In re Stepan Co. (Fed. Cir. 2011)

By Kevin E. Noonan --

It is widely appreciated that the Supreme Court has spent the better part of the last ten years exercising its supervisory role over the Federal Circuit, something the Court generally refrained from doing for the first 15-20 years of the appellate court's existence (see "Is It Time for the Supreme Court to Stop Flogging the Federal Circuit?").  One of the first cases serving as a bell-weather for the High Court's new thinking about the Federal Circuit was Dickinson v. Zurko, 527 U.S. 150 (1999), where the Supreme Court found that the Federal Circuit, like all appellate courts, was constrained by the provisions of the Administrative Procedures Act of 1948 in the exercise of its supervisory authority over the U.S. Patent and Trademark Office.  This standard required the Federal Circuit to defer to factual determinations made by the Patent Office, imposing a "substantial evidence" standard for reversing decisions by the Office.  This was a much more deferential standard than the one the Federal Circuit was used to, albeit not rising to the "arbitrary and capricious" standard espoused by the PTO Commissioner (Q. Todd Dickinson).  But in rejecting the argument that the Federal Circuit was special and entitled to satisfy its own standards (due inter alia to its unique position among the regional Circuit Courts of Appeal), the Supreme Court clearly mandated that the Federal Circuit comply with legal standards the Court had established rather than ones the Federal Circuit felt appropriate for the fulfillment of its peculiar purpose of interpreting U.S. patent law.

It is both ironic and perhaps fitting, then, that the Federal Circuit had the opportunity to turn the provisions of the APA on the Patent Office in reversing the Board's decision in In re Stepan Co.  Stepan Co. ("Stepan") appealed the Board's decision affirming an Examiner's obviousness rejection in reexamination proceedings.  The Examiner based his rejection on a prior art reference to Singh (WO 97/21764) applied under 35 U.S.C. § 102(b).  The Board affirmed the rejection that the claims were obvious, but considered the reference to be prior art under 35 U.S.C. § 102(a).  In making its determination, the Board determined that a Declaration submitted by Stepan during the reexamination pursuant to 37 C.F.R. § 1.131 was "ineffective to remove Singh as a reference qualifying under 35 U.S.C. § 102(a)"; this determination was relevant because, unlike the absolute statutory bar of § 102(b), the requirement of § 102(a) that the invention was known or used in this country "before the invention thereof" by the patent applicant permits an inventor to "swear behind" the asserted reference.

Stepan contended that the difference in the grounds of the rejection constituted a "new ground of rejection" that should have triggered the provisions of the APA (and the Office's own procedural rules) to provide (of right) an opportunity for further examination by the examiner, i.e., that the Board should have remanded the case back to the Group for further consideration.

In a opinion by Judge Prost, joined by Judge Dyk, the Federal Circuit[1] agreed.  Citing "a series of [prior] opinions," the panel found that:

[B]oth this court and our predecessor court, the United States Court of Customs & Patent Appeals ("Patent Court"), have recognized that if the appellant has not had a full and fair opportunity to litigate the Board's actual basis of rejection, the administrative validity proceedings before the United States Patent and Trademark Office ("PTO") should be allowed to continue.

In re Kumar, 418 F.3d 1361, 1367–68 (Fed. Cir. 2005) (collecting cases).  This right to a "full and fair hearing" is embodied in Patent Office regulations, inter alia, 37 C.F.R. § 41.50(b), which the Court says is required to satisfy the statutory notice requirement embodied in 35 U.S.C. § 6.  In addition, as a procedural matter, Stepan argued that it had been denied the opportunity to address whatever deficiencies the Board found existed in its Rule 131 Declaration.  At root, this constituted a claim that Stepan's administrative due process rights had been violated.

The Court agreed with Stepan that changing the statutory basis for deciding that the Singh reference was prior art (specifically, what kind of prior art) was a new ground of rejection.  The Federal Circuit rejected the Office's contention that since the basis for the rejection was the same -- obviousness -- there was no "new ground of rejection" asserted by the Board and thus due process was not implicated in its decision.  The panel also found insufficient the government's argument that, since Stepan had had the opportunity to present evidence and argument (and in fact had done so) during proceedings before the Board on the issue, it had been afforded with the required opportunity to be heard.  Finally, and equally unavailingly, the government argued that Stepan was under an obligation to petition for rehearing and by having failed to do so had squandered the right to "allege that it was deprived of its administrative due process rights."  Not so, according to the panel:

It is crucial that the examiner issue a rejection (even if that rejection is subsequently withdrawn) so the applicant is on notice that it is obligated to respond.  Mere reliance by the Board on the same type of rejection or the same prior art references relied upon by the examiner, alone, is insufficient to avoid a new ground of rejection where it propounds new facts and rationales to advance a rejection -- none of which were previously raised by the examiner.

It was "mere fortuity" that Stepan had argued the validity of its Rule 131 Declaration during reexamination (its validity vel non not having been raised by the Examiner).  Further, the Court found that the phraseology of § 41.50(b), that "[s]hould the Board have knowledge of any grounds not involved in the appeal for rejecting any pending claim, it may . . . [issue] a new ground of rejection" (emphasis added) did not make discretionary notice of a new ground of rejection and remand to the examiner.

It is this part of the argument that raises the sweet irony of the Zurko case.  In rejecting the government's arguments, the Court reminded the Office that "the PTO's regulatory interpretation is due no deference in view of the agency's statutory obligation under the Administrative Procedure Act ("APA") to provide prior notice to the applicant of all 'matters of fact and law asserted' prior to an appeal hearing before the Board.  5 U.S.C. § 554(b)(3)."  Granting the Office such discretion (i.e, to designate whether there was a new ground of rejection) would "frustrate the notice requirements of the APA," said the Court, citing the Zurko decision.  And the Court noted that the Office's own regulation predicated an applicant's obligation to request rehearing on the Board having designated its decision as a "new ground of rejection," recognizing that the Board's failure to do so here not only absolved Stepan of the obligation to request hearing but actually had prevented it from doing so.  Accordingly, the Court vacated the Board's decision and remanded to the Office "with instructions to designate its rejection as a new ground of rejection," leaving Stepan "free to pursue its patent application according to the requirements of 37 C.F.R. § 41.50(b)."

In re Stepan Co. (Fed. Cir. 2011)
Panel:  Circuit Judges Dyk, Friedman[1], and Prost
Opinion by Circuit Judge Prost

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[1] Judge Friedman was on the panel that heard oral argument and was involved in the panel’s deliberations, but his death this past July prevented him from contributing to the opinion.

Comments

[EG]

Kevin,

Stepan should be contrasted with In re Lovin (opinion written by Judge Dyk who was also on the Stepan panel). In Lovin, the Federal Circuit panel ruled that the applicant/appellant hadn't argued patentability separately for the dependent claims, even though the applicant/appellant had pointed out in their appeal brief, with respect those dependent claims, that no relevance of the references was apparent, and that the Examiner had not explained any relevance with respect to those dependent claims. See http://ipwatchdog.com/2011/10/20/having-it-both-ways/id=19898/ which discusses this problem in Lovin, as well as Kappos v. Hyatt. There is an effort underway to have Lovin considered by the en banc Federal Circuit.

[6]

Patent Docs finally gets on this 2 mo old case? Kev, I suspect you have too much of a life. Remember, there are things that get you on national television and things that do not. Keep your priorities straight man!

In any event, this was plainly a case where they should have simply remanded to the examiner and it is quite odd that they even took the thing up. I'd still say that a letter to the director would probably have sorted the whole thing out. Or, in the event that did not help, they could simply have me talk to him in person at the next large event. I wonder if a consulting position of that nature is prohibited by the office.

"with respect those dependent claims, that no relevance of the references was apparent,"

Stop ur lyin'. They said nothing of the sort in their brief that I recall. They said the examiner didn't explain well. They didn't go the extra mile to say something about no relevance being apparent.

"There is an effort underway to have Lovin considered by the en banc Federal Circuit. "

Which I support, so that Newman can assist in setting some former Oetikertards even more straight than they've been made by recent opinions.