On Thursday, October 18th, the Court of Appeals for the Federal Circuit issued a non-precedential decision in LiquidPower Specialty Products v. Baker Hughes, vacating and remanding a final written decision from the Patent Trial and Appeal Board (PTAB); a decision which had invalidated claims of a LiquidPower patent in an inter partes review (IPR) proceeding. In a nutshell, the Federal Circuit found there to be substantial evidence supporting PTAB determinations relating to specifically what the prior art taught, and what the prior art motivated those of skill in the art to do vis-a-vis motivation to combine. However, the panel, made up of Chief Judge Sharon Prost and Circuit Judges Todd Hughes and Kimberly Moore, determined that substantial evidence did not support the PTAB’s finding that the patent owner failed to establish a nexus between the claimed invention and objective evidence of nonobviousness, or secondary considerations as they are sometimes called. The case is now remanded to the PTAB for proper consideration of the objective evidence of nonobviousness presented by the patent owner.

The patent-at-issue in this appeal is U.S. Patent No. 8022118, titled Drag Reduction of Asphaltenic Crude Oils. Issued in September 2011, it covers a method of introducing a drag reducing polymer into a pipeline in such a way that the friction loss associated with the turbulent flow through the pipeline is reduced by suppressing the growth of turbulent eddies. The resulting invention addressed a need present in conventional polymeric drag reducers, which don’t perform well in crude oils having a low American Petroleum Institute (API) gravity and/or a high asphaltene content.

The ‘118 patent was part of a series of six patents asserted by Lubrizol Specialty Products, later renamed LiquidPower, against Baker Hughes in the Southern District of Texas. In its complaint, Lubrizol argued that Baker Hughes was marketing drag reducing agents (DRAs) for use in heavy, asphaltenic crude oils which infringed upon Lubrizol’s patents. Lubrizol alleged that Baker Hughes had knowledge of the ‘118 patent by August 2009 as the published patent application was submitted in information disclosure statements to the U.S. Patent and Trademark Office during the prosecution of two patent applications filed by Baker Hughes. Lubrizol accused Baker Heavy Crude DRA products, including the FLO ULTIMA Heavy Crude line of products, of infringing on Lubrizol’s patented methods of DRAs for use in pipelines carrying hydrocarbons having a high asphaltene content and an API gravity of less than 23 degrees.

Interestingly, the ‘118 patent was asserted by Lubrizol in a different patent infringement case filed in the Southern District of Texas and a consent judgment entered in that case in July 2016 found that the claims of ‘118 patent were not invalid, thereby confirming the validity of the claims. In that case, defendant Flowchem argued that the ‘118 patent was invalid and unenforceable on the basis of inequitable conduct during the patent’s prosecution at the USPTO. In the consent judgment, Flowchem acknowledged the validity of the ‘118 patent claims and the claims of the other patents-in-suit and was enjoined from offering for sale DRA agents intended for use in U.S. pipelines containing a heavy asphaltenic crude oil.

To challenge the propriety of the patent claims in question, Baker Hughes filed two IPR petitions against the ‘118 patent at the PTAB. One of the IPRs was dismissed procedurally pre-institution while the other was instituted and led to a final written decision issued last November which invalidated all 11 claims of the ‘118 patent on grounds of either 35 U.S.C. § 102 as anticipated or 35 U.S.C. § 103 as obvious. The PTAB determined that independent claims 1 and 11 of the ‘118 patent were invalid under Section 102 as anticipated by U.S. Patent No. 6015779, Methods for Forming Amorphous Ultra-High Molecular Weight Polyalphaolefin Drag Reducing Agents (“Eaton”). Independent claims 1 and 11 were also determined to be invalid under Section 103 as obvious over the combination of Eaton and U.S. Patent No. 4983186, Methods and Compositions for Reduction of Drag in Hydrocarbon Fluids (“Naiman”).

On appeal to the Federal Circuit, the appellate court did find substantial evidence supporting two of the PTAB’s findings. First, that the combination of Eaton, Naiman and a textbook chapter on solubility characteristics and the precipitation of asphaltenes published in 2003 by the Alberta Energy Research Institute (“Strausz”) disclosed the drag reduction limitation of the ‘118 patent claims. Second, that there was a motivation to replace Eaton’s polymers with Naiman’s polymers based on the testimony of Baker Hughes’ expert witness that a person of ordinary skill would have understood that Naiman’s polymerization process was less limited and less expensive than Eaton’s process.

However, the Federal Circuit sided with LiquidPower with respect to the argument that multiple objective indicia of non obviousness were present, including long-felt but unsolved need, commercial success and acquiescence to an injunction. This objective evidence of nonobviousness wasn’t considered by the PTAB because the Board found that LiquidPower didn’t establish that it was entitled to a presumption of nexus. The Federal Circuit, however, found that LiquidPower submitted ample evidence to support a nexus including the commercial success of its ExtremePower product, which was driven by the claimed features of the ‘118 patent. Other evidence included presented supporting a nexus included the injunction to which Flowchem stipulated in U.S. district court as well as documentation that both Flowchem and Baker Hughes had recognized the need for improvements to the transportation of heavy crude oils through a pipeline but both had failed to develop a suitable DRA.