Protecting property rights and defanging the administrative state are the “red meat” of conservative political ideology. Both of these dimensions intersect in the patent system. President Trump himself remains silent on his views on patent rights. As of this writing, he has not made any public statements on his choice for Undersecretary of Commerce for Intellectual Property / Director of the Patent Office. Yet political forces in his slipstream are already in play. These forces stand ready to reformulate a broken patent system in the crucible of high conservative ideals.
Two places to look for trends in this direction are a set of still-pending constitutional challenges, and one powerful sweeping piece of legislation. These constitutional challenges seek to overrule a 2015 decision by the Court of Appeals for the Federal Circuit that oxymoronically labeled the private property of an invention patent as a “public right,” a label calculated to salvage clearly unconstitutional aspects of the 2011 America Invents Act (AIA). And the legislation seeks to eliminate, in one enactment, the prevalent judicial standard of review over administrative agency rulemaking – Chevron deference. This will roll back the 100-year creep of administrative agency power-grabs that the Patent Office has fully endorsed and adopted.
The New Political Reality Favors Constitutional Challenges to the AIA
Allegations of unconstitutionality continue to dog America Invents Act proceedings in the Trump Administration. What has changed is that now they can succeed. Though the Supreme Court did not take up the Cooper or MCM cases for review of AIA constitutionality, those cases got closer than most. The fact of relisting of their cert petitions during Supreme Court review put them into the rare category of cases seriously considered by the Justices for a cert-grant.
One of the next batch of constitutional challenge cases might just push the issue onto the Supreme Court’s docket. At least three are presently pending that, in one form or another, could lead to the Court evaluating AIA constitutionality:
Oil States Energy Svcs. v. Greene’s Energy Group (No. 16-712, cert petition)
Personal Audio v. EFF (No. 16-1123, awaiting CAFC decision post oral argument)
Security People, Inc. v. Lee (No. 16-2378, on motion for summary affirmance at CAFC, and co-pending request for re-transfer to the Ninth Circuit)
Each of these cases merits continued scrutiny in the coming weeks, especially now that the Justice Department might soon receive diametrically opposed marching orders over whether and how to oppose such proceedings. Notable as well, the GOP platform now ascendant in both the Congress and the White House included special call-outs to patents as private property – a political statement squarely at odds with the “public right” label.
The leading candidate for Solicitor General is Chuck Cooper. Mr. Cooper is closely connected with Jeff Sessions, and in his private practice has been tapped time and again as a brilliant legal advocate for conservative causes. Few remember that during passage of the AIA, Mr. Cooper sent Congress a warning that what they were about to do was unconstitutional. Supporters of the AIA were so shaken up by Mr. Cooper’s analysis that they recruited a retired Tenth Circuit judge (Hon. Michael McConnell) to pen a rebuttal. After passage, Mr. Cooper continued to write on the AIA, explaining in depth and with solid legal analysis why Covered Business Method Review (at a minimum) was unconstitutional. With Mr. Cooper in charge of the Office of the Solicitor General, we might just see the government do an about-face, advocating to the Supreme Court in favor of the grant of cert in one of the above-named cases. What fate awaits the Department of Justice lawyers who pushed the “public rights” agenda in previous cert oppositions? No one can predict, though the Trump Administration is already reputed to be inclined to purge government agencies of persons whose viewpoints do not mesh with his policy ideas, or the GOP platform.
Nor should we count out the Federal Circuit, despite their having endorsed agency cancellation of property rights in MCM Portfolio vs. Hewlett-Packard, 812 F.3d 1284 (2015) (rejecting challenge to AIA unconstitutionality). Most court watchers completely missed the comment by Judge Newman in a January 10, 2017 oral argument in Trading Technologies v. CQG, No. 16-1616. This case involved appeal of a district court finding that the GUI patents in suit passed muster under § 101, and were not directed to ineligible subject matter. The panel (who affirmed the Article III outcome a few days later) wished to know the current status of a co-pending AIA proceeding, in which the Patent Office reached the seemingly inconsistent result of instituting Covered Business Method Review over the same patents using the same ineligibility argument that an Article III court had rejected. Though it was not pertinent in the appeal itself, Judge Newman said pointedly, the Federal Circuit “will get to that,” regarding who defers to whom as between conflicting Article III and Patent Office outcomes. (Recording at 19:20). These words should worry efficient infringers who have relied on the AIA as their main tool to dispossess rights holders. Even the Federal Circuit may not be as settled and complacent about Patent Office overreach as some might have believed. Separately, it is notable that the Patent Office’s summary affirmance motion in the Security People matter has been pending for over a month. If it were straightforward to reject AIA challenges raising the same constitutional issues as Cooper and MCM did, the Federal Circuit would presumably have done so by now.
New players entering the scene might also shake up expectations. The lawyer advancing the Oil States Energy cert petition is Allyson Ho, a Morgan Lewis & Bockius partner. She has significant ties to conservative causes and conservative luminaries, like Ted Cruz and Chuck Cooper. It might be easy to overstate what effect a luminary like Ms. Ho backing the cause of AIA unconstitutionality will have, but it certainly cannot hurt.
Legislative Attacks on the Administrative States will also Shake Up Patent Practice
Mr. Cooper, the SG-contender mentioned above, also wrote a blistering scholarly work describing the rise of the administrative state, and accounting for its incongruity with our nation’s original concept of a three-branch government. This article put Chevron deference – a primary tool of administrative agency power creep – squarely in his crosshairs. Chevron deference has been the bane of ideological conservatives for decades. It creates a framework for appellate court review that, in most applications, absolves the judiciary of responsibility to call out or correct executive agency power grabs. Justice Thomas, for one, appears never to have signed onto a Supreme Court decision that relies on Chevron deference to reach its result. E.g., Michigan v. EPA, 135 S. Ct. 2699, 2712 (2015) (Thomas, J., concurring) (“Either way, Chevron deference raises serious separation-of-powers questions.”).
But soon no longer. Congress sent H.R. 5, the House-passed Regulatory Accountability Separation of Powers Restoration Act, to the Senate’s Homeland Security & Governmental Affairs Committee on January 12, 2017. When enacted it will overrule Chevron deference. This enactment will therefore shine the disinfecting sunlight of appellate review where it has not gone before.
The current Congress – led in part by Senator Sessions – echoes Chuck Cooper’s antagonism toward the administrative state. Starting with this bill, Congress intends to roll back the decades-long power grab of the “fourth branch” (executive agencies). This will shake up Patent Office proceedings. The Court of Appeals for the Federal Circuit has lately shown greater willingness to find flaws with Patent Office procedures or results. For example, the Federal Circuit just struck down the broad Patent Office definition over what kind of patent qualifies for Covered Business Method Review. Unwired Planet, LLC v. Google, Inc., 841 F.3d 1376 (Fed. Cir. 2016). Passage of the new Act will empower the reviewing court to do even more, and take an even more active role in reigning in agency abuse.
As of enactment of H.R. 5, appellate courts and agencies will no longer be permitted to rely on Chevron deference to defend rulemaking. Where there is a “gap” that Congress has placed for agencies to regulate, appellate review will now default to a “de novo” standard of review. This overrules the current deferential standard under Chevron: “reasonableness” of rulemaking in light of statutory purpose.
The new Act will directly undermine at least two recent decisions affirming Patent Office rulemaking: Cuozzo Speed Techs. v. Lee, 136 S. Ct. 2131 (2016) (affirming PTO’s nonstatutory use of “broadest reasonable interpretation” (BRI) for patent claim interpretation) and Harmonic Inc. v. Avid Tech., Inc., 815 F.3d 1356 (Fed. Cir. 2016) (affirming PTO’s nonstatutory institution on only a subset of grounds presented by an inter partes review (IPR) petitioner). The new Act will have an unknown impact on a host of other issues believed settled. For example, the Federal Circuit has approved other Patent Office IPR rulemaking, ostensibly invoking Chevron deference, but arguably only in dictum. E.g., Ethicon Endo-Surgery, Inc. v. Covidien LP, 812 F.3d 1023, 1033 (Fed. Cir. 2016) (using Chevron deference and Patent Office rulemaking as an “alternative source of authority” to reject challenge to Director’s power to delegate IPR institution to Board panels).
Patent practitioners need to realize that the Act will eliminate stare decisis over earlier court approvals of specific Patent Office rules. First, after the Act, it will be an open question whether the Patent Office may use BRI within IPR proceedings. That is because the law will have changed over what deference a court must give Patent Office regulations. In Cuozzo, the Court cited Chevron in analyzing whether rulemaking imposing BRI on IPR proceedings constituted “a reasonable exercise of the rulemaking authority that Congress delegated to the Patent Office.” Cuozzo, 136 S. Ct. at 2144. After walking through a collection of policy rationales that made BRI seem “reasonable” to the majority, the Court concluded by explicitly noting that the “Patent Office’s regulation, selecting the broadest reasonable construction standard, is reasonable in light of the rationales described above. . . .” Id. at 2146. The Court closed its majority opinion by refusing to do what the new Act presumably will have required it to do: deciding de novo how to fill the “gap” left by Congress: “[W]e do not decide whether there is a better alternative as a policy matter. That is a question that Congress left to the particular expertise of the Patent Office.” Id.
Likewise after the Act, the currently-settled question of the lawfulness of Patent Office action on a subset of an IPR petition’s arguments will also reopen. The Federal Circuit has addressed two aspects of this question. First, the Federal Circuit ruled it permissible for the Patent Office to institute IPR on just a “subset of claims.” Synopsis Inc. v. Mentor Graphixs Corp., 814 F.3d 1309 (Fed. Cir. 2016). This happens when a panel holds that the petition fails to meet a threshold likelihood of success as to particular challenged claims, but meets it as to others. Second, the Federal Circuit ruled it permissible for the Patent Office to institute IPR on just a “subset of grounds.” Harmonic Inc. v. Avid Tech., Inc., 815 F.3d 1356 (Fed. Cir. 2016). This happens when a panel holds that the petition meets a threshold likelihood of success as to one ground, making other grounds “redundant” to consider. The redundant grounds thereafter do not get litigated during the “trial.”
At least with respect to the “subset of grounds” question, the Federal Circuit explicitly cited Chevron deference as the analytical mode that led it to accept agency rulemaking. After concluding that regulatory power existed (and thus a “gap” existed that Congress wanted the Patent Office to fill), the Federal Circuit applied “Chevron deference [to] also consider whether the agency, in exercising its rulemaking authority to enact §42.108, reasonably interpreted § 316 and the statutory provision for instituting IPR proceedings, § 314.” Id. at 1368. Just as the Supreme Court in Cuozzo refrained from conducting de novo review over Patent Office rulemaking, so too did the Federal Circuit in Harmonic. Thus, the Harmonic decision approving of Patent Office rulemaking on the “subset of grounds” question will no longer be settled law.
The Act’s effect on the Patent Office’s “subset of claims” rulemaking is less clear. That is because, unlike its adjudication of the “subset of grounds” question in Harmonic, the Federal Circuit approved of the “subset of claims” rulemaking on statutory language grounds, and resorted to a Chevron analysis only in dictum. Synopsis, 814 F.3d at 1316 (“Although we find that the [statutory] language is clear, if there were any doubt about the Board’s authority and the statute were deemed ambiguous, the PTO has promulgated a regulation allowing the Board to institute as to some or all of the claims.”). Thus, “subset of claims” rulemaking stands on similar ground as “Director institution-delegation to the Board” in Ethicon – possibly undermined by the new Act, but also likely to remain good law on stare decisis grounds.
Without question, the changing administrations in Washington will shake up the patent system just as it is shaking up so many other institutions previously thought protected or immune. Most conventional thinking has considered President Trump’s pick for the new Patent Office Director to be the main engine of change. True, this pick will be exceedingly important. For example, as I have written, the new Director can act immediately to restore fairness and balance to Patent Trial and Appeal Board proceedings – regardless of whether any constitutional challenge succeeds. Yet it would be short sighted to end consideration there. Other Trump Administration appointees, and ostensibly unrelated GOP legislative initiatives, could overshadow even the question of who becomes Director.