In a recent decision on an inter partes review (IPR) appeal, the Federal Circuit erased a rare victory for a patent owner and remanded the case back to the Patent Trial and Appeal Board (PTAB) for rehearing on the sole claim that survived the initial trial.  In SAS Institute, Inc. v. ComplementSoft, LLC, Nos. 2015-1346 & 2015-1347 (Fed. Cir. June 10, 2016), SAS Institute, as petitioner, had challenged claims 1-16 of Patent 7,110,936 owned by ComplementSoft.  The ’936 patent discloses “a language independent software development tool having a graphical user interface.”  The PTAB instituted an IPR trial on claims 1 and 3-10 of the patent and ultimately found all of the instituted claims, except for claim 4, invalid in light of the prior art.  (IPR2013-00226).

At issue in the appeal was whether claim 4 was properly found not invalid. Claim 4 was an independent claim and included (among other things) an element, “graphic representations of data flows,” that the PTAB had construed in its initial determination to be “a diagram that depicts a map of the progression (or path) through the source code.”

However, in its final written decision, the PTAB chose a new definition for this term, namely “a graphical representation comprised of icons depicting data processing steps and arrows to depict the movement of data through source code.” Based on this new construction, the PTAB concluded that this feature was not taught or suggested by the cited art.

On appeal, the Federal Circuit panel of Judges Newman, Chen and Stoll found error in the PTAB’s adoption of a new construction for a term it had construed differently in its institution decision. The Federal Circuit panel (citing Belden Inc. v. Berk-Tek LLC, 805 F.3d 1064, 1080 (Fed. Cir. 2015)) held that the Administrative Procedure Act (APA) prevents federal agencies, including the PTAB, from “chang[ing] theories in midstream without giving the respondent reasonable notice of the change and the opportunity to present argument under the new theory.”

Writing for the Fed. Circuit panel, Judge Stoll wrote, “[i]t is difficult to imagine either party anticipating that already-interpreted terms were actually moving targets, and it is thus unreasonable to expect that they would have briefed or argued, in the alternative, hypothetical constructions not asserted by their opponent.”

The decision may be a pyrrhic victory for SAS Institute since Judge Stoll’s opinion also noted: “[W]e we agree with the Board’s ultimate construction of the “graphical representations of data flows” claim term. The Board’s procedure for arriving at this construction, however, gives us pause.”

Interestingly, the Federal Circuit panel had no problem with PTAB construing claim language on the fly – so long as the Board had not previously construed the claim element differently in its initial determination. “What concerns us is not that the Board adopted a construction in its final written decision, as the Board is free to do, but that the Board ‘change[d] theories in midstream,’” cited the Belden case again.