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Federal Circuit Corrects the Board’s “Too Exacting” Diligence Standard

On November 15, 2016, a split panel of the Federal Circuit, consisting of Judges Moore and O’Malley, ruled that the antedating standard demanded by the Patent Trial and Appeal Board, requiring a “continuous exercise of reasonable diligence,” was too exacting and in conflict with Federal Circuit precedent.  Slip Op. at 5-6 (emphasis in the original).

The appeal, Perfect Surgical Techniques, Inc. v. Olympus America, Inc. (Appeal No. 2015-2043), arose from the Board’s inter partes review (“IPR”) decision holding each claim at issue in U.S. Patent No. 6,030,384 (“’384 patent”) unpatentable as anticipated or obvious over Japanese Application Publication No. H10-33551 A (“JP ’551”).  In so finding, the Board determined that Perfect Surgical Techniques (“PST”) failed to antedate JP ’551 because it had not proven that the ’384 patent named inventor, Dr. Nezhat, was reasonably diligent in reducing his invention to practice.  The Board criticized PST for not showing “sufficiently specific … facts and dates” of Dr. Nezhat’s diligence during specific portions of the diligence period and ultimately concluded that PST failed to demonstrate Dr. Nezhat’s “continuous exercise of reasonable diligence for the entire critical period.”  Slip Op. at 6.

Writing for the majority, Judge Moore faulted the Board for repeatedly characterizing PST’s burden as requiring proof of Dr. Nezhat’s “continuous exercise of reasonable diligence.”  Slip Op. at 6 (emphasis in original).  The Court explained that a “patent owner need not prove the inventor continuously exercised reasonable diligence throughout the critical period; it must show there was reasonably continuous diligence.”  Slip Op. at 7.  The panel stated that the diligence analysis simply seeks to assure that, in light of the evidence as a whole, “the invention was not abandoned or unreasonably delayed,” which is done by “weigh[ing] the collection of evidence over the entire critical period.  Slip Op. at 8.

According to the Federal Circuit, by fixating on specific portions of the diligence period where PST allegedly provided no evidence of Dr. Nezhat’s activities, the Board did not properly weigh PST’s evidence under the rule of reason.  Id.  Believing the Board compounded its error, the panel further criticized the Board for summarily dismissing the activities of Dr. Nezhat’s patent attorney, Mr. Heslin, affirming prior Federal Circuit precedent that an “attorney’s work in preparing a patent application is evidence of an inventor’s diligence.”  Slip Op. at 10.  The majority went as far as to say that the “Board was required to weigh Mr. Heslin’s testimony and evidence of activity as an extension of Dr. Nezhat’s.”  Slip Op. at 10-11.

In light of these findings, the panel vacated and remanded the case back to the Board to decide “whether all of PST’s evidence, considered as a whole and under a rule of reason, collectively corroborates Dr. Nezhat’s testimony that he worked reasonably continuously within the confines of his and Mr. Heslin’s occupations to diligently finalize the patent application during the 81-day critical period.”  Slip Op. at 13.

Judge Schall dissented from the majority, first finding that, in light of Federal Circuit and C.C.P.A. precedent, the Board in fact did apply the correct standard in evaluating Dr. Nezhat’s diligence.  Dissent Slip Op. at 9.  He then concluded that a 19-day stretch of inactivity during the diligence period when Dr. Nezhat controlled the draft application constituted substantial evidence to support the Board’s ultimate finding that Dr. Nezhat failed to demonstrate reasonable diligence during the entire critical period.  Dissent Slip Op. at 16.

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Brad M. Scheller is an experienced patent litigator and strategic counselor to start-up ventures and established businesses in the mechanical and electrical arts, with a focus in EV and battery technologies and advising clients on patent portfolio growth, management and enforcement. He represents clients before the United States Patent and Trademark Office and as lead counsel in federal district court and appellate litigation across the country.