Everstar Merchandise Co. Ltd. v. Willis Electric Co., Ltd. ( 2022 )

Case: 21-1882 Document: 44 Page: 1 Filed: 04/12/2022
NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
EVERSTAR MERCHANDISE CO. LTD.,
Appellant
v.
WILLIS ELECTRIC CO., LTD.,
Appellee
______________________
2021-1882
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. PGR2019-
00056.
______________________
Decided: April 12, 2022
______________________
BRENTON R. BABCOCK, Loeb & Loeb LLP, Los Angeles,
CA, argued for appellant. Also represented by PRESTON
HAMILTON HEARD, Womble Bond Dickinson (US) LLP, At-
lanta, GA; BARRY J. HERMAN, Baltimore, MD; TYLER TRAIN,
Irvine, CA.
PATRICK M. ARENZ, Robins Kaplan LLP, Minneapolis,
MN, argued for appellee. Also represented by BRENDA L.
JOLY.
______________________
Case: 21-1882 Document: 44 Page: 2 Filed: 04/12/2022
2 EVERSTAR MERCHANDISE CO. LTD. v.
WILLIS ELECTRIC CO., LTD.
Before LOURIE, DYK, and REYNA, Circuit Judges.
REYNA, Circuit Judge.
Appellant Everstar Merchandise Co. Ltd. appeals the
Patent Trial and Appeal Board’s final written decision in a
post grant review concluding that Everstar did not meet its
burden to show the challenged claims unpatentable as ob-
vious. In reaching its decision, the Board found Everstar
failed to establish a motivation to combine the asserted
prior art. We hold that the Board abused its discretion
when it refused to consider whether cost reduction would
have motivated a skilled artisan to combine the asserted
prior art. Thus, we vacate and remand.
BACKGROUND
Appellee Willis Electric Company, Ltd. owns U.S. Pa-
tent No. 10,222,037 (the “’037 Patent”), titled “Decorative
lighting with reinforced wiring.” The claimed novelty of
the ’037 Patent is the use of internally reinforced wires in
decorative net lights. As explained by the ’037 Patent,
prior art decorative lighting used other methods for rein-
forcement like twisted pair wires, thicker wires, or exter-
nally supported wires. The ’037 Patent claims a different
design that purportedly reduces material costs, bulk, and
weight without sacrificing strength: a single wire rein-
forced with a strand of polymer material running inter-
nally along its axis.
On August 13, 2019, Everstar petitioned for post grant
review of all claims of the ’037 Patent, alleging among
other things that the claims are unpatentable as obvious
over the combination of two prior art references, Kumada 1
1 U.S. Patent No. 6,367,951 (“Kumada”), titled “Eco-
nomical Net or Mesh Light Set,” discloses a prior art net
light design. J.A. 1346–61.
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EVERSTAR MERCHANDISE CO. LTD. v. 3
WILLIS ELECTRIC CO., LTD.
and Debladis ’120. 2 Everstar argued in its petition that a
person of ordinary skill in the art (“POSITA”) would be mo-
tivated to combine Kumada and Debladis ’120 “if she were
looking for known methods that could be used to increase
the strength and durability of the decorative lighting prod-
ucts.” J.A. 194. Everstar asserted that Kumada “explains
that the absence of any electrical wire within . . . ropes
greatly reduces their cost and renders both the light set
and its method of manufacture economical.” J.A. 173.
On November 27, 2019, Willis Electric filed a patent
owner’s preliminary response, contending that
Debladis ’120 is non-analogous art as compared to Kumada
and the ’037 Patent. Willis Electric noted that a stated goal
of Kumada is to “make it . . . cheaper to manufacture a net
light” by “reducing the length of wires that need to be
twisted,” J.A. 371, and that a stated benefit of
Debladis ’120 is to make a “lighter weight, compact auto-
mobile cable[] . . . without being expensive to manufac-
ture,” J.A. 372.
On February 20, 2020, the Board instituted post grant
review. Everstar Merch. Co., Ltd. v. Willis Elec. Co., Ltd.,
No. PGR2019-00056, 2020 WL 862906, at *22 (P.T.A.B.
Feb. 20, 2020). In its institution decision, the Board said:
The evidence of record supports Petitioner’s argu-
ment that the combination [of Kumada and
Debladis ’120] involves the ‘simple substitution of
one known element for another to obtain the pre-
dictable and desirable result of a more durable
wire.’ Pet. 30 [J.A. 194]. For example, both Ku-
mada and Debladis ’120 discuss the desire to reduce
manufacturing costs for wiring having good
2 U.S. Patent No. 8,692,120 B2 (“Debladis ’120”), ti-
tled “Electrical control cable,” discloses a prior art design
for an internally reinforced electrical wire. J.A. 1403–07.
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4 EVERSTAR MERCHANDISE CO. LTD. v.
WILLIS ELECTRIC CO., LTD.
mechanical strength and that is capable of main-
taining an electrical connection, and it is undis-
puted that Debladis ’120 teaches doing so by
including an internal reinforcing strand and con-
ductor strands in a wire.
Id. at *8 (emphasis added).
On June 15, 2020, Willis Electric filed a patent owner’s
response and addressed the Board’s discussion of reduced
cost as a potential motivation to combine Kumada with
Debladis ’120. See J.A. 568–69. Willis Electric argued that
“Debladis ’120 only recognizes a reduction in cost if there
is excess copper in the wire that can be removed for signal
transmission purposes,” and that Everstar “d[id] not argue
that the amount of copper in the intermediate wires of Ku-
mada would be reduced.” J.A. 568.
On September 15, 2020, Everstar filed a reply to Willis
Electric’s patent owner response. J.A. 636–69. Everstar
argued that “a POSITA would be motivated to incorporate
the polymer reinforced wire of Debladis ’120 [with Ku-
mada] in order to improve durability and reduce cost.”
J.A. 656 (emphasis added). Everstar contended that “a
POSITA would have been motivated to reduce costs by in-
corporating the internally reinforced wire of Debladis ’120
into the net light system of Kumada,” as “[s]uch a combi-
nation would reduce the amount of total copper used in the
system of Kumada, which would reduce the cost of the sys-
tem and be compliant with the UL standards.” J.A. 657
(emphasis omitted).
On November 2, 2020, Willis Electric filed a patent
owner’s sur-reply, addressing the cost reduction argument
on the merits. J.A. 702. Willis Electric also provided a list
of reply arguments that it claimed were presented for the
first time in Everstar’s reply brief.. J.A. 712–16. In partic-
ular, Willis Electric identified Everstar’s motivation to
combine theory based on a reduction in cost as an improp-
erly raised, new argument. J.A. 713. Willis Electric
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WILLIS ELECTRIC CO., LTD.
argued that the new arguments and evidence should be re-
jected and not considered by the Board.
On February 18, 2021, the Board issued a final written
decision and noted that the parties agreed on claim con-
structions and the fact that the asserted prior art, as a
whole, discloses every claim element. Everstar Merch. Co.,
Ltd. v. Willis Elec. Co., Ltd., No. PGR2019-00056, 2021 WL
653034, at *5–6 (P.T.A.B. Feb. 18, 2021). The only points
of disagreement were (1) whether Debladis ’120 is analo-
gous art, and (2) whether a POSITA would have been mo-
tivated to combine Kumada with Debladis ’120. Id. at *6.
With respect to motivation to combine, the only issue
relevant on appeal, Everstar argued that a POSITA would
have been motivated to combine Kumada with
Debladis ’120 to improve wire durability and to reduce ma-
terial costs. However, the Board declined to consider cost
reduction as a motivation to combine because it determined
that Everstar failed to assert the theory in its petition. Id.at *12–13. Consequently, the Board focused its attention
solely on whether a POSITA would have been motivated by
a desire to improve wire durability. Viewed as such, the
Board found that Everstar did not meet its burden to show
a motivation to combine Kumada with Debladis ’120. Id.at *9–12. The Board also explained that its determination
was dispositive for all challenged claims. Id. at *13–17.
Thus, the Board concluded that Everstar failed to show
that any of the challenged claims are unpatentable as ob-
vious. Id. at *17. Everstar appeals. We have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(4)(A).
STANDARD OF REVIEW
We review the Board’s legal conclusions de novo and its
factual findings for substantial evidence. ACCO Brands
Corp. v. Fellowes, Inc., 813 F.3d 1361, 1365 (Fed. Cir.
2016). Substantial evidence means “such relevant evi-
dence as a reasonable mind might accept as adequate to
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6 EVERSTAR MERCHANDISE CO. LTD. v.
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support a conclusion.” In re Gartside, 203 F.3d 1305, 1312
(Fed. Cir. 2000).
Obviousness is a question of law with underlying fac-
tual issues relating to the “scope and content of the prior
art, differences between the prior art and the claims at is-
sue, the level of ordinary skill in the pertinent art, and any
objective indicia of non-obviousness.” Randall Mfg. v. Rea,
733 F.3d 1355, 1362 (Fed. Cir. 2013) (citing KSR Int’l Co.
v. Teleflex Inc., 550 U.S. 398, 406 (2007); Graham v. John
Deere Co. of Kansas City, 383 U.S. 1, 17–18 (1966)). “The
presence or absence of a motivation to combine references
in an obviousness determination is a pure question of fact.”
Par Pharm., Inc. v. TWI Pharms., Inc., 773 F.3d 1186, 1196
(Fed. Cir. 2014).
We review the Board’s application of procedural rules
under an abuse of discretion standard. Chamberlain Grp.,
Inc. v. One World Techs., Inc., 944 F.3d 919, 924 (Fed. Cir.
2019). We affirm Board determinations unless the deter-
mination “(1) is clearly unreasonable, arbitrary, or fanciful;
(2) is based on an erroneous conclusion of law; (3) rests on
clearly erroneous fact findings; or (4) involves a record that
contains no evidence on which the Board could rationally
base its decision.” Id. (quoting Ultratec, Inc. v. Caption-
Call, LLC, 872 F.3d 1267, 1272 (Fed. Cir. 2017)).
DISCUSSION
On appeal, Everstar argues that the Board abused its
discretion when it refused to consider cost reduction as a
potential motivation to combine. We agree.
The petitioner in a post grant review must, in its peti-
tion, “identify ‘with particularity’ the ‘evidence that sup-
ports the grounds for the challenge to each claim.’”
Intelligent Bio-Systems, Inc. v. Illumina Cambridge Ltd.,
821 F.3d 1359, 1369 (Fed. Cir. 2006) (quoting 35 U.S.C.
§ 312(a)(3)); see also 35 U.S.C. § 322(a)(3) (establishing re-
quirements for a petition for post grant review). A
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petitioner may not assert an “entirely new rationale” in a
post-institution reply. Intelligent Bio-Systems, Inc.,
821 F.3d at 1370. The Board in its discretion may reject
any reply brief that “crosses the line from the responsive to
the new.” Ariosa Diagnostics v. Verinata Health, Inc.,
805 F.3d 1359, 1368 (Fed. Cir. 2015). These rules help en-
sure that the owner of a challenged patent receives notice
of and a fair opportunity to meet alleged grounds of inva-
lidity. Belden Inc. v. Berk-Tek LLC, 805 F.3d 1064, 1080
(Fed. Cir. 2015).
On the other hand, “[p]arties are not barred from elab-
orating on their arguments on issues previously raised.”
Chamberlain Grp., Inc., 944 F.3d at 925 (citing Interactive
Gift Express, Inc. v. CompuServe Inc., 256 F.3d 1323, 1347
(Fed. Cir. 2001)). Where a petitioner on reply “cites no new
evidence and merely expands on a previously argued ra-
tionale,” it is an abuse of discretion for the Board to reject
the reply as improper under 37 C.F.R. § 42.23(b). Ericsson
Inc. v. Intellectual Ventures I LLC, 901 F.3d 1374 (Fed. Cir.
2018) (“The Board’s error was parsing Ericsson’s argu-
ments on reply with too fine of a filter.”).
Here, the Board should have considered cost reduction
in its motivation to combine analysis because the record
shows that increased wire strength and reduced material
cost are intertwined benefits of the claimed invention. The
’037 Patent explains that a “drawback” in “prior art meth-
ods of reinforcing and strengthening decorative lighting” is
that using more wire “tends to drive up material cost.”
’037 Patent col. 5 l. 65–col. 6 l. 2. Everstar also noted in its
petition that Kumada teaches this inverse relationship be-
tween cost and the amount of material used. J.A. 173. Wil-
lis Electric acknowledged this relationship in its
preliminary response and accompanying expert testimony
when discussing both Kumada, J.A. 345–46, 2580–81, and
Debladis ’120, J.A. 371–72, 2606–07. In its institution de-
cision, the Board reasoned that “both Kumada and
Debladis ’120 discuss the desire to reduce manufacturing
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8 EVERSTAR MERCHANDISE CO. LTD. v.
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costs for wiring having good mechanical strength and that
is capable of maintaining an electrical connection.”
J.A. 433. The parties then garnered expert testimony on
and briefed the merits of cost reduction as a potential mo-
tivation to combine. J.A. 568, 646, 650, 657, 659, 703, 2203,
2979, 2991, 2301, 2311, 2331–32, 2356–57, 3174, 3178,
3184. Given the developed record on the correlation be-
tween wire strength and material cost, we find that Ever-
star’s cost reduction argument is a fair extension of its
previously asserted arguments, and the Board abused its
discretion in refusing to consider it. See Ericsson, 901 F.3d
at 1380–81.
We note that a petitioner is entitled in its reply to “re-
spond to arguments raised in the corresponding opposition,
patent owner preliminary response, patent owner re-
sponse, or decision on institution.” 37 C.F.R. § 42.23(b)
(2020). 3 Any ambiguity as to whether a reply constitutes a
new argument is eliminated when the reply is a legitimate
reply to arguments introduced in a patent owner’s response
or the Board’s institution determination. Apple Inc. v. An-
drea Elecs. Corp., 949 F.3d 697, 706–07 (Fed. Cir. 2020)
(citing Anacor Pharms., Inc. v. Iancu, 889 F.3d 1372, 1380–
3 The 2020 version of § 42.23(b) permits the peti-
tioner to address in its reply issues discussed in the insti-
tution decision, which reflects a change made “in response
to issues arising from [SAS Institute Inc. v. Iancu, 138 S.
Ct. 1348 (2018)].” See PTAB Rules of Practice for Institut-
ing on All Challenged Patent Claims and All Grounds and
Eliminating the Presumption at Institution Favoring Peti-
tioner as to Testimonial Evidence 85 Fed. Reg. 31,728-01,
31,729 (May 27, 2020); Office Patent Trial Practice Guide,
August 2018 Update, 83 Fed. Reg. 39,989-01, 39,989
(Aug. 13, 2018) (citing update available at
https://www.uspto.gov/sites/default/files/documents/2018_
Revised_Trial_Practice_Guide.pdf).
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81 (Fed. Cir. 2018)). In this case, Everstar’s cost reduction
argument on reply directly addresses issues raised in Wil-
lis Electric’s preliminary response and post-institution re-
sponse, as well as in the Board’s institution decision. We
see no lingering uncertainty as to whether the argument is
new in view of the petition. The record before us shows
that clearly it is a legitimate reply to arguments introduced
by Willis Electric and the Board.
CONCLUSION
The Board should have considered whether cost, in ad-
dition to increased strength and durability, would have
presented a sufficient motivation to combine the asserted
references. The Board’s refusal to do so under these cir-
cumstances amounts to an abuse of discretion. We there-
fore vacate the Board’s decision and remand for further
proceedings consistent with the above.
VACATED AND REMANDED
COSTS
Costs to Appellant.