[author: Kevin E. Noonan]
That rarest of rara aves issued from the Supreme Court yesterday, an affirmance of a Federal Circuit opinion in Kappos v. Hyatt. Perhaps it is because, as in Stanford v. Roche one of the parties was the government (here, Director David Kappos representing the U.S. Patent and Trademark Office, perhaps the least likely administrative agency to receive Supreme Court deference). Or maybe it is because the Office's position appears to be contrary to the plain meaning of the statute under consideration, 35 U.S.C. § 145. But in an opinion by Justice Thomas (another 9-0 opinion at that), the Court firmly sided with applicant Hyatt regarding both the extent of new evidence that a dissatisfied applicant can produce during a § 145 proceeding and the standard of review to be applied by the district court to such evidence.
The case arose from a decision by the District Court to exclude evidence that applicant Hyatt could have presented in the first instance to the PTO, and to enter judgment against Hyatt based on a deferential review of the PTO record. This decision was affirmed by a merits panel in a 2-1 decision written by former Chief Judge Michel (joined by Judge Dyk), who asserted an equitable reason for the exclusion:
It is clear from the record that under our case law Hyatt had an affirmative and specific duty to disclose to the PTO the evidence excluded by the district court, and was so notified by the PTO, but willfully refused to cooperate in the examination process. On the facts of this case, we uphold the district court's exclusion of Hyatt's evidence. We therefore hold that the district court correctly granted summary judgment sustaining the Board decision because Hyatt offered no other evidence and the Board's decision was based on findings of fact and factual conclusions, all of which are supported by substantial evidence, and thus we affirm.
This decision was based on the majority's characterization of how district courts had treated such evidence:
In sum, it has been the general practice of federal courts for over eighty years in certain circumstances to exclude evidence which a party could and should have introduced before the Patent Office but did not despite an obligation to do so. Our own cases likewise have not adopted a de novo standard for trial. We have said that "[c]learly, the applicant does not start over to prosecute his application before the district court unfettered by what happened in the PTO." On the other hand, it is beyond question that in appropriate circumstances new evidence may be submitted to the district court in a § 145 action (subject, at least, to the Federal Rules of Evidence). See Gould v. Quigg, 822 F.2d 1074, 1079 (Fed. Cir. 1987) ("[A]dditional evidence is permitted in a civil action under section 145, allowing the district court to make de novo fact findings."); Newman v. Quigg, 877 F.2d 1575, 1579 (Fed. Cir. 1989) ("A district court action under 35 U.S.C. § 145 is a de novo determination of patentability. It is not limited to the record before the PTO.")
Judge Moore's dissent was based on her interpretation of the plain language of the statute:
The majority's decision to affirm the district court's exclusion of the inventor's own declaration in a § 145 civil action severely restricts the rights that Congress action contemplated and enacted by Congress. Moreover, by concluding that an inventor has an "affirmative duty" to submit his own declaration in response to a rejection by the PTO, lest he be prevented from admitting the material in any subsequent district court proceeding, the majority makes it impossible for inventors to ever testify in a § 145 action unless their testimony had first been proffered to the PTO. I cannot agree that this was what Congress contemplated when it enacted § 145, and therefore I dissent.
The Federal Circuit reconsidered this decision en banc, and arrived at Judge Moore's position (she wrote the 7-2 decision):
On its face, § 145 authorizes a civil action in district court by which an applicant can prove his entitlement to a patent. The statute provides no indication that this civil action is somehow different from a customary civil action. In particular, § 145 does not provide that unique rules of evidence, separate from or supplementary to the Federal Rules of Evidence that apply to all civil actions, control to limit an applicant's ability to introduce new evidence before the district court. Additionally, § 145 makes clear that the civil action is distinct from an appeal, in which the applicant would be limited to the record before the Patent Office. See 35 U.S.C. § 144. Pursuant to the plain language of § 145, this civil action does not merely afford judicial review of agency action. Rather, the statute directs that the district court may "adjudge that such applicant is entitled to receive a patent for his invention . . . as the facts in the case may appear."
The opinion cites in support earlier Supreme Court cases (Butterworth v. Hoe, 112 U.S. 50 (1884); Gandy v. Marble, 122 U.S. 432, 439 (1887); Hoover Co. v. Coe, 325 U.S. 79, 83 (1945)) that permitted applicants to adduce new evidence in support of suits brought at the district court under the legislative parent of § 145 (§ 4915 of the Patent Act of 1927), as well as Dickinson v. Zurko ("[Section 145] permits the disappointed applicant to present to the court evidence that the applicant did not present to the PTO. The presence of such new or different evidence makes a factfinder of the district judge"). Finally, the majority held that "new evidence is admissible in a civil action under 35 U.S.C. § 145, subject only to the Federal Rules of Evidence and Federal Rules of Civil Procedure." And the standard of review to be used by district courts was de novo for any evidence newly submitted in those proceedings (while the opinion concedes that a deferential standard of review for evidence considered by the Office was appropriate under the provisions of the Administrative Procedures Act, 5 U. S. C. § 701 et seq.).
Judge Dyk's dissent, joined by Judge Gajarsa, warned that "applicants will deliberately withhold evidence in their possession, in order to spring it on the district court under section 145," saying further that the majority's decision "reflects yet another misguided effort to craft special rules for patent cases that the Supreme Court in other cases has held to be impermissible," citing eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), and MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).
The Supreme Court specifically rejected these arguments in affirming the majority's decision. In an opinion written by Justice Thomas, the Court reviewed the history of § 145 and its predecessor statutes as well as its own jurisprudence regarding the questions of whether new evidence could be adduced and the standard of review to be applied by district courts. With regard to the first issue, the Court held that "there are no evidentiary restrictions beyond those already imposed by the Federal Rules of Evidence and the Federal Rules of Civil Procedure," echoing the Federal Circuit majority. As for the standard of review, the Court held that "the district court must make a de novo finding when new evidence is presented on a disputed question of fact."
The Court's reasoning on the first issue was based on the distinctions between review sought under 35 U.S.C. § 145 with direct review to the Federal Circuit under 35 U.S.C. § 141. Citing Zurko, the opinion states that one important distinction between these two statutory provisions is the ability for an applicant to "present new evidence to the district court that was not presented to the PTO," which is "significant" because the Office did not "generally" accept oral testimony. The opinion recognizes that it has not spoken on whether there were any limitations on the new evidence or the appropriate standard of review of such evidence, which it supplies in this decision.
A clue to the basis for this decision comes from one way the opinion characterizes the PTO position: "[b]oth of these arguments share the premise that §145 creates a special proceeding that is distinct from a typical civil suit filed in federal district court and that is thus governed by a different set of procedural rules" based on "background principles of administrative law and pre-existing practice under a patent statute that predated §145." But the Court finds these arguments unavailing, based on the plain meaning of the statutory language: "[b]y its terms, §145 neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO."
In view of its finding that these arguments by the Director were unavailing, the Court then turned to the Director's appeal to those "traditional principles of administrative law" embodied in the APA, specifically 5 U.S.C. § 706 ("judicial review of an agency decision is typically limited to the administrative record"). The issue is that here, the statute itself contradicts this interpretation, because it expressly provides for the applicant to present new evidence, which requires the court to "act as a factfinder." It thus "makes little sense for the district court to apply a deferential standard of review to PTO factual findings that are contradicted by new evidence," reasoned the Court. Moreover, "[t]he PTO, no matter how great its authority or expertise, cannot account for evidence that it has never seen," making it necessary for the district court to "make its own findings de novo." As such, the district court is not a "reviewing court" under the APA. The opinion also rejects the Director's contention that the Federal Circuit's decision would violate the principle of "administrative exhaustion," i.e., that the agency should in the first instance make all such factual determinations in the exercise of its special expertise. But the Court finds that the reason for this principle, as enunciated in McKart v. United States, 395 U. S. 185, 193–94 (1969), was to avoid "premature interruption of the administrative process." Here, the opinion states, § 145 actions arise only after the administrative process is complete.
The opinion then turned to the historical evidence, tracing the right of review back to the 1836 Act, which provided for an applicant to bring a bill in equity for rejections based on whether grant of a patent would "interfere" with another patent, grounds which were expanded in 1839 to encompass any ground of rejection. This procedure was modified by the 1870 Act, which provided for intermediate levels of review in the Office (to a three-member panel of Examiners-in-Chief and the Director), followed by en banc consideration by the Supreme Court of the District of Columbia (a trial court that exercised appellate review when sitting en banc). Importantly, the 1870 Act preserved the right to bring a bill in equity upon denial by the Commissioner or the Supreme Court of D.C.
Finally, the opinion reviewed how it had interpreted the immediate predecessor to § 145, Revised Statute 4915 in two cases: Butterworth v. United States ex rel. Hoe, 112 U. S. 50 (1884), and Morgan v. Daniels, 153 U. S. 120 (1894). In the Butterworth case, the Court found that actions under R.S. 4915 were not an appeal, but rather an action "prepared and heard upon all competent evidence adduced and upon the whole merits." Morgan, on the other hand, used a deferential standard of review of the Patent Office record. While noting some tension between these cases, the Court here discerns that different circumstances (i.e., that no additional evidence was adduced in Morgan) explains the different standard of review applied by the Court.
In addition, the opinion notes that later decisions by the Court followed the "well-reasoned interpretation of R.S. 4815" in Butterworth (including Gandy v. Marble, 122 U.S. 432, 439 (1887), and Hoover Co. v. Coe, 325 U.S. 79, 83 (1945), cited by the Federal Circuit majority opinion). The Court states that the circumstances here mandate that the Butterworth precedent should be followed, finding that in a § 145 action, as in an action under R.S. 4915, a district court should consider "all competent evidence adduced" and "is not limited to considering only new evidence that could not have been presented to the PTO." And the opinion also agrees with the Federal Circuit majority that "where new evidence is presented to the district court on a disputed fact question, a de novo finding will be necessary to take such evidence into account together with the evidence before the board," citing Fregeau v. Mossinghoff, 776 F. 2d 1034, 1038 (1985), because "[a]s a logical matter," the district court must make its determinations de novo on new evidence ('it is the first tribunal to hear the evidence in question')."
The opinion addresses the question of how to balance the scope of new evidence the statute permits an applicant to adduce before the district court with the PTO record by agreeing that the district court "may, in its discretion, 'consider the proceedings before and findings of the Patent Office in deciding what weight to afford an applicant's newly-admitted evidence'" (emphasis added). In this way the district court can accommodate its own need to consider the new evidence presented with its duty to "accord respect to decisions of the PTO." In coming to this accommodation the opinion expressly rejected the possibility that an applicant could be motivated to "withhold evidence from the PTO intentionally with the goal of presenting that evidence for the first time to a nonexpert judge." This "scenario" is "unlikely," according to the Court because "[a]n applicant who pursues such a strategy would be intentionally undermining his claims before the PTO on the speculative chance that he will gain some advantage in the §145 proceeding by presenting new evidence to a district court judge."
Justice Sotomayor concurred, in an opinion joined by Justice Breyer that emphasized that the Court's opinion did not "foreclose a district court's authority, consistent with 'the ordinary course of equity practice and procedure,' to exclude evidence 'deliberately suppressed' from the PTO or otherwise withheld in bad faith" (citations omitted).
Kappos v. Hyatt (2012)
Opinion of the Court by Justice Thomas
Concurring opinion by Justice Sotomayor, joined by Justice Breyer