HOW CONGRESS MADE THE USPTO INFALLIBLE AND HOW THAT AGENCY SEIZED EVEN MORE POWER BY ITS “RULE MAKING AUTHORITY”

The Supreme Court of the United States is set to hear oral argument in Cuozzo Speed Technologies, LLC v. Lee on April 25, 2016. The landmark case is the first opportunity The Supreme Court will have to weigh in on the constitutionality of the non-appealable provisions of the America Invents Act and the USPTO’s use of the “Broadest Reasonable Interpretation” in administrative post-grant trial proceedings used for the sole purpose of invalidating patents. The case will likely have precedential implications for two major issues. The first, whether an Article I administrative decision to institute an administrative trial can be “non-reviewable” without violating the Due-Process clause of the Constitution. The second, whether an Article I administrative court and an Article III judicial court may permissibly use different methods of patent claim construction.

When Cuozzo Speed Technologies, LLC v. Lee was decided by The Court of Appeals for the Federal Circuit Judge Dyk held that the court lacked jurisdiction to review the USPTO’s decision to institute. Judge Dyk cited 35 U.S.C. § 314(d), explaining that the Court was prohibited from reviewing the decision to institute an IPR. Judge Dyk found additional support for the USPTO’s claim construction standard, citing 35 U.S.C. § 316(a)(2) which he believes gives authority to the USPTO to adopt standards and regulations.

The position of Judge Dyk was clear and the rule would have been easy to follow. So why did The Supreme Court grant review? It is a widely known fact that The Federal Circuit, the circuit from whom Cuozzo Speed Technologies appeals from, has the highest reversal rate of any judicial circuit in the United States. Equally as interesting is the belief, amongst many intellectual property attorneys, that The Federal Circuit is more competent than The Supreme Court in patent related matters.

 

THE NON-REVIEWABILITY PROVISION AND ITS IMPLICATIONS

The America Invents Act (“AIA”) stipulates that the USPTO’s decision regarding the institution of a post-grant trial proceeding shall be final and non-appealable. This seemingly straightforward pragmatic law aims to delegate authority to the USPTO over matters that it possesses expertise on and is arguably uniquely situated to determine.  However, the issues are more complex than meets the eye because constitutional concerns governing the reviewability of an Article I court by an Article III court are believed by many to be mandated by the Constitution. In short the argument follows that an Article I court, under the direction of the Executive branch, cannot usurp power from an Article III court, by way of Legislative action. Consider for a moment the following thought provoking questions:

  1. Is it constitutionally permissible for an Article I court, operated under the Executive Branch, to strip away patent property rights without the supposed constitutional guarantees of an Article III court’s oversight and that little elephant in the room called Due Process?
  2. Does Due Process merely guarantee a procedural mechanism, not necessarily an Article III mechanism?
  3. Is the presumption of reviewability of an Article I court validly rebuffed by the pragmatic desire for post-grant trial institutions to be final, non-appealable, and overseen by individuals of technical expertise?

If the “un-reviewability provision” were to be broadly accepted, where would it end? If Congress can make one agencies opinion infallible by the removal of judicial review the logical conclusion is that they can and would make other agencies insulated from judicial review.  Would Congress be able to delegate sweeping authority to the IRS to institute administrative trials for tax collection purposes and insulate the IRS from the checks and balances of Judicial Review? Would the EPA be able to broadly pass regulations, adjudicate those regulations, and go entirely unchecked just because Congress said so? Many would emphatically cringe as these scenarios are stupefyingly horrific.

 

THE DIFFERING CLAIM INTERPRETATION METHODS

The USPTO uses a claim interpretation standard known as the “Broadest Reasonable Interpretation” during administrative trials. This method, while similar to that used at District Courts is notably more expansive – meaning it has the ability to infuse additional ambiguity into claim language and the potential to invalidate more patents than the “ordinary meaning” standard used by the District Court.

Property rights are affected by the negative implication of the USPTO’s usage of the BRI standard. The co-existence of two different interpretive standards has lead and will continue lead to forum shopping because one venue is patent owner friendly while the other venue is friendlier to the patent opposition camp. The flip flopped approach should make anyone pause in concerned reflection and consider the following questions:

  1. Should an administrative agency be allowed to use a different interpretive standard than that which is mandated at a Federal Court?
  2. If so, will it create one-sided outcomes further compounding existing forum shopping?
  3. When a patent is issued is it fair to say that it has created reliance interests?

When a patent issues it becomes a full-blown property right. Many would argue that it makes complete sense for the organization that granted that right to oversee any unforeseen required corrections. However, once a patent has issued others would argue that it has left, or at least partially left, the jurisdiction of the agency that created it. Many would argue that issued patents create reliance interests that deserve deference they are not currently afforded at the USPTO. After all deference to reliance interests is the very reason that a “patent is presumed valid” by an Article III court.  Again, it is for that very reason that Congress clearly stated that a patent is “presumed valid” in 35 U.S.C. § 282.

Congress intended for the USPTO’s Patent Trial and Appeals Board to provide parallel routes for District Court litigation concerning patent validity in order to ease judicial burden and have patent validity matters overseen by persons of technical expertise. One cannot help but question the underlying rationale of the USPTO’s usage of the BRI standard because the BRI standard, when used in relation to issued patents, is facially at odds with congressional intent that a patent be “presumed valid.” Many are left wondering how an alternate standard of review can be held to be simultaneously “parallel” by any normative understanding.

 

THE CUMULATIVE EFFECTS

The unforeseen consequences of the problems associated with the office’s use of the BRI standard adversely affect the pragmatic arguments in support of the non-reviewable provision of 35 U.S.C. § 314(d) in the first place. Hypothetically setting the constitutional concerns aside and focusing purely on pragmatism it would seem that if the USPTO used the same interpretive standard as the District Court they could be viewed as “partners” within the grander intellectual property scheme. Under the prevailing system they are distinct islands separated by miles of disputed territory.

While these two issues are problematic in their own right it is important to consider the combined cumulative effect they are having on property rights and innovation within this country. The question of whether judicial review exists for decisions of initiating post-grant proceedings is extremely important because the USPTO, an Article I court, may go wholly unchecked in its decisions and establish its own rules that are facially defiant of the plain and ordinary meaning of congressional statutes. To elaborate, the USPTO is currently riding the unstoppable wave of its very own preferred interpretations of petition requirements while citing its rule making authority as justification. The problematic tenure of this position is that the USPTO currently has unreviewable discretion to institute proceedings, and is the sole arbiter of what satisfies the procedural requirements of an institution in the first place. Currently, the agency is free to determine the interpretive standards and qualifications of prior art, affidavits, declarations, and expert opinions a petitioner and owner may rely on.

The full extent of this issue came to light most recently when the USPTO promulgated its latest rules on April 1st. The rules established that in instances of “disputed material facts” such as testimonial evidence or prior art the evidence will be construed in the light most favorable to the petitioner. This indicates that competing evidence will not be fully analyzed and the benefit of any doubt will virtually automatically be given to the petitioner. Here it is clear the USPTO does not want to have “trials within trials” but this decision appears to be mostly self-serving by easing institutional work load.

While problematic for Inter Partes Reviews and Post Grant Reviews alike we must not forget that the institution standard for a Post Grant Review is greater than that of an Inter Partes Review. The plain language of the statutory requirements to institute a PGR require that it is “more likely than not” that at least one claim in the petition is invalid. The troubling conclusion one can quickly reach is that when two parties submit competing evidence and the evidence is automatically presumed to favor one party over the other there simply cannot have been a showing that something is “more likely than not” because a full analysis was never performed. This glaring oversight showcases exactly why Article III court reviewability of an Article I court may be necessary. Consider the hypothetical situation where a petitioner puts forth a prior art reference from a lab journal or advertisement. That publication does not have a clear “time-stamp” and the petitioner attached sworn testimony swearing to a specific date. Likewise, the owner provides a prior art reference showing that they were in possession of the inventive concept but that prior art reference also lacks a clear “time-stamp.” Importantly, the owner swears behind the date of the reference and antedates the petitioner’s prior art reference. This scenario would lead to the institution of an administrative trial because the presumption favors petitioners and disfavors patent owners. On the other hand, the District Court would reach the exact opposite conclusion because there is a presumption favoring validity and anyone challenging validity has the burden to prove invalidity by “clear and convincing” evidence. Granted we are only referring to the institution of a trial rather than the final disposition this situation highlights how these nuances could play out.

Article III reviewability of the USPTO’s decisions, although timely and problematic in its own way, is the best mechanism we have to preserve concepts of “checks and balances” and “separation of powers” principles embodied in the Constitution and spirit of American Innovation.  It seems that the USPTO is deviating from the authority granted it by Congress and is going it alone so to speak.

The Supreme Court is the final arbiter of the metes and bounds of the meaning of the Constitution and they therefore are the only governmental branch that can determine the interplay of the numerous competing concerns. If the past is any indication of the future The Federal Circuit will likely be overruled on at least one of the two issues. Rarely, if ever, does The Supreme Court formulate a completely orthogonal opinion but it is of course possible and has happened in technical patent related cases recently. It is possible that The Supreme Court will hold that the non-reviewability provision of the decision to institute an administrative hearing at the USPTO is unconstitutional and that the usage of the BRI standard stands in stark contrast to the “uniformity and predictability” policy goals they frequently enunciate.

By: Maier and Maier PLLC – Timothy J. Maier and P. Marshall Ticer

Please click here to vote on a two question survey that gives us your prediction on the outcome!

Goodyear and Its Effects

Goodyear Dunlop Tires Operations, S.A. v. Brown is a recent Supreme Court case in which the Court held that foreign manufacturers’ sales of a limited quantity of goods in a state did not subject the manufacturers to personal jurisdiction in that state for deaths of state residents that occurred outside the state and were caused by products sold outside the state.

Specifically, Goodyear and its foreign subsidiaries were sued in a North Carolina state court after a bus accident in Paris, believed to have been caused by defective tires, killed two North Carolina residents. The Court held that a connection between Goodyear and its subsidiaries with the state of North Carolina was not strong enough to establish general personal jurisdiction over the subsidiaries in North Carolina. While some tires manufactured by the subsidiaries had been sold in North Carolina, these limited sales did not satisfy the “substantial” activity or “continuous and systematic” contacts required for general jurisdiction.

Goodyear generally conformed to the court’s prior decisions that “evidence[d] the Court’s reluctance to permit general jurisdiction over corporations based upon claims unrelated to corporate activity in the forum state.[1]” Its apparent effect was narrower and more limited than similar cases, like J. McIntyre Machinery, Ltd. v. Nicastro, another jurisdictional case that was heard around the same time and which prompted an angry dissent from three members of the bench.

The effect of Goodyear has still been to limit the extent to which a US state court can exercise general jurisdiction over an out-of-state corporation. Lower courts have interpreted the decision to require a “truly ‘exceptional’ case[2]” before a corporation’s contacts with a state will be sufficient to render the corporation “at home” in the state. For example, in Brown v. Lockheed Martin Corp., the Second Circuit determined that a Connecticut court had no general jurisdiction over Lockheed Martin, because, despite the fact that Lockheed had revenues of around $160 million in Connecticut and had a designated agent of service of process within the state, these sales represented a small percentage of Lockheed’s overall revenue, and were “unexceptional” for a corporation in Lockheed’s position. Other lower courts have had similar interpretations.

However, a number of states, like Delaware and New York, still have state registration statutes that require a company to consent to general jurisdiction as a part of the process of registration. Lower courts have been continuing to uphold these statutes as valid and constitutional[3], even in light of the Supreme Court’s decisions in Goodyear and in later interpretations like Daimler AG v. Bauman, 134 S. Ct. 746 (2014) (holding that Daimler could not be subject to California’s general jurisdiction in a suit filed by Argentine plaintiffs over events occurring on Argentine soil because Daimler was not “at home” in California). While these decisions do represent a new approach on the part of the Court (particularly Daimler, which appears to substantially weaken contacts-based general jurisdiction), the Supreme Court has not yet weighed in on the constitutionality of these statutes under Goodyear.

[1] Michael H. Hoffheimer, General Personal Jurisdiction After Goodyear Dunlop Tires Operations, S.A. v. Brown, 60 Kansas L. Rev. 549, 550 (2012), available at https://kuscholarworks.ku.edu/bitstream/handle/1808/20185/02_Hoffheimer_Final.pdf?sequence=1

[2] See Brown v. Lockheed Martin Corp., Civ. No. 14-4083, 2016 WL 641392 (2d Cir. Feb. 18, 2016)

[3] See, e.g., Hudson v. International Paper Company, C.A. No. N14C – 03 – 247 ASB (D. Del. 2015), available at http://courts.delaware.gov/opinions/download.aspx?ID=228660

The Supreme Court rules that patent licensing beyond its terms is anti-competitive

In, Kimble v. Marvel, The Supreme Court considered anti-competitive concerns to patent licensing contracts beyond the term of a patent. Stated another way the case is about post-expiration patent royalties. The US has had a longstanding ban on such royalties, as a result of the holding in Brulotte v. Thys Co., that identified them as a per-se anti-competitive practice. Kimble and Marvel entered into a contract that stipulated that Kimble would continue getting royalties after the expiration for a Spider-Man toy patent. The Supreme Court relied heavily on the theory of Stare Decisis, that is to say that Judicial Opinions should only be reversed in severe extenuating circumstances. The Supreme Court ruled that the licensing contract was non-enforceable, and that any future relief from the Brulotte rule would have to come from the legislative body of government, by statute, rather than in a courtroom.

The Supreme Court rules that Belief in Invalidity is Not a Defense to Induced Infringement

In Commil USA, LLC v. Cisco Systems, Inc., the U.S. Supreme Court held that a defendant may not assert a good-faith belief in a patent’s invalidity as a defense against liability for inducing infringement. Inducement requires not just knowledge of the patent-in-suit, but also knowledge that the induced acts are infringing. Because infringement and validity are separate issues under U.S. patent law, a belief regarding validity cannot negate 35 U.S.C. §271(b)’s scienter requirement of “actively induce[d] infringement,” i.e., the intent to “bring about the desired result” of infringement. Invalidity does not render acts non-infringing but eliminates any liability altogether. Consequently, “when infringement is the issue, validity of the patent is not the question to be confronted.” Permitting a defense in a good-faith-but-incorrect-belief would severely undermine the presumption of validity each issued patent holds. Accordingly, the Court concluded that the orderly administration of the patent system requires separate consideration of these issues. The Court noted that the decision in no way disrupts the availability of other avenues to prove invalidity, including filing a declaratory judgment in federal court, seeking inter partes review at the Patent Trial and Appeal Board, seeking ex parte reexamination by the Patent and Trademark Office, and raising the affirmative defense of invalidity to an infringement action. It is also important to note that a good-faith belief in non-infringement continues to be founded on a reasonable interpretation of the asserted claims and a belief that the accused infringing acts are not covered by the claims under a reasonable interpretation.