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`NOTE: This disposition is nonprecedential.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.
` ______________________
`
`

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`Case: 21-1882 Document: 44 Page: 2 Filed: 04/12/2022
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`2
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`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, Kumada1
`
`
`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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`Case: 21-1882 Document: 44 Page: 3 Filed: 04/12/2022
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`EVERSTAR MERCHANDISE CO. LTD. v.
`WILLIS ELECTRIC CO., LTD.
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`3
`
`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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`Case: 21-1882 Document: 44 Page: 4 Filed: 04/12/2022
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`EVERSTAR MERCHANDISE CO. LTD. v.
` WILLIS ELECTRIC CO., LTD.
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`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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`Case: 21-1882 Document: 44 Page: 5 Filed: 04/12/2022
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`EVERSTAR MERCHANDISE CO. LTD. v.
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`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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`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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`Case: 21-1882 Document: 44 Page: 7 Filed: 04/12/2022
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`EVERSTAR MERCHANDISE CO. LTD. v.
`WILLIS ELECTRIC CO., LTD.
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`7
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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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`Case: 21-1882 Document: 44 Page: 8 Filed: 04/12/2022
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`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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`Case: 21-1882 Document: 44 Page: 9 Filed: 04/12/2022
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`EVERSTAR MERCHANDISE CO. LTD. v.
`WILLIS ELECTRIC CO., LTD.
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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.
`
`