Federal Circuit says U.S. government is a ‘person’, can file CBM to challenge patents

Yesterday the United States Court of Appeals for the Federal Circuit issued a decision in Return Mail, Inc. v. United States Postal Service, which upheld the invalidity of all challenged claims in a covered business method (CBM) challenge decided by the Patent Trial and Appeal Board (PTAB). In the CBM proceeding the PTAB panel found the claims to be directed to patent ineligible subject matter under 35 U.S.C. § 101.

That patent claims were found to be direct to patent ineligible subject matter in a CBM proceeding is hardly newsworthy. No patent that has entered CBM has done anything other than fall to date. What is newsworthy, however, is that the Federal Circuit also upheld a controversial ruling of the PTAB, which determined that the United States has standing to bring a CBM challenge. Legally speaking, the United States, or in this case the United States Postal Service, is considered a person within the meaning of AIA § 18(a)(1)(B).

To put this into perspective, despite the fact that the America Invents Act (AIA) does not specifically identify the United States as qualifying to be considered a person under AIA § 18(a)(1)(B), and despite the fact that the United States Supreme Court has unequivocally ruled that a sovereign such as the United States government is not a person absent an explicit statement of intent by Congress, the Federal Circuit (over a convincing and persuasive dissent from Judge Newman) decided that the United States federal government can challenge patents issued by the United States federal government in a post grant CBM proceeding.

The Majority Decision

According to the Federal Circuit, in an opinion written by Chief Judge Prost and joined by Judge Wallach, “[b]ecause the PTO is an administrative agency the Article III standing requirement for a ‘case and controversy’ does not apply to matters before it.” Instead, the relevant provision to analyze standing was AIA § 18(a)(1)(B), which says that a person may file a CBM if they have been sued for patent infringement, or has been charged with patent infringement.

The first question the Federal Circuit addressed was whether the court even had the authority to determine whether the PTAB made the proper decision in the first place. “There is no doubt that, despite the AIA’s no-appeal provisions, judicial review remains available on questions of whether the Board exceeded statutory limits on its authority to invalidate,” Prost wrote citing Versata Dev. Grp. v. SAP Am., Inc., 793 F.3d 1306, 1320 (Fed. Cir. 2015). Thus, because the standing question related to whether the PTO had ultimate authority to act, the Federal Circuit held that the appeal bar of 35 U.S.C. § 324(e) did not bar judicial review.

The next issue addressed by the Federal Circuit was an argument by the Return Mail that the action it brought against the government under 28 U.S.C. § 1498(a) was not a patent infringement action and, therefore, the USPS should not have had standing to bring a CBM challenge. The Federal Circuit recognized that there are differences between a §1498(a) claim and the typical patent infringement claim, but at the end of the day the government incurs liability under §1498(a) for engaging in infringing acts without permission and, therefore, explained evidence was “insufficient to compel a conclusion that Congress intended to exclude a government-related party sued under 1498(a) from being able to petition for CBM review.”

With respect to whether the United States qualifies as a person under the meaning of AIA § 18(a)(1)(B), the majority noted that neither party argued that the word was relevant, although Judge Newman in dissent found the word to be extremely relevant. Still, Chief Judge Prost and Judge Wallach were unconvinced. The majority attempted to criticize Judge Newman’s rationale, but seemed largely unpersuasive. According to the majority, when defining the term person there are no hard and fast rules and context matters. Apparently, the majority sees somewhere in the AIA an intent of Congress to allow the United States to either quality as a person or the explicit envisioning that the United States would be allowed to be a party capable of bringing challenges to issued patents. Indeed, although the majority says the AIA does not exclude the government from being a person, all the majority provides for support is citation to other sections that authorize any person not the owner to challenge a patent in an inter partes review (IPR).

“We believe the better reading of ‘person’ in § 18(a)(1)(B) does not exclude the government,” Prost concluded.

The Dissent

In dissent, Judge Newman is again characteristically correct, starting from the very beginning.

“My colleagues hold that the question of whether the government is a ‘person’ subject to the AIA was waived by the parties’ failure to object,” Newman wrote. “Although some issues may be waived, statutory jurisdiction is not subject to waiver.”

Newman is of course 100% correct. The fact that jurisdiction can be challenged at any point of any proceeding and is unwaivable is black-letter law that every first year law student learns in Civil Procedure. Throughout my career I have been shocked at how many times judges in writing will make statements to the contrary. Clearly, when a judge says that a jurisdiction question like this is waivable what they are doing is violating hundreds of years of well-established law because they have determined that a certain desired outcome is preferable to the right legal outcome. Truly disappointing.

Equally persuasive, Judge Newman correctly pointed out that there is nothing in the AIA to suggest that Congress intended the United States government to be considered a person, and there is no mention of the Court of Federal Claims, despite the fact that Congress would well know that the government could be sued for patent infringement in the Court of Federal Claims. Newman wrote:

The general statutory definition is that a “person” does not include the United States and its agencies unless expressly provided. It is at least as reasonable to assume that Congress, and those seeking the improvements provided by the America Invents Act, knew that “person” did not include the United States, lest additional complexities appear in the path of enactment of the America Invents Act.

The legislative record does not explore these potential complexities, but neither is there any suggestion that the standard rule of exclusion of the United States from the definition of “person” was simply legislative inadvertence, as my colleagues appear to believe. The Congress cannot be deemed innocent of knowing that the government can indeed be sued for infringement, but only in the Court of Federal Claims; yet that court is conspicuously absent from the designation of tribunals subject to the America Invents Act. See, e.g., 35 U.S.C. §§ 315(e), 325(e), and AIA § 18(a)(1)(D) (stating provisions applicable to the PTO, the district courts, and the ITC).

Judge Newman also pointed out that according to the United States Supreme Court has spoken on this issue and has said that the United States government is not a person. In United States v. United Mine Workers of Am., 330 U.S. 258 (1947), the Supreme Court explained:

In common usage the term [“person”] does not include the sovereign, and statutes employing it will ordinarily not be construed to do so… The absence of any comparable provision extending the term to sovereign governments implies that Congress did not desire the term to extend to them.

Clearly, Judge Newman is correct and the majority is wrong. Why the majority of the Federal Circuit would reach such a suspect decision that goes directly against the text of the statute and a Supreme Court decision on point is a mystery. This is, however, why the Supreme Court in recent years has been so interested in patent cases. The Federal Circuit as a whole has continued to befuddle and mystify. This decision, while more curious than many no doubt, is just another in a long line of rather inexplicable mistakes from a court that once upon a time used to specialize in getting patent matters correct.