Tag: Section 141

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Patent Law Patent Theory

New Paper Explores Possibility of Gold-Plated Patents Beyond the PTAB’s Reach

files labeled as "patents"What if there is a way for a patent applicant to obtain a “gold-plated patent” that is immune to administrative cancellation before the Patent Trial and Appeal Board (PTAB) at the U.S. Patent and Trademark Office (PTO)? This intriguing notion is the subject of a recent paper by Professor Michael S. Greve of Scalia Law, titled Exceptional, After All and After Oil States: Judicial Review and the Patent System and published in the Winter 2020 edition of the Boston University Journal of Science and Technology Law. Prof. Greve presented an early draft of this paper at the “Perspectives on the PTAB: The New Role of the Administrative State in the Innovation Economy” conference that was co-hosted by CPIP and the Gray Center at Scalia Law.

Examining the PTAB through his administrative law lens, Prof. Greve spots what he calls a “Sandy,” that is, a hypothetical, newly discovered relative of an ancient animal species that was thought to have gone extinct. This clever conceit with “Sandy,” which runs through the paper, refers to a Section 145 action to obtain a patent in the Eastern District of Virginia. This particular “Sandy,” Prof. Greve explains, “is unknown to, and greatly at variance with, contemporary administrative law, which operates on the principles of agency adjudication and deferential, on-the-record appellate review.” He argues that Article III prevents a patent obtained through a Section 145 action from subsequently being cancelled at the PTAB—in other words, “Sandy” gives a successful plaintiff a “gold-plated patent.”

To set the stage, Prof. Greve runs through the history of Section 145, placing it within the Patent Act’s current statutory scheme for reviewing validity determinations and the administrative state more broadly. A vestige of the Patent Act of 1836, Section 145 provides that an “applicant dissatisfied” with an appeal to the PTAB following an examiner’s rejection “may . . . have remedy by civil action” against the Director of the PTO. If the court adjudges “that such applicant is entitled to receive a patent for his inventions,” the “adjudication shall authorize the Director to issue” the patent. The alternative pathway for a “dissatisfied” applicant is an appeal directly to the Federal Circuit under Section 141.

The two provisions are markedly different. An applicant that chooses a Section 141 appeal to the Federal Circuit waives the right to proceed under Section 145 before the district court. Like agency adjudication generally, a Section 141 appeal is on the record—no new evidence may be introduced—and deference is given to the PTAB. The decision is then remanded to the PTO for further proceedings. Section 145 actions, by contrast, allow the introduction of new evidence, and the district court can adjudicate validity de novo—without deference to the PTAB. If the plaintiff is successful, the district court directs the PTO to issue the patent. According to Prof. Greve, the lack of deference to the PTO and the ability to introduce new evidence seems foreign—a mythical creature in the modern administrative state.

Turning to the case law, Prof. Greve looks at Dickinson v. Zurko, where the Supreme Court in 1999 held that the Federal Circuit must follow the Administrative Procedure Act (APA) framework when reviewing the PTO’s findings of fact in a Section 141 appeal. The Federal Circuit had applied the Federal Rules of Civil Procedure, which state that a reviewing court must not set aside a district court’s factual findings unless they are clearly erroneous. The Court held that the more deferential review standard of the APA should instead be applied to the PTO. As Prof. Greve explains, the Federal Circuit later extended the Court’s holding, thus directing district courts to apply a deferential standard of review to the PTO’s factual findings in a Section 145 action.

This push to impose the APA standard of review onto Section 145 was short lived. In 2012, the Supreme Court in Kappos v. Hyatt rejected the notion that background principles of administrative law dictate that Section 145 requires a district court to review the PTO’s factual findings deferentially. The Court also rejected the argument that plaintiffs in Section 145 actions should be permitted to introduce new evidence only if they did not have the opportunity to present it to the PTO. Thus, Section 145 plaintiffs may introduce new evidence subject only the ordinary rules of evidence and procedure, and the district court may review these new facts de novo. In other words, appeals under Section 141 are very different than direct actions under Section 145. As Prof. Greve remarks of Hyatt, “Welcome back, Sandy.”

In Oil States v. Greene’s Energy, the Supreme Court in 2018 laid to rest the argument that an inter partes review (IPR) before the PTAB violates Article III. Invoking the public rights doctrine, the Court characterized an IPR as the PTAB’s decision to reconsider the PTO’s earlier grant of a patent—not as a decision to annul a property interest that has already vested. This same sort of reasoning, Prof. Greve points out, has led to decisions that allow the PTAB to cancel patents that have been upheld in infringement actions before the federal courts. He argues that those decisions are inapplicable when it comes to a “gold-plated patent” under Section 145—an issue that surprisingly has not yet been litigated. Such patents, Prof. Greve asserts, cannot be revoked by the PTAB under Article III.

Prof. Greve explains that the validity of a patent cannot conclusively be established in an infringement action in the federal courts. Indeed, this explains why subsequent PTAB cancellations are constitutional. However, the same is not true for patents secured in a Section 145 action. Under Hyatt, Prof. Greve contends, a successful plaintiff is entitled to the patent “as a matter of right,” and the unsuccessful Director of the PTO, by contrast, is “duty-bound” to issue the patent. Unlike with infringement actions, the very point of a Section 145 action is to conclusively establish the patentability of the claims at issue. And this difference, Prof. Greve avers, is critical. Section 145 patents are issued “as the consequence of a conclusive, binding judgment of an Article III court,” and Supreme Court case law prevents final judgments of Article III courts from being “subject to executive revision.”

Prof. Greve explains:

If that reading of Hyatt is right, a patent issued pursuant to a § 145 proceeding cannot be subject to the AIA’s review and reexamination procedures. If § 145 patents issue as of right and neither require nor, in the ordinary course, permit further administrative proceedings, it follows a fortiori that the Director cannot then entertain or initiate an administrative review or reexamination proceeding that would divest the patentee of the benefits of a conclusive Article III judgment. . . . Once the initial patent grant pursuant to § 145 has become final, it has res judicata and estoppel effect in any court; and that preclusive effect cannot be circumvented by means of an administrative reversal and subsequent (deferential) appellate review. The short of it is that “§ 145 patents” are immune from administrative review and reexamination except under the most unusual circumstances.

 

If the issue of subsequent administrative cancellation of a Section 145 patent were to reach the Supreme Court, Prof. Greve believes that the Court will reaffirm the “gold-plated” nature of such a patent in light of Hyatt. He further suggests that if this is true, it seems likely that more applicants will choose the Section 145 route. As things are now, very few people choose this option. Indeed, presumably to discourage the filing of such actions, the PTO recently took the position that Section 145 plaintiffs must pay the pro-rated salaries of the government’s lawyers—a notion the Supreme Court rejected last year in Peter v. Nantkwest. Regardless, a Section 145 action before the district court and the inevitable appeal to the Federal Circuit are risky, expensive, and time-consuming. However, if this route really does produce a “gold-plated patent” that the PTAB cannot strike down, Prof. Greve predicts that “Sandy may yet shine a light into our stoned faces.”

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Patent Law

Supreme Court to Assess USPTO’s Controversial Attorneys’ Fees Position

U.S. Supreme Court buildingBy Chris Katopis & Devlin Hartline

This week, the U.S. Supreme Court agreed to hear an important case concerning patent law procedures and the American legal system in general. In Iancu v. NantKwest, the Court asks, “Does all really mean all?” Specifically, the Court will examine whether Section 145 of the Patent Act, which provides that “[a]ll the expenses of the proceedings shall be paid by the applicant,” includes the personnel expenses that the U.S. Patent & Trademark Office (USPTO) incurs when its employees and attorneys defend the agency in the proceedings.

Under U.S. patent law, a patent applicant who is disappointed with the final decision of the Patent Trial and Appeal Board (PTAB) has the right to seek judicial review through one of two options. Applicants may either appeal directly to the U.S. Court of Appeals for the Federal Circuit under Section 141, or they may file a civil action against the Director of the USPTO in the U.S. District Court for the Eastern District of Virginia under Section 145. Unlike Section 145, Section 141 mentions nothing about recouping expenses.

In the present case, NantKwest is the assignee of a patent application directed to a method for treating cancer. The examiner rejected the claims as obvious and the PTAB affirmed. NantKwest then sued the Director of the USPTO in the Eastern District of Virginia. The district court held on summary judgment that the claims were obvious, and the Federal Circuit affirmed in a nonprecedential opinion.

In the district court, the USPTO moved for reimbursement of nearly $112,000 in expenses under Section 145 to cover attorneys, paralegals, and expert witnesses. The district court granted the expert-witness expenses but denied the personnel expenses. A divided panel of the Federal Circuit reversed, finding that the personnel expenses were compensable under Section 145. The Federal Circuit then took the case en banc, with the majority affirming the district court’s holding that the personnel expenses were not “expenses” under Section 145.

The USPTO then petitioned the Supreme Court for a writ of certiorari, which NantKwest opposed. Just yesterday, the Court agreed to hear the case. The USPTO argues that when Congress enacted Section 145, it was clear that “all” meant “all” regarding any costs or expenses arising from the district court litigation. Accordingly, the USPTO argues, an applicant who initiates a civil action under Section 145 must pay all of the expenses borne by the USPTO in the proceedings, including the salaries of the government’s attorneys and paralegals.

Notably, this recent position on Section 145 by the USPTO is a sharp departure from decades of earlier practice. It also presents a potentially costly factor for patents applicants seeking to challenge adverse PTAB decisions in the Eastern District of Virginia, where they would have to pay the government’s personnel expenses even if their patent rights are vindicated by the federal courts.

In its en banc majority opinion by Judge Kara Stoll, the Federal Circuit held that “the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a ‘specific and explicit’ directive from Congress.” Under the American Rule, the opposing parties in litigation pay their own attorneys’ fees, whether they win or lose. This Rule, the majority noted, promotes “fair access to the legal system” for those who “might be unjustly discouraged from instituting actions to vindicate their rights,” especially the “small businesses and individual inventors” who seek to avail themselves of Section 145’s benefits.

Having held that the American Rule’s presumption against shifting attorneys’ fees applies to Section 145, the Federal Circuit found that nothing in the text of Section 145 rebutted it. Under Supreme Court precedent, there must be a “specific and explicit” authorization by Congress to displace the American Rule. The Federal Circuit held that Section 145’s statement that applicants must pay “[a]ll the expenses of the proceedings” was ambiguous and thus fell short of the Supreme Court’s stringent standard.

The majority emphasized the fact that, under the USPTO’s interpretation, even successful applicants would have to pay the government’s personnel expenses, and it noted that the USPTO itself could not identify any other such provision for shifting fees to the prevailing party. That sharp departure from the bedrock principle of the American Rule, the majority reasoned, made the government’s anomalous position all the more suspect since Congress would have made it more clear if it intended this odd result.

This case has significant ramifications for the American innovation economy. Patent applicants at the cutting-edge of innovation occasionally receive multiple rejections from patent examiners that are affirmed by the PTAB. Some seek to vindicate their rights in the Eastern District of Virginia, which is their right under Section 145 of the Patent Act as enacted by Congress. The shifting of attorneys’ fees to such applicants would increase the cost of inventing and commercializing new technology. It would strongly discourage dissatisfied applicants from challenging the PTAB before a federal district court.

The American Rule is grounded on the notion that those who feel they have been wronged should not be afraid to seek justice in the courts. The USPTO would flip this bedrock principle on its head, even in cases where the courts reverse the agency’s wrongful denial of patent rights to innovators. Hopefully the Supreme Court will affirm the Federal Circuit’s defense of the American innovation economy, lest our innovative entrepreneurs be forced to think twice before taking their case to the federal courts.