Japanese Foundation for Cancer Research v. Lee (Fed. Cir. 2014)

When you file a disclaimer, you'd better mean it

By Kevin E. Noonan --

The Federal Circuit reversed a District Court decision this week in a case involving an improperly filed statutory (terminal) disclaimer, in Japanese Foundation for Cancer Research v. Lee.  Caught between miscommunication between patentee, assignee, and U.S. counsel as to whether the patent at issue, U.S. Patent No. 6,194,187, should be disclaimed, the high standard for overcoming agency action (arbitrary and capricious action contrary to law) and the deference the courts must give to agency action within its proper purview, the Foundation found its patent rights irrevocably lost (and, in a footnote, received a direction from the panel that will discomfit any practicing patent practitioner).

The case involved the filing of a terminal disclaimer for the claims in the '187 patent prior to patent expiry for failure to pay a maintenance fee.  From the Patent Office perspective, the attorney-of-record filed a statutory disclaimer on October 11, 2011, pursuant to 37 C.F.R. § 1.321(a).  Two months later, on December 13, 2011 the attorney-of-record filed a petition to withdraw the statutory disclaimer under 37 C.F.R. § 1.182 (a provision that permits the Office to address situations not otherwise encompassed by the rules).  This petition asserted as its basis that the disclaimer had not been necessitated by court order or Patent Office requirement, and that the public interest was not implicated because the Office had not yet made the filing public on the Patent Application Information Retrieval (PAIR) database.  The Office denied the petition, on the grounds that the attorney of record properly filed the petition and there was no recourse under the patent statute (35 U.S.C. § 253) for the Office to take the requested action.  The patentee then filed a second petition, under both 37 C.F.R. § § 1.182 and 1.183 (a provision that permits the Office to suspend the rules in the interests of justice), followed by subsequently filed other petitions, a request for reconsideration, and an interview between Office officials and the Foundation's attorney.

These additional submissions provided additional "newly revealed information" and "newly discovered evidence" to the effect that the Foundation had only intended to ask U.S. counsel whether the patent could be disclaimed prior to expiry, and that the request had come from a patent paralegal working for Japanese counsel to one of the Foundation's licensees.  This paralegal's efforts were superseded by the earthquake and resulting tsunami that disrupted business in Japan for months, and it was only after the Foundation's U.S. attorney sent the filed disclaimer that the paralegal and her superiors realized the misunderstanding.  (It must be noted that the letter sent to U.S. counsel states that "[o]ur clients would like to abandon the captioned patent positively and invalidate this patent before the case lapses by non-payment of the next maintenance fees, which will be due on August 27, 2012," which seems to fairly indicate an intention to disclaim.)  Also proffered was evidence in the form of a letter from the Foundation's Executive Director asserting that the Foundation had not requested nor authorized the disclaimer to be filed and that no one with such authority had done so.  The efforts to withdraw the statutory disclaimer commenced almost immediately after the mistake was recognized.

The PTO rejected the contention that it had inherent authority to withdraw the disclaimer, and the Foundation filed suit in District Court to challenge the agency's decision under the Administrative Procedures Act.  Specifically, patentee alleged that the Patent Office's denial was an abuse of discretion, arbitrary and capricious and contrary to law.  The District Court granted patentee's summary judgment motion and ordered the Office to withdraw the disclaimer unless it could make a showing that the Foundation had authorized the disclaimer to be filed by U.S. counsel.

The Federal Circuit reversed, in an opinion by Chief Judge Prost joined by Judges Dyk and Taranto.  The panel recognized that in reviewing agency action it cannot "substitute its judgment for that of the agency," citing Bowman Transp., Inc. v. Ark.-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974), but that its review of the Office's interpretation of the patent statute is "without deference," citing Liesegang v. Sec'y of Veterans Affairs, 312 F.3d 1368 (Fed. Cir. 2003).  Turning to the standard for the deficiencies in agency action the Foundation based its allegations upon, the opinion defined an abuse of discretion as being where the agency's decision is based on a faulty interpretation of the law, citing Burandt v. Dudas, 528 F.3d 1329, 1332 (Fed. Cir. 2008).  And arbitrary and capricious agency action is defined by the panel as occurring "only if the decision was not based on the relevant factors or it fails to 'examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made,'" citing Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983).

Applying these standards to the facts before it, the Court distinguished the Foundation's argument that the Office has the power to withdraw an erroneously filed terminal disclaimer under 35 U.S.C. § 255 (and thus that refusing to do so is an abuse of discretion) based on the Court's earlier decision in Carnegie Mellon Univ. v. Schwartz, 105 F.3d 863 (3d Cir. 1997).  In that case, counsel had intended to file a terminal disclaimer in an application but had in error entered the serial number of a granted patent, so that the disclaimer was entered in the wrong case.  There the Office had granted the petition to withdraw and issued a certificate of correction in the patent (and presumably then entered the terminal disclaimer in the correct application).  The panel noted (citing the MPEP at § 1490) that this was accepted PTO practice, but that these facts were not the facts in this case.  The opinion states that "[i]mportantly" Carnegie Mellon intended to file a terminal disclaimer and that the error was in identifying the correct file, whereas here the issue is whether the Office could withdraw a disclaimer that was intentionally filed (in the correct patent), i.e. where there was not the kind of error in Carnegie Mellon that justified the contrary results.  (In an interesting argument that the Court ultimately rejected, the patentee argued that the error in Carnegie Mellon was identified as a "clerical error" under 35 U.S.C. § 255 and that, because the error here was made by a patent paralegal it should also be considered "clerical" in nature.  And the Foundation's additional argument that a "clerical error" can be one made by "a subordinate act[ing] contrary to binding instructions, distinguishing the subordinate from one whose duty involves exercising 'original thought or judgment,'" citing Ford Motor Co. v. United States, 157 F.3d 849, 860 (Fed. Cir. 1998) was distinguished because, here, the terminal disclaimer was filed by the U.S. attorney of record.)  Thus, the Court found no error in the Office's interpretation of its (lack of) authority under this section of the patent statute.

Turning to the question of the Office's inherent authority, the opinion first rejected the Foundation's argument that the Office could have withdrawn the disclaimer because it had not yet been "recorded" when the Foundation filed its first petition to withdraw, based on Vectra Fitness, Inc. v. TNWK Corp., 162 F.3d 1379 (Fed. Cir. 1998), the panel stating that the patentee had misread its opinion.  The correct statement of the law according to the Court is that a disclaimer is "recorded" when it is properly submitted and received by the Office, based on the Court's interpretation of 35 U.S.C. § 253 and 37 C.F.R. § 1.321.  The opinion recognized that an agency have "inherent authority" to reconsider its decisions, as provided for in the regulations upon which the Foundation had based its arguments(37 C.F.R. §§ 1.182 and 1.183).  But here any PTO review would reveal, and did reveal, that the disclaimer was properly filed by the attorney of record and that there was no basis on these facts to review and change its decision (the opinion notes that these were the grounds under which the Office rendered its first decision to deny the Foundation's petition).  And while the District Court had opined that the Office would have had the authority to withdraw a fraudulently filed disclaimer, the Federal Circuit stated that "it is also not our place to define what hypothetical circumstances might allow or require the PTO's action, where those circumstances are not at issue here."  The Office had articulated its reasoning why it did not have the authority to withdraw the disclaimer under the facts in this case and that was enough for the Federal Circuit.

Finally, the opinion acknowledged the patency of the Office's two additional reasons it articulated for its decision.  The first was that the public was entitled to rely on the disclaimer and the panel rejected the argument that the Foundation's petitions would negate any such reliance, on the grounds that "nothing in the file actually indicated that the PTO had any doubt about the disclaimer's validity."  Second, the opinion rejected the Foundation's argument regarding the miscommunication between the Japanese paralegal and U.S. counsel, on the grounds that the patentee had empowered its attorney of record to represent its interests before the Office, including the power to file disclaimers, and that the Office "need not examine alleged miscommunications between the patentee and its attorney of record because of the principle that it holds the patentee to be 'bound by the actions or inactions of his voluntarily-chosen representative.'"  Here the Court opined that it must defer to how the agency interprets its procedures and regulations, absent "the kind of 'extremely rare circumstances' that could 'justify a court in overturning agency action because of a failure to employ procedures beyond those required by the statute,'" citing Vt. Yankee Nuclear Power Corp. v. Natural Res. Def. Council, Inc., 435 U.S. 519, 524, (1978).  Accordingly, the Court held that "the PTO did not act arbitrarily, act capriciously, or abuse its discretion in declining to use any inherent authority that it might have in withdrawing the terminal disclaimer on the '187 patent that the Foundation's attorney of record duly filed in accordance with the PTO's regulations."

And as for that cautionary note, it comes in the final footnote:  in addressing the District Court's suggestion that the PTO was the sole source of relief for the Foundation with regard to its lost property rights, the panel stated that "in circumstances where a client may be deprived of a claim based on its attorney's conduct, and the facts indicate that the 'attorney's conduct falls substantially below what is reasonable under the circumstances, the client's remedy is against the attorney in a suit for malpractice,'" citing Link v. Wabash R.R. Co., 370 U.S. 626, 634, n.10 (1962).  Not a happy circumstance to contemplate.

Japanese Foundation for Cancer Research v. Lee (Fed. Cir. 2014)
Panel: Chief Judge Prost and Circuit Judges Dyk and Taranto
Opinion by Chief Judge Prost

Comments

[Scratching my head]

Yet another case of the PTO having the power to correct a problem and instead choosing to be a bunch of jerks about it. And the CAFC choosing to let them be a bunch of jerks.

I wouldn't worry about malpractice in this case, the instructions from the associate were pretty clear and I think we all would have filed the disclaimer. But perhaps in the future we should get clients to sign an explicit waiver before we file such disclaimers.

[Anon]

Courts and agencies recognize that computer failures, weather, and clerical errors cause mistakes, and give the applicant a chance to reverse the mistake: e.g. require the attorney of record to show that there was an error, show that the error is not fraudulent or part of long standing and uncorrected problems, and maybe pay a fee. You may not get always relief, but where else is there a blanket prohibition on correcting such harmless errors, or even considering evidence?

Here, the CAFC appears to make a new rule that anything filed by an agent of record cannot be a clerical error, unless the error "appears on the face of the document." This is really troubling for a few reasons.
1. Why is "clear on its face" the proper standard for determining a clerical error? How do you know if the error is clear on its face? The attorney in Carnegie Mellon disclaimed the wrong CMU patent, for which he was the agent of record. How is that a clerical error that is clear on its face?

2. The rationale that there can be no clerical error if filed by a non-clerical person would also appear to apply to solo inventors, and any person acting under the authority of an attorney. Everything filed at the PTO must be through a registered agent/attorney. As a result, no TD filing at the PTO can ever be a clerical error. Did the US Congress really intend to remove TD filings from the normal standards it applies to other arms of government? I see nothing special in the statute.

3. The reasoning also could be applied to other filings unless there is a specific mechanism for withdrawal already in the statute. That is dangerous.

4. The decision seems a little removed from the real world. You have inventors, licensees, investors, US law firms, foreign law firms. Language differences. Cultural differences. Even in the USA, when everyone is speaking English, it is hard to get scientists, businessman, and lawyers on the same page. Then you have various clerical people, computer systems. Heck, there was an earthquake in this case. But the court says none of this matters.

Basically, as the "scratching" noted, the PTO can do whatever it likes. That's not a good sign.

[Anon]

I pulled up the Carnegie Mellon case, and it really is an odd one. It seems that CMU was suing for damages not only its outside attorney for messing up the TD, but also the PTO for accepting it. So the PTO withdraws a TD when you take it to court for $$, but not when someone asks nicely.

Talk about perverse incentives

[Ying]

Unreasonable. If the mistakes unintentionally made on inventors can be corrected, why this unintentional mistake can not be corrected?