In Re: Magnum Oil Tools International , 829 F.3d 1364 ( 2016 )

United States Court of Appeals
for the Federal Circuit
______________________
IN RE: MAGNUM OIL TOOLS
INTERNATIONAL, LTD.,
Appellant
______________________
2015-1300
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board, in No. IPR2013-
00231.
______________________
Decided: July 25, 2016
______________________
NATHANIEL ST. CLAIR, II, Jackson Walker LLP, Dallas,
TX, argued for appellant. Also represented by JOHN
MARTIN JACKSON, CHRISTOPHER J. ROURK.
KRISTI L.R. SAWERT, Office of the Solicitor, United
States Patent and Trademark Office, Alexandria, VA,
argued for intervenor Michelle K. Lee. Also represented
by THOMAS W. KRAUSE, SCOTT WEIDENFELLER, MICHAEL
SUMNER FORMAN.
______________________
Before NEWMAN, O’MALLEY, and CHEN, Circuit Judges.
O’MALLEY, Circuit Judge.
McClinton Energy Group, LLC filed a petition for in-
ter partes review (“IPR”) of U.S. Patent No. 8,079,413 (the
2 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
“’413 patent”), owned by Magnum Oil Tools International,
Ltd. (“Magnum”). The Patent Trial and Appeal Board
(“Board”) instituted review and issued a final written
decision holding all challenged claims of the ’413 patent
obvious under 35 U.S.C. § 103. Subsequently, McClinton
and Magnum settled their dispute over the ’413 patent
and other patents not at issue here. Magnum now ap-
peals the Board’s judgment regarding the ’413 patent.
The Director of the U.S. Patent and Trademark Office
(“PTO”) intervened in the appeal pursuant to 35 U.S.C.
§ 143. For the following reasons, we reverse.
I. FACTUAL BACKGROUND
A. The ’413 Patent
The ’413 patent is directed to technology in the field of
oil drilling through use of hydraulic fracturing, commonly
known as “fracking.” Fracking is a technique used to
extract natural gas and oil from natural shale formations.
During the fracking process, a hole known as a “wellbore”
is drilled into the earth. Then, a fluid mixture is injected
down the wellbore into the shale at high pressure to
release the gas or oil.
Downhole plugs divide the wellbore into separate sec-
tions so that different sections of the wellbore may be
fracked at different times. A setting tool is used to insert
the downhole plugs into their appropriate positions in the
wellbore. The body of the plug is then secured in place via
the radial expansion of “slips” and “malleable elements”
that contact the sidewalls of the wellbore. The expanded
plug forms an airtight barrier, blocking movement of
liquid or gas around the plug. See ’413 patent, at col. 8, l.
46–col. 9, l. 13.
The setting tool can connect either to the top of the
plug facing the opening of the wellbore (“top-set”), or to
the bottom of the plug (“bottom-set”). The ’413 patent
teaches a bottom-set plug in which the setting tool fits
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 3
through a hollow passageway in the body of the plug and
attaches near the bottom of the plug. See id. at col. 9,
ll. 29-46. The setting tool exerts an axial force upward on
the body of the plug while a “setting sleeve” exerts an
axial force downward on the plug. The resulting axial
compression causes the plug to set in place via radial
expansion. Id.
Once the downhole plug is set, the setting tool must
be disengaged from the plug and extracted from the
wellbore. The ’413 patent at issue describes a mechanism
for releasing the setting tool from the downhole plug. Id.
at col. 3, ll. 47-57.
The ’413 patent teaches the use of an insert having a
“lower shear or shearable mechanism” for releasing a
setting tool. ’413 patent, at col. 2, ll. 54-56. The patent
teaches that the insert is placed within the plug body and
contains both shearable and nonshearable threads. The
inner threads connected to the setting tool shear when
exposed to sufficient stress, but the outer threads con-
nected to the plug body do not shear. The stress level
required to shear the shearable threads is lower than that
required to dislodge the plug body, so that the setting tool
may be released without dislodging the plug from its set
position. Id. at col. 2, ll. 59-63. Figure 1A of the ’413
patent depicts the claimed insert:
4 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
The ’413 patent has twenty claims, three of which are
independent (claims 1, 7, and 17). All of the claims of the
’413 patent recite that the “shearable threads” of the
release mechanism are part of an insert that is placed
within the central bore of the plug. Claim 1 of the ’413
patent is representative, and is reproduced below in its
entirety:
1. A plug for isolating a wellbore, comprising:
a body having a first end and a second end;
at least one malleable element disposed about the
body;
at least one slip disposed about the body;
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 5
at least one conical member disposed about the
body; and
an insert screwed into an inner surface of the body
proximate the second end of the body and adapted
to receive a setting tool that enters the body
through the first end thereof, wherein:
the insert comprises one or more shearable threads
disposed on an inner surface thereof;
the insert has a passageway extending
therethrough;
the one or more shearable threads are adapted to
engage the setting tool; and
the one or more shearable threads are adapted to
deform to release the setting tool when exposed to
a predetermined axial force, thereby providing a
flow passage through the insert and the body.
’413 patent, at col. 13, l. 57-col. 14, l. 7 (emphasis added).
B. Overview of the Prior Art
The Board instituted IPR based on the following three
primary references: U.S. Patent Application Publication
No. 2007/0151722 to Lehr et al. (“Lehr”); U.S. Patent No.
4,437,516 to Cockrell (“Cockrell”); and U.S. Patent No.
4,595,052 to Kristiansen (“Kristiansen”). J.A. 8. In its
petition for institution, McClinton had also relied on a
reference known as the Alpha Oil Tools Catalog (1997),
“Standard Frac Plug” (“Alpha”). J.A. 136-38. Specifically,
McClinton argued that both Alpha and Lehr disclose
downhole plugs that include the standard features of a
typical downhole plug and all the limitations of claim 1
except for (1) shearable threads on the inside of an insert
that shear in response to a predetermined axial force; and
(2) non-shearable threads on the outside of the insert that
screw into the inner surface of the plug body. Compare
J.A. 98-100 (Alpha), with J.A. 115-18 (Lehr).
6 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
The Board declined to institute IPR based on Alpha,
instead instituting IPR based on the primary reference
Lehr in view of Cockrell and Kristiansen. Alpha is none-
theless relevant to this appeal because Magnum focuses
its arguments on differences between Alpha and Lehr.
We briefly review each of these references in turn.
1. Alpha
As shown in the figure below, Alpha teaches a bottom-
set plug with a shear ring. The Alpha insert contains
non-shearable threads on the inside of the insert, which
allow the setting tool to apply a sufficient force to sepa-
rate the shear ring from the insert and allow the setting
tool to remove the insert through the bore of the plug. See
J.A. 138.
Appellant Br. at 7.
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 7
2. Lehr
Lehr teaches the use of a “deformable release device”
to allow release of a setting tool from a downhole plug.
J.A. 184 (¶ 0003). The deformable release device 30
shown in Figure 5 of Lehr is a washer-shaped device that
is held in place by plunger 80, as shown in Figure 3B.
J.A. 178-79. The washer-shaped device of Lehr does not
have threads.
Lehr also discloses a setting tool. Figure 1 of Lehr
provides an overview picture of the deformable release
device 30 and the plunger 80 in the context of the down-
hole plug 70 and the setting tool 10.
J.A. 187 (¶¶ 0037-39).
8 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
3. Cockrell
Cockrell teaches shearable threads on a “frangible re-
lease member” that is used to release a downhole plug or
other downhole tool from its working position. Cockrell
’516 patent, at Abstract (J.A. 139). Figure 1C of Cockrell,
reproduced below, shows that the release member is
located near the lower end of the plug and possesses both
internal shearable threads 140 and external threads 138.
Id. at col. 5, ll. 40-47 (J.A. 145). Accordingly, one way
that the downhole plug or tool may be released from its
working position is through the application of sufficient
axial force to shear the internal threads of the release
member. Id. at col. 5, l. 52 – col. 6, l. 68 (J.A. 145).
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 9
Unlike Lehr, Cockrell does not teach the use of a set-
ting tool. Instead, Cockrell is hydraulically set. Cockrell
’516 patent, at col. 7, ll. 3-8 (J.A. 146).
4. Kristiansen
Kristiansen teaches the use of a non-shearable
threaded insert known as a “converter plug” that is used
during field reconfiguration of a downhole plug. See
Kristiansen ‘052 patent, at col. 3, ll. 58-61 (J.A. 227). The
Kristiansen insert screws into the body of a plug by way
of threads along its outer surface. Id. at col. 5, ll. 30-35
(J.A. 228). Figures 13 and 17 of Kristiansen illustrate the
converter plug 4 and its position within a plug body.
Also unlike Lehr, Kristiansen does not teach the use
of a setting tool. Kristiansen teaches the use of a charge
to set downhole plugs. Id. at col. 7, ll. 50-58 (J.A. 229).
10 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
II. PROCEDURAL BACKGROUND
McClinton filed this IPR challenging all claims of the
’413 patent. In its Petition, McClinton argued that the
claims would have been obvious over Alpha as a base
reference, in combination with Cockrell and Kristiansen.
While McClinton also noted that the claims would have
been obvious over the combination of Lehr as a base
reference (in view of Cockrell and Kristiansen), McClinton
largely “incorporated by reference” its arguments on Lehr
from its earlier arguments based on Alpha. See, e.g.,
J.A. 118 (Petition for IPR) (incorporating by reference
arguments with respect to Lehr “as discussed above with
respect to Alpha,” and noting that “[t]he same analysis
applies to combinations using Lehr as a base reference”).
In its Preliminary Response, Magnum argued that
McClinton’s obviousness arguments based on Lehr were
insufficient for failure to “specify where each element of
the claim is found in” Lehr, Cockrell, and Kristiansen.
J.A. 368 (quoting 37 C.F.R. § 42.104(b)(4)). Magnum also
contended that McClinton’s Petition and expert declara-
tion focused on explaining how a skilled artisan might
have modified Alpha in view of Cockrell and Kristiansen,
but failed to describe how a skilled artisan would modify
Lehr in view of Cockrell and Kristiansen. J.A. 369-72.
Finding that McClinton had established a reasonable
likelihood of success in its Petition, the Board instituted
IPR of all challenged claims based on Lehr in view of
Cockrell and Kristiansen, but not on the basis of Alpha.
J.A. 385-412 (“Institution Decision”). After trial and the
completion of briefing, the Board issued a final written
decision holding all challenged claims unpatentable under
35 U.S.C. § 103. J.A. 1-37. Magnum requested rehearing,
arguing that the Board had relied on a “new ground of
unpatentability” regarding a skilled artisan’s motivation
to combine Lehr with Cockrell and Kristiansen. See J.A.
34-42. Magnum also argued that there was no evidence
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 11
supporting the Board’s finding that a skilled artisan
would have had a reasonable expectation of success in
removing Lehr’s retaining pins and replacing them with
Cockrell’s shearable threads. J.A. 42. The Board rejected
Magnum’s arguments, finding that McClinton had ex-
plained adequately why a skilled artisan would have had
a reasonable expectation of success and a motivation to
combine the teachings of Lehr, Cockrell, and Kristiansen.
Accordingly, in a decision dated October 29, 2014, the
Board denied Magnum’s request for rehearing. J.A. 38-
47.
Subsequently, McClinton and Magnum entered into a
settlement agreement, wherein “McClinton has agreed
not to participate in any appeal of the final written deci-
sion in the underlying inter partes review proceeding.” In
re Magnum Oil Tools Int’l, Ltd., Fed. Cir. No. 15-1300,
Doc. 3 (filed Feb. 2, 2015). When Magnum filed the
instant appeal, McClinton filed a request to withdraw
from the appeal, which we granted. Id., Doc. 4 (filed Feb.
5, 2015). After McClinton’s withdrawal, the Director of
the PTO intervened in this appeal pursuant to 35 U.S.C. §
143.
We have jurisdiction under 28 U.S.C. § 1295(a)(4)(A).
III. STANDARD OF REVIEW
Obviousness is a question of law based on underlying
facts. In re Gartside, 203 F.3d 1305, 1316 (Fed. Cir.
2000). We review the Board’s legal conclusion of obvious-
ness de novo, and underlying factual findings for substan-
tial evidence. In re Cuozzo Speed Techs., LLC, 793 F.3d
1268, 1280 (Fed. Cir. 2015), aff’d, Cuozzo Speed Techs.,
LLC v. Lee, No. 15-446, 2016 U.S. LEXIS 3927 (June 20,
2016). Substantial evidence “means such relevant evi-
dence as a reasonable mind might accept as adequate to
support a conclusion.” Consol. Edison Co. v. NLRB, 305
U.S. 197, 229 (1938); see In re Morsa, 713 F.3d 104, 109
(Fed. Cir. 2013).
12 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
IV. DISCUSSION
As an initial matter, the PTO argues that Magnum
challenges only the Board’s decision to institute the IPR,
which is an unreviewable decision. Intervenor Br. at 35;
Cuozzo Speed Techs., LLC v. Lee, No. 15-446, 2016 U.S.
LEXIS 3927, at *23 (June 20, 2016) (“[W]here a patent
holder merely challenges the Patent Office’s ‘deter-
min[ation] that the information presented in the peti-
tion . . . shows that there is a reasonable likelihood’ of
success ‘with respect to at least 1 of the claims chal-
lenged,’ §314(a), or where a patent holder grounds its
claim in a statute closely related to that decision to insti-
tute inter partes review, § 314(d) bars judicial review.”).
Magnum responds that it is not challenging the Board’s
decision to institute the IPR, but rather the Board’s
statements made regarding obviousness of the claimed
invention, some of which were made in the Board’s insti-
tution decision and later relied upon in the Board’s final
written decision. Appellant Reply Br. at 3.
Magnum is correct to state that we have jurisdiction
to review determinations made during institution that are
subsequently incorporated into the Board’s final written
decision. See Versata Dev. Grp., Inc. v. SAP Am., Inc., 793
F.3d 1306, 1315 (Fed. Cir. 2015) (“To be clear, it is the
merits of the final written decision that are on appeal; we
are not here called upon to review the determination by
the [Board] whether to institute a CBM review, and
indeed the statute expressly instructs that we may
not . . . .”). In Versata, we held that “[w]e have jurisdic-
tion to decide the [merits of a final written decision] even
though it is decided . . . initially by the [Board] at the
decision to institute stage.” Id. at 1329. Nothing in either
35 U.S.C. § 314(d) or Cuozzo Speed Techs. shields aspects
of a Board decision which are critical to its ultimate
judgment merely because its final analysis relies on
statements made when it initially considered the petition.
We have jurisdiction here to review all of Magnum’s
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 13
arguments regarding the basis for the Board’s ultimate
judgment of unpatentability.
On the merits, Magnum argues that the Board erred
in cancelling the claims of the ’413 patent because “nei-
ther McClinton nor the [Board] ever established a prima
facie basis for the rejection.” Appellant Br. at 12. Mag-
num further contends that McClinton failed to specifically
argue why a skilled artisan would have been motivated to
combine Lehr with Cockrell and Kristiansen. Instead,
Magnum contends, McClinton attempted to improperly
incorporate by reference its separate arguments concern-
ing its assertion of obviousness based on Alpha in view of
Cockrell and Kristiansen. Magnum asserts that Lehr
could not be the basis for a finding of obviousness because
Lehr fails to disclose key limitations recited in the ’413
patent, and a skilled artisan would not have sought to
combine Lehr with the other prior art references.
The PTO disagrees with Magnum’s proposed burden-
shifting framework. The PTO takes the view that upon
institution of an IPR, the Board necessarily finds that the
Petitioner has demonstrated a “reasonable likelihood of
success.” The PTO urges that this finding operates to
shift the burden of producing evidence of nonobviousness
to the patentee. Intervenor Br. at 32. Here, the PTO
asserts that the Board necessarily held that McClinton
met its initial burden of proving obviousness when the
Board “concluded in the decision to institute that McClin-
ton ‘ha[d] demonstrated a reasonable likelihood of prevail-
ing’ on its assertion that claim 1 is unpatentable over
Lehr, Cockrell, and Kristiansen.” Id. The PTO then
explains its view that “once the Board found a reasonable
likelihood that McClinton would ultimately carry its
burden of persuasion, the burden of production shifted to
Magnum to argue or produce evidence in its patent-owner
response that Lehr, Cockrell, and Kristiansen do not
render claim 1 obvious.” Id. at 33. In making this argu-
ment, the PTO implies that the Board’s conclusion on
14 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
obviousness in an IPR can be based on less than a pre-
ponderance of the evidence if the patent holder does not
affirmatively disprove the grounds upon which the IPR
was initiated. Id. at 31-33.
Having set forth its position regarding the parties’ re-
spective burdens, the PTO asserts that the Board proper-
ly applied its described burden-shifting framework in
holding the challenged patent claims obvious. Id. at 33.
In particular, the PTO argues that Lehr discloses all of
the features of the claimed invention other than the
recited shearable threads. In place of the shearable
threads, Lehr discloses a deformable release device. The
PTO contends that substantial evidence supports the
Board’s finding that a skilled artisan would have been
motivated to combine the deformable release device
taught in Lehr with the shearable threads taught in
Cockrell and Kristiansen, primarily relying on Magnum’s
failure to prove the contrary. Id. at 44.
A. Burden of Proof
“In an inter partes review . . . , the petitioner shall
have the burden of proving a proposition of unpatentabil-
ity by a preponderance of the evidence.” 35 U.S.C.
§ 316(e). “[T]he burden of proof is on the petitioner to
prove unpatentable those issued claims that were actually
challenged in the petition for review and for which the
Board instituted review.” Nike, Inc. v. Adidas AG, 812
F.3d 1326, 1334 (Fed. Cir. 2016).
Because several terms regarding the burden of proof
are critical to resolving the parties’ dispute, we briefly
define the terms here. “As an initial matter . . . there are
two distinct burdens of proof: a burden of persuasion and
a burden of production. The burden of persuasion ‘is the
ultimate burden assigned to a party who must prove
something to a specified degree of certainty,’ such as by a
preponderance of the evidence or by clear and convincing
evidence.” Dynamic Drinkware, LLC v. Nat’l Graphics,
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 15
Inc., 800 F.3d 1375, 1378 (Fed. Cir. 2015) (citing Tech.
Licensing Corp. v. Videotek, Inc., 545 F.3d 1316, 1326-27
(Fed. Cir. 2008)). A distinct burden, “[t]he burden of
production may entail ‘producing additional evidence and
presenting persuasive argument based on new evidence or
evidence already of record.’” Id. (citing Tech. Licensing
Corp., 545 F.3d at 1327).
“In an inter partes review, the burden of persuasion is
on the petitioner to prove ‘unpatentability by a prepon-
derance of the evidence,’ 35 U.S.C. § 316(e), and that
burden never shifts to the patentee.” Dynamic Drink-
ware, 800 F.3d at 1378. Indeed, “the Supreme Court has
never imposed nor even contemplated a formal burden-
shifting framework in the patent litigation context.” In re
Cyclobenzaprine Hydrochloride Extended-Release Capsule
Patent Litig., 676 F.3d 1063, 1075 (Fed. Cir. 2012) (revers-
ing district court’s determination of obviousness because
“the court imposed a burden-shifting framework in a
context in which none exists”). We have noted that “a
burden-shifting framework makes sense in the prosecu-
tion context,” where “[t]he prima facie case furnishes a
‘procedural tool of patent examination, allocating the
burdens of going forward as between examiner and appli-
cant.’” Id. at 1080 n. 7 (citing In re Oetiker, 977 F.2d
1443, 1445 (Fed. Cir. 1992)). As the PTO concedes, how-
ever, that burden-shifting framework does not apply in
the adjudicatory context of an IPR. Intervenor Br. at 30
(citing In re Jung, 637 F.3d 1356, 1362 (Fed. Cir. 2011)
(holding the prima facie case during patent examination
“is merely a procedural device that enables an appropri-
ate shift of the burden of production” from the PTO to the
patent applicant)).
Next, we resolve the parties’ arguments about the re-
lated but distinct burden of production. The PTO incor-
rectly contends that “the burden of production—or the
burden of going forward with evidence, shifts between the
petitioner and the patent owner,” as soon as the Board
16 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
institutes an IPR. Intervenor Br. at 31 (discussing Dy-
namic Drinkware, 800 F.3d at 1379). In Dynamic Drink-
ware, we noted that, in the context of establishing
conception and reduction to practice for the purposes of
establishing a priority date, the burden of production can
shift from the patent challenger to the patentee. 800 F.3d
at 1379. This is because a patent challenger has the
burden of producing evidence to support a conclusion of
unpatentability under § 102 or § 103, but a patentee bears
the burden of establishing that its claimed invention is
entitled to an earlier priority date than an asserted prior
art reference. See id. (discussing Tech. Licensing, 545
F.3d at 1327). In such a case, the shifting of the burden of
production is warranted because the patentee affirmative-
ly seeks to establish a proposition not relied on by the
patent challenger and not a necessary predicate for the
unpatentability claim asserted—effectively an affirmative
defense. In the context of the present case, however, the
notion of burden-shifting is inapposite because the pa-
tentee’s position is that the patent challenger failed to
meet its burden of proving obviousness. Applying a
burden-shifting framework here would introduce unnec-
essary confusion because the ultimate burden of persua-
sion of obviousness must remain on the patent challenger
and “a fact finder must consider all evidence of obvious-
ness and nonobviousness before reaching a determina-
tion.” In re Cyclobenzaprine, 676 F.3d at 1077; see also
Nike Inc., 812 F.3d 1335 (“Importantly, we have repeated-
ly emphasized that an obviousness inquiry requires
examination of all four Graham factors and that an
obviousness determination can be made only after consid-
eration of each factor.”) (citing, inter alia, Kinetic Con-
cepts, Inc. v. Smith & Nephew, Inc., 688 F.3d 1342, 1360
(Fed. Cir. 2012))).
Where, as here, the only question presented is wheth-
er due consideration of the four Graham factors renders a
claim or claims obvious, no burden shifts from the patent
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 17
challenger to the patentee. This is especially true where
the only issues to be considered are what the prior art
discloses, whether there would have been a motivation to
combine the prior art, and whether that combination
would render the patented claims obvious. We thus
disagree with the PTO’s position that the burden of
production shifts to the patentee upon the Board’s conclu-
sion in an institution decision that “there is a reasonable
likelihood that the petitioner would prevail.” See Interve-
nor Br. at 32 (citing 35 U.S.C. § 314(a)). The PTO’s
proposed burden shifting framework is also directly at
odds with our precedent holding that the decision to
institute and the final written decision are “two very
different analyses,” and each applies a “qualitatively
different standard.” TriVascular, Inc. v. Samuels, 812
F.3d 1056, 1068 (Fed. Cir. 2016). As we explained in
TriVascular:
[T]he Board is not bound by any findings made in
its Institution Decision. At that point, the Board is
considering the matter preliminarily without the
benefit of a full record. The Board is free to
change its view of the merits after further devel-
opment of the record, and should do so if con-
vinced its initial inclinations were wrong.
Id.; see also Cuozzo Speed Techs., 2016 U.S. LEXIS 3927,
at *18-19 (“The Patent Office’s decision to initiate inter
partes review is ‘preliminary,’ not ‘final.’”) (quoting 5
U.S.C. § 704)). Furthermore, because of the “significant
difference” between the standards of proof at institution
and trial during an IPR, see TriVascular, 812 F.3d at
1068, it is inappropriate to shift the burden to the patent-
ee after institution to prove that the patent is patentable. 1
1 We note, however, that while the institution of an
IPR does not by itself translate to a conclusion of un-
patentability and the patent owner is not required to use
18 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
Instead, the petitioner continues to bear the burden of
proving unpatentability after institution, and must do so
by a preponderance of the evidence at trial. See 35 U.S.C.
§ 316(e). And, the Board has an obligation to assess the
question anew after trial based on the totality of the
record.
B. Obviousness
Magnum argues that the Board improperly shifted
the burden to Magnum to prove nonobviousness. Mag-
num contends that the Board never required McClinton to
explain why a skilled artisan would have sought to com-
bine the asserted prior art references. Magnum points
out that McClinton attempted to establish obviousness in
its petition by arguing from Alpha as the primary base
reference. The Board did not initiate the IPR based on
Alpha, however. But, contends Magnum, the Board in its
final written decision improperly incorporated by refer-
ence McClinton’s arguments based on Alpha into the
Board’s conclusion that the claimed invention would have
been obvious in light of the primary reference Lehr.
The PTO argues that the differences between Alpha
and Lehr are irrelevant to this appeal, and that, regard-
less, “the proper time for Magnum to challenge the
Board’s actions would have been in a Request for Rehear-
ing of the Institution Decision under 37 C.F.R. § 42.71(c).”
Intervenor Br. at 36. The PTO further contends that “it is
not error for the Board to rely on an unpatentability
its opportunity under the regulations to file a patent
owner response, as in district court validity challenges,
the patent owner “‘would be well advised to introduce
evidence” on the asserted challenge. Pfizer, Inc. v. Apotex,
Inc., 480 F.3d 1348, 1360 (Fed. Cir. 2007) (quoting Ortho-
kinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d 1565,
1570 (Fed. Cir. 1986)).
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 19
theory that could have been included in a properly-drafted
petition,” but was not. Intervenor Br. at 34.
We briefly dispose of the PTO’s argument that Mag-
num was required to raise its concerns with the Board in
its request for rehearing prior to filing the instant appeal.
See Intervenor Br. at 36. “A party to an inter partes
review . . . who is dissatisfied with the final written
decision of the Patent Trial and Appeal Board under
section 318(a) . . . may appeal the Board’s decision only to
the United States Court of Appeals for the Federal Cir-
cuit.” 35 U.S.C. § 141(c). Nowhere does the statute
granting parties the right to appeal a final written deci-
sion in an IPR require that the party first file a request
for rehearing before the Board, especially a rehearing of
the initial institution decision. Instead, a party who is
dissatisfied with the final written decision of the Board
can elect to directly appeal that decision. Magnum may
advance on appeal its argument concerning motivation to
combine, since it raised this argument before the Board in
the IPR. Thus, we reject the PTO’s contention that Mag-
num was required to raise the present challenge to the
Board’s actions in a request for rehearing of the institu-
tion decision before it could challenge a final Board opin-
ion relying on the same rationale given in the institution
decision. As a practical matter, why would Magnum have
had an incentive to seek reconsideration of an Institution
Decision relying solely on Lehr when it believed McClin-
ton ultimately would be unable to sustain its burden of
proof based on that reference? Fleshing that out is what
an IPR trial is for.
We now address Magnum’s argument that the Board’s
improper shifting of the burden of proof resulted in re-
versible error. Appellant Br. at 22-24. Magnum cites to
several examples in the Board’s decision where the Board
required Magnum to rebut Petitioner McClinton’s asser-
tions that a skilled artisan would have been motivated to
combine the prior art references, without first requiring
20 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
McClinton to provide evidence to support its assertions.
We agree with Magnum that the Board improperly shift-
ed the burden to it, as the patentee, to prove nonobvious-
ness. Because McClinton failed to separately meet its
burden of establishing obviousness in view of Lehr,
Cockrell, and Kristiansen, we reverse.
The final written decision is replete with examples
where, rather than require McClinton to prove its asser-
tion of obviousness, the Board improperly shifted the
burden to Magnum to disprove obviousness. One example
of the Board’s error is found in the following passage of
the final written decision:
Magnum does not explain adequately why the
same analysis [that McClinton provided for Al-
pha] is not applicable to Lehr. For instance, Mag-
num does not explain why the simple substitute of
shearable threads, as taught by Cockrell (Ex.
1005, 5:43-47, 54-60), for retaining pins 31 that
secure the deformable release device 30, as taught
by Lehr (Ex. 1007 ¶ 0044,) would not yield a pre-
dictable result. See KSR Int’l Co. v. Teleflex, Inc.,
550 U.S. 398, 417 (2007). Moreover, Magnum
does not provide sufficient or credible evidence
that such a substitution is beyond the level of an
ordinarily skilled artisan. See Leapfrog Enters.,
Inc. v. Fisher-Price, Inc., 485 F.3d 1157, 1162
(Fed. Cir. 2007).
J.A. 23. As is evident from the quoted passage, the Board
expected Magnum to explain, and faulted Magnum for
allegedly failing to explain, why an obviousness argument
based on a first set of prior art references (Alpha,
Cockrell, and Kristiansen) that the Board did not adopt
would not be applicable to a second set of prior art refer-
ences (Lehr, Cockrell, and Kristiansen). Neither the
Board nor the petitioner explained why borrowing the
rationale for combining the first set of references equally
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 21
applies to the second set of references, which was particu-
larly necessary here where the two primary references
plainly operate in different manners. This constituted an
improper shifting of the burden to Magnum, the patentee,
to prove that the claimed invention would not have been
obvious.
Another example of the Board’s improper shifting of
the burden to Magnum is evident from the following
passage in the Board’s Institution Decision:
Here, the arguments presented by Magnum fail to
account for McClinton’s position that the com-
bined teachings of Lehr, Cockrell, and Kristiansen
teach the claimed “insert” and the corresponding
aspects of being “screwed into an inner surface of
the body,” “shearable threads disposed on the in-
ner surface,” “passageway extending
therethrough,” and “the one or more shearable
threads are adapted to deform to release the set-
ting tool when exposed to a predetermined axial
force, thereby providing a flow passage through
the insert and the body.” Consequently, we are
not persuaded by Magnum’s argument because it
attacks Lehr, Cockrell, and Kristiansen individu-
ally and, therefore, does not account for what the
combination of those references conveys to an or-
dinarily skilled artisan.
JA 405-06. Here, the Board improperly assumed, without
deciding, that “McClinton’s position that the combined
teachings of Lehr, Cockrell, and Kristiansen teach the
claimed ‘insert’” is correct. See id. The Board then re-
quired the patentee, Magnum, to rebut the position of the
petitioner, McClinton, and to prove nonobviousness of the
claimed invention.
We are not suggesting that any reference to “rebuttal”
evidence by the Board would constitute reversible error.
It is not the language employed with which we are con-
22 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
cerned, it is the placement of the burden of persuasion
that matters. Where, as here, it is clear that the Board
did not require the petitioner to support its claim of
obviousness by a preponderance of the evidence, we must
reverse.
The record reveals that McClinton failed to articulate
a motivation to combine the specific teachings of Lehr,
Cockrell, and Kristiansen to achieve the claimed inven-
tion. Indeed, McClinton merely attempted to incorporate
its arguments based on Alpha to its obviousness analysis
based on Lehr, without presenting particularized argu-
ments explaining why those arguments from Alpha would
be cross-applicable to the Lehr reference. In arguing that
a skilled artisan would have been motivated to combine
Lehr with the other prior art references, McClinton
reasoned as follows:
Lehr does not have two of the elements of claim 1:
(1) the requirement in elements [1.6, 1.8, and 1.9]
of threads that shear in response to a predeter-
mined axial force; and (2) the requirement of [1.5]
of [sic] threads on the outside of the insert that
screw into the inner surface of the plug body.
However, as discussed above with respect to Al-
pha, these elements were known—indeed, well
known—in the art, particularly as shown by the
Cockrell reference. The explanation above for
Challenge No. 1 explains how each of these miss-
ing elements is set forth in Cockrell and Kristian-
sen. Challenge No. 1 also explains why it was
obvious to a person of skill to combine Cockrell
and Kristiansen with other downhole plug prior
art. The same analysis applies to combinations
using Lehr as a base reference, with Cockrell and
Kristiansen supplying the elements of claim 1
that are missing from Lehr, and the combination
of these references rendering claim 1 obvious.
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 23
J.A. 117-18 (Petition) (emphases added).
But Alpha and Lehr are different, as the Board’s in-
stitution on the latter, but not the former, evidences.
McClinton failed to provide any analysis of how or why
the deformable release device 30 of Lehr could be com-
bined with Cockrell or Kristiansen in the same manner as
the Alpha insert, nor did McClinton articulate a different
rationale for why a skilled artisan would be motivated to
combine Lehr with Cockrell or Kristiansen. Instead,
McClinton attempted to provide the motivation to com-
bine merely by noting surface similarities between the
Alpha and Lehr references. See J.A. 491-92 (Petitioner’s
Reply Brief) (noting that, inter alia, Alpha and Lehr both
disclose frac plugs and downhole tools). These surface
similarities do not control the obviousness analysis be-
cause they are not directed to the relevant features of the
claimed invention, namely an insert containing:
(1) shearable threads on the inside of the insert that allow
for release of a setting tool; and (2) nonshearable threads
on the outside of the insert that allow for attachment of
the insert to a plug body.
24 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
The Board also failed to address Magnum’s argument
that “the insert disclosed by Alpha and the deformable
release member disclosed by Lehr are entirely different in
structure and purpose.” J.A. 435 (Patent Owner’s Re-
sponse Brief) (emphasis in original). These structural
differences are evident from the figures below, which
show the shear ring insert of Alpha on the left and the
deformable release member of Lehr on the right.
Id.
Notwithstanding the Board’s failure to explain why a
skilled artisan would have been motivated to swap out the
deformable release device 30 of Lehr, Magnum also
correctly notes that McClinton failed to articulate why a
skilled artisan would have sought to combine Lehr with
Cockrell and Kristiansen. Cockrell and Kristiansen do
not disclose setting tools. In contrast to Lehr, which
discloses a setting tool, Cockrell is hydraulically set.
Cockrell ’516 patent, at col. 7, ll. 3-8. And Kristiansen is
set with a charge. Kristiansen ’052 patent, at col. 7, ll. 50-
58. McClinton did not address these specific differences
in how the prior art references are set, despite the fact
that the claimed inventions of the ’413 patent are each
directed to an insert allowing for the release of a setting
tool. See, e.g., ’413 patent, at col. 13, l. 57-col. 14, l. 7. In
light of McClinton’s failure to explain why a skilled arti-
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 25
san would have sought to combine the prior art references
to achieve the claimed invention, the Board had no basis
for its conclusion that McClinton had met its burden of
proving by a preponderance of the evidence that the
claimed invention would have been obvious. See KSR,
550 U.S. at 418.
To satisfy its burden of proving obviousness, a peti-
tioner cannot employ mere conclusory statements. The
petitioner must instead articulate specific reasoning,
based on evidence of record, to support the legal conclu-
sion of obviousness. Id. In its petition, McClinton merely
argued in conclusory fashion that “[t]he same analysis”
for Alpha also applied to Lehr, without further explana-
tion. JA 117-18. The Board had no basis apart from this
and similar conclusory statements to find a motivation to
combine Lehr with the other prior art references, Cockrell
and Kristiansen. Because such conclusory statements
cannot satisfy the petitioner’s burden of demonstrating
obviousness, the Board did not have sufficient evidence on
which to base its legal conclusion of obviousness.
Finally, we address the PTO’s assertion that the
Board did not err in making an obviousness argument on
behalf of McClinton based on the primary reference Lehr
because this argument “could have been included in a
properly-drafted petition.” Intervenor Br. at 34 (citing
Cuozzo, 793 F.3d at 1275). It is the petitioner that bears
the burden of proof in IPRs, however. See 35 U.S.C. §
316(e) (“In an inter partes review instituted under this
chapter, the petitioner shall have the burden of proving a
proposition of unpatentability by a preponderance of the
evidence.”) (emphasis added). It is true that the entire
IPR process is one designed as an “efficient system for
challenging patents that should not have issued.” Cuozzo
Speed Techs., 2016 U.S. LEXIS 3927, at *29 (quoting H.R.
Rep. No. 112-98, pt. 1, at 39-40 (2011)). But it is still a
system that is predicated on a petition followed by a trial
in which the petitioner bears the burden of proof. Given
26 IN RE: MAGNUM OIL TOOLS INTERNATIONAL
that framework, we find no support for the PTO’s position
that the Board is free to adopt arguments on behalf of
petitioners that could have been, but were not, raised by
the petitioner during an IPR. Instead, the Board must
base its decision on arguments that were advanced by a
party, and to which the opposing party was given a
chance to respond. SAS Inst., Inc. v. ComplementSoft,
LLC, No. 2015-1347, 2016 U.S. App. LEXIS 10508, at *20-
21 (Fed. Cir. June 10, 2016) (“An agency may not change
theories in midstream without giving respondents rea-
sonable notice of the change and the opportunity to pre-
sent argument under the new theory.”) (interpreting 5
U.S.C. § 554(b)(3)) (quoting Belden Inc. v. Berk-Tek LLC,
805 F.3d 1064, 1080 (Fed. Cir. 2015) (internal quotations
omitted). Here, “[i]t was [petitioner’s] burden to demon-
strate both ‘that a skilled artisan would have been moti-
vated to combine the teachings of the prior art references
to achieve the claimed invention, and that the skilled
artisan would have had a reasonable expectation of suc-
cess in doing so.’” Intelligent Bio-Sys., Inc. v. Illumina
Cambridge, Ltd., 821 F.3d 1359, 1367-68 (Fed. Cir. 2016)
(citing, inter alia, Kinetic Concepts, Inc. v. Smith & Neph-
ew, Inc., 688 F.3d 1342, 1360 (Fed. Cir. 2012)). Thus,
while the PTO has broad authority to establish proce-
dures for revisiting earlier-granted patents in IPRs, that
authority is not so broad that it allows the PTO to raise,
address, and decide unpatentability theories never pre-
sented by the petitioner and not supported by record
evidence.
V. CONCLUSION
As explained above, the Board erred in shifting the
burden of proof on obviousness in this IPR from the
petitioner, McClinton, to the patent owner, Magnum. The
Board further failed to articulate a sufficient rationale for
why a skilled artisan would have sought to combine the
asserted prior art to achieve the claimed invention. The
Board’s decision was premised on a legally incorrect
IN RE: MAGNUM OIL TOOLS INTERNATIONAL 27
standard for assessing obviousness, and the Board’s
factual findings regarding the alleged motivation to
combine lacked substantial evidence. Accordingly, we
reverse the Board’s decision.
REVERSED