By Dennis Crouch
This is my second post on the Federal Circuit’s 2016 decision Ethicon. 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, 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. 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.
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). 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.
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 Read the first post: Crouch, Due Process and Separating Powers within an Agency, Patently-O (January 13, 2016) at https://patentlyo.com/patent/2016/01/process-separating-within.html.
 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.
 35 U.S.C. §§ 131 and 132.
 35 U.S.C. § 3(b).
 35 U.S.C. § 6(b).
 Following professor John Duffy’s 2007 article on-point, these roles have been tightened-up. https://patentlyo.com/media/docs/2011/10/Duffy.BPAI.pdf.