In Nike, Inc.v. Adidas AG, [2019-1262] (April 9, 2020) The Federal Circuit affirmed the Board’s the Board’s finding that Nike failed to establish a long-felt need for substitute claims 47–50, but vacated the Board’s decision of obviousness as to substitute claim 49 because no notice was provided to Nike for the Board’s theory of unpatentability.

The case involved U.S. Patent No. 7,347,011, which discloses articles of footwear having a textile “upper,” which is made from a knitted textile using any number of warp knitting or weft knitting processes. The case in an appeal after remand from a previously appeal where the Federal Circuit affirmed-in-part and vacated-in-part the Board’s decision denying Nike’s motion to amend. Nike is again appealing the denial of its motion motion to enter substitute claims 47–50.

Substitute claim 49 recites a knit textile upper containing “apertures” that can be used to receive laces and that are “formed by omitting stitches” in the knit textile. Adidas opposed substitute claim 49, arguing that it was obvious form the combination of three prior art references: U.S. Patent No. 5,345,638 (Nishida); U.S. Patent No. 2,178,941 (Schuessler I); and U.S. Patent No. 2,150,730 (Schuessler II), and in particular that Nishida disclosed substitute claim 49’s limitation that the apertures are “formed by omitting stitches.” The Board found that Nishida does not disclose apertures formed by omitting stitches, as recited in claim 49, but that another prior art document of record in the proceeding demonstrates that skipping stitches to form apertures was a well-known technique.

Nike, having no chance to address this finding, appealed. The Federal Circuit held that the Board may sua sponte identify a patentability issue for a proposed substitute claim based on the prior art of record. However, if the Board sua sponte identifies a patentability issue for a proposed substitute claim, however, it must provide notice of the issue and an opportunity for the parties to respond before issuing a final decision under 35 U.S.C. § 318(a).

Because the case involves a motion to amend, The Federal Circuit concluded that the Board should not be constrained to arguments and theories raised by the petitioner in its petition or opposition to the motion to amend. However the Federal Circuit reserved for another day the question of the Board may look outside of the IPR record in determining the patentability of proposed substitute claims.

Although the Board was permitted to raise a patentability theory based on Spencer, the notice provisions of the APA and Federal Circuit case law require that the Board provide notice of its intent to rely on Spencer and an opportunity for the parties to respond before issuing a final decision relying on Spencer. Under the APA, “[p]ersons entitled to notice of an agency hearing shall be timely informed of of fact and law asserted,” 5 U.S.C. § 554(b)(3), and the agency “shall give all interested parties opportunity for . . . the submission and consideration of facts [and] arguments,” id. § 554(c)(1).