Director Iancu Could Address Section 101 Problems Through Regulations Governing Post Grant Review Trials

Since U.S. Patent and Trademark Office (USPTO) Director Andrei Iancu took office, I have observed, with admiration, how he has taken bold action to improve perceived problems in the patent system. For example, in my public comments on the 2019 USPTO guidance on patentable subject matter law under 35 U.S.C. § 101, I observed that: “the Revised Guidance appears to constitute the most aggressive attempt yet by the Office to influence the law of patentable subject matter through policymaking guidance.” Similarly, the bold actions taken by the Director to improve post issuance proceedings at the Patent Trial and Appeal Board (PTAB) recently motivated 324 American innovators and patent owners to write publicly to Congress supporting the Director’s accomplishments. In addition to the 2019 USPTO guidance and the various improvements to PTAB procedures, Director Iancu has also spoken widely in public to advocate for further improvement, and the USPTO under his direction has filed helpful amicus briefs in infringement litigation suits on issues related to the courts’ treatment of Section 101.

The Director’s bold action has also caught the attention of members of the Supreme Court. Justice Gorsuch, joined by Chief Justice Roberts, observed, “[n]or has the Director proven bashful about asserting these statutory powers to secure the [policy judgments] he seeks.”
Oil States Energy v. Greene’s Energy Group, 138 S.Ct. 1365, 1381 (2018) (Gorsuch, J., dissenting).

I wonder, however, whether the law now permits Director Iancu to do something even bolder: create rules interpreting Section 101, at least within the limited context of the America Invents Act’s (AIA’s) post-grant review trials, such that courts may defer to the Director’s interpretation under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

Cuozzo’s Implications for Substantive Rulemaking on 101

I suspect that the law does allow Director Iancu to create such rules. My suspicion here derives primarily from what Justice Breyer wrote for a unanimous Court in Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016). In Cuozzo, Justice Breyer encountered the argument, which is popular with certain circles of the patent bar, that the Director is forbidden, by statute, from creating rules on substantive patent law, including questions regarding 35 U.S.C. §§ 101, 102, 103, and 112. See generally id. at 2143. Instead, the argument goes, the Director is limited to purely procedural rulemaking powers. Id. This argument derives from the pre-AIA grant of statutory authority to the Director at 35 U.S.C. § 2, which uses the keyword “proceedings,” thus implying that the Director is limited to purely procedural rulemaking powers.

Interestingly, both the original Federal Circuit panel majority in Cuozzo, as well as the Federal Circuit judges who dissented from the denial of en banc review, concluded, or at least suggested, that the Director is limited to procedural rulemaking. Judge Dyk, writing for the original panel majority over a dissent by Judge Newman, wrote:

We do not draw that conclusion from any finding that Congress has newly granted the PTO power to interpret substantive statutory “patentability” standards. Such a power would represent a radical change in the authority historically conferred on the PTO by Congress, and we could not find such a transformation effected by the regulation-authorizing language of § 316 any more than we could infer a dramatic change in PTO claim interpretation standards through the general language of the IPR provisions.

In re Cuozzo Speed Technologies, LLC, 793 F.3d 1268, 1279 (2015). Similarly, in the dissent from denial of en banc review, Chief Judge Prost wrote the following, joined by Judges Newman, Moore, O’Malley, and Reyna:

It is far from clear to us that this is a case in which we must defer to the PTO’s action. The panel majority bases its conclusion on subsections (2) and (4) of § 316. In our view, these subsections are consistent with Congress’s previous grants of authority to prescribe procedural regulations. Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1336 (Fed. Cir. 2008) (interpreting 35 U.S.C. § 2). (emphasis in original)

In re Cuozzo Speed Technologies, LLC, 793 F.3d 1297, 1302 (Fed. Cir. 2015) (Prost, J., dissenting from denial of en banc review).

In a move that seems to have escaped the attention of some patent lawyers, Justice Breyer flatly rebuked this argument that the Director is limited to procedural rulemaking powers due to the keyword “proceedings” in 35 U.S.C. § 2. Justice Breyer wrote:

The dissenters, for example, point to cases in which the Circuit interpreted a grant of rulemaking authority in a different statute, § 2(b)(2)(A), as limited to procedural rules. See, e.g., Cooper Technologies Co. v. Dudas, 536 F.3d 1330, 1335 (C.A. Fed. 2008). These cases, however, as we just said, interpret a different statute. That statute does not clearly contain the Circuit’s claimed limitation, nor is its language the same as that of § 316(a)(4). Section 2(b)(2)(A) grants the Patent Office authority to issue “regulations” “which … shall govern … proceedings in the Office” (emphasis added), but the statute before us, § 316(a)(4), does not refer to “proceedings” — it refers more broadly to regulations “establishing and governing inter partes review.” The Circuit’s prior interpretation of § 2(b)(2)(A) cannot magically render unambiguous the different language in the different statute before us.

Cuozzo, 136 S.Ct. at 2143. This key passage is found in Section III of Justice Breyer’s opinion, which was joined by a unanimous Court.

In my view, the Supreme Court could hardly have been clearer. The Director’s rulemaking powers under the AIA are “more broad[]” than the general, “procedural” powers granted in 35 U.S.C. § 2. See id. The Director’s powers under the AIA are not limited to purely procedural rules. Even if the Director was previously limited to procedural rulemaking in an earlier era, the AIA has changed that. The fact that the Director is not limited to procedural rules implies naturally that the Director has some substantive rulemaking power. The Director can now advocate for substantive rulemaking authority that the Federal Circuit denied to his predecessors in the pre-AIA era. For example, the power at issue in Cuozzo was the power to decide the standard for claim construction, which is arguably not purely procedural.

Indeed, Cuozzo not only strongly suggests that the Director has some substantive rulemaking power in the context of AIA trials, it also suggests that the Federal Circuit’s prior limitation to “procedural” rulemaking has always been questionable. Specifically, Justice Breyer wrote that: “§ 2(b)(2)(A) […] does not clearly contain the [Federal] Circuit’s claimed limitation [to procedural rulemaking], nor is its language the same as that of § 316(a)(4).” 136 S.Ct. at 2143. The implications of this statement are remarkable—the unanimous Supreme Court is casting doubt on a sharp limitation on the Director’s powers that has been respected by the Federal Circuit and USPTO for decades.

The View from Academia

The conclusion reached by the unanimous Court in Cuozzo—that the Director is not limited to procedural rulemaking in the AIA context—was arguably anticipated by several law professors during the development and promulgation of the AIA. See, e.g., Karen A. Lorang,
The Unintended Consequences of Post-Grant Review of Patents, 17 UCLA J.L. & TECH. 1, 31 (2013); Arti K. Rai, Improving (Software) Patent Quality Through the Administrative Process, 51 HOUS. L. REV. 503, 540 (2013); Arti K. Rai, Patent Validity Across the Executive Branch: Ex Ante Foundations for Policy Development, 61 DUKE L.J. 1237, 1239 (2012); Melissa F. Wasserman, The Changing Guard of Patent Law: Chevron Deference for the PTO, 54 WM. & MARY L. REV. 1959, 1965 (2013); and Stuart Minor Benjamin & Arti K. Rai, Who’s Afraid of the APA? What the Patent System Can Learn from Administrative Law, 95 GEO. L.J. 269, 327–28 (2007).

In contrast, at least one noted law professor, John M. Golden, reached the opposite conclusion. John M. Golden, Working Without Chevron: The PTO as Prime Mover, 65 DUKE L.J. 1657, 1674 (2016). In particular, Professor Golden relies on the principle of statutory construction whereby Congress “does not, one might say, hide elephants in mouseholes.” Id. at 1675 (quoting Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468 (2001)). Indeed, Professor Golden cites the Federal Circuit’s Cuozzo opinion from the original panel to support the limitation on the Director’s rulemaking powers.

In my view, although it pains me to disagree with Professor Golden, his argument that the Director’s powers remain purely procedural, because Congress does not “hide elephants in mouseholes,” consistent with the original Federal Circuit panel majority in Cuozzo, does not fit with what Justice Breyer later wrote in Cuozzo.

We can chart the holdings (both explicit and suggested) as follows:

As we can see, both the original panel majority and the dissenting judges answered “yes” to the question of whether the Director is limited to procedural rulemaking. They reached different decisions, not because they disagreed about whether the Director is limited to procedural rulemaking, but instead because they disagreed about whether this limitation was violated, as shown in the chart above. In contrast, the Supreme Court sharply contradicted the dissenting judges regarding the Director’s limited rulemaking powers, and thereby implicitly contradicted the panel majority on this point (i.e., rendering that portion of the original panel majority opinion dicta): the Director is not limited to procedural rules in the context of the AIA, and this implies that the Director has some substantive rulemaking power. 136 S.Ct. at 2143. One cannot fault Professor Golden on this point because his article was originally published in 2015, prior to the Court’s opinion in Cuozzo and, therefore, Professor Golden did not have the benefit of seeing how the Court would rule.

The Director Arguably Has Broad Authority

The fact that the Supreme Court left the door open for the Director to have some substantive rulemaking power does not answer the question of which specific substantive rulemaking powers the Director has or what are the precise boundaries of his authority. Nevertheless, a careful reader can infer that, in Justice Breyer’s view, the Director’s powers are quite broad. Indeed, Justice Breyer in Cuozzo does not clearly classify the claim construction question as “substantive” or “procedural.” Instead, Justice Breyer’s opinion suggests that, rather than focusing on the substantive/procedural distinction, the relevant analysis is quite literal: “the statute allows the Patent Office to issue rules ‘governing inter partes review,’ § 316(a)(4), and the broadest reasonable construction regulation is a rule that governs inter partes review.”
136 S.Ct. at 2142. Similarly, I would suggest, and Director Iancu may argue, that a rule regarding how administrative patent judges shall interpret § 101 is a “rule that governs” post-grant review trials (i.e., because the relevant post-grant review statute, 35 U.S.C. § 326, echoes the language of § 316(a)(4) discussed in Cuozzo: “The Director shall prescribe regulations […] governing a post-grant review”) (emphasis added).

Admittedly, the strategy that I outline here creates the potential for a bifurcated body of Section 101 interpretations between the USPTO and the courts, yet this bifurcation flows naturally from differences in respective statutory grants of power. It is not clear to me that, to the extent an inconsistency exists, this inconsistency is intolerable. The Supreme Court in Cuozzo itself already blessed the bifurcation of claim construction standards between post-issuance proceedings and patent litigation, for example. Specifically, the Supreme Court held in Cuozzo that the Director may decide the standard for claim construction in inter partes review, and may select the “broadest reasonable interpretation” standard (as in during examination), rather than the standard applied in traditional litigation. The Supreme Court held that the Director may create an inconsistency in claim construction between the USPTO and the courts because “the possibility of inconsistent results is inherent to Congress’ regulatory design.” 136 S.Ct. at 2146. Director Iancu can make a parallel argument, in the context of interpreting Section 101, that “the possibility of inconsistent results is inherent to Congress’ regulatory design” embodied in the post-grant review statutes. Even if a bifurcation of Section 101 law is intolerable, it is not clear to me that the inconsistency should be resolved against the Director. The courts arguably created problems that are widely acknowledged regarding Section 101 law, and perhaps the Director can do better. Even in a scenario where bifurcated Section 101 law becomes a practical reality, Congress may act readily to resolve that outcome. In any event, as the Court held in Cuozzo, “the statute before us, § 316(a)(4)” is “more broad[]” than 35 U.S.C. § 2. 136 S.Ct. at 2143. The patent system must manage the practical consequences created by this difference in rulemaking powers without pretending that there are no such consequences.

Toward Amendment

In view of the above, I sent a letter to the Director (USPTO), the Commissioner for Patents, and the Office of the Solicitor (USPTO). The letter provided more detail regarding the statutory and jurisprudential background for this strategy to improve the law of patentable subject matter, the strength of that strategy (while acknowledging potential weaknesses of the strategy), and examples of model regulations that the Director may promulgate. The issues here are quite complex and nuanced, and the letter provides a more comprehensive defense of my argument than a blog post can.

Included in the letter linked above is my preferred amendment to 37 C.F.R. § 42.200 that the Director may promulgate to try to improve the law of Section 101. This model regulation is based on my earlier IPWatchdog article, “Alice’s Tourniquet: A Solution to the Crisis in Patentable Subject Matter Law.” The model regulation attempts to achieve some success, where the Federal Circuit has struggled, in interpreting certain more challenging parts of Supreme Court jurisprudence on patentable subject matter. Of course, my preferred amendment here is just one attempt to demonstrate the general strategy, and to begin a dialogue on this topic. The USPTO and the patent bar can likely devise an even better amendment to § 42.200.

Image Source: Deposit Photos
Image ID:27251091
Copyright:filmfoto