Split Federal Circuit Panel Says Netflix Failed to Properly Raise Arguments in IPR Petition

The U.S. Court of Appeals for the Federal Circuit (CAFC) today issued a precedential ruling finding that it is ultimately the petitioner’s burden to clearly present arguments in an inter partes review (IPR), and that Netflix failed to do so in challenging the relevant claims of DivX’s streaming technology patents. Judge Dyk dissented from the majority.

DivX owns U.S. Patent Nos. 9,270,720 (’720 patent) and 9,998,515, both titled “Systems and Methods for Automatically Generating Top Level Index Files.” Netflix filed two IPR petitions challenging several claims of each patent as obvious over combinations of three prior art references. The Patent Trial and Appeal Board (PTAB) found that Netflix failed to prove the asserted claims obvious, and on appeal, Netflix accused the Board of failing to address several arguments made in its petitions. In particular, Netflix argued the PTAB overlooked its arguments directed to the “filtering the list of assets” limitation of claim 1 of the ’720 patent, the “retrieving . . . a list of assets” limitation of claim 1 in both patents, and the “generating . . .a top level index file” limitation of claim 1 of the ’515 patent.

The Federal Circuit acknowledged that it has in the past “reprimanded the Board for failing to address arguments that were presented in a petition,” but further noted that “the Board should also not have to decode a petition to locate additional arguments beyond the ones clearly made.” The opinion acknowledged that this is a “fine line” the PTAB must walk and sympathized with the job of an administrative patent judge in IPRs today with a nod to Judge Rich’s comments from 1967 about the life of a patent solicitor being “a hard one.” In re Ruschig, 379 F.2d 990, 993 (CCPA 1967).’

Addressing each of Netflix’s arguments on appeal, the CAFC explained that, while Netflix argued its petition mapped the prior art’s (“Pyle’s”) “new manifest embodiment” to the “filtering” limitation, the petition “made it quite clear Netflix was focused on Pyle’s pre-existing manifest as teaching the ‘filtering the list of assets’ limitation.” The opinion added:

“[W]hile the petition explained that Pyle disclosed two embodiments—a new manifest and a pre-existing manifest—the petition’s explanation for how Pyle taught the filtering limitation was limited to just Pyle’s pre-existing manifest.”

As to the “retrieving limitation,” Netflix argued that the Board improperly viewed another prior art reference, “Lewis,” as the basis for an “obviousness challenge that required modification to Lewis, when, in Netflix’s view, the petition argued Lewis disclosed this limitation.” The court squarely rejected this argument, specifically Netflix’s contention that the petition’s “use of language like ‘a [skilled artisan] would have found it obvious to retrieve a list of assets’ does not suggest that Lewis requires any modification.” The CAFC explained:

“Patent lawyers would be surprised by this statement. There is no word in patent law that sends a more unmistakable signal that § 103, rather than § 102, is being invoked than the word ‘obvious.’”

The panel concluded that it was “eminently reasonable” for the PTAB to reach the conclusion it did on this point.

Finally, addressing the “generating . . . a top level index file” limitation in the ’515 patent, the court said that Netflix only argued that the prior art’s creation of a new manifest satisfied this limitation for the first time in its reply brief. It pointed to Netflix’s petition on the ‘720 patent, which clearly states that the prior art “teaches generating manifest files that are optimized . . . using the composition component 210 to create new manifests,” as proof that Netflix knew how to make the correct argument, but chose not to in the ‘515 petition. The court thus affirmed the Board’s decision upholding the challenged claims of both patents.

In his dissent, Judge Dyk said that, while it is true in IPRs that “we are confronted with situations in which parties without basis argue that arguments were presented to and ignored by the Board, and equally with situations in which the Board ignores arguments that were properly preserved,” the present case falls into the latter category. Judge Dyk agreed with the majority that the PTAB did not abuse its discretion in its finding on the generating limitation of the ‘515 patent, “though I view it as a close question,” but disagreed as to the two other arguments raised on appeal and thus would have remanded the case back to the Board for reconsideration.

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