Ethicon: What Powers Can the Director Delegate to the Patent Trial & Appeal Board?

By Dennis Crouch

This is my second post[1] on the Federal Circuit’s 2016 decision Ethicon.[2]  The case focuses on the institution and later proceedings of inter partes reviews (IPRs).  The first stage is known as institution that, according to the statute, is within the purview of the “Director” of the USPTO.  Once instituted, the case moves to the second stage where the Patent Trial and Appeal Board (PTAB) is tasked the trial and the final decision.  Despite the statutory separation, the USPTO has created a process where the PTAB (rather than the Director) makes both the institution and final decision.  In its panel decision, the Federal Circuit has agreed that the statute provides the Director with authority to make the institution decision, but found that she had properly delegated that authority to the PTAB.

Developing an Efficient Process: After the IPR statute was enacted as part of the 2011 AIA, the USPTO implementation team concerned itself with the practicalities of implementation.  A major concern whose impact is apparent throughout the IPR implementation rules stems from the statutory one-year deadline for issuing a final written decision.  That one-year deadline placed efficiency and timeliness as top USPTO priorities.  The Director saw one way to create efficiencies was to link the institution with the trial and final decision.  The setup then was (and is) to have PTAB judges decide the institution stage and then have those same judges handle the trial and final determination of patentability.  This structure gives a head-start on the one-year timeline and avoids any waste-of-resources involved requiring multiple individuals to get-up-to-speed on the issues for a particular case.  The majority agrees with this assessment: “The PTO has determined that, in the interest of efficiency, the decision to institute and the final decision should be made by the same Board panel.”  I buy into this efficiency argument – the question though is (1) whether it violates the decision-maker-separation written into the statute or (2) leads to unfair results.

Delegation by the Director: The Patent Act includes a number of roles of the USPTO Director, including issuing and rejecting patents[3], making copies of patent documents, classifying patents, etc.  The Director does not personally make these decisions, but delegates them to the Commissioner for Patents and other PTO employees.  That structure is usual for administrative agencies and also highlighted by the statutory structure.[4]  Both the commissioner and the “other employees” are – by statute – placed into the role of general management and duties.

The Patent Trial and Appeal Board and its associated Administrative Patent Judges are different.  Their authority is particularly spelled out as follows: The Patent Trial and Appeal Board shall—

  • on written appeal of an applicant, review adverse decisions of examiners upon applications for patents pursuant to section 134(a);
  • review appeals of reexaminations pursuant to section 134(b);
  • conduct derivation proceedings pursuant to section 135; and
  • conduct inter partes reviews and post-grant reviews pursuant to chapters 31 and 32.[5]

With regard to IPR proceedings, note here that the PTAB authority is to “conduct” IPR proceedings and not “institute” those proceedings.  As the Federal Circuit has previously held, those are distinct activities under the statute.  The Administrative Patent Judges are also somewhat different than ordinary PTO employees – they are judges and they are deemed Officers under the U.S. Constitution appointed by the Secretary of Commerce (rather than PTO director).[6]  Certainly, it would have been improper to take-away statutory authority from PTAB, the question though is whether it was proper for the Director to add these new duties.

The Statutory Structure Separating Institution from Proceedings: I described above how Section 6 of the Patent Act seems to limit the authority of the PTAB to IPR proceedings (rather than institutions).  The statute goes further into this: the Director determines whether an IPR review is to be instituted. 35 U.S.C. § 314(a).  If instituted by the Director, the Board then conducts the trial. 35 U.S.C. § 316(c).  The separation here, is further emphasized by the fact that the institution proceeding is not appealable while the final decision is appealable.  The idea that these are separate roles fit within the history and structure of the agency where no decision-making roles (beyond that authorized by Section 6) have been given to the PTAB other than this institution decision. Thus, the PTAB does not decide petitions (other than those directly related to PTAB operations), reissues, or reexaminations (except on appeal).

The majority opinion in this case was penned by Judge Dyk and joined by Judge Taranto glosses-over all of these arguments, writing:

There is nothing in the statute or legislative history of the statute indicating a concern with separating the functions of initiation and final decision. Ethicon ignores the longstanding rule that agency heads have implied authority to delegate to officials within the agency, even without explicit statutory authority and even when agency officials have other statutory duties.

The court particularly fails to consider the role of the PTAB and of its Judges and whether those bodies should be considered separate and distinct from other USPTO employees.  A request for rehearing is almost certainly coming that may well be followed by a petition for writ of certiorari.

I wonder if the court would have changed direction if the statutory structure of the IPR process had begun with a determination by the Director followed by a right of appeal to the PTAB (rather than institution followed by final decision). In that situation, would the Director be permitted to delegate the initial decision to the PTAB?

The decision here is not in a vacuum.  Rather, most believe that a separation-of-roles would reduce the likelihood of cancelling claims in IPRs.  This result will help to divide the parties doing the arguing according to whether they are enforcing patents or challenging patents.

= = = = =

[1] Read the first post: Crouch, Due Process and Separating Powers within an Agency, Patently-O (January 13, 2016) at http://patentlyo.com/patent/2016/01/process-separating-within.html.

[2] Ethicon Endo-Surgery v. Covidien, — F.3d —, 2016 WL 145576, (Fed. Cir. 2016) http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/14-1771.Opinion.1-8-2016.1.PDF.

[3] 35 U.S.C. §§ 131 and 132.

[4] 35 U.S.C. § 3(b).

[5] 35 U.S.C. § 6(b).

[6] Following professor John Duffy’s 2007 article on-point, these roles have been tightened-up. http://patentlyo.com/media/docs/2011/10/Duffy.BPAI.pdf.

About Dennis Crouch

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

49 thoughts on “Ethicon: What Powers Can the Director Delegate to the Patent Trial & Appeal Board?

  1. This strikes one as a highly technically legalistic argument that is unlikely, just as in Ethicon itself, to get serious consideration by those on the Fed. Cir. [other than J. Newman] as a basis for derailing the system?

    1. ?

      Not sure what you are saying is “highly technically legalistic,” nor why are you saying it.

      The give away here Paul, is your characterizing of “derailing the system.”

      What exactly do you see as being derailed?

      As it is, all that is coming across is just your cheerleading “but I don’t want to change” – hardly the type of thing to have a legal discussion about.

  2. Obviously the crafters of the IPR statute were keenly aware of the due process, et al. arguments being made by those opposed to the AIA. And, therefore, the IPR drafters attempted to structure purported safeguards to prevent abuse. Abuse, such as, political hack director –> punishing politically disfavored patent owners –> but ‘independent’ panel of 3 APA ‘judges’ –> is check to this abuse because that panel independently determines ultimate merits of challenge. Now in the name of expediency the director just drops the pretense –> and we proceed directly to the star chamber. So we have a statute that requires independent procedures and persons but an agency that chooses to ignore it b/c, you know, work is hard. In my view, this is like combining the grand jury/ prosecutor charging function with the function and protection of a jury trial by an independent judiciary. Now CAFC, says sure that’s fine – well within the delegation doctrine. Is the doctrine of procedural and substantive due process even taught at law school anymore?

    1. iwasthere,

      Except (and this is an important exception), for the executive agaecy known as the USPTO, there is no view of “independence of the PTAB judges. Their “boss” IS the director.

      1. Yep. And per the statute – the director herself can sit as the judge and appoint the other two ‘judges.’ Patent law is the red headed step child of the Constitution. Seriously, the only explanation IPR is still standing is that the judiciary has become just another bunch of know-nothing political hacks.

  3. Perhaps Dyk was insufficiently explicit when he wrote:

    “Ethicon ignores the longstanding rule that agency heads have implied authority to delegate to officials within the agency, even without explicit statutory authority and even when agency officials have other statutory duties.”

    Congress is presumed to be aware of such “longstanding” rules when it passes legislation, so the argument for separation – without legislative history to limit or deny delegation – fails to revive this dead horse. Moreover, the PTO is in the Department of Commerce, so the issue of appointment of PTAB judges by the Secretary of Commerce is a non-starter.

    The true issue here is not separation of duties between the Director and the PTAB. No reasonable reading of the statute would require the Director herself evaluate IPR petitions for institution decisions. The true issue is whether the same panel of PTAB judges should decide both institution (as a preliminary decision) and also conduct the proceedings to render a final decision. This is analogous to district court proceedings for injunctive relief. The same judge generally decides both preliminary and permanent injunction requests. Again, this is a dead horse since there is no legislative history against such administrative procedure.

    1. steve,

      As Ned is doing below, you are attempting to do here.

      I “get” that you want to talk about a different issue (your “true” issue, as you put it).

      But that is expressly not what this thread is aimed at. Maybe you can have Prof. Crouch write a new thread on your “true” issue….

  4. Don’t hold your breath on that certiorari.
    Just another empty criticism from patentees that refuse to claim what they actually invented. Now that the patent extortion game has changed life is sooooooo unfair. Boo hoo.

  5. For one who practises under the European Patent Convention as amended since the year 2000, this discussion of what is efficient is interesting.

    At the EPO it is a case of “Two Strikes and You’re Out”. If you get nowhere with the Examiners (in prosecution or in post-issue inter partes IPR) you appeal. If the Applicant or Patent Owner loses on appeal, end of story. No more rights, no more appeal instances. Application dead, patent dead.

    Now that’s what I call efficiency.

    Can the same Examiner who issued the patent sit on the “Opposition Division” that will be revoking the issued patent? Yes. But at least two members of the Opposition Division must be new to the case; Art 19, EPC. In that way, the Opposition Division gets up to speed fast, but the majority, new to the case, can out-vote the Examiner who handled the prosecution of the patent application.

    Main thing is, of course, that the Members of the Boards of Appeal are not under the thumb of anybody at the EPO (not even the EPO President) but instead are bound only the provisions of the Convention. The appeal instance is a true judicial instance atop an administrative instance. What more does GATT-TRIPS require?

    link to epo.org

    Can anybody tell me where the US Statute defines the degree of independence of the members of the PTAB. Or doesn’t it matter, given that, unlike at the EPO, there is an entire inefficient supervisory structure of courts sitting atop the USPTO.

    But, readers, no need to quake. There is currently a concerted move by the trans-national corporations, world-wide, to eliminate small company-friendly efficiency, EPO-style, and replace it with BigCorp-friendly Dickensian complexity. Hold on folks, for a bumpy ride back to the 19th century.

    1. MaxDrei,

      To be perfectly blunt, your comments are again askew.

      Main thing is, of course, that the Members of the Boards of Appeal are not under the thumb of anybody at the EPO (not even the EPO President)

      LOL – except the current row (in that portion of ROW) is exactly the opposite in that the EPO President IS influencing the Boards of Appeal. How can you get your own backyard stuff so wrong?

      But, readers, no need to quake.” You forgot to hold up your sarcasm side, as the rest of the paragraph brings the very opposite conclusion: there is EVERY need to quake.

      Can anybody tell me where the US Statute defines the degree of independence of the members of the PTAB.

      This varies by each executive agency and is typically covered in the particular agency’s opening charter legislation. As I have pointed out previously, the USPTO is far to the spectrum of NOT having an objectively independent “judicial” arm. And part of the problem here (even if Ned claims otherwise) is that for the separate initiation decision at the least, there is NO “supervisory structure of the [Article III] courts sitting atop the USPTO – per the direct choice of Congress. And that is a very big “Oops.”

      1. Influencing? The EPO President is trying to wipe out the EPO’s appeal function, to clear the way for the Paris based EU patents court. Does that count as influence?

  6. John Duffy’s 2007 article on-point, these roles have been tightened-up. link to patentlyo.com

    was an interesting read – thanks for the another piece of admin law!

    Dennis do you know of any good blogs that focus on that topic? (I know its very industry and sector specific, but there could be a law professor such as yourself that writes on the topic often).

    1. The underlying admin law is not as “very industry and sector specific,” drop by.

      Quite in fact, patent law is intentionally NOT meant to be “industry and sector” specific. Sure there are a few things “special” in the pharma contexts, but you can consider those the exceptions that prove the rule.

      If anything, the desire to fragment should be seen as a sign that something untowards is afoot.

      1. Anon. This is a statement of how you think the law is supposed to be in theory, not how it works in practice.

        In reality, the whole concept of PHOSITA requires patent law to be art specific.

        The legal rules do not change but the application of those rules varies greatly.

        1. Ryan,

          Put your strawman down and reread what I actually said in my post.

          Absolutely, PHOSITA has a specific art field by art field application of the underlying SAME law.

          This does not mean that the law itself is “art specific” and changes (or should change) depending on which art field you are talking about.

          1. You are projecting.

            You are the one who didn’t read my post and you are the one creating a straw man.

            I agreed with you that the legal rules are the same. So nobody is arguing against that–hence a “straw man.”

            There is nothing “untowards” about changing the legal rules to reflect how they are already applied in practice.

            1. You are projecting

              Not at all.

              I am clarifying. As I suggested, read again what I actually wrote.

              You have me saying something I did not say.

              Further, what you did say is just not correct. Applying the (same) law to different art fields does NOT make the underlying law different for different art fields. This is and was my position – the one that you responded to and said that my position was something else.

              And now, you are not taking the “untowards” comment correctly. This very much has to do with you not seeing (nor understanding) that the underlying law is – in fact – the same.

      2. seeking to clarify in light of anon’s statement above re: “industry and sector specific”

        I didn’t mean within patent law – I meant admin law as practiced in other areas of law (with FCC or SEC or EPA etc) (as anon already noted the organic statute for a given agency has a large effect on how admin law is applied)

        1. Thanks drop by,

          There are some laws that apply across the board (think APA). But there is a fair degree of variety based on the point you recognize (organic charter).

          And yes, the “untowards” comment does pertain to the “within a single agency” theme. An example of this would the (repeated) efforts of the USPTO to avoid its responisbilities (Claims and continuations rule/Tafas case, pulled proposed changes in Appeals rules).

          It is no accident that the person most recognized as expert in this area of administrative law is the same person that was active in rebuffing the Office in its attempts to not follow the principles of administrative law: David Boundy.

    1. Agreed 6 – power to the Director is delegated in many instances and such a focus as here is akin to kicking up clouds of dust so that underlying constitutionally infirm issues are taken out of the focus.

    2. 6, I don’t think the issue is that the PTAB be part of the initial institution decision, but whether the same panel must make the final decision. There is little difference between the evidence of record at the time of institution and at the time of final decision. None at all. In other words, the institution decision basically decides the case if the same people are on both panels.

      The statistics bear this out with almost 97% of instituted claims either voluntarily canceled or held unpatentable.

      1. Ned,

        What you think and what is explicitly stated by the post author could not be further apart.

        Clearly, some DO think the issue is exactly what you think the issue is not.

        1. anon, I could give a rat’s A whether the legislation implies that the PTAB not be part of the institution decision. I daresay that the reason for this is that Congress wanted the people deciding to institute to be different people from deciding the ultimate question in the final written decision.

          Clearly, the PTAB is extremely competent and could do at excellent job on the institution decision — probably almost as good as examiners with long experience in the art of the particular IPR. But if Congress really wanted such experienced examiners to make the initial decision on the merits, why did not they say so?

          1. Whether or not you give a rat’s A is simply irrelevant.

            Instead of the question of “why did not they say so?” think instead of what they DID say (and then take another look at the issue that the author of this blog post is talking about.

            1. Anon, see Pennock v Dialog on where our patent law came from and why it is the way it is:

              It is obvious to the careful inquirer, that many of the provisions of our patent act are derived from the principles and practice which have prevailed in the construction of that of England. It is doubtless true, as has been suggested at the bar, that where English statutes, such for instance, as the statute of frauds, and the statute of limitations; have been adopted into our own legislation; the known and settled construction of those statutes by courts of law, has been considered as silently incorporated into the acts, or has been received with all the weight of authority. Strictly speaking, that is not the case in respect to the English statute of monopolies; which contains an exception on which the grants of patents for inventions have issued in that country. The language of that clause of the statute is not, as we shall presently see, identical with ours; but the construction of it adopted by the English courts, and the principles and practice which have long regulated the grants of their patents, as they must have been known and are tacitly referred to in some of the provisions of our own statute, afford materials to illustrate it.

                1. anon, patents are property because they were property in England and that is what our founders had in mind in the Patents and Copyright Clause.

                2. Ned,

                  Are you doing that thing (again) by responding to comments by email? You are not even close to the context of this thread.

                  Wake up son.

  7. DC: most believe that a separation-of-roles would reduce the likelihood of cancelling claims in IPRs.

    Is that from a poll?

    Assuming it’s true, what’s the basis for the belief?

    Is there any evidence of systematic unfairness or systematic erroneous results being generated by the present set-up? e.g., is there evidence of some unusually high percentage of claims being canceled that all participants (i.e., not just the patentees, but the public as well) agree are improvident?

    As best I can tell, the IPR system seems to performing better than nearly every other sub-system in operation at the PTO.

    1. Because “evidence of ‘unfairness'” is meaningful to a potential violation of the constitutional safeguards… how exactly?

      If the Ends are “sufficiently” desirable, does that really mean that we can just clench tight our eyes as to the means?

      All this is, is more of the same C R P from Malcolm, clamoring about “the Ends,” with no regard for the Means.

      1. “anon” Because “evidence of ‘unfairness’” is meaningful to a potential violation of the constitutional safeguards… how exactly?

        Most reasonable people understand that if you have no evidence of unfairness then your due process arguments are likely to ring a tad more hollowly than they otherwise would.

        I’ve already told you this, by the way. No go ahead and spin up a dustcloud, Super Constitution Man. Maybe Clarence Thomas will bake you a cookie.

        1. Violation of due process has NOTHING to do with any sense of unfairness, so your call for evidence is very much simply dust kicking. – Once again your “ No go ahead and spin up a dustcloud,” is nothing more than the shallow meme of AccuseOthersOfThatWhichMalcomDoes.

          Ends and Means, son – try, try, try, to understand why that is so important for matters of law.

    2. MM, if the same person must decided the same issue, twice, on the same evidence, what do you think the likelihood is that you will convince he or she that their first decision was incorrect?

      1. if the same person must decided the same issue, twice, on the same evidence, what do you think the likelihood is that you will convince he or she that their first decision was incorrect?

        I think that would depend substantially on whether or not the person was, in fact, correct the first two times.

            1. What happened to your notes…?

              Oh, that’s right, your notes are highly biased and selected to only those things that you feel support your short script. All other points and counter points simply do not register with you.

              …and you use the ad homniem of “echo chamber” for others…

  8. I can’t see this argument on separation of decision-making going anywhere. The PTO made a reasonable reply based on delegation of authority that the court panel agreed with. The court’s role isn’t to decide whether the PTO’s procedure is wise or best, but simply whether it is permitted.

    Nevertheless, if one to were to attempt extending the PTO’s argument further, I can see potential for unfairness. What if, for example, the PTO Director were to revamp the application appeals procedure and decide that in the interests of efficiency and expense – say to remove the appeals backlog – that its Board (PTAB) were to be composed not of a separate group of experienced senior examiners, promoted and paid more as Administrative Trial Judges, but instead replaced by the entire primary examiner corps, and moreover assign the very same primary examiner in charge of an application’s original examination on its merits, acting now as PTAB member to be the sole decision maker in an appeal, based on his/her familiarity with the case. Were that (unlikely) scenario to be adopted, all of the applicants and their legal representatives would most definitely cry foul, as being an inherently unfair procedure. Nevertheless, the Director might legally argue that it was a permissible delegation of authority within the USPTO.

    It’s something to think about when discussing what, if any, limits might exist to the Director’s delegation of authority within the USPTO.

    1. Mark, agree. The way an IPR is structured, virtually the same evidence and argument are considered initially and at the Final — all we are dealing with here are printed publications that largely speak for themselves. So what we really have are two decisions by the same folk on the same evidence and arguments.

      Next, the initial decision is at a lower standard of proof — almost like probably cause.

      The end result really is a lowering of the standard of proof from even preponderance to reasonable likelihood. This is not what Congress intended.

  9. Rather, most believe that a separation-of-roles would reduce the likelihood of cancelling claims in IPRs.

    That depends on who would end up doing the institution decisions. If it went to the examiner corps, for instance, I would guess that the institution rate would increase. This would decrease the claim cancellation rate as a fraction of instituted IPRs, but it probably wouldn’t affect the cancellation rate very much as a fraction of all filed IPRs.

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