On June 10, 2016, the Federal Circuit issued an opinion in SAS Institute, Inc. v. ComplementSoft, LLC.1 that faulted the Patent Trial and Appeal Board (Board) for changing theories “midstream” by narrowing its construction of claim terms after institution of an inter partes review (IPR) without informing the parties. Specifically, the Federal Circuit ruled that when the Board adopts a claim construction for the purpose of the institution decision, and the parties do not object, the Board cannot adopt a new and narrower construction in its final written decision without giving the parties notice and an opportunity to respond. As a result, the Federal Circuit vacated the Board’s finding that a challenged patent was valid and remanded the case to permit the parties to address the Board’s new construction.
Though it is too early to be sure, it appears that some judges at the Board have responded by including language in their institution decisions that preemptively puts the parties on notice that the initial constructions are subject to change.
The Board’s Prior Practice
In a decision on whether to institute an IPR, the Board often must address construction of some claim terms. The Board, however, routinely flags these claim constructions as preliminary, purporting to make them “for purposes of this decision” alone.2
As a result, the Board often changes its initial constructions in later decisions. For example, if the parties take issue with the initial construction adopted by the Board, it will generally revisit the construction in its final written decision.3 Similarly, in some cases where the parties have not challenged its constructions, the Board nevertheless expressly notes that it is maintaining its earlier construction.4
Background of This Case
SAS Institute (SAS) develops and sells its Statistical Analysis System (SAS Software), a suite of analytics software used by many companies to process large quantities of data, for example to detect fraud or predict customer behavior. The SAS Software includes a programming language that can read data from spreadsheets or databases, direct various statistical analyses of the data, and produce visualizations such as tables, graphs, or web pages. SAS also sells numerous add-on products providing visualization and programming tools to be used with the SAS Software.
ComplementSoft sells its own add-on product: ComplementSoft ASAP, which allows users to “visualize, edit, transfer, and debug SAS programs.”5 For example, the Visualizer tool creates a graphical representation of SAS program code or “data flows” (the course which data takes through the processing system).
ComplementSoft also owns U.S. Patent No. 7,110,936 (the “’936 Patent”). Issued in September, 2006, the ’936 Patent concerns a “system and method for intelligently generating computer code.” The disclosed system includes, among other things, a visualizer that can display a program flow or data flow diagram as well as an editor that can modify code.
ComplementSoft sued SAS Institute (SAS) in September 2012, alleging that two SAS add-on products—SAS Enterprise Guide and SAS Data Integration Studio—infringed the ’936 Patent.6
SAS responded by filing a petition for inter partes review (IPR), arguing that the ’936 Patent was invalid as anticipated by U.S. Patent No. 6,851,107 to Coad et al. (“Coad”) and U.S. Patent No. 5,572,650 to Antis et al. (“Antis”), or as obvious over Coad or Antis in combination with other references.7 Within days from the filing of the petition, SAS moved to stay the district court case in light of the IPR proceedings.8 The court granted SAS’s motion a few weeks later.9
The Board instituted inter partes review of Claims 1 and 3-10.10 In its Decision to Institute, the Board noted that SAS had not addressed construction of the claim term “graphical representation of flows,” which appears in each of the claims, but declined to adopt ComplementSoft’s proposed construction.11 The Board instead determined that, “[f]or purposes of this decision . . . we are persuaded that the broadest reasonable interpretation of the term ‘graphical representation of flows’ is a diagram that depicts a map of the progression (or path) through the source code.”12 As a specific example, it noted that a “’data flow diagram’ depicts a map of the path of data though the executing source code.”13
ComplementSoft identified this as the Board’s construction of “data flow diagram” and in its Patent Owner Response, objected only to the inclusion of the word “executing” in the construction.14 Neither party suggested a revised construction at the oral hearing.15
In its Final Written Decision, the Board noted that the parties had not challenged its construction but observed that ComplementSoft had made “several arguments that amount to a narrowing of the interpretation of the term [‘graphical representation of flows’].”16 On this basis, the Board adopted a “slightly modified version” of its earlier constructions, notably construing a “data flow diagram” as “a graphical representation comprised of icons depicting data processing steps and arrows to depict the movement of data through source code.”17 Based on this new, narrower construction, the Board found that Claim 4 of the ’936 Patent was not anticipated by or obvious over SAS’s references.18
SAS petitioned the Board for rehearing, expressly arguing that the Board had improperly narrowed its construction of “data flow diagram” in the Final Written Decision. The Board denied rehearing, holding that SAS was not prejudiced by its new construction because it “could have made construction arguments for the term in its IPR petition.”19 SAS appealed.
The Federal Circuit’s Decision
The Federal Circuit panel “disagree[d] with the Board’s approach.”20 Specifically, it noted that IPR proceedings are, like all agency adjudications, subject to the Administrative Procedures Act (APA), including the requirement that “[p]ersons entitled to notice of an agency hearing shall be timely informed of . . . the matters of fact and law asserted” in the proceeding.21 In past cases, the Federal Circuit had established that this provision required notice to the patent owner.22
Here, the Federal Circuit extended the same protection to petitioners, who “are not disinterested parties,” but “stand to lose significant rights in an instituted IPR proceeding” because of the estoppel effects under 35 U.S.C. 315(e).23 As a result, “an agency may not change theories in midstream without giving respondents reasonable notice of the change and the opportunity to present argument under the new theory.”24
The Federal Circuit acknowledged that the Board is free to change its constructions, even in a final written decision. Indeed, the Federal Circuit agreed with the Board’s newly-adopted construction of the term.25 However, the Federal Circuit made it clear that the Board may not spring such a new construction on the parties as a surprise:
What concerns us is not that the Board adopted a construction in its final written decision, as the Board is free to do, but that the Board “change[d] theories in midstream.” 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. This is especially true for SAS, considering the strict fifteen page limit for its reply to the patent owner’s response.26
Finally, the Federal Circuit noted that SAS may yet be unable to show that Claim 4 of the ’936 Patent is anticipated or obvious; that question was reserved for the Board after the parties had submitted new briefing—in light of the new construction—on remand.27
The Board’s Response
The ComplementSoft decision has not yet become final at the Federal Circuit and returned to the Board on remand; SAS has petitioned the Circuit for en banc rehearing on unrelated grounds. As of this writing, briefing on the en banc petition is still ongoing.
In the meantime, the Board has not appeared to alter its prior practice and continues to use the same “for the purposes of this decision” language as it had previously in its institution decisions. There are signs, however, that at least some judges at the Board are starting to preemptively provide notice to the parties that the Board’s initial constructions in the Decision to Institute are not set in stone. For example, in Smith & Nephew, Inc. v. Arthrex, Inc., Judge Grossman observed, “[o]ur claim construction determination is a preliminary determination. It does not preclude the parties from arguing their proposed constructions of the claims during trial. Indeed, the claim construction issues discussed in the Petition and Preliminary Response put the parties on notice that claim construction, in general, is an issue to be addressed at trial.”28 Similarly, in Lupin Ltd. v. Vertex Pharma, Judge Snedden stated that the Board’s “views on claim construction shall not be deemed final until the record is complete, we have finished our review of the complete record, and rendered our Final Decision.”29
1 SAS Institute, Inc. v. ComplementSoft, LLC., Nos. 15-1346, 15-1347 , 825 F.3d 1341, 2016 WL 3213103 (Fed. Cir. June 10, 2016) [hereinafter ComplementSoft].
2 See, e.g., Mercedes-Benz USA, LLC v. Proximity Monitoring Innovations LLC, IPR2015-00397, Paper 18 at 16 (July 17, 2015).
3 See, e.g., Fresenius-Kabi USA LLC v. Cubist Pharmaceuticals, Inc., IPR2015-00227, Paper 45 at 7-9 (May 12, 2016) (analyzing Patent Owner’s arguments to reconsider claim construction, but concluding that “we maintain our claim construction for purposes of this Final Decision”).
4 See, e.g., ButamaxTM Advanced Biofuels LLC v. Gevo, Inc., IPR2013-00539, Paper 33 at 8 (March 3, 2015) (“Neither party challenged [the previous] construction. Having considered whether [the] construction [set forth in the Decision to Institute] should be changed in light of evidence introduced during trial, we are not persuaded any modification is necessary.”).
5 http://complementsoft-asap.com/faq.htm (last visited August 18, 2016).
6 ComplementSoft, LLC v. SAS Institute, Inc., No. 1:12-cv-07372 (N.D. Ill. filed Sept. 14, 2012).
7 SAS Institute, Inc. v. ComplementSoft, LLC, IPR2013-00226 (filed Mar. 29, 2013).
8 Motion to Stay Pending Inter Partes Review, No. 1:12-cv-07372 (N.D. Ill. filed Apr. 3, 2013), ECF No. 38.
9 Minute Entry, No. 1:12-cv-07372 (N.D. Ill. May 2, 2013), ECF No. 43.
10 SAS filed a second IPR petition challenging the claims on which the PTAB declined to institute review in the first IPR. See SAS Institute, Inc. v. ComplementSoft, LLC, IPR2013-00581, Paper 2 (filed Sept. 12, 2013). The second petition was denied in full. Id., Paper 15 (Dec. 30, 2013).
11 IPR2013-00226, Paper 9 at 8.
12 Id. at 9.
14 ComplementSoft, slip op. at 15.
15 Id., slip op. at 15-16.
16 IPR2013-00226, Paper 38 at 12.
17 Id. at 19.
18 Id. at 28-31.
19 ComplementSoft, slip op. at 16.
21 Id. (citing 5 U.S.C. § 554(b)(3) and Dell Inc. v. Acceleron, LLC, 818 F.3d 1293, 1298 (Fed. Cir. 2016)).
22 Id.; see also Belden Inc. v. Berk-Tek LLC, 805 F.3d 1064, 1080 (Fed. Cir. 2015) (holding that “the rules and practices of the Board generally protect against loss of patent rights without the required notice and opportunity to respond” as required by the APA).
23 ComplementSoft, slip op. at 16-17.
24 Id. at 17 (quoting Belden, 805 F.3d at 1080) (quotation marks omitted).
25 Id. at 18.
26 Id. at 17-18 (citations omitted).
27 Id. at 18.
28 IPR2016-00506, Paper 11 at 7 (Aug. 2, 2016). Judge Grossman used identical language in several related institution decisions issued after ComplementSoft: IPR2016-00487, Paper 8 at 12 (July 27, 2016), IPR 2016-00485 Paper 7 at 12 (July 27, 2016), and IPR2016-00382, Paper 7 at 9 (June 28, 2016).
29 IPR2016-00558, Paper 9 at 8 (Aug. 2, 2016).