Judge Dyk) affirmed the validity of the system claim, but reversed and found the method claim invalid based on precisely this distinction. However, the majority, while acknowledging this problem, avoided discussing the issue by finding the argument forfeited by HTC. At the PTAB and on appeal, HTC never argued a significant difference between the method and system claim that might justify the invalidation of the method claim even if the system claim was found valid. The Federal Circuit noticed this, stating “It is not plausible that HTC inadvertently overlooked the potential for a half win, which it might well have deliberately chosen to discourage by taking an all-or-nothing approach.” Thus, in light of HTC’s all-or-nothing approach, where either both claims were argued to be found valid or invalid, the Court, in ruling that the system claim was valid, found it need not separately evaluate the method claim. However, the Court took pains to state that a different party could well invalidate the method claim based on the prior art before the Court. HTC’s choice to ignore discussing how the invalidity argument more strongly applied to the method claim than the system claim backfired, with the Court evaluating the weaker system claim first and applying the same rationale to the stronger method claim.

Lessons from Two Affirmances

These two Federal Circuit affirmances of patent validity are useful illustrations where tactical choices made at the early stages of an inter partes review can have lasting strategic impacts. In Affirmance #1, the tactical choice to not submit evidence of a seemingly obvious fact (that a cellular phone is registered with a provider, and looks to the provider’s service before others) was found to be a fatal defect in proving the prior art disclosed all of the elements of the patent. In Affirmance #2, the tactical choice not to point out that the invalidity argument was significantly stronger for the method claims than the system claims tied both sets of claims together in the eyes of the PTAB and the Federal Circuit, risking either both sets would be found invalid or both sets would be found valid. These small tactical choices had case dispositive strategic impacts.

1. Cellular Communications Equipment, LLC is a subsidiary of the non-practicing entity Acacia Research. However, the patents at issue originated with Nokia Siemens Networks and Nokia Solutions and Networks.

Jason J. Keener HeadshotThis article was written by Jason J. Keener who is the Chair of the Intellectual Property Group at Fox Swibel Levin & Carroll LLP. He can be reached at jkeener@foxswibel.com.

This article was published by Law360.