Due Process and Separating Powers Within an Agency

by Dennis Crouch

In this decision, the Federal Circuit has affirmed that the IPR procedure allowing the same PTAB panel to both institute an IPR and issue the final decision cancelling the claims is proper. In the process, the divided court rejected both a constitutional and statutory challenge. 

In Ethicon Endo-Surgery v. Covidien (Fed. Cir. 2016)[1], a divided Federal Circuit has affirmed the PTAB’s final judgment that all of Ethicon’s challenged patent claims are invalid as obvious.  The court also confirmed that the PTAB’s procedure of having the same panel decide both the IPR initiation petition and the final decision is proper. “Neither the statute nor the Constitution precludes the same panel of the Board that made the decision to institute inter partes review from making the final determination.”

Ethicon’s U.S. Patent No. 8,317,070 is directed to a surgical stapling device used in endoscopic surgery.  The purported novelty of the stapler is that it uses (a) two sets of staples (with different heights) and (b) staples with non-parallel legs.  The prior art included surgical staplers with each of these features, but no prior art teaches the combination of the two. “Thus, the purported inventive aspect of the ’070 patent is the combination of these two features in a surgical stapler.”

From the majority’s perspective, the case involves a straightforward application of KSR’s holding that a “combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results.”  Here, the court noted that the patent itself “discloses no particular synergy resulting from the combination.”  Ethicon did present evidence of commercial success of Covidien’s infringing product. However, that argument failed because, according to the court, Ethicon provided no evidence of nexus between the particular inventive combination of features and the proven commercial success.

Nowhere does Ethicon demonstrate, or even argue, that the commercial success of the Covidien products is attributable to the combination of the two prior art features—varied staple heights and non-parallel staple legs—that is the purportedly inventive aspect of the ’070 patent.

I’ll pause here to note that that the court’s nexus requirement here appears to be doctrinally different than the more traditional requirement that the commercial-success be linked to the claimed invention (as a whole) rather than the clearly more stringent inventive features of the claimed invention.  See Wyers v. Master Lock Co., 616 F.3d 1231, 1246 (Fed. Cir. 2010) (“the patentee must establish a nexus between the evidence of commercial success and the patented invention.”).

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Ethicon also argued (unsuccessfully) that the PTAB’s procedure violated Ethicon’s procedural due process rights. In particular, Ethicon argued that the final decision was invalid because it was “made by the same panel that instituted the inter partes review.”   The appellate panel rejected that argument- finding that “[t]he inter partes review procedure is directly analogous to a district court determining whether there is ‘a likelihood of success on the merits’ and then later deciding the merits of a case” and that the initial decision to grant a petition did not create any presumption of prejudice or bias against the patentee.

Ethicon’s best (but still weak) argument was that the AIA does not permit the PTAB to make the institution determination.  In particular, the statute gives the PTAB power and authority to make final determinations regarding an IPR, but assigns the USPTO Director the power to institute IPRs.  The statutory scheme, according to Ethicon, requires separation of these two functions.   On appeal, the Federal Circuit rejected that argument as well – finding that the USPTO director has implicit authority to delegate her authority to officials within the agency.

Ethicon argues that because Congress (1) specifically gave the Director the power to institute, see, e.g., 35 U.S.C. § 314(a), (2) did not explicitly give the Director authority to delegate the institution decision to the Board, and (3) gave the Board the power to make the final determination, Congress intended to keep the functions of institution and final decision separate.

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The majority opinion was penned by Judge Dyk and joined by Judge Taranto.  Judge Newman wrote in dissent arguing that the statutory scheme created a clear distinction:

At the first stage, the Director determines whether the review is to be instituted. 35 U.S.C. § 314(a) (“The Director may not authorize an inter partes review to be instituted unless the Director determines that the information presented in the petition . . . and any response . . . shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.”). (Of course, the Director may designate an examiner or solicitor to conduct this initial review.)

If instituted by the Director, the Board then conducts a trial on the merits. 35 U.S.C. § 316(c). . . .

The bifurcated design of post-grant review is clear not only from the language of §§ 314(a) and 316(c), but pervades the structure of these post-grant proceedings. Congress unambiguously placed these separate determinations in different decision-makers, applying different criteria. The majority’s endorsement of the PTO’s statutory violation departs not only from the statute, but also from the due process guarantee of a “fair and impartial decision-maker.”

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Phil Johnson (President of the Intellectual Property Owners Association) argued the case on behalf of Ethicon while Kathleen Daley of Finnegan argued for Covidien and Katherine Twomey Allen of the DOJ represented the USPTO as an intervenor.

The parties relied upon Supreme Court for support and the case has some chance of heading up.

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[1] Federal Circuit Appeal No. 14-1771, appeal of PTAB IPR 2013-00209. [EthiconDecision]

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

19 thoughts on “Due Process and Separating Powers Within an Agency

  1. The CAFC published another interesting procedural opinion this morning, BIOMET ORTHOPEDICS, LLC v. PUGET BIOVENTURES, LLC:

    This case presents an unusual procedural issue. As both parties agree, the ’541 patent expired on December 24, 2015—after the Board’s decision but before our own. This event presents a problem for the Amended Claims because the PTO does not enter amendments made in inter partes reexamination after the expiration of the patent. 37 C.F.R. § 1.530(j) (“no amendment, other than
    the cancellation of claims, will be incorporated into the patent by a certificate issued after the expiration of the patent”). Amendments are not effective until the certificate issues, even though reexamination Office Actions treat the proposed amendments as though they have been entered. Id. § 1.530(k). Thus, the Amended Claims cannot issue. We therefore vacate the Board’s decision with respect to the Amended Claims and remand for the PTO to take whatever action it deems appropriate. Hudson suggested that this court could review the examiner’s rejection of the original form of the Amended Claims and order their allowance. We cannot, and would not, usurp the power of the Agency to review these claims in the first instance. As for the original form of the Amended Claims, we note that the last action on those claims was a rejection by the examiner. Rather than appeal that rejection to the Board, Hudson amended the claims and appealed the examiner’s subsequent rejection of the Amended Claims. Thus, the Board has not even considered the original form of the Amended Claims. We remand to the Board to determine the appropriate action in this unusual set of circumstances.

    1. A perfect example of reexaminations taking too long in large part because of patent owners taking advantage of unrestricted claim amendment opportunities. That unfortunately directly lead to the very restricted claim amendment opportunities in IPRs. Only now is that being loosened a bit. But claim amendments in IPRs are not ever going to be allowed to be delayed until nearly the proper end of the proceeding, to delay the proceeding, as in some reexaminations.

      1. Paul, you must appreciate that patent owners are forced to amend because of BRI. Your statement here is unimaginably cynical.

        1. Actually Ned, given the “cheerleader” efforts of Paul Morgan when it comes to preserving IPR, his post here is eminently imaginably cynical.

  2. Another case of federal courts acceding to Big, in the John Roberts spirit: Whether Big Government or Big Business, the “umpire” will call it in your favor.

  3. …while still digesting the decision, this tidbit (page 14) should be of interest given the expressed desire of Congress NOT to allow separability in the AIA:

    Ethicon argues that Cudahy Packing Co. of Louisiana v. Holland, 315 U.S. 357 (1942), holds that affirmative authority to delegate is required. The Supreme Court has not cited Cudahy since 1958 “and the lower courts no longer follow it.” 1 Richard J. Pierce, Jr., supra § 2.7, p. 125. Despite some language in Cudahy suggesting that express authority to delegate is required, the Supreme Court later clarified in Fleming that the Cudahy decision was based on explicit legislative history that “showed that a provision granting authority to delegate . . . had been eliminated when the bill was in Conference.” Fleming, 331 U.S. at 120.

    1. Since this case represents yet another unsuccessful attempt to attack anything in the AIA as unconstitutional, the even more unlikely prospect that the Sup. Ct. would go on from there to strike down the entire AIA on unseverability grounds remains a moot issue.

      1. Paul, you might be right. People were surprised about both Obamacare decisions where the Supreme Court went out of its way to not get out in front of an avalanche and say stop.

        1. same Ned Heller….?

          From Quinn’s place:

          Edward Heller January 13, 2016 6:26 pm

          Gene, Bio/Pharma, and might I add, every other type of inventor who needs patents for their business and that especially includes universities and startups, see IPRs as the greatest threat to the patent system there is. Guys like Phil Johnson are going for tweaks here and there, trying to make IPRs less bad. But they are not succeeding.

          The effort has to be made to repeal IPRs entirely as a gigantic error; and, while there is still time, everybody who has a problem with IPRs needs to get behind the constitutional challenges and support them. Congress may never be convinced to repeal IPRs given their support by big international businesses other than bio/pharma. The only remaining hope is the Supreme Court.

          (emphasis added)

      2. yet another unsuccessful attempt to attack anything in the AIA as unconstitutional, the even more unlikely prospect that the Sup. Ct. would go on from there to strike down the entire AIA on unseverability grounds remains a moot issue.

        AND that’s the other bet I placed with my bookie in Vegas – and just won.

        Thanks Paul for avoiding actually providing a legal argument that supports that when one facet of the AIA is found unconstitutional that the entire Act must fall (because THAT was how Congress wanted the Act to be, and THAT is how Congress wrote the Act to be).

        Just because no torpedoes have landed, does NOT mean that the voyage is over and that the good ship USS AIA Titanic with its lack of bulkheads is safe – no matter how much you want to cheer it on.

        1. Just because no torpedoes have landed, does NOT mean that the voyage is over and that the good ship USS AIA Titanic with its lack of bulkheads is safe – no matter how much you want to cheer it on.

          Clearly the best strategy is to launch a thousand d.o.a. attacks on the constitutionality of every subsection of the AIA, starting with some truly awful claims. Then everyone will know how super serious you are about “improving examination.”

          1. You do realize of course that the two things (the frailty of the AIA with its no-bulkheads writing style coupled with the MANY problems of a constitutional nature) AND improving examination are very separate things, right?

            Please, please, please tell me you know at least that much about the law in gen eral and about patent law in particular.

            1. …. quite in fact, Malcolm, as I ponder the inanity of your post, I am reminded that I – for one – made quite the big deal during (and after) the AIA process that the separateness between those two very selfsame concepts was a problem: the AIA was NOT addressing the right problem in that the emphasis on making examination better just was not there.

              Maybe instead of your baseless sniping ad hominem, you want to pay attention to the actual content of my posts, and you would see that what I want the legislative focus to be on (better examination) is what in actuality would make the system better AND provide for stronger patents AND help aim the gamesmanship of Big Corp.

              I won’t hold my breath, seeing as your posts have largely been exactly the same mindless diatribe for almost a decade now.

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