By Dennis Crouch
In its challenge of the USPTO’s implementation of the Inter Partes Review system, Ethicon has now requested an en banc rehearing with the following simple question presented:
Does the Patent Act permit the Patent Trial and Appeal Board to make inter partes review institution decisions?
Outside reading:
- En banc petition: Ethicon Endo-Surgery’s Petition for Rehearing En Banc
- Original panel decision: Ethicon Endo-Surgery v. Covidien, — F.3d —, 2016 WL 145576, (Fed. Cir. 2016).
- Dennis Crouch, Ethicon: What Powers Can the Director Delegate to the Patent Trial & Appeal Board?
- Dennis Crouch, Due Process and Separating Powers within an Agency
The basic issue here involves the two step inter partes review proceeding that begins with a decision on whether to institute the review and then, once instituted, ends with a final determination by the Patent Trial and Appeal Board (the Board). Under the statute, the USPTO Director (the Director) is tasked with making the initial determination before passing the baton to the Board to make the final determination of patentability. However, the USPTO’s implementation rules changed the game by also giving the Board authority to make the institution decision. The USPTO argues that the rules were a proper delegation of the Director’s authority, but Ethicon argues that the USPTO’s procedure is an improper comingling of executive and adjudicative functions.
In creating the IPR process, Congress intended to replace the prior administrative inter partes reexamination procedure with a new adjudicative procedure that would “take place in a court-like proceeding.” H.R. REP. NO. 112-98, pt. 1 (2011). Congress did not need to, and did not, change the institution procedure used in inter partes reexamination, where the Director—through her executive delegate (typically an examiner)—would decide whether to institute. Accordingly, the AIA expressly assigns the institution duty for IPRs to the Director, sets forth a necessary (but not sufficient) substantive threshold for the Director to institute, and identifies a variety of other discretionary criteria that the Director may use to deny institution—whether or not the substantive threshold has been met. As with inter partes reexamination institution decisions, the AIA specifies that the Director’s discretionary institution decisions are not appealable. 35 U.S.C. § 314(d).
The panel nevertheless upheld a PTO regulation commingling the institution and adjudication stages of IPRs by delegating the Director’s institution power to the PTAB. 37 C.F.R. § 42.4(a). That delegation lacks statutory authorization and upends longstanding principles, articulated in both Supreme Court precedent and the Administrative Procedure Act (APA), prohibiting the combination of executive and adjudicative functions below the level of the agency head. . . . [B]y delegating the institution function to the PTAB for the sake of efficiency, the Director has repudiated her statutory duty to exercise executive discretion—including the additional procedural and policy factors specified in the AIA. . . . Congress did not intend for PTAB panels to exercise this gatekeeping function, and as purely adjudicative bodies they are neither inclined nor equipped to apply executive discretion or systemic considerations in deciding whether to institute review. En banc review is warranted to ensure the fairness of the IPR system and its compliance with Congress’s bifurcated decision-making procedure.
In the original panel opinion, Judges Dyk and Taranto joined together to reject Ethicon’s argument – finding that the statute permitted delegation of the institution decision. Judge Newman wrote in dissent. The difficulty for Ethicon is counting heads – I struggle to find seven votes out of the twelve Federal Circuit judges that would be needed for Ethicon to win.
Amicus support is due by March 14. Supreme Court and appellate practitioner Pratik Shah filed the brief on behalf Ethicon. Shah’s involvement strongly suggests to me that a Supreme Court petition will follow if this en banc attempt fails.