Federal Circuit Finds Fault in PTAB’s Determination of Obviousness Without Proper Notice

In Nike v. Adidas (Fed. Cir. April 9, 2020) (precedential), the Federal Circuit addressed the notice provisions of the Administrative Procedures Act (APA) as they relate to the Patent Trial and Appeals Board (PTAB or Board) determination in an inter partes review (IPR) proceeding. Specifically, this precedential decision held that notice is required when the PTAB advances a novel theory of unpatentability.

Originally, Adidas filed a petition for inter partes review of a patent owned by Nike. After the petition was granted, Nike filed a motion to amend requesting cancellation of a number of claims and entry of substitute claims. This decision centered around dependent claim 49, which recited, in part, "second stitch configuration forms a plurality of apertures in the flat knit textile element, the apertures formed by omitting stitches in the flat knit textile element and positioned in the upper for receiving laces."

In determining that claim 49 was unpatentable as obvious, the Board reasoned that “the entirety of the record demonstrates the unpatentability of substitute claim 49 by a preponderance of the evidence.” The Board's conclusion was based on a theory that was not originally presented within the original petition or petitioner’s filings opposing the substitute claims - namely the Board relied on a prior art reference, which was was part of the record, as finding "by omitting stitches" was a well-known technique. In other words, Adidas never relied on the prior art reference to show that skipping stitches to form apertures was a well-known technique in its filings opposing Nike's motion to amend. Instead, in finding the claim unpatentable, the PTAB relied on its own reasoning that the prior art reference showed omitting stitches was a well-known technique.

Nike argued that the Board violated the APA by failing to provide notice that the Board would rely on the prior art reference to support its obviousness conclusion.

The Federal Circuit agreed with Nike that the Board erred in providing Nike with notice and an opportunity to be heard per 5 U.S.C. §§ 554(b)(3) and (c)(1). However, it is important to note that the Federal Circuit did not find error in the Board's consideration of the patentability of claim 49 in view of the prior art reference. Thus, Nike had no notice that the Board would consider a new theory of unpatentability. In other words, the Board could very well come to the same conclusion once Nike has an opportunity to respond to this theory.

The Federal Circuit vacated the obviousness determination and remanded the case back to the Board for further proceedings.