CAFC Vacates Netflix and Apple Losses at PTAB in Two Precedential Rulings

The U.S. Court of Appeals for the Federal Circuit (CAFC) today issued two precedential opinions vacating and remanding decisions of the Patent Trial and Appeal Board (PTAB). In the first, the court said the PTAB abused its discretion in finding that Netflix, Inc. failed to articulate a field of endeavor to establish analogous art, vacating the Board’s decision in part. In the second, the CAFC vacated the PTAB’s finding that Apple, Inc. had failed to prove Corephotonics’ patent claims unpatentable as obvious, holding that the evidence supported a different claim construction than that adopted by the Board in one decision, and because the Board’s decision in the second inter partes review (IPR) violated the Administrative Procedure Act (APA).

Proper Analogous Art Analysis

In Netflix, Inc. v. DivX, LLC, the CAFC said that the PTAB’s U.S. Patent No. 8,472,792 claims a feature dubbed by DivX “trick play functionality,” which is the ability to “fast forward, rewind and scene skip[]” frames. Netflix petitioned for IPR of claims 1, 5, 8, 9, 13–15, 18, and 21–23 of the patent, arguing the claims would have been obvious in view of prior art references Zetts as modified by Kaku. In its patent owner response, DivX argued that Kaku is non-analogous art, relying on expert testimony that there is “no indication that Kaku has anything to do with enabling trick play functionality, streamed content, or dual indexes,” and that the patent and Kaku therefore have “distinct fields of endeavor.” DivX also argued that Kaku “is not reasonably pertinent to the problem the inventor of the ’792 patent sought to address.”

In response, Netflix identified both AVI files and encoding and decoding multimedia files as the overlapping fields of endeavor between the two patents, but DivX argued that Netflix’s explanation “failed to meet its burden to demonstrate that Kaku was analogous art to the ’792 patent because Netflix did not explicitly identify the field of endeavor or the reasonably pertinent problems for either the ’792 patent or Kaku.” The Board agreed with DivX and ultimately rejected Netflix’s obviousness argument because it said Netflix had failed to prove that Kaku is analogous art under either the field-of-endeavor test or the reasonable-pertinence test.

In its analysis, however, the CAFC said the Board abused its discretion by requiring Netflix to “formulaically articulate a field of endeavor using those exact words.” The court explained:

“[O]ur precedent does not require the use of magic words. The Board erred by imposing a higher burden than that required by our precedent…. Addressing the ’792 patent, Netflix argued that the invention “refers to AVI as prior art” and cited sections of the ’792 patent that discussed the AVI file and how the “chunks” of the invention’s multimedia file “are defined as part of the AVI file format.”….Taken together and in context, Netflix sufficiently argued that the field of endeavor for both the ’792 patent and Kaku is AVI file formats.”

Furthermore, Netflix alternatively identified “encoding . . . and decoding of multimedia files” as a field of endeavor. Although the PTAB said that argument was exclusive to the issue of reasonable pertinence, the CAFC held this view was an “unduly rigid” reading of the analogous art framework. The court said it has previously recognized that evidence relating to the field of endeavor and reasonable pertinence may overlap. “Contrary to the Board’s unduly rigid requirement that a petitioner explicitly identify a field of endeavor, there are instances—like in Netflix’s reply in this case—where general language is sufficient to allow the Board to consider alternative arguments on the merits.”

Finally, the Board itself failed to clearly articulate a field of endeavor in its analysis, said the court. “Given the Board’s own articulation of two potential fields of endeavor without the use of magic words, we have difficulty understanding how it could view Netflix’s reply brief as insufficient for failure to affirmatively identify a single field of endeavor,” said the court.

Noting the “unusual circumstances” of the case, the CAFC remanded to the Board to determine the “factual question of whether Kaku is directed to the same field of endeavor as the patent-in-suit based on the arguments fairly presented by the parties, including Netflix’s arguments that Kaku and the ’792 patent are both directed to AVI files and/or that they are both directed to the encoding and decoding of multimedia files.” The court did, however, agree with the PTAB’s analysis of the reasonably pertinent test, holding that substantial evidence supported the Board’s finding there.

Claim Construction and APA Clarifications

In Apple, Inc. v. Corephotonics, Ltd., the CAFC vacated two final written decisions of the PTAB that held in favor of the patent owner. Corephotonics owns U.S. Patent No. 10,225,479, which Apple challenged via two separate IPRs. The patent is directed to creating “portrait photos.”

In the first IPR, the parties disputed the construction of the claim term “fused image with a point of view (POV) of the Wide camera.”Apple argued that the term “required only that the fused image retain Wide perspective or Wide position POV, i.e., retain the shape of the Wide image (perspective POV) or the position of the Wide image (position POV),” while Corephotonics said the specification defined “point of view” “such that the disputed limitation meant that the fused image must maintain both Wide perspective and Wide position POV.” The PTAB ultimately adopted Corephotonics’ construction, but the CAFC, pointing to the language of the specification,  said that “Corephotonics’ proposed construction—requiring the fused image to have Wide perspective and Wide position POV—would exclude various embodiments disclosed by the specification.” The court acknowledged that “neither the claim language nor the specification presents a cut-and-dry case of claim construction regarding this claim term,” but said that, overall, Apple’s reading is more in line with the intrinsic evidence.

In the second final written decision, the PTAB relied chiefly on a typographical error made by one of Apple’s experts that the court said neither party identified as material to the claimed invention. “The main error relied on by the Board in its final written decision is the Abbe number error, an error Corephotonics mentioned in passing only once in the Background section of its Response,” wrote the court. Corephotonics did not argue that this error demonstrated that there would have been no reasonable expectation of success or that it rendered Dr. Sasián’s entire analysis unreliable. The Board also failed to sufficiently explain why it found this error so meaningful, said the court.

Since the parties had not briefed, argued or suggested this error was dispositive of the issues in the case, Apple did not have proper notice under the APA to anticipate this would be the basis for the Board’s decision, said the court.

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