The PTAB sometimes changes its claim constructions during the course of an inter partes review or a covered business method review. When it does so, according to the Federal Circuit’s recent holding in SAS Institute Inc. v. ComplementSoft, LLC, __ F. 3d __ (Fed. Cir. 2016), the Administrative Procedure Act requires the PTAB to give the parties sufficient notice and an opportunity to respond.

In its institution decision in SAS v. ComplementSoft, IPR2013-00226, the PTAB had found it reasonably likely that SAS would prevail in its challenge that dependent claim 4 was obvious.  Reversing course in the final written decision, however, the PTAB concluded that SAS had not shown that the prior art disclosed “graphical representations of data flows” as recited in claim 4.  The PTAB’s patentability finding regarding claim 4 was premised on a new construction for the “graphical representations of data flows” claim term that differed from the Board’s interpretation in the institution decision and that the PTAB adopted for the first time in the final written decision.  Indeed, the PTAB  readily acknowledged that it was applying a new claim construction that was “not addressed explicitly by either party.”  On appeal to the Federal Circuit, SAS argued that the PTAB’s new construction was incorrect and that it was improper for the PTAB to change its interpretation of this claim term in the final written decision without affording the parties an opportunity to respond.

While agreeing with the PTAB’s ultimate construction of the “graphical representations of data flows” claim term, the Federal Circuit stated that the PTAB’s “procedure for arriving at this construction . . . gives us pause.” The PTAB’s claim construction in the final written decision “varie[d] significantly from its initial interpretation” in the institution decision, but the PTAB nevertheless denied SAS’s request for a rehearing to address the new construction, reasoning that SAS could have previously made arguments regarding this term in its IPR petition.  The Federal Circuit expressly “disagree[d] with the Board’s approach.”

The Federal Circuit again reaffirmed that “IPR proceedings are formal administrative adjudications subject to the procedural requirements of the Administrative Procedure Act (APA).” Section 554(b)(3) of the APA, for example, mandates that “[p]ersons entitled to notice of an agency hearing shall be timely informed of . . . the matters of fact and law asserted.” Although the Federal Circuit “in the past [had] discussed § 554(b)(3) with respect to the protection it provides to the patent owner, the provision is not so limited in an instituted IPR proceeding,” and this “procedural protection” also extends to IPR petitioners like SAS in this case.  Under Section 554(b)(3), the PTAB cannot “change theories in midstream” in an IPR without giving the parties “‘reasonable notice of the change’ and ‘the opportunity to present argument under the new theory.’”  According to the Federal Circuit, “[t]hat maxim applies in this fact-specific circumstance,” where the PTAB adopts a new and different claim construction in its final written decision.

The Federal Circuit emphasized that the PTAB is free to adopt a claim construction in its final written decision, but the PTAB cannot change claim construction theories in midstream, as it did here, without giving the parties a chance to respond:

SAS focused its argument on the Board’s institution decision claim interpretation, a reasonable approach considering ComplementSoft agreed with this interpretation in its patent owner’s response and never suggested that the Board adopt the construction that eventually materialized in the final written decision. It is difficult to imagine either party anticipating that already-interpreted terms were actually moving targets, and it is thus unreasonable to expect that they would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent.

The Federal Circuit “vacate[d] the [PTAB’s] determination that claim 4 is patentable and remand[ed] so that the parties may address a new construction that the [PTAB] adopted in its final written decision after interpreting the claim differently before.”

Judge Newman dissented on a separate issue, but agreed with the majority that “principles of due process, as well as the strictures of the Administrative Procedure Act as applied to the America Invents Act (AIA) and the Patent and Trademark Office (PTO), require that the parties have the opportunity to adjust their arguments and evidence to the Patent Trial and Appeal Board’s (PTAB’s) change in claim construction.”

Jones Day represented SAS in the appeal to the Federal Circuit and in the IPR proceedings before the PTAB.

By: John A. Marlott


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