‘Now We Know’ – Lessons in Preserving Constitutional Error Before the USPTO

It has been about a year since my first essay appeared on IPWatchdog.com. My topic dealt with preserving constitutional issues in a proceeding before an administrative agency, such as the United States Patent and Trademark Office (USPTO), instead of arguing such issues for the first time in an Article III court.

My goodness, so much has happened since then.

My essay was premised upon the notion held by some patent practitioners that constitutional arguments need not be made before the USPTO. After all, the argument goes, an administrative agency is not a governmental entity existing under Article III of the Constitution, and only an Article III court can declare a statute unconstitutional. Therefore, asking an agency to declare any of the statutory provisions under which it operates is an exercise in futility.

In my earlier essay, I discussed why making such arguments at the agency level might not be futile. Further, I pointed out that the 2012 United States Supreme Court case of Elgin v. Department of the Treasury, 567 U.S. 1 (2012), supported the view that constitutional issues can, and in most cases ought to, be presented to the agency before they can be reviewed on appeal.

After publication of my essay, a number of constitutional questions pertaining to patent law presented themselves to the Federal Circuit, and whether the issues were preserved for review was a sticking point in all of them.

Those who did not properly preserve constitutional issues stood a good chance of losing, not because their argument was without merit, but merely because the issue was not properly preserved.

What Is Preservation of Error?

Basically, the notion of preservation of error means that, normally, an appellate court will not rule on an issue unless a lower tribunal has had a fair chance to decide the issue.

The concept of preservation is often expressed in many ways: appellate courts are courts of review and generally do not hear issues being presented for the first time; an advocate ordinarily ought not to be able to reverse a lower court on the basis of an argument that the advocate did not present to the lower court; an advocate must work to focus the case and choose the issues to be argued, and those arguments that are left behind are typically deemed waived (deliberately forfeited or abandoned) and cannot be revived on appeal; objections generally should be entered into the record promptly after the cause for the objection is manifest; and so forth.

In each of the previous paragraph’s over-simplified explanations is a “wiggle word”: “normally,” “generally,” “ordinarily,” “typically.” Those words are there because sometimes an appellate court may choose, for various reasons, to consider for the first time an argument that was not properly preserved below.

In re DBC (2008)

It had long been established that arguments would ordinarily not be heard for the first time on appeal, and those issued not preserved at the agency level would typically be deemed waived.

In 2008, the Federal Circuit determined that this jurisprudence extended to constitutional arguments as well as nonconstitutional ones. In the case of In re DBC, 545 F.3d 1373 (Fed. Cir. 2008), a case decided more than four years before Elgin, a litigant tried to make a constitutional argument for the first time on appeal, and the Court ruled that the issue had been waived.

The Federal Circuit set out at least two reasons why constitutional issues could have, and should have, been presented to the agency before being presented on appeal. First, arguing the constitutional problem to the agency would give the agency an opportunity to take remedial action. Second, preserving constitutional issues before the agency promotes judicial efficiency. 545 F.3d at 1378-79.

And that is where the law on preservation of constitutional arguments before an administrative agency rested in the Federal Circuit, for nearly ten years. Apart from DBC making a quiet appearance in a non-patent case in 2018, the Federal Circuit had little to say about preserving constitutional arguments before the agency.

And Then…

In 2019, the issue of preservation of constitutional arguments before the USPTO, which had basically been dormant for a decade, was abruptly and dramatically revived.

The Celgene Case (July 2019)

First came Celgene Corp. v Peter, 931 F.3d 1342 (Fed. Cir. 2019), where Celgene tried to argue for the first time on appeal that that the retroactive application of inter partes review proceedings to pre-AIA (pre-America Invents Act) patents constituted an unconstitutional taking. While holding to the rule that “a party generally may not challenge an agency decision on a basis that was not presented to the agency,” the Federal Circuit exercised its discretion to hear the constitutional question anyway. The Court observed that hearing the constitutional issue was appropriate because: had the issue been raised before the agency, there did not seem to be anything the agency could have done to cure the constitutional problem; and there was no need for any evidentiary record to be made before the agency. Also, the issue had been raised on appeal promptly and had been fully briefed.

Upon hearing the constitutional challenge, then, the Federal Circuit ruled that the challenge was not persuasive. Celgene lost.

The First Arthrex Case (August 2019)

Less than a month after Celgene was decided, the Federal Circuit decided Arthrex, Inc. v. Smith & Nephew, Inc., 935 F.3d 1319 (Fed. Cir. 2019). Arguing a constitutional issue similar to that in Celgene for the first time on appeal, the Federal Circuit, citing DBC, exercised its discretion to hear the challenge.

Upon hearing the constitutional challenge, the Federal Circuit ruled that the challenge was not valid. Arthrex lost.

The Second Arthrex Case (October 2019)

About two months later, an identically-named case, Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019), presented a different constitutional argument. The argument had not been preserved before the agency, and the Court had to decide whether that argument ought to be heard on appeal. Once again, the preservation principles of DBC were front and center. Noting that the constitutional issue (violation of the Appointments Clause) was a problem that the agency could not correct, and further noting that the issue was one of “exceptional importance,” the Court decided to hear Arthrex’s the constitutional arguments.

This time, upon hearing the constitutional challenge, the Federal Circuit ruled that the challenge was quite persuasive. This time, Arthrex won.

After Arthrex won, several other litigants tried to jump on the bandwagon, and they raised the same issue on appeal, even though the issue had not been preserved before the agency. Some litigants were allowed to raise the challenge, and some were not. It is beyond the scope of this essay to discuss the reasons that some litigants were allowed to assert the challenge and others were not; but basically, if the issue had been raised as soon as practicable, preferably before all issues were joined on appeal, the Court was more likely to exercise its discretion to consider the challenge.

The Personal Audio Case (January 2020)

Then came Personal Audio, LLC v. CBS Corp., No. 2018-2256, slip op. (Fed. Cir. Jan. 10, 2020). Personal Audio filed an infringement action in an Article III district court against CBS, and received a jury verdict in favor of Personal Audio. At around that time, an inter partes review proceeding was underway with respect to the same patent. Although Personal Audio prevailed before a jury, it lost before the Board. The Article III court, following the Board, declared the claims in question invalid. Personal Audio’s jury verdict vanished.

Personal Audio argued, both to the Board and to the Court, that the Board’s decision violated the Seventh Amendment. In the appeal of the Board’s decision, however, Personal Audio did not make a Seventh Amendment challenge, preferring instead to argue the constitutional issue in court.

In my essay last year, I wrote:

[I]f you want to challenge an action of the United States Patent and Trademark Office (USPTO) on constitutional grounds, you can and ought to raise those challenges before the agency; and you should not expect to be able to bypass the agency and go straight to court.

Personal Audio took a different strategic approach. Despite apparently preserving the issue before the Board, Personal Audio chose not to argue the issue on the appeal from the Board’s decision, and chose instead to argue the constitutional issue in the appeal from the Court decision.

The Federal Circuit discussed the Elgin case in some detail (the earlier Celgene case mentioned Elgin in passing), and ruled: “As described above, Personal Audio took such an appeal [from the agency’s decision], and there is no basis for any conclusion that the opportunity provided in that appeal was inadequate for the assertion and adjudication of any properly preserved challenge to the final written decision as unlawful (emphasis mine).”

So Now We Know

So now the subject of whether constitutional arguments generally ought to be preserved before the agency is settled, at least for the time being. Constitutional arguments should ordinarily be preserved before the agency; otherwise those constitutional arguments might be summarily deemed forfeited on appeal. The appellate court might consider the constitutional arguments without proper preservation, but don’t bet on it.

Image Source: Deposit Photos
Image ID: 13456269
Copyright: jamesgroup