Nike vs. Adidas in IPR Patent Dispute Appeal

In Nike, Inc. v. Adidas AG, 2014-1719 (Fed. Cir. Feb. 2016) (Available Here), the Federal Circuit found that the Board did not err by placing the burden on Nike, the patent owner, to establish patentability over the prior art of Nike’s proposed substitute claims. However, the Federal Circuit remanded the case because the Board failed to explicitly acknowledge and evaluate Nike’s secondary consideration evidence.  The Court also remanded because the Board did not engage in any analysis comparing proposed substitute claims 48 and 49 to determine if  they are patentably distinct from each other and are permissible as multiple substitute claims.

    The appeal arises from the inter parties review (“IPR”) of U.S. Patent 7,347,011 (“the ‘011 patent”) owned by Nike.  The ‘011 patent involves a shoe upper made from a knitted textile using any number of warp knitting or weft knitting processes.  Adidas filed the IPR and Nike filed a motion to amend the ‘011 patent by cancelling claims 1-46 and proposing substitute claims 47-50.  The Board granted Nike’s motion to cancel claims 1-46, but denied the motion as to the substitute claims.  The Board denied the motion because Nike did not persuade the Board that the proposed substitute claims were patentable over the prior art of record and over the prior art not of record but known to the patent owner.  Alternatively, the Board found that Nike failed to establish that the substitute claims were patentable over the Nishida and Schuessler references.  Nike appealed the Board’s decision.

    Three issues were raised by Nike on appeal.  (1) Nike argued that the Board erroneously shifted to Nike the burden of proving patentability of its proposed substitute claims.  (2) Nike contested the Board’s finding on the merits that the substitute claims are unpatentable as obvious.  (3) Nike objected to the Board’s practice of requiring a patent owner to establish patentability of substitute claims over all prior art known to the patent owner, including prior art not of record but known to the patent owner.

    The Federal Circuit found that the Board did not err by placing the burden on Nike to establish patentability over the prior art of Nike’s proposed substitute claims.  Placing the burden on the patent owner ensures that proposed substitute claims are critically analyzed before they are entered as claims that are part of the issued patent.  Nike attempted to rely on 35 U.S.C. §316(e) for placing the burden of proving unpatentability on petitioner; however, the Court limited this burden to claims included in the Board’s decision to institute the IPR proceedings.  The burden does not cover newly proposed substitute claims. 35 U.S.C. §316(a)(9)’s requirement that the patent owner has some obligation to provide information in support of any amendment, indicates that the patent owner carries an affirmative duty to justify why newly drafted claims–which, unlike the issued claims, had never been evaluated by the PTO–should be entered into the proceeding.

    As for obviousness, Nike contested the Board’s finding that a person skilled in the art would combine the references, Nike contested the failure of the Board to consider Nike’s evidence of secondary considerations and Nike contended that claim 49 cited a limitation absent from the prior art.  The Federal Circuit agreed with the Board and found that a person of skill in the art would have been motivated to address the problem identified in Nishida by applying the teachings of the Schuessler references to arrive at the invention in Nike’s proposed substitute claims.  The three references all relate to the creation of three-dimensional, knitted articles.  Nike argued reducing waste was a long felt need, not addressed by Nishida.  On this point, the Federal Circuit remanded the case because the Board should have explicitly acknowledged and evaluated Nike’s secondary considerations evidence.  The Board’s decision failed to acknowledge Nike’s secondary consideration evidence.  Long-felt need is indisputably a secondary consideration and precedent dictates that the Board is bound to fully consider properly presented evidence on the long-felt need for a claimed invention.  

    The Federal Circuit also remanded the Board’s decision to group claims 48 and 49 together.  Although the Board correctly cited to the standard in Idle Free that multiple substitute claims are permissible if they are patentably distinct from each other, the Board did not engage in any such analysis comparing proposed substitute claims 48 and 49.  The Federal Circuit remanded for a proper determination of how these claims should be treated per the standard set forth in Idle Free.

    Adidas argued various grounds to affirm the Board’s decision.  First, they argued that the Board’s construction of “flat knit edges” is overly narrow and under the correct construction, Nishida anticipates the proposed substitute claims.  The Federal Circuit affirmed the Board’s conclusion that the broadest reasonable interpretation of “flat knit edge” is “an edge of a flat knit textile element, which is itself flat knit, e.g. which is not formed by cutting from a flat knit textile element.”  The anticipation argument was not reached.  Adidas also argued that the proposed claims were not supported by the written description.  The Federal Circuit rejected this argument finding that even if the limitation was a negative limitation, negative limitations are adequately supported when the specification describes a reason to exclude the relevant limitation.  Substantial evidence supported the Board’s decision that the proposed substitute claims are adequately supported by the written description of the ‘011 patent.

    The Federal Circuit found that the Board’s denial of Nike’s motion to amend for failure to show a patentable distinction over prior art not of record, but known to the patent owner does not provide an adequate basis for affirmance.  Nike attempted to carry the burden by including a statement that its proposed claims were patentable over prior art known to Nike, but not part of the record of the proceedings.  The Board denied the motion.  However, after the Board’s decision, the Board decided MasterImage 3D, Inc. v. RealD Inc., IPR 2015-00040, which stated that prior art known to the patent owner should mean no more than the material prior art that Patent Owner makes of record in the current proceeding pursuant to its duty of candor and good faith to the Office under 37 C.F.R. Sec. 42.11.  The Board acknowledged that, given the clarification under MasterImage, the Board read Idle Free too aggressively.  The Federal Circuit found Nike’s statement sufficient and it was an improper grounds on which to deny Nike’s motion to amend.

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