Back Out of the Deference Labyrinth—a Response to Prof. Golden

David Boundy

This is a response to Prof. Golden’s A Walk in the Deference Labyrinth: Further Comment on Facebook v. Windy City, Patently-O (Sept. 27, 2019).  In my view, Prof. Golden overlooked some things (the same things overlooked by the PTO in its brief).  When those additional factors are clearly in view, Prof. Golden’s labyrinth falls into nice straight lines of sight showing that the Chevron deference issue in Facebook v. Windy City is no labyrinth at all: the PTAB’s Proppant decision is not entitled to Chevron deference.

Backdrop.  The backdrop for this case is a major pendulum swing at the Supreme Court: for nearly twenty years, the Court has been pulling back on the leeway given to agencies.  Prof. Golden provides us a useful, if somewhat dated, introduction.  Under Chevron U.S.A. v. Nat’l Resource Defense Council, Inc., 467 U.S. 837 (1984), courts give great deference to agency interpretations of statute, subject to certain conditions.  This deference reached a high water mark in the late 1990s. However, starting with United States v. Mead Corp., 533 U.S. 218 (2001), the Court has been scaling back.  First, Mead gave us step zero (jurisdiction) to go with steps one (ambiguity) and two (reasonableness).  In the name of scaling back, steps zero, one, and two have become narrower, and several “step threes” and “fours” are now fully developed as well.  This June, in Kisor v. Wilkie, 139 S. Ct. 2400 (2019) the Supreme Court very narrowly avoided overruling Auer v. Robbins, and barely held onto Chief Justice Roberts’ fifth vote, by cataloging a long list of limitations on Auer (and, presumably, Chevron deference).

One example is SAS Institute v. Iancu.  The Supreme Court’s decision is total nonsense as patent law, and is an abdication of the practical “judgment” that we typically expect of judges.  I have no doubt that SAS Institute would have come out in favor of the PTO’s “partial institution” interpretation even ten years ago.  But SAS Institute makes total sense as ideological axe grinding, as part of the Court’s search for ways to limit Chevron.

A number of other limits on Chevron and Auer deference are discussed in my PTAB is Not an Article III Court articles, Part 1, A Primer on Federal Agency Rule Making, here, Part 2, Aqua Products v. Matal As a Case Study in Chevron Deference and Administrative Law here, and Part 3, Precedential and Informative Opinions, here.  Parts 2 and 3 are particularly relevant to this problem.

Unified vs. Bifurcated Agencies.  Chevron “step zero” tells us that an agency rule can only be eligible for Chevron deference if the rule is promulgated within a delegation of authority.  I note in my Facebook brief and in several of my articles that the Patent Act grants rulemaking authority only to the PTO Director (and the Secretary of Commerce), while the PTAB has only adjudicatory authority.  My Part 3 article and my Facebook brief ague that the split is meaningful, and divests the PTAB of Chevron deference in all but the narrowest of circumstances.  In contrast, Prof. Golden (and the PTO’s brief) argue that since the agency as a whole has rulemaking authority, that authority devolves down to the PTAB, and thus the PTAB is entitled to Chevron deference, and delegation to the specific tribunal is unnecessary.  Prof Golden (and the PTO’s brief, citing NLRB v. Bell Aerospace Co., 416 U.S. 267, 292-294 (1974)) rely on the principle that some agencies have “have a choice of policymaking mode” between rulemaking and adjudication, and rely on analogies to the National Labor Relations Board (NLRB), Securities and Exchange Commission (SEC), International Trade Commission, .

I agree with that principle as far as the Supreme Court has taken it—that is, agencies with “traditional” and “unitary” structure may interpret “genuine ambiguity” in statutes and regulations by adjudication (but not gap-fill), and interpretations by those “traditional unitary” tribunals may be entitled to Chevron or Auer deference.

I don’t agree with the extensions beyond those two limits, as the PTO would like, and as Prof. Golden suggests.  Remarkably, neither gives more than the briefest consideration to the single closest case of the Supreme Court, Martin v. Occupational Safety & Health Rev. Comm’n, 499 U.S. 144, 154 (1991).  The Martin court thought that split authority was a big deal, at least for Chevron purposes.  Martin is remarkably prescient at predicting the PTO’s and Prof. Golden’s arguments and very choice of agencies as analogies.  Martin responds to them, some 28 years ahead of time (emphasis in original, citations omitted)—read “Commission” as “PTAB,” and “Secretary” as “Director:”

Under most regulatory schemes, rulemaking, enforcement, and adjudicative powers are combined in a single administrative authority. See, e. g., 15 U.S.C. § 41 et seq. (Federal Trade Commission); 15 U.S.C. §§ 77s-77u (Securities and Exchange Commission); 47 U.S.C. § 151 et seq. (Federal Communications Commission). Under the OSH Act, however, Congress separated enforcement and rulemaking powers from adjudicative powers, assigning these respective functions to two independent administrative authorities. The purpose of this “split enforcement” structure was to achieve a greater separation of functions than exists within the traditional “unitary” agency, which under the Administrative Procedure Act (APA) generally must divide enforcement and adjudication between separate personnel. . . .

Although the Act does not expressly address the issue, we now infer from the structure and history of the statute that the power to render authoritative interpretations of OSH Act regulations is a “necessary adjunct” of the Secretary’s powers to promulgate and to enforce national health and safety standards. The Secretary enjoys readily identifiable structural advantages over the Commission in rendering authoritative interpretations of OSH Act regulations. Because the Secretary promulgates these standards, the Secretary is in a better position than is the Commission to reconstruct the purpose of the regulations in question. . . .

For the same reason, we reject the Court of Appeals’ inference that Congress intended “to endow the Commission with the normal complement of adjudicative powers possessed by traditional administrative agencies.” Within traditional agencies—that is, agencies possessing a unitary structure—adjudication operates as an appropriate . . . exercise of delegated lawmaking powers, including lawmaking by interpretation. See NLRB v. Bell Aerospace Co., 416 U.S. 267, 292-294 (1974); SEC v. Chenery Corp., 332 U.S. 194, 201-203 (1947). But in these cases, we concluded that agency adjudication is a generally permissible mode of law and policymaking only because the unitary agencies in question also had been delegated the power to make law and policy through rulemaking. . . . Insofar as Congress did not invest the Commission with the power to make law or policy by other means, we cannot infer that Congress expected the Commission to use its adjudicatory power to play a policymaking role. Moreover, when a traditional, unitary agency uses adjudication to engage in lawmaking by regulatory interpretation, it necessarily interprets regulations that it has promulgated. This, too, cannot be said of the Commission’s power to adjudicate.

Consequently, we think the more plausible inference is that Congress intended to delegate to the Commission the type of nonpolicymaking adjudicatory powers typically exercised by a court in the agency-review context. Under this conception of adjudication, the Commission is authorized to review the Secretary’s interpretations only for consistency with the regulatory language and for reasonableness. In addition, of course, Congress expressly charged the Commission with making authoritative findings of fact and with applying the Secretary’s standards to those facts in making a decision. See 29 U.S.C. 660(a) (Commission’s factual findings “shall be conclusive” so long as “supported by substantial evidence”). The Commission need be viewed as possessing no more power than this in order to perform its statutory role as “neutral arbiter.”

. . . It is clear that Congress adopted the split-enforcement structure in the OSH Act in order to achieve a greater separation of functions than exists in a conventional unitary agency.

Martin v. Occupational Safety & Health Rev. Comm’n, 499 U.S. 144 (1991). 

Though there are some factual distinctions between the Occupational Safety and Health Commission and the PTAB, it’s hard to see daylight between the PTAB and the Court’s reasoning.  For example, by allocating authority, Congress also allocated expertise.  The Director has all the “readily identifiable structural advantages” in rulemaking: the PTO Chief Economist, the rulemaking staff of the Office of General Counsel, a deep well of economic statistics.  In contrast, the PTAB attempts at rulemaking have been a fiasco.  Remember the 2009 Appeal rules?  More recently, everyone at the PTO must have known that the “ordinary meaning” rule will be litigated to the last comma because of its billion-dollar consequences. Yet, the PTAB shortcut every possible corner, and have created a decade of litigation uncertainty, as I explain in An Administrative Law View of the PTAB’s ‘Ordinary Meaning’ Rule, Westlaw Journal Intellectual Property 25:21 13-16 (Jan. 30 2019).  Congress only granted the PTAB adjudication authority, and, unsurprisingly, that’s the only expertise they’ve developed.

Martin follows from straightforward administrative law first principles.  For example, the Attorney General’s Manual on the Administrative Procedure Act (1947) (one of the few sources that even Justice Scalia was happy to cite as interpretive authority) reminds us that “the entire [Administrative Procedure] Act is based upon a dichotomy between rule making and adjudication.”  From our experience with Article III Courts, we’re used to adjudication and rulemaking being one and the same, joined at the hip—but that isn’t true for agencies.  The Federal Circuit has noted the bifurcated structure of the PTO, and that “although the [Director] may sit on the Board, in that capacity he serves as any other member.” In re Alappat, 33 F.3d 1526, 1535, 31 USPQ2d 1545, 1550 (Fed. Cir. 1994). The mere presence of the Director on a PTAB panel doesn’t imbue the PTAB with magical rulemaking properties.

Neither the PTO nor Prof. Golden identify a relevant delegation to the PTAB, nor explain why a sui generis exception should be created.

Procedure.  Since  Gonzales v. Oregon, 546 U.S. 243, 255–56 (2006), a rule has been ineligible for Chevron deference if it’s “procedurally defective.”  A rule can’t be a valid rule at all unless it meets all requirements of statutory procedure, and principles of “deference” can’t save it.  The Court refers to this as the “procedurally defective” limit on Chevron, a phrase that’s curiously absent from both the PTO’s brief and Prof. Golden’s article.  My Facebook brief gives only a partial catalog of the statutory rulemaking steps that the PTAB shortcut in Proppant (when you’ve got a target rich environment and a 7½ page limit, lots of important facts get cut).

Some of these statutes are quite explicit: “a person may not in any manner be required to resort to, or be adversely affected by, a matter” where the agency shortcut, 5 U.S.C. § 552(a)91), “An agency shall not conduct or sponsor[a rule calling for paperwork submissions] unless in advance of the adoption or revision of the [rule],” 44 U.S.C. § 3507(d).  In the 1990s, Chevron might have overlooked this shortcutting.  In 2019, a “procedurally defective” rule gets no deference.

Neither the PTO’s brief nor Prof. Golden’s article touches on this important “procedurally defective” Chevron “step three.”

Delegation.  Prof. Golden (and the PTO’s brief) analogizes the PTAB to the Board of Immigration Appeals.  The Supreme Court has several times granted Chevron deference to the BIA, so I understand why the PTO wants the analogy, and I understand the “output” side.  But neither the PTO nor Professor Golden explain any “input” side of the analogy.  The foundations of the BIA are completely different than the foundations of the PTAB.  The BIA is not created by statute.  The BIA is created by regulation, 8 CFR § 1003.1.  The BIA different than the PTAB for Chevron purposes in four ways:

• The BIA has delegated adjudicatory and rulemaking authority from the Attorney General. 1003.1(d)(4) and (g)(1).  In other words, the BIA is one of the “unified” agency tribunals we discussed earlier in this article, not a “bifurcated” tribunal like the PTAB.
• The delegation of rulemaking authority from the Attorney General to the BIA is explicit. In contrast, the only relevant delegations from the Director to the PTAB are for adjudications, not rulemaking.  37 C.F.R. § 42.4(a)
• In every meaningful respect, the BIA is the alter ego of the Attorney General—it doesn’t even exist without the Attorney General’s say-so. This contrasts with the PTAB, which has independent statutory existence and responsibilities.  Contrast Alappat, 33 F.3d at 1535, 31 USPQ2d at 1550 (majority opinion) (“the Board is not the alter ego or agent of the Commissioner”); 33 F.3d at 1572, 31 USPQ2d at 1581 (Mayer, J. dissenting) (“The patent board is not the “alter ego” of the Commissioner; it is an adjudicative body which functions independently and has its own separate and distinct authority”).
• Congress expresses no opinion on the relationship of the BIA to the Attorney General. The Attorney General has the default power to delegate to subordinates. 5 U.S.C. § 301.  In contrast, Congress created the PTAB as a distinct entity, with only adjudicatory authority.  It’s not clear that the Director could delegate rulemaking authority.

The BIA just confirms my point—tribunals with consolidated adjudicatory and rulemaking authority are completely different than a single half of a bifurcated agency.

Judge Hughes’ dissent in Aqua Products.  Prof. Golden agrees with Judge Hughes’ dissent in Aqua Products.  I agree with Judges Moore and O’Malley that the word “regulation” means “regulation.”

First, Judge Hughes’ dissent starts with the proposition that the words “rule” and “regulation” are “used interchangeably.” The two words are not equivalent. While it is true that all “regulations” are also “rules”—the APA defines “rule” as the broadest genus[1]—it does not follow that every “rule” is a “regulation.”

Second, the Patent Act is remarkably consistent in delegating authority to promulgate “regulations” for issues that are foreseeable and determine substantial rights.[2] In contrast, authority to act by “rule” or to set “procedures” is delegated for only a few areas: (a) supervision of acts of agency employees, (b) issues where equitable discretion is needed to adjudicate one-off past facts (for example, to cure lost mail or missed deadlines) but foresight of all possible future situations is nigh impossible, and (c) ministerial acts that do not effect substantial rights.[3]  I have trouble accepting that use of language that is this uniform could be dismissed as coincidental or unintended.

Third, I have trouble accepting Judge Hughes hand-wave to blow off the administrative law rulemaking statutes that were involved in Aqua Products.  Seven of nine judges that reached the issue in Aqua criticized the PTO’s “procedurally defective” rulemaking, and attempts to “end run” the APA.  Had Aqua arisen  in 1998, maybe Chevron would have saved the PTO.  After Gonzalez, no.  The leading administrative law treatise collects cases, and summarizes them as follows: “Over the years, commentators, judges, and Justices have shown near unanimity in extolling the virtues of the rulemaking process over the process of making ‘rules’ through case-by-case adjudication.”[4]  Agencies can’t have the double standard that the PTO asks for here, and that Judge Hughes would have given—shortcut the dickens out of procedure, and then claim Chevron deference seek excuse.

I explain my disagreement with Judge Hughes at more length in my Part 3 article.

Where we do agree?  My Facebook brief accepts that interpretation-by-adjudication is entirely appropriate within the sphere of the APA, but extremely dangerous outside:

[The Precedential Opinion Panel] is not inherently unlawful. Precedential decisions are entirely appropriate when issued within the framework of the APA (e.g., “interpretative” resolution of genuine, unforeseeable, rarely-recurring ambiguity), and those decisions could warrant Skidmore deference. But the PTAB’s …. accelerating recent trend of bypassing rulemaking … (as in Proppant), and general neglect of basic administrative law, are concerning.

The APA offers a perfectly good, well-paved road that works just fine for other agencies: the Director can issue an interim rule in the Federal Register, 5 U.S.C. § 553(d)(3), and then follow up with notice-and-comment rulemaking. In contrast, when an agency invents its own legal system, and declines a statutory obligation to “prescribe regulations,” the agency puts everyone at risk. When a rule is invalidated, unwinding and redeciding the adjudications that were based on that rule will impose immense cost. The POP, at least as the PTO uses it in 2019, is a dangerous and destabilizing abrogation of law. It should not be encouraged.

I agree with Prof. Golden that Skidmore deference could apply on different facts.  Chevron, no.

= = = = =

[1]   5 U.S.C. § 551(4).

[2]   The following statutes grant the Director (or the Office) the authority to promulgate regulations. 35 U.S.C. § 2(b)(2) (“The Office … may establish” general procedural regulations), § 2(b)(2)(D) (“The Office … may establish regulations … [to] govern the recognition and conduct of agents [and] attorneys”); § 41 (“The Director may by regulation provide for [fee] refund”); § 115(d) and (h) (“the Director may … by regulation” specify circumstances for substitute statements), § 119(a) and (e) (“The Director may prescribe regulations” for priority claims to foreign applications and provisional applications), § 123(a) (Director may issue regulations to define small entities); § 132(b) (“The Director shall prescribe regulations” for RCEs); § 135 (“The Director shall prescribe regulations… for the conduct of derivation proceedings”); § 154(b)(2) and (3) (“The Director shall prescribe regulations” for term adjustment); §§ 206, 208 (“The Secretary of Commerce is authorized to promulgate regulations” for Bayh-Dole); § 257(d) (“The Director shall issue regulations” to govern supplemental examination), 311(a) (“The Director shall establish, by regulation, fees” for IPR), § 312(a)(4) (“Director may … by regulation” govern IPR petitions); § 316(a) and (d)(2) (“The Director shall prescribe regulations” for IPRs), § 321(a), § 322(a)(4), § 326 (same for PGR).

[3]   The following statutes grant to the Director (or Secretary of Commerce) rulemaking authority without regulation. 35 U.S.C. § 21(a) (“The Director may by rule” specify rules for lost mail); § 23 (“The Director may establish rules” for affidavits and depositions); § 25 (“The Director may by rule” prescribe declaration in lieu of oath); § 27 (“The Director may establish procedures” to revive an unintentionally abandoned application); §§ 119, 120, and § 365(b) (“The Director may establish procedures” for an unintentionally delayed priority claim); § 122(b)(1)(A) (The Director will determine procedures for publication of applications); § 122(c) (“The Director shall establish appropriate procedures” governing protest or pre-issuance opposition); § 122(d) (“The Director shall establish appropriate procedures” governing secrecy orders); § 181 (Secretary of Commerce to prescribe rules for appeal of secrecy orders); § 384 (“The Director may establish procedures” for review of filing date for Hague design application).

[4]  Kristin Hickman & Richard Pierce, Administrative Law (6th ed. 2019) § 4.8 at 517.