Microsoft Corporation v. Proxyconn, Inc.

United States Court of Appeals

for the Federal Circuit

______________________

MICROSOFT CORPORATION,

Appellant

v.

PROXYCONN, INC.,

Cross-Appellant

v.

MICHELLE K. LEE, DIRECTOR, U.S. PATENT AND

TRADEMARK OFFICE,

Intervenor

______________________

2014-1542, -1543

______________________

Appeals from the United States Patent and Trade-

mark Office, Patent Trial and Appeal Board in No.

IPR2012-00026, IPR2013-00109.

______________________

Decided: June 16, 2015

______________________

JOHN D. VANDENBERG, Klarquist Sparkman, LLP,

Portland, OR, argued for appellant. Also represented by

STEPHEN J. JONCUS, CARLA TODENHAGEN.

2 MICROSOFT CORPORATION v. PROXYCONN, INC.

BRYAN K. WHEELOCK, Harness, Dickey & Pierce, PLC,

St. Louis, MO, argued for cross-appellant. Also represent-

ed by MATTHEW L. CUTLER.

NATHAN K. KELLY, United States Patent and Trade-

mark Office, Office of the Solicitor, Alexandria, VA, for

intervenor. Also represented by ROBERT J. MCMANUS,

SCOTT WEIDENFELLER.

______________________

Before PROST, Chief Judge, LOURIE, Circuit Judge, and

GILSTRAP, District Judge. ∗

PROST, Chief Judge.

This appeal arises from the inter partes review

(“IPR”) of U.S. Patent No. 6,757,717 (“’717 patent”) owned

by Proxyconn, Inc. (“Proxyconn”). The United States

Patent and Trademark Office, Patent Trial and Appeal

Board (“Board”) concluded that all of the challenged

claims except claim 24 were unpatentable as anticipated

under 35 U.S.C. § 102 alone or additionally as obvious

under 35 U.S.C. § 103. See Microsoft Corp. v. Proxyconn,

Inc., IPR2012-00026 and IPR2013-00109, Paper No. 73

(PTAB Feb. 19, 2014) (“Board Decision”). Microsoft

Corporation (“Microsoft”) appeals the Board’s determina-

tion that claim 24 is patentable. Proxyconn cross-appeals,

challenging the Board’s use of the broadest reasonable

interpretation standard of claim construction during

IPRs, its unpatentability determinations, and its denial of

Proxyconn’s motion to amend. Then–Deputy Director,

now Director, of the United States Patent and Trademark

∗

Honorable Rodney Gilstrap, District Judge, Unit-

ed States District Court for the Eastern District of Texas,

sitting by designation.

MICROSOFT CORPORATION v. PROXYCONN, INC. 3

Office (“Director”) intervened for the limited purpose of

addressing the Board’s use of the broadest reasonable

interpretation standard and its denial of Proxyconn’s

motion to amend. For the reasons stated below, we

affirm-in-part, reverse-in-part, and vacate-in-part and

remand for proceedings consistent with this opinion.

BACKGROUND

The ’717 patent relates to a system for increasing the

speed of data access in a packet-switched network. ’717

patent col. 1 ll. 12–15. The invention makes use of “digi-

tal digests” that act as short digital fingerprints for the

content of their corresponding documents. Id. at col. 2 ll.

9–13. By communicating the smaller digital digests in

place of the documents themselves, the invention reduces

the redundant transmission of data throughout the net-

work. Id. at col. 2 ll. 17–25.

The ’717 patent discloses several embodiments. The

most basic embodiment is depicted in Figure 4, shown

below.

In this embodiment, the receiver/computer (46) sends a

request for data to the sender/computer (42). The send-

er/computer calculates a digital digest on the data stored

in its memory and transmits the digest to the receiv-

er/computer. The receiver/computer then searches its

4 MICROSOFT CORPORATION v. PROXYCONN, INC.

own memory for data with the same digest. If it finds

such data, it uses that data as if it were received from the

sender/computer and issues a positive indication signal to

the sender/computer, completing the transaction. If the

receiver/computer does not find such data, it sends a

negative indication to the sender/computer, prompting the

sender/computer to transmit the actual data to the receiv-

er/computer. Id. at col. 7 ll. 18–36, 51–67.

In another embodiment, depicted in Figure 11 shown

below, the network additionally interposes intermediar-

ies, such as a gateway computer and a caching computer,

between the sender/computer and receiver/computer.

In this embodiment, the gateway (60) intercepts a digital

digest sent from the sender/computer (42) to the receiv-

er/computer (46), saves it in its memory, and passes it

unchanged to the receiver/computer. If the gateway then

intercepts a negative signal from the receiver/computer,

the caching computer (62) searches for data with the same

digital digest in its network cache memory. If that digest

is found, the gateway sends the data to the receiv-

er/computer, changes the indication signal to positive, and

then passes the indication signal on to the send-

er/computer. Id. at col. 8 l. 57–col. 9 l. 24.

MICROSOFT CORPORATION v. PROXYCONN, INC. 5

The ’717 patent concludes with 34 claims directed to

systems and methods for increasing data access in a

packet-switched network.

Microsoft filed two separate IPR petitions on the ’717

patent, each challenging different claims. The Board

joined the two proceedings and granted review of certain

of Microsoft’s challenges to the patentability of claims 1,

3, 6, 7, 9–12, 14, and 22–24. During the proceedings,

Proxyconn filed a motion to amend, seeking to substitute

(among others) new claims 35 and 36 for claims 1 and 3,

respectively. In its final written decision, the Board

determined that claims 1, 3, 6, 7, 9–12, 14, 22, and 23

were unpatentable under § 102, that claims 1, 3, and 10

were additionally unpatentable under § 103, but that

claim 24 had not been shown to be unpatentable. The

Board also denied Proxyconn’s motion to amend, conclud-

ing, inter alia, that Proxyconn did not meet its burden of

establishing that it was entitled to the amended claims,

and rejecting Proxyconn’s argument that it did not need

to establish patentability over a reference that was not

part of the original bases of unpatentability for which

review of claims 1 and 3 was instituted.

Both parties appealed from the Board’s decision, and

the Director intervened. We have jurisdiction under 28

U.S.C. § 1295(a)(4)(A).

DISCUSSION

As a general matter, we review the Board’s conclu-

sions of law de novo and its findings of fact for substantial

evidence. See In re Gartside, 203 F.3d 1305, 1316 (Fed.

Cir. 2000). In Teva Pharmaceuticals U.S.A., Inc. v.

Sandoz, Inc., 135 S. Ct. 831 (2015), the Supreme Court

clarified the standards of review for claim construction.

Pursuant to Teva’s framework and our review of Board

determinations, we review the Board’s ultimate claim

constructions de novo and its underlying factual determi-

6 MICROSOFT CORPORATION v. PROXYCONN, INC.

nations involving extrinsic evidence for substantial evi-

dence. See Teva, 135 S. Ct. at 841–42.

In this case, because the intrinsic record fully deter-

mines the proper construction, we review the Board’s

claim constructions de novo. Teva, 135 S. Ct. at 840–42.

To the extent the Board considered extrinsic evidence

when construing the claims, we need not consider the

Board’s findings on that evidence because the intrinsic

record is clear. See Phillips v. AWH Corp., 415 F.3d 1303,

1318 (Fed. Cir. 2005) (en banc).

I

Proxyconn’s threshold challenge to the Board’s actions

is that the broadest reasonable interpretation standard of

claim construction should not apply during IPRs. Proxy-

conn argues that the U.S. Patent and Trademark Office

(“PTO”) exceeded its authority in promulgating 37 C.F.R.

§ 42.100(b), and that the broadest reasonable interpreta-

tion is inappropriate during IPRs in light of the patentee’s

limited ability to amend its claims.

Proxyconn’s argument is foreclosed by our decision in

In re Cuozzo Speed Techs., LLC, 778 F.3d 1271 (Fed. Cir.

2015), rendered after the briefing in this case began. In

Cuozzo, this court held that the broadest reasonable

interpretation standard in IPRs “was properly adopted by

PTO regulation.” Id. at 1282. Because we are bound by

the decision in Cuozzo, we must therefore reject Proxy-

conn’s argument that the Board legally erred in using the

broadest reasonable interpretation standard during IPRs.

That is not to say, however, that the Board may con-

strue claims during IPR so broadly that its constructions

are unreasonable under general claim construction prin-

ciples. As we have explained in other contexts, “[t]he

protocol of giving claims their broadest reasonable inter-

pretation . . . does not include giving claims a legally

incorrect interpretation.” In re Skvorecz, 580 F.3d 1262,

MICROSOFT CORPORATION v. PROXYCONN, INC. 7

1267 (Fed. Cir. 2009); see also In re Suitco Surface, Inc.,

603 F.3d 1255, 1260 (Fed. Cir. 2010) (“The broadest-

construction rubric coupled with the term ‘comprising’

does not give the PTO an unfettered license to interpret

claims to embrace anything remotely related to the

claimed invention.”). Rather, “claims should always be

read in light of the specification and teachings in the

underlying patent.” Suitco, 603 F.3d at 1260. The PTO

should also consult the patent’s prosecution history in

proceedings in which the patent has been brought back to

the agency for a second review. See Tempo Lighting Inc.

v. Tivoli LLC, 742 F.3d 973, 977 (Fed. Cir. 2014). Even

under the broadest reasonable interpretation, the Board’s

construction “cannot be divorced from the specification

and the record evidence,” In re NTP, Inc., 654 F.3d 1279,

1288 (Fed. Cir. 2011), and “must be consistent with the

one that those skilled in the art would reach,” In re Cor-

tright, 165 F.3d 1353, 1358 (Fed. Cir. 1999). A construc-

tion that is “unreasonably broad” and which does not

“reasonably reflect the plain language and disclosure” will

not pass muster. Suitco, 603 F.3d at 1260.

With these principles in mind, we now turn to the

three claim constructions challenged by the parties in this

appeal.

II

A

Proxyconn challenges the Board’s construction of the

phrase “gateway . . . connected to said packet-switched

network in such a way that network packets sent between

at least two other computers” recited in claim 6, and

incorporated into dependent claims 7 and 9. Representa-

tive claim 6 reads:

6. A system for data access in a packet-switched

network, comprising:

8 MICROSOFT CORPORATION v. PROXYCONN, INC.

a gateway including an operating unit, a memory

and a processor connected to said packet-switched

network in such a way that network packets sent

between at least two other computers pass through

it;

a caching computer connected to said gateway

through a fast local network, wherein said caching

computer includes an operating unit, a first

memory, a permanent storage memory and a pro-

cessor;

said caching computer further including a net-

work cache memory in its permanent storage

memory, means for a digital digest and means for

comparison between a digital digest on data in its

network cache memory and a digital digest re-

ceived from said packet-switched network through

said gateway.

’717 patent col. 10 l. 64–col. 11 l. 12 (emphases added).

Before the Board, Proxyconn contended that the term

“two other computers” referred only to the send-

er/computer and the receiver/computer. Microsoft con-

tended that there was no limitation on the phrase “two

other computers,” and that those two other computers

could be any two computers connected on the network to

the gateway, including the caching computer. The Board

agreed with Microsoft, concluding that the “two other

computers” were not limited just to the sender/computer

and the receiver/computer. The Board then concluded

that claims 6, 7, and 9 were anticipated by the “DRP”

reference.

The Board erred in concluding that the “two other

computers” could include the caching computer. Begin-

ning with the language of the claims, claim 6 recites a

system comprising a gateway, a caching computer, and

“two other computers.” ’717 patent col. 10 l. 54–col. 11 l.

MICROSOFT CORPORATION v. PROXYCONN, INC. 9

12. Not only are the “two other computers” recited inde-

pendently from, and in addition to, the gateway and

caching computers, the word “other” denotes a further

level of distinction between those two computers and the

specific gateway and caching computers recited separately

in the claim.

The specification confirms that the phrase “two other

computers” is limited to the sender/receiver and comput-

er/receiver. Other than in claim 6 itself, the phrase “two

other computers” is used three times in the specification,

each time as part of the embodiment containing the

gateway and caching computer intermediaries. Id. at col.

2 ll. 43–57, col. 3 ll. 12–26, col. 8 l. 57–col. 9 l. 9. And in

each instance where it is used, the phrase “two other

computers” describes components that are separate and

distinct from the gateway and the caching computer. Id.

For example, the specification states: “Gateway 60 is

connected to a wide-area packet-switched network in such

a way that network packets sent between at least two

other computers 42 and 46 pass through the gateway 60.

The caching computer 62 uses a part of its permanent

storage memory for network cache memory 66.” Id. at col.

8 l. 64–col. 9 l. 1 (emphases added). As shown in refer-

enced Figure 11, the “two other computers 42 and 46” in

this passage are the sender/computer and receiv-

er/computer, respectively. Read together with labeled

Figure 11, this portion of the specification makes clear

that the gateway, the caching computer, and the “two

other computers” are each separate and distinct compo-

nents of the overall system. The Board’s construction,

which expands the “two other computers 42 and 46” to

include the separately identified caching computer, is

unreasonably broad in light of the language of the claims

and specification.

Because the Board’s determination that claims 6, 7,

and 9 were unpatentable was based on an unreasonably

10 MICROSOFT CORPORATION v. PROXYCONN, INC.

broad construction of the term “gateway . . . between at

least two other computers,” we vacate the Board’s find-

ings of unpatentability of claims 6, 7, and 9 and remand

for proceedings consistent with this opinion.

B

Along similar lines, Proxyconn also challenges the

Board’s construction of the terms “sender/computer” and

“receiver/computer” in independent claims 1, 10, and 22,

and incorporated into dependent claims 3 and 23. Repre-

sentative claim 1 reads:

1. A system for data access in a packet-switched

network, comprising:

a sender/computer including an operating unit, a

first memory, a permanent storage memory and a

processor and a remote receiver/computer includ-

ing an operating unit, a first memory, a perma-

nent storage memory and a processor, said

sender/computer and said receiver/computer

communicating through said network;

said sender/computer further including means for

creating digital digests on data;

said receiver/computer further including a net-

work cache memory and means for creating digi-

tal digests on data in said network cache memory;

and

said receiver/computer including means for com-

parison between digital digests.

’717 patent col. 10 ll. 31–45 (emphases added).

The Board construed “sender/computer” to mean a

computer that sends data and “receiver/computer” to

mean a computer that receives data, and further deter-

mined that both terms were broad enough to encompass

intermediaries. The Board then concluded that claims 1,

MICROSOFT CORPORATION v. PROXYCONN, INC. 11

3, 10, 22, and 23 were anticipated by the “Santos” refer-

ence and that claims 1, 3, and 10 were additionally ren-

dered obvious by the “Yohe” and “Perlman” references.

Proxyconn argues on appeal, as it did before the Board,

that the terms “sender/computer” and “receiver/computer”

should be limited to just those two computers; they should

not be construed as encompassing the separate interme-

diary gateway and caching computers. Microsoft disa-

grees, arguing that the ’717 patent does not limit either

term to a single machine or a single function.

The Board erred in concluding that the terms “send-

er/computer” and “receiver/computer” were broad enough

to include the intermediary gateway and caching comput-

ers for similar reasons as explained above. The language

of the specification consistently refers to the send-

er/computer, receiver/computer, gateway, and caching

computers as separate and independent components of an

overall system. The figures of the ’717 patent separately

identify and number each component of the system. And

nowhere does the ’717 patent indicate that the gateway

and caching computer are the same as, or can be sub-

sumed within, the sender/computer and receiv-

er/computer.

It is true, as Microsoft and the Board point out, that

Figure 4 describes a system wherein the receiv-

er/computer can perform its own caching, calculating, and

comparing functions. See ’717 patent col. 7 ll. 27–37. But

the mere fact that the receiver/computer can perform

those functions in the invention’s most basic embodiment

does not mean that the claim term “receiver/computer” is

the same as, or is broad enough to include, the separately

identified “gateway” and “caching computer” that are

associated only with the invention’s more complicated

Figure 11 embodiment. To the contrary, each time the

terms “gateway” and “caching computer” are used in the

’717 patent, they are differentiated from the “send-

er/computer” and “receiver/computer.”

12 MICROSOFT CORPORATION v. PROXYCONN, INC.

The Board’s reliance on the specification’s statement

that the gateway may be “integrally formed with the

caching computer,” id. at col. 9 ll. 6–8, is misplaced. The

cited sentence merely explains that the gateway and the

caching computer can be integrated together; it says

nothing about integration of those intermediaries with

the sender/computer and receiver/computer. Nor was the

Board correct in basing its constructions on an observa-

tion that the described computers may or may not be

located in separate housings. The patent does not use the

word housing at all, much less give any indication that

the proper construction of “sender/computer” and “receiv-

er/computer” depends on the physical location of the

claimed computers. Stated simply, the Board’s construc-

tion of “sender/computer” and “receiver/computer” to

include the intermediary gateway and caching computers

does not reasonably reflect the language and disclosure of

the ’717 patent.

Because the Board’s determination that claims 1, 3,

10, 22, and 23 were unpatentable was based on an unrea-

sonably broad construction of the terms “send-

er/computer” and “receiver/computer,” we vacate the

Board’s findings of unpatentability of claims 1, 3, 10, 22,

and 23 and remand for proceedings consistent with this

opinion.

C

For its part, Microsoft challenges the Board’s con-

struction of the phrase “searching for data with the same

digital digest in said network cache memory” in inde-

pendent claim 22, and incorporated in dependent claim

24. Claim 22 reads:

22. A method for increased data access performed

by a receiver/computer in a packet-switched net-

work, said receiver/computer including an operat-

ing unit, a first memory, a permanent storage

MICROSOFT CORPORATION v. PROXYCONN, INC. 13

memory, a processor and a network cache

memory, said method comprising the steps of:

receiving a message containing a digital digest

from said network;

searching for data with the same digital digest in

said network cache memory,

if data having the same digital digest as the digi-

tal digest received is not uncovered, forming a

negative indication signal and transmitting it

back through said network; and

creating a digital digest for data received from

said network cache memory.

’717 patent col. 12 ll. 30–45 (emphasis added). Claim 24

adds an additional requirement that is not at issue in this

appeal.

Before the Board, Microsoft contended that the ’717

patent equates “search” with “check for,” and that the

searching step of claim 22 means comparing only two

individual digest values against one another to determine

whether they match. Proxyconn contended that the

searching step instead means identifying, from among a

set of data objects, a data object with the matching digital

digest. The Board agreed with Proxyconn, concluding

that the searching step required the ability to identify a

particular data object with the same digital digest from a

set of potentially many data objects stored in the network

cache memory. The Board then concluded that claim 24,

which depends from claim 22, was not rendered invalid by

the Yohe and/or Perlman references.

The Board correctly construed the phrase “searching

for data with the same digital digest in said network

cache memory.” Although the word “searching” is not

defined in the ’717 patent, it is used several times

throughout the specification. For example, the ’717

14 MICROSOFT CORPORATION v. PROXYCONN, INC.

patent states that the receiver/computer “searches its

network cache memory 48 for data with the same digest.”

’717 patent col. 7 ll. 56–57. This sentence makes clear

that the action of “searching” is performed on the entire

network cache memory, not just on a single data object.

The patent further explains that the action of “searching”

can be performed on multiple, different memory storages:

the “receiver/computer 46 may search not only in its

network cache memory 48, but also in predefined loca-

tions in its permanent storage memory.” Id. at col. 8 ll.

50–53. Not only does the specification use the term

“searching” to mean checking amongst a set of data ob-

jects, it also uses the term “searching” in a way that is

distinct from the term “comparing,” the latter of which is

used to describe the action of checking one digital digest

against another: “The receiver/computer also has compar-

ison means 54 for comparing between such a calculated

digital digest and a digital digest received from the net-

work.” Id. at col. 7 ll. 34–37. Microsoft’s proposed con-

struction, which would essentially equate “searching”

with “comparing,” would render the additional “compar-

ing” language in the specification meaningless.

On appeal, Microsoft argues that Figure 5, which uses

the term “check for,” supports its construction. Even if

Microsoft is correct that Figure 5’s “check for” language

corresponds to the “searching” step, Microsoft has not

explained why “check for” means something other than

looking among a set of data objects. Indeed, other figures

in the patent use the words “search for” and “look for” to

describe the searching step. See Figs. 8, 12, 15. Mi-

crosoft’s reliance on Figure 5 is therefore misplaced.

Microsoft additionally argues that the Board’s con-

struction is wrong because it would not make sense for

the receiver/computer to compare a digest for a target

data object (e.g., a legal brief) to digests of data objects

unrelated to that target data object (e.g., a lunch menu).

According to Microsoft, “the patent’s algorithm requires

MICROSOFT CORPORATION v. PROXYCONN, INC. 15

only a single digest-to-digest comparison operation.”

Appellant’s Br. 9, ECF No. 19. But this argument suffers

from the same flaw described above: “comparing” is not

the same as “searching.” Microsoft acknowledges this

point in its brief, stating: “the ‘search’ for a matching data

object ends with a comparison between a single pair of

digests.’” Id. at 10. While it may true that the searching

process ends with the comparison between the two target

data objects, neither the claims nor specification limit the

“searching” step to that final comparison. Based on the

clear language of the specification, the Board was correct

in concluding that the broadest reasonable interpretation

of “searching for data with the same digital digest in said

network cache memory” includes searching in a set of

potentially many data objects. 1

On appeal, Microsoft’s only argument for reversing

the Board’s determination on claim 24 is that the Board’s

construction of claim 22’s “searching” limitation was

wrong. Because we agree with the Board’s construction,

and because Microsoft does not alternatively argue that

claim 24 is unpatentable even under the correct construc-

tion, we affirm the Board’s determination that claim 24 is

patentable.

III

Having vacated and remanded the Board’s patentabil-

ity determinations with respect to claims 1, 3, 6, 7, 9–10,

22, and 23, and affirmed the Board’s patentability deter-

mination with respect to claim 24, the only patentability

determinations left for us to address are those relating to

claims 11, 12, and 14.

1 We would reach the same result if we were to ap-

ply the traditional claim construction framework set forth

in Phillips, 415 F.3d 1303.

16 MICROSOFT CORPORATION v. PROXYCONN, INC.

The Board concluded that claims 11, 12, and 14 were

anticipated by the DRP reference. DRP describes a

protocol for the efficient replication of data over the

internet. DRP explains that the inefficiency of download-

ing the same data more than once can be avoided through

the use of “content identifiers” uniquely associated with

individual pieces of data. The content identifiers are

compiled into an index, which serves as a snapshot of the

state of a set of files at any given time, and which is

retrieved by a client using a normal “GET” request. After

a client’s initial data download, a client can update con-

tent by downloading a new version of the index and

comparing it against the previous versions of the index.

Because each file entry in the index has a content identi-

fier, the client can determine which files have changed

and thus need to be downloaded in order to bring the

client up to date.

On appeal, Proxyconn argues that DRP does not dis-

close “receiving a response signal” recited in independent

claim 11, and incorporated into dependent claims 12 and

14. Representative claim 11 reads:

11. A method performed by a sender/computer in

a packet-switched network for increasing data ac-

cess, said sender/computer including an operating

unit, a first memory, a permanent storage

memory and a processor and said send-

er/computer being operative to transmit data to a

receiver/computer, the method comprising the

steps of:

creating and transmitting a digital digest of said

data from said sender/computer to said receiv-

er/computer;

receiving a response signal from said receiv-

er/computer at said sender/computer, said re-

sponse signal containing a positive, partial or

MICROSOFT CORPORATION v. PROXYCONN, INC. 17

negative indication signal for said digital digest,

and

if a negative indication signal is received, trans-

mitting said data from said sender/computer to

said receiver/computer.

’717 patent col. 11 ll. 34–48 (emphasis added).

In particular, Proxyconn argues that because the DRP

protocol is client-driven (e.g., because DRP’s client deter-

mines which files it needs to download to bring itself up to

date), there is no disclosure that DRP’s server “under-

stands whether the files downloaded by the client are

related to an index previously downloaded by the client,

or not.” Cross-Appellant’s Br. 55, ECF No. 22. According

to Proxyconn, “the file download by the client is not linked

to a prior index download, and therefore CANNOT be

considered a ‘response’” as required by claim 11. Id.

Proxyconn’s argument fails for the simple reason that

nothing in claim 11 requires that the sender/computer

“understand” whether a request from the receiv-

er/computer is correlated with a previous transmission.

As Microsoft points out, once the receiver/computer in the

’717 patent is unable to find a matching digital digest and

sends a negative indication to the sender/computer, “all

that’s needed from the server is to transmit the desired

file, whether or not it ‘understands’ what led the receiver

to send that negative indication.” Appellant’s Resp. and

Reply Br. 22, ECF No. 28.

We agree with the Board that the download requests

that DRP’s client sends to the server after receiving the

index from the server and comparing it to the local index

meets the “receiving a response signal” limitation of claim

11. As the Board explained, the DRP client either sends a

GET request (when none of the content identifiers are up

to date), a differential GET request (when some, but not

all, of the content identifiers are up to date), or no request

18 MICROSOFT CORPORATION v. PROXYCONN, INC.

(when all content identifiers are up to date). These three

types of requests correspond to the “response signal

containing a positive, partial, or negative indication

signal” recited in claim 11. For these reasons, we con-

clude that the Board did not err in concluding that DRP

anticipates claims 11, 12, and 14 of the ’717 patent.

IV

Finally, Proxyconn challenges the Board’s denial of its

motion to amend claims 1 and 3. 2 Before reaching the

merits of Proxyconn’s arguments, we first discuss the

legal framework governing amendments during IPRs.

A

Through enactment of the America Invents Act

(“AIA”), Congress created the new IPR proceeding for the

purpose of “providing quick and cost effective alternatives

to litigation.” H.R. Rep. No. 112-98, pt. 1, at 48 (2011),

2011 U.S.C.C.A.N. 67, 78. The AIA conveys certain

authority to the PTO to “prescribe regulations” “governing

inter partes review” and to “set[] forth standards and

procedures for allowing the patent owner to move to

amend the patent.” 35 U.S.C. § 316(a)(4), (a)(9). With

respect to amendments in particular, the statute provides

that “the patent owner may file 1 motion to amend the

patent” and that such amendment “may not enlarge the

scope of the claims of the patent or introduce new matter.”

Id. § 316(d)(1), (d)(3). The statute also provides that the

Director shall, upon final determination, “incorporate[] in

the patent . . . any new or amended claim determined to

be patentable.” Id. § 318(b).

2 Proxyconn’s motion sought to amend a number of

other claims as well. But because Proxyconn’s appeal

challenges only the Board’s denial of its motion with

respect to claims 1 and 3, we review the Board’s actions

regarding these two claims only.

MICROSOFT CORPORATION v. PROXYCONN, INC. 19

Relying on the authority granted by the AIA, the PTO

has promulgated two regulations that are relevant to this

appeal. First is 37 C.F.R. § 42.20, which applies generally

to motions practice. Section 42.20 requires that any

“[r]elief, other than a petition requesting the institution of

a trial, must be requested in the form of a motion” and

that “[t]he moving party has the burden of proof to estab-

lish that it is entitled to the requested relief.” § 42.20(a),

(c). Second is 37 C.F.R. § 42.121, which imposes specific

requirements on the amendment process. Section

42.121(a)(2) provides that: “A motion to amend may be

denied where: (i) The amendment does not respond to a

ground of unpatentability involved in the trial; or (ii) The

amendment seeks to enlarge the scope of the claims of the

patent or introduce new subject matter.”

In addition to these two regulations, a six-member

panel of the Board has also issued a decision called Idle

Free Systems, Inc. v. Bergstrom, Inc., IPR2012-00027,

2013 WL 5947697 (PTAB June 11, 2013). In Idle Free,

the panel stated that it was providing “a general discus-

sion of several important requirements for a patent

owner’s motion to amend claims.” Id. at *1. Relying on

§ 42.20(c), the Idle Free decision requires that, in motions

to amend during IPRs:

A patent owner should identify specifically the

feature or features added to each substitute claim,

as compared to the challenged claim it replaces,

and come forward with technical facts and reason-

ing about those feature(s), including construction

of new claim terms, sufficient to persuade the

Board that the proposed substitute claim is pa-

tentable over the prior art of record, and over pri-

or art not of record but known to the patent

owner. The burden is not on the petitioner to

show unpatentability, but on the patent owner to

show patentable distinction over the prior art of

record and also prior art known to the patent

20 MICROSOFT CORPORATION v. PROXYCONN, INC.

owner. Some representation should be made

about the specific technical disclosure of the clos-

est prior art known to the patent owner, and not

just a conclusory remark that no prior art known

to the patent owner renders obvious the proposed

substitute claims.

A showing of patentable distinction can rely on

declaration testimony of a technical expert about

the significance and usefulness of the feature(s)

added by the proposed substitute claim, from the

perspective of one with ordinary skill in the art,

and also on the level of ordinary skill, in terms of

ordinary creativity and the basic skill set. A mere

conclusory statement by counsel, in the motion to

amend, to the effect that one or more added fea-

tures are not described in any prior art, and would

not have been suggested or rendered obvious by

prior art, is on its face inadequate.

Id. at *4–5.

The Idle Free decision has been designated as “in-

formative.” According to the Board’s operating proce-

dures, informative decisions are “not binding authority,”

but are designated as informative in order to provide

“Board norms on recurring issues,” “guidance on issues of

first impression,” and “guidance on Board rules and

practices.” See Patent Trial and Appeal Board, Standard

Operating Procedure 2 (Revision 9), at 3 (¶ IV.A–B),

available at http://www.uspto.gov/sites/default/files/

documents/sop2-revision-9-dated-9-22-2014.pdf. The

Board has frequently cited to Idle Free when denying

motions to amend during IPRs. See, e.g., The Scotts Co. v.

Encap, LLC, IPR2013-00110, 2014 WL 2886290, at *18–

20 (PTAB June 24, 2014); Ecowater Sys. LLC v. Culligan

Int’l Co., IPR2013-0155, 2014 WL 2903758, at *18 (PTAB

June 24, 2014); Adidas AG v. Nike, Inc., IPR2013-00067,

2014 WL 1713368, at *17–18 (PTAB Apr. 28, 2014).

MICROSOFT CORPORATION v. PROXYCONN, INC. 21

B

We turn now to the events of this case. During the

IPR, Proxyconn sought to amend the ’717 patent by

replacing challenged claims 1 and 3 with substitute

claims 35 and 36, respectively. In its opposition, Mi-

crosoft argued, inter alia, that the substitute claims were

unpatentable for anticipation by DRP. DRP was not one

of the references over which the PTO originally instituted

review of claims 1 and 3. It was, however, used both as

an anticipation and an obviousness reference over which

the PTO instituted review of claims 6, 7, 9, 11, 12, and 14.

In its reply, Proxyconn argued that because DRP was not

one of the references over which the PTO had instituted

review of claims 1 and 3, the Board exceeded its authority

under § 42.121(a)(2)(i) to deny substitute claims 35 and 36

for failure to “respond to a ground of unpatentability

involved in the trial.” Proxyconn did not otherwise argue

that substitute claims 35 and 36 were patentable over

DRP.

In its final written decision, the Board denied Proxy-

conn’s motion to amend claims 1 and 3 for two reasons. 3

First, citing § 42.20(c) and Idle Free, the Board held that

Proxyconn failed to meet its burden of establishing pa-

tentability of the substitute claims. In particular, the

Board stated:

Proxyconn has not proffered sufficient arguments

or evidence to establish a prima facie case for the

patentability of claims 35–41. For example,

3 With respect to claim 3, the Board also denied

Proxyconn’s motion on grounds that substitute claim 36

impermissibly enlarged the scope of claim 3 in violation of

35 U.S.C. § 316(d)(3). Because we resolve this case on

other grounds, we do not review this additional basis for

the Board’s denial of Proxyconn’s motion.

22 MICROSOFT CORPORATION v. PROXYCONN, INC.

Proxyconn has not: (i) construed the newly added

claim terms; (ii) addressed the manner in which

the claims are patentable generally over the art;

(iii) identified the closest prior art known to it; (iv)

addressed the level of ordinary skill in the art at

the time of the invention; or (v) discussed how

such a skilled artisan would have viewed the new-

ly recited elements in claims 35–41 in light of

what was known in the art. Instead, Proxyconn

attempts to distinguish claims 35–41 only from

the prior art for which we instituted review of cor-

responding claims 1, 3, 6, 10. 11. 22, and 23. Mot.

Amend 4–15. Consequently, Proxyconn has failed

to establish a prima facie case for the patentabil-

ity of claims 35–41.

Board Decision at 55.

Second, the Board rejected Proxyconn’s argument that

§ 42.121(2)(a)(i) precluded the Board from relying on the

DRP reference. Again citing § 42.20(c), the Board stated

that “Proxyconn carries the burden of proof with respect

to the patentability of its proposed claims” and that

“Microsoft [was] entitled” to rely on DRP. Id. at 56.

Because “Proxyconn provide[d] no evidence to counter

Microsoft’s contentions that DRP anticipate[d] [claims 35

and 36],” the Board denied Proxyconn’s motion. Id.

On appeal, Proxyconn argues that § 42.121(a)(2) pro-

vides a complete list of the bases for which the Board can

deny a motion to amend. According to Proxyconn, the

Board exceeded its own regulation by imposing the addi-

tional requirements of Idle Free and by relying on the

DRP reference. The Director defends the Board’s actions,

arguing that § 42.121(a)(2) is not exhaustive. According

to the Director, a patentee seeking to amend its claims

during IPRs must meet both the “procedural require-

ments” of § 42.121(a)(2) as well as the “substantive bur-

den” imposed by § 42.20(c), as it has been interpreted

MICROSOFT CORPORATION v. PROXYCONN, INC. 23

through adjudicative Board decisions like Idle Free.

Intervenor’s Resp. Letter 2, ECF No. 50.

This appeal, therefore, presents the question of wheth-

er the Board permissibly relied on the requirements of

Idle Free and the DRP reference in denying Proxyconn’s

motion to amend. We review Board decisions using the

standards set forth in the Administrative Procedure Act, 5

U.S.C. § 706. In re Sullivan, 362 F.3d 1324, 1326 (Fed.

Cir. 2004). “Under that statute, we set aside actions of

the Board that are arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law, and

set aside factual findings that are unsupported by sub-

stantial evidence.” Id. “We accept the Board’s interpreta-

tion of Patent and Trademark Office regulations unless

that interpretation is ‘plainly erroneous or inconsistent

with the regulation.’” Id. (quoting Eli Lilly Co. v. Bd. of

Regents of the Univ. of Wash., 334 F.3d 1264, 1266 (Fed.

Cir. 2003)); see also Auer v. Robbins, 519 U.S. 452, 461–62

(1997); In re Garner, 508 F.3d 1376, 1378 (Fed. Cir. 2007).

C

At the threshold, we agree with the Director that

§ 42.121(a)(2) is not an exhaustive list of grounds upon

which the Board can deny a motion to amend. In the AIA,

Congress gave the PTO authority to “prescribe regula-

tions” “governing inter partes review” and to “set[] forth

standards and procedures for allowing the patent owner

to move to amend the patent.” § 316(a)(4), (a)(9). Con-

gress also provided that, upon final decision, the Director

should incorporate only those amended claims that are

“determined to be patentable.” § 318(b). Given these

directives, the PTO promulgated both the general regula-

tion setting forth the patentee’s burden to establish it is

entitled to its requested relief, § 42.20, as well as the more

specific regulation setting forth particular requirements

regarding the amendment process, § 42.121. Both regula-

tions are plainly applicable to motions to amend filed

24 MICROSOFT CORPORATION v. PROXYCONN, INC.

during IPRs, and Proxyconn does not argue that the PTO

acted outside its statutory authority in promulgating

either one.

What Proxyconn does challenge is the Board’s inter-

pretation of those regulations as permitting it to deny

Proxyconn’s motion to amend claims 1 and 3 for failure to

establish patentability over DRP—a reference that the

Board did not rely on when instituting review of those

particular claims. The Director responds that its authori-

ty to do so comes from § 42.20(c), as it has been interpret-

ed in Idle Free—namely, as requiring the patentee “to

show patentable distinction [of the substitute claims] over

the prior art of record.” Idle Free, 2013 WL 5947697, at

*4. According to the Director, it is permissible for the

PTO to use adjudicative Board decisions like Idle Free,

rather than traditional notice and comment rule-making,

to set forth all the conditions that a patentee must meet

in order to satisfy its burden of amendment under

§ 42.20(c).

Some question the wisdom of the PTO’s approach.

Since IPRs were created, they have rapidly become a

popular vehicle for challenging the validity of issued

patents. See Patent Trial and Appeal Board

AIA Progress, available at http://www.uspto.gov/sites/

default/files/documents/aia_statistics_05-14-2015.pdf

(reporting 2,894 IPR petitions received as of May 14,

2015). Patentees who wish to make use of the statutorily

provided amendment process deserve certainty and

clarity in the requirements that they are expected to

meet. A fluid, case-based interpretation by the PTO of its

own regulations risks leaving interested members of the

public in a state of uncertainty, without ascertainable

standards and adequate notice to comply.

Despite such concerns, we recognize that “the choice

between rulemaking and adjudication lies in the first

instance within the [agency’s] discretion.” NLRB v. Bell

MICROSOFT CORPORATION v. PROXYCONN, INC. 25

Aerospace Co. Div. of Textron, 416 U.S. 267, 294 (1974).

The Director argues that adjudication is appropriate here

because the PTO “has not ‘had sufficient experience with

[motions to amend] to warrant rigidifying its tentative

judgment into a hard and fast rule’” and that the PTO

“thus ‘must retain power to deal with [such motions] on a

case-by-case basis if the administrative process is to be

effective.’” Intervenor’s Resp. Letter 3, ECF No. 50 (al-

terations in original) (quoting SEC v. Chenery Corp., 332

U.S. 194, 202–03 (1947)). Because there is merit to these

arguments, we cannot say that the PTO has abused its

discretion in choosing adjudication over rulemaking.

Nor can we say that the Board’s interpretation of

§ 42.20(c) in Idle Free—requiring the patentee to “show

patentable distinction [of the substitute claims] over the

prior art of record,” Idle Free, 2013 WL 5947697, at *4—is

plainly erroneous or inconsistent with the regulation or

governing statutes. 4 The legal framework provides that a

patentee must “move to amend the patent,” § 316(a)(9),

4 Importantly, this case does not call on us to decide

whether every requirement announced by the Board in

Idle Free constitutes a permissible interpretation of the

PTO’s regulations. The Idle Free decision is not itself

before us, and we resolve this case only with respect to

the Board’s having faulted Proxyconn for “attempt[ing] to

distinguish claims [35 and 36] only from the prior art for

which we instituted review of corresponding claims [1 and

3]” and, ultimately, for “fail[ing] to establish by a prepon-

derance of evidence that [claims 35 and 36] are patentable

over DRP.” Board Decision at 55–56. We do not address

the other requirements of Idle Free that the Board relied

upon. Nor do we address, for example, Idle Free’s re-

quirement that the patentee to show patentable distinc-

tion over all “prior art known to the patent owner.” Idle

Free, 2013 WL 5947697, at *4.

26 MICROSOFT CORPORATION v. PROXYCONN, INC.

that the Director should incorporate only those amended

claims that are “determined to be patentable,” § 318(b),

and that the patentee has the burden to “establish that it

is entitled to the requested relief,” § 42.20(c).

The Board has reasonably interpreted these provi-

sions as requiring the patentee to show that its substitute

claims are patentable over the prior art of record, at least

in the circumstances in this case. First, nothing in the

statute or regulations precludes the Board from rejecting

a substitute claim on the basis of prior art that is of

record, but was not cited against the original claim in the

institution decision. Second, the very nature of IPRs

makes the Board’s interpretation appropriate. During

IPRs, once the PTO grants a patentee’s motion to amend,

the substituted claims are not subject to further examina-

tion. Moreover, the petitioner may choose not to chal-

lenge the patentability of substitute claims if, for

example, the amendments narrowed the claims such that

the petitioner no longer faces a risk of infringement. If

the patentee were not required to establish patentability

of substitute claims over the prior art of record, an

amended patent could issue despite the PTO having

before it prior art that undermines patentability. Such a

result would defeat Congress’s purpose in creating IPR as

part of “a more efficient and streamlined patent system

that will improve patent quality and limit unnecessary

and counterproductive litigation costs.” H.R. Rep. No.

112-98, pt. 1, at 40 (2011), 2011 U.S.C.C.A.N. 67, 69.

Proxyconn argues that the Board’s actions are in con-

flict with § 42.121(a)(2)(i). But Proxyconn confuses re-

quirements governing permissible reasons for seeking

amendment versus those governing what must ultimately

be shown of amended claims. Section 42.121(a)(2)(i)

simply requires that a patentee’s amendment be made in

order to “respond to a ground of unpatentability involved

in the trial,” and not for some other reason. As the PTO

explained, this rule is meant to “enhance efficiency of

MICROSOFT CORPORATION v. PROXYCONN, INC. 27

review proceedings . . . . [A]ny amendment that does not

respond to a ground of unpatentability most likely would

cause delay, increase the complexity of the review, and

place additional burdens on the petitioner and the Board.”

Changes to Implement Inter Partes Review Proceedings,

Post-Grant Review Proceedings, and Transitional Pro-

gram for Covered Business Method Patents, 77 Fed. Reg.

48,680, 48,705 (Aug. 14, 2012). Assuming an amendment

is appropriately responsive to the grounds of unpatenta-

bility involved in the trial, the patentee must still go on to

show that it is entitled to its substitute claim. The PTO

explained this as well, stating that a motion to amend

“will be entered so long as it complies with the timing and

procedural requirements” but “even if entered, will not

result automatically in entry of the proposed amendment

into the patent.” Id. at 48,690. Requiring the patentee to

establish that its substitute claims are patentable over

the prior art of record does not run afoul of

§ 42.121(a)(2)(i).

Proxyconn also argues that the Board’s interpretation

and reliance on DRP was “fundamentally unfair” because

Proxyconn was unable to defend substitute claims 35 and

36 against that reference. Cross-Appellant’s Resp. Letter

2, ECF No. 51. We reject that argument. Although DRP

was not one of the original references for which review of

claims 1 and 3 was instituted, it was very much a part of

the entire proceedings. In particular, it was relied on by

the Board for instituting review of six closely related

claims. And after Microsoft filed an opposition brief

arguing that substitute claims 35 and 36 were invalid

over DRP, Proxyconn had the opportunity to distinguish

those claims from DRP in its reply brief but simply chose

not to do so. Lastly, at the oral hearing, the Board ex-

plained to Proxyconn that Proxyconn was required to

demonstrate the patentability of substitute claims 35 and

36 over the DRP reference. This is not a case in which the

patentee was taken by surprise by the Board’s reliance on

28 MICROSOFT CORPORATION v. PROXYCONN, INC.

an entirely new reference or was not given adequate

notice and opportunity to present arguments distinguish-

ing that reference. Rather, this is a case where the prior

art relied on by the Board was front and center through-

out the course of the proceedings.

For all of these reasons, we conclude that the Board

acted permissibly in requiring Proxyconn to establish the

patentability of substitute claims 35 and 36 over the DRP

reference. And based on Proxyconn’s failure to do so, we

affirm the Board’s denial of Proxyconn’s motion to amend

claims 1 and 3.

V

For the foregoing reasons, we reverse the Board’s con-

structions of the term “gateway . . . between at least two

other computers” in claims 6, 7, and 9 and the terms

“sender/computer” and “receiver/computer” in claims 1, 3,

10, 22, and 23, and therefore vacate and remand its

unpatentability determinations of those claims. We

affirm the Board’s construction of the “searching” limita-

tion in claim 22, the Board’s determination that claim 24

is patentable, and the Board’s conclusion that DRP antic-

ipates claims 11, 12, and 14. We also affirm the Board’s

denial of Proxyconn’s motion to amend claims 1 and 3.

AFFIRM-IN-PART, REVERSE-IN-PART, VACATE-

IN-PART, AND REMAND

COSTS

Each party shall bear its own costs.