The US Court of Appeals for the Federal Circuit held that the Patent Trial and Appeal Board (PTAB) is entitled to strike arguments improperly raised for the first time in a reply, but stated that expansion of previously argued rationale is not new argument. Ericsson Inc. v. Intellectual Ventures I LLC, Case No. 17-1521 (Fed. Cir. Aug. 27, 2018) (Reyna, J).

Ericsson petitioned for inter partes review (IPR) of an Intellectual Ventures (IV) patent. The PTAB granted partial institution, but struck portions of Ericsson’s reply as new argument and, without consideration of the struck portions, went on to decide that Ericsson failed to prove that the challenged claims were obvious. Ericsson appealed

The Federal Circuit found that the PTAB erred in not considering portions of Ericsson’s reply and remanded for reconsideration.

The patent at issue increases wireless communication system reliability by minimizing effects of randomly occurring transmission errors. Among prior art techniques for reducing such burst errors, the patent indicated that “transmitting a single interleaved packet size for varying signal drop-out conditions is not completely effective in minimizing burst error effects,” and that “interleaving multiple message packets together thus creat[es] better burst error correction capabilities” (emphasis added).

Although the patent had expired, Ericsson construed claim terms under the broadest reasonable interpretation (BRI) standard. The PTAB sua sponte constructed claims as requiring interleaving portions from each of the packets in the packet block together, but not interleaving within a packet, and interpreted a prior art reference as teaching non-interleaved S-blocks and R-block interleaving of portions of the same packet together, but not interleaving a portion of a first packet with a portion of a second packet.

Post-institution, IV raised the issue that expired claims should be construed under Phillips, not under the BRI standard. IV’s undisputed Phillips-based construction required formation of blocks by “interleaving packets together.” In its reply, Ericsson argued that since interleaving packets together was known to persons of ordinary skill in the art, “[t]he difference between interleaving R-blocks together and interleaving S-blocks together is insubstantial at best,” and that the prior art suggested “an added benefit would be obtained from interleaving larger data portions.” Citing 37 CFR 42.23(b), the PTAB struck these arguments as non-responsive to the patent owner response and improperly raising a new theory of obviousness for the first time: “All arguments for the relief requested in a motion must be made in the motion. A reply may only respond to arguments raised in the corresponding opposition, patent owner preliminary response, or patent owner response.”

The Federal Circuit explained that the PTAB erred in not considering these arguments, and that by “parsing Ericsson’s arguments . . . with too fine of a filter,” it exacerbated the significance of interleaving, an argument thus only arose post-institution. Given (1) the admissions in the challenged patent, (2) arguments raised in Ericsson’s petition, and (3) the PTAB’s own “evolving understanding” of whether claim 1 requires the formation of blocks by “interleaving packets together,” the non-considered portions of the reply “expressly follow” the contentions in the petition that “there is no substantial difference between interleaving R-blocks within S-blocks, and interleaving S-blocks with S-blocks” because the patent acknowledged interleaving was known. Therefore, Ericsson was entitled to argue that the distinction in the specific type of interleaving between the prior art and the patent would have been insubstantial to a person of ordinary skill in the art.

As the Federal Circuit noted, the PTAB’s discretion to limit the scope of replies and reject arguments raised for the first time in a reply remains unchallenged and unchanged. Ericsson’s actions neither relied on previously unidentified portions of prior art to make a meaningfully distinct contention, nor constituted an “entirely new rationale” worthy of being excluded. Because Ericsson cited no new evidence and merely expanded on previously argued rationale, the Court vacated the PTAB decision and remanded for consideration of all of Ericsson’s reply arguments.

Additionally, because the missing interleaving limitation was the essential basis of the PTAB's patentability decision, the Federal Circuit concluded that Ericsson should have been given an opportunity to respond, viewing this as a “special case” where the PTAB revisited the claims in light of applying BRI pre-institution and the Phillips standard post-institution: “Ericsson likewise deserved an opportunity to do the same.”