In Re Magnum Oil Tools International, Ltd., 829 F.3d 1364

Background

The ’413 patent (Magnum) claims a bottom-set fracking plug with an insert inside the plug body that has inner "shearable threads" to release a setting tool and outer threads to anchor the insert. Claim 1 is representative.
McClinton petitioned for IPR challenging all claims as obvious, relying primarily on Lehr (base) in view of Cockrell and Kristiansen; McClinton had earlier argued similar points based on an Alpha catalogue but the Board instituted on Lehr (not Alpha).
At trial the Board found all challenged claims obvious and issued a final written decision cancelling them; Magnum appealed. McClinton later settled and withdrew from the appeal; the PTO Director intervened.
Magnum argued the Board improperly shifted the burden of proof/production to Magnum (patent owner) after institution, and that the petitioner (McClinton) failed to demonstrate a motivation to combine Lehr with Cockrell and Kristiansen by a preponderance of the evidence.
The Federal Circuit held that (1) no burden of persuasion shifts from petitioner — the petitioner must prove unpatentability by a preponderance at trial; (2) the Board improperly shifted the burden of production in this IPR and relied on conclusory/borrowed arguments rather than evidence showing motivation to combine Lehr with Cockrell and Kristiansen; (3) the Board’s factual findings on motivation lacked substantial evidence and its legal standard was incorrect, so the decision was reversed.

Issues

Issue	McClinton's Argument	Magnum's Argument	Held
Whether institution shifts burden of persuasion/production to patent owner	Institution finding of "reasonable likelihood" justifies shifting burden of production to Magnum to rebut obviousness	No shift: petitioner retains burden of persuasion; burden-shifting framework for examination does not apply in IPR adjudication	Court: burden of persuasion never shifts; burden of production does not shift merely because Board instituted review; petitioner must prove unpatentability by preponderance at trial
Whether Board properly relied on Lehr (vs. Alpha) and adopted petitioner arguments by reference	McClinton relied on Lehr (and attempted to incorporate Alpha arguments by reference) and the Board may consider theories that could have been in a properly-drafted petition	Lehr differs materially from Alpha; Board cannot adopt unraised or conclusory theories on petitioner’s behalf	Court: Board erred in adopting/incorporating Alpha-based arguments without petitioner-specific reasoning for Lehr; agency may not raise/decide unpresented theories
Whether petitioner showed motivation to combine Lehr with Cockrell and Kristiansen	Asserted that missing elements (shearable/outer threads) were known in the art (Cockrell/Kristiansen) and "same analysis" from Alpha applies to Lehr	Lehr’s deformable release differs structurally and functionally from Alpha’s insert; petitioner failed to explain combination or account for differing setting methods	Court: petitioner provided only conclusory statements; Board lacked substantial evidence of motivation to combine; reversal required
Whether Board’s final decision was supported by substantial evidence and correct legal standard	Board concluded obviousness based on combined references and Magnum’s failure to rebut	Magnum argued Board applied incorrect burden-shifting standard and did not require petitioner to meet preponderance burden	Court: Board applied legally incorrect standard and shifted burden; factual findings on motivation to combine lacked substantial evidence; decision reversed

Key Cases Cited

In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000) (obviousness is a legal conclusion based on underlying facts)
In re Cuozzo Speed Techs., LLC, 793 F.3d 1268 (Fed. Cir. 2015) (reviewability of institution decisions and differences between institution and final decision)
Consol. Edison Co. v. NLRB, 305 U.S. 197 (Sup. Ct. 1938) (definition of substantial evidence)
In re Morsa, 713 F.3d 104 (Fed. Cir. 2013) (substantial-evidence standard)
Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306 (Fed. Cir. 2015) (jurisdiction to review final written decisions even when institution stage made similar findings)
TriVascular, Inc. v. Samuels, 812 F.3d 1056 (Fed. Cir. 2016) (institution and final decision apply qualitatively different standards)
In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig., 676 F.3d 1063 (Fed. Cir. 2012) (criticizing judicial burden-shifting in obviousness contexts)
Dynamic Drinkware, LLC v. Nat’l Graphics, Inc., 800 F.3d 1375 (Fed. Cir. 2015) (distinguishing burden of persuasion and burden of production)
Nike, Inc. v. Adidas AG, 812 F.3d 1326 (Fed. Cir. 2016) (petitioner bears burden to prove unpatentability in IPR)
KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398 (Sup. Ct. 2007) (motivation to combine and predictable results analysis in obviousness)
Leapfrog Enters., Inc. v. Fisher-Price, Inc., 485 F.3d 1157 (Fed. Cir. 2007) (expert evidence for level of ordinary skill)
In re Jung, 637 F.3d 1356 (Fed. Cir. 2011) (prima facie case in examination context is a procedural tool for burden allocation)
In re Oetiker, 977 F.2d 1443 (Fed. Cir. 1992) (prima facie case as procedural device in prosecution)
Intelligent Bio-Sys., Inc. v. Illumina Cambridge, Ltd., 821 F.3d 1359 (Fed. Cir. 2016) (petitioner must show motivation to combine and reasonable expectation of success)
Kinetic Concepts, Inc. v. Smith & Nephew, Inc., 688 F.3d 1342 (Fed. Cir. 2012) (Graham factors and obviousness analysis)
Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348 (Fed. Cir. 2007) (patent owner should introduce evidence to challenge asserted prior art)
Belden Inc. v. Berk-Tek LLC, 805 F.3d 1064 (Fed. Cir. 2015) (agency must give notice and opportunity to respond before changing theories)