By Kevin E. Noonan --
The Supreme Court has spent a decade second-guessing (and in large part overturning) decisions of the Federal Circuit in the exercise of its unique mission to harmonize patent law. Sometimes this oversight has been occasioned by disputes between different members of the appellate court (e.g., Warner-Jenkinson Co. v. Hilton Davis Chemical Co.). In other instances, the Court has acted to reverse Federal Circuit jurisprudence specific to patent law, to bring practices more into line with the law of the other circuits (e.g., eBay Inc. v. MercExchange, L.L.C.). In one specific instance, the Court resolved the standard of review the Federal Circuit must apply (substantial evidence) in reviewing factual determinations made by the U.S. Patent and Trademark Office (Dickinson v. Zurko). The Court overruled decades of precedent, wherein the Federal Circuit (like the C.C.P.A. before it) gave such factual determinations little deference, holding that the Administrative Procedures Act mandated the substantial evidence standard, wherein PTO factual determinations were given the same degree of deference given to other administrative agencies whose decisions were subject to judicial review.
The Federal Circuit's decision in Hyatt v. Kappos is poised to give the Supreme Court an opportunity to decide whether a patent-specific statute (35 U.S.C. § 145) or the APA controls in appeals to a district court in cases where the PTO refuses to grant a patent. The issue is whether and to what extent an applicant can introduce new evidence to the district court: the PTO argued that the District Court should be limited to reviewing the record as it developed during ex parte prosecution, except when there is some good-faith basis for such evidence not being submitted to the Office. The plaintiff argued that this interpretation made district court review duplicative of appellate review by the Federal Circuit (which there is no dispute is limited to the PTO record). The Federal Circuit's en banc decision did not show a great disparity in the members of the Court's views (the decision was 7-2), but the arguments of the majority and the dissenting judges exposed a tension between § 145 and the APA that can only ultimately be decided by the Supreme Court.
The appeal was originally heard by a panel comprising (now retired) Chief Judge Michel and Judge Dyk in the majority, with a dissent by Judge Moore. The majority explained the equitable basis for its decision:
It is clear from the record that under our caselaw Hyatt had an affirmative and specific duty to disclose to the PTO the evidence excluded by the district court, and was so notified by the PTO, but willfully refused to cooperate in the examination process. On the facts of this case, we uphold the district court's exclusion of Hyatt's evidence. We therefore hold that the district court correctly granted summary judgment sustaining the Board decision because Hyatt offered no other evidence and the Board's decision was based on findings of fact and factual conclusions, all of which are supported by substantial evidence, and thus we affirm.
The majority opinion contained a thorough review of how courts had reviewed PTO decisions from the first Patent Act to the current 1952 Act, and used this precedent to support its decision that the District Court properly excluded the new evidence proffered by the applicant:
In sum, it has been the general practice of federal courts for over eighty years in certain circumstances to exclude evidence which a party could and should have introduced before the Patent Office but did not despite an obligation to do so. Our own cases likewise have not adopted a de novo standard for trial. We have said that "[c]learly, the applicant does not start over to prosecute his application before the district court unfettered by what happened in the PTO." Fregeau, 776 F.2d at 1038. On the other hand, it is beyond question that in appropriate circumstances new evidence may be submitted to the district court in a § 145 action (subject, at least, to the Federal Rules of Evidence). See Gould v. Quigg, 822 F.2d 1074, 1079 (Fed. Cir. 1987) ("[A]dditional evidence is permitted in a civil action under section 145, allowing the district court to make de novo fact findings."); Newman v. Quigg, 877 F.2d 1575, 1579 (Fed. Cir. 1989) ("A district court action under 35 U.S.C. § 145 is a de novo determination of patentability. It is not limited to the record before the PTO.")
The opinion expressly based its decision on its view that deference to PTO factfinding and an affirmative obligation on applicants to submit all evidence to the Office were mandated by the APA, and that the provisions of the APA controlled.
Judge Moore dissented:
The majority's decision to affirm the district court's exclusion of the inventor's own declaration in a § 145 civil action severely restricts the rights that Congress action contemplated and enacted by Congress. Moreover, by concluding that an inventor has an "affirmative duty" to submit his own declaration in response to a rejection by the PTO, lest he be prevented from admitting the material in any subsequent district court proceeding, the majority makes it impossible for inventors to ever testify in a § 145 action unless their testimony had first been proffered to the PTO. I cannot agree that this was what Congress contemplated when it enacted § 145, and therefore I dissent.
In the en banc opinion Judge Moore's views prevailed and she is the author of the majority opinion. The Court begins with the plain language of the statute:
An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) of this title may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the District of Columbia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board of Patent Appeals and Interferences, as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant. 35 U.S.C. § 145 (emphases added).
The majority's reasoning is set forth plainly:
On its face, § 145 authorizes a civil action in district court by which an applicant can prove his entitlement to a patent. The statute provides no indication that this civil action is somehow different from a customary civil action. In particular, § 145 does not provide that unique rules of evidence, separate from or supplementary to the Federal Rules of Evidence that apply to all civil actions, control to limit an applicant's ability to introduce new evidence before the district court. Additionally, § 145 makes clear that the civil action is distinct from an appeal, in which the applicant would be limited to the record before the Patent Office. See 35 U.S.C. § 144. Pursuant to the plain language of § 145, this civil action does not merely afford judicial review of agency action. Rather, the statute directs that the district court may "adjudge that such applicant is entitled to receive a patent for his invention . . . as the facts in the case may appear."
As in the panel opinion (but with citation to the contrary), the en banc majority sets forth extensive precedent "nearly to the creation of the Patent Office" in support of its conclusion that "Congress intended [by passing §145] to provide for a civil action in which an applicant would be free to introduce new evidence." Much of this evidence takes the form of Congressional committee testimony, both by proponents and opponents of a provision permitting new evidence introduction under § 145, to illustrate that Congress understood the issue, debated it and knowingly passed into law provisions that permitted new evidence to be introduced freely by disgruntled applicants suing in Federal district court to compel the Office to grant them a patent on their invention. Distinguishing precedent asserted by the Office in support of its position that no new evidence should be admitted, the en banc majority noted that "the correct approach" for evaluating such later-submitted evidence was with regard to the weight given the evidence, not its admissibility, and that "failure to introduce the evidence earlier casts doubt as to its credibility or reliability." The opinion supports this standard using earlier Supreme Court cases (Butterworth v. Hoe, 112 U.S. 50 (1884); Gandy v. Marble, 122 U.S. 432, 439 (1887); Hoover Co. v. Coe, 325 U.S. 79, 83 (1945)) that permitted applicants to adduce new evidence in support of suits brought at the district court under the legislative parent of § 145 (§ 4915 of the Patent Act of 1927). The majority even cites to Zurko in support of its position that "[Section 145] permits the disappointed applicant to present to the court evidence that the applicant did not present to the PTO. The presence of such new or different evidence makes a factfinder of the district judge." 527 U.S. at 164. And the majority opinion cites Chandler v. Roudebush, 425 U.S. 840, 845-46, 862 (1976), for the proposition that "specific statutory authorization" can permit trial de novo for review of agency action. Application of the APA's deferential standard of review is appropriate, the majority states, when no new evidence is introduced, citing Mazzari v. Rogan, 323 F.3d 1000, 1005 (Fed. Cir. 2003). On the other hand, "[w]hen new evidence is introduced, the court acts as a factfinder with respect to that new evidence and would make de novo fact findings if the evidence conflicts with any related Patent Office finding."
The majority frankly rejects several policy reasons proffered by the Office in support of its position, most importantly that the majority's standards would lead to applicants "withholding evidence form the Patent Office to avoid generating adverse prosecution history." This tendency is negated by the provisions of the statute requiring the applicant to pay "all expenses of the proceeding regardless of the outcome," as well as the lost time in pursuing the district court rather than the Patent Office route to obtaining a patent. Finally:
We hold that new evidence is admissible in a civil action under 35 U.S.C. § 145, subject only to the Federal Rules of Evidence and Federal Rules of Civil Procedure.
Judge Newman dissented in part, to the extent that the majority applied the deferential standard of review of Patent Office factual findings mandated by the APA be binding on the district court in § 145 proceedings. "That is not the statutory plan," according to Judge Newman, who would permit the district court judge to consider the evidence de novo. Her reasoning is that Congress intended § 145 proceedings not to be duplicative of appeals to the Federal Circuit; in her view, mandating a deferential standard of review for factfinding would have just such a duplicative effect.
The argument over whether "specific statutory authorization" embodied by § 145 or provisions of the APA controls is forcefully set forth in a dissenting opinion by Judge Dyk, joined by Judge Gajarsa. For these judges, the "majority decision reflects a remarkable departure from settled principles of administrative law." These judges fear that under the majority's balancing of the competing statutory interpretations, "applicants will deliberately withhold evidence in their possession, in order to spring it on the district court under section 145." For the dissenting judges, § 706 of the APA controls (5 U.S.C. § 145). Citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 414–20 (1971), the dissent argues that judicial review is limited to the agency record and that all relevant evidence be submitted by an applicant. While the dissent recognizes that "[PTO] procedures are inadequate only insofar as they do not provide for live testimony," they see this as the sole exception (other than instances where an applicant did not have the evidence during ex parte prosecution). With regard to the majority's view, the dissent states:
Allowing a trial de novo in the district court denigrates the important expertise of the PTO, is contrary to established principles of administrative law, finds no support in the language of the statute, and is contrary to decisions of at least five other circuits. The majority opinion invites applicants to deliberately withhold evidence from the PTO in favor of a more hospitable district court forum. Today's decision reflects yet another misguided effort to craft special rules for patent cases that the Supreme Court in other cases has held to be impermissible. See eBay v. MercExchange, LLP, 547 U.S. 388 (2006) (overturning this court's special test for issuing permanent injunctions in patent cases); MedImmune v. Genentech, Inc., 549 U.S. 118 (2007) (rejecting this court's Declaratory Judgment Act test). The majority decision is all the more remarkable because the Court has previously rejected our efforts to craft a special rule for review of PTO decisions in Dickinson v. Zurko, 527 U.S. 150, 152 (1999), holding that review under section 141 must proceed under the established administrative law substantial evidence standard.
For these judges, the majority's decision disregards "the important expert role that the PTO plays in patent examination proceedings," the expertise of the examining corps and the "careful structur[ing]" of the examination process to take advantage of examiner expertise. But the touchstone of the dissent is the provisions of the APA and the application of these provisions to judicial review of PTO decisions, particularly in view of the Supreme Court's Zurko decision, which stands for the proposition that "[t]he Supreme Court has emphasized that in general the PTO should be treated like other administrative agencies; that patent cases are subject to the same general administrative law principles under the APA; and that departure from those principles requires clear statutory language -- language that is absent here." For these judges, only under certain circumstances -- where credibility determinations must be made to properly assess evidence -- should an applicant be permitted to introduce evidence in a district court proceeding under § 145. And unlike the majority, their reading of the "plain language" of the statute does not support an interpretation permitting unfettered introduction of new evidence upon judicial review. Their position is supported with several examples of Supreme Court decisions for other administrative agencies and other statutory schemes (the Packers and Stockyards Act of 1921, the Communications Act of 1934, the Wunderlich Act, Individuals with Disabilities Education Act) that prohibited the introduction of evidence not submitted to the agency in lawsuits intended (as in § 145) to require an agency to rule in the applicant's favor. The dissent would limit review to those statutes (unlike § 145) that expressly recite de novo review, such as the Food Stamp Act, 7 U.S.C. § 2023(a)(15). Unlike the majority, the dissent finds no support in the legislative history for permitting free introduction of new evidence in proceedings before the district court under § 145.
Concluding a review of Supreme Court and circuit courts of appeals cases, the dissent opines that:
Not a single court of appeals case has interpreted section 145 as permitting the submission of any and all new evidence. Although the cases suggest varying standards for the admission of new evidence, they all acknowledge the necessity of establishing significant limitations on the admission of new evidence, and recognize that to provide otherwise would undermine the requirement of administrative exhaustion. Today's decision represents an anomalous and unjustified departure from prevailing circuit authority.
The dissent ends with the following policy concerns:
In conclusion, I note the quite arresting policy argument made by the majority for permitting applicants to bypass the PTO -- that the applicant would bypass the PTO in favor of a de novo district court proceeding only in cases where the patent is commercially significant and the costs of a separate proceeding can be justified. See Maj. op. at 30–31. But those are exactly the cases in which PTO review is most important. In such cases, contrary to the majority, it is not somehow fantastic to imagine that applicants will elect to bypass the PTO in favor of a second bite at the apple in the district court. They will do so exactly in those circumstances where an expert agency would reject the evidence but a non-expert district court might be convinced to accept it. A more pernicious approach is difficult to imagine.
While not as fractured as in other areas of the Federal Circuit's jurisprudence, the majority and dissenting opinions set forth diametrically opposed answers to the question of which law -- patent-specific § 145 or APA provisions that govern all administrative agencies -- controls. Under these circumstances, there is a specific legal question that only the Supreme Court can resolve (as well as a "circuit split" in judicial review of administrative agency actions). Whether the Court has the occasion to opine will depend on whether the Solicitor General files a certiorari petition (since it is unlikely that the Court will refuse to review this type of question in the face of a certiorari petition from the government).
Hyatt v. Kappos (Fed. Cir. 2010)
Panel: Chief Judge Rader and Circuit Judges Newman, Lourie, Bryson, Gajarsa, Linn, Dyk, Prost, and Moore
Opinion for the court by Circuit Judge Moore, joined by Chief Judge Rader and Circuit Judges Lourie, Bryson, Linn, and Prost; concurring-in-part and dissenting-in-part opinion by Circuit Judge Newman; dissenting opinion by Circuit Judge Dyk, joined by Circuit Judge Gajarsa