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Court Applies ‘Chevron’ Deference to Patent Law in ‘Fractured’ Decision

Posted on Feb 21, 2018 in Articles

This article originally appeared in The Legal Intelligencer on February 20, 2018.

It is unusual for the Federal Circuit to apply the doctrine of Chevron deference to patent law, but a recent decision is noteworthy—and fractured.

The Chevron deference doctrine, based on the U.S. Supreme Court case of Chevron, U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984) requires a federal court to defer to a federal agency’s interpretation of a federal statute in its area of expertise. The doctrine can only be applied if the language of a federal statute is ambiguous and the agency’s interpretation is reasonable.

The doctrine appears on a regular basis in many areas of administrative law. Labor and SEC attorneys, for example, frequently deal with Chevron deference. In patent law, however, it is only applied occasionally.

Why such limited exposure to patent law? Two reasons.

First, by statute, the U.S. Patent and Trademark Office (USPTO) has no substantive law making authority. 35 U.S.C. Section 2(b)(2)(A) allows the USPTO to “establish regulations, not inconsistent with law, which … shall govern the conduct of proceedings in the office.” Rules pertaining to proper filing of a patent application, for example, fit within the confines of what is permitted by statute. But, with regard to topics such as “What subject matter is entitled to patent protection?” the USPTO has no say. So, Chevron deference only shows up in patent law when procedural rules are at issue.

Second, unlike most other areas of administrative law, patent law is adjudicated by a specialized appeals court—the U.S. Court of Appeals for the Federal Circuit—which is considered a patent “expert” and has created a deep well of law in the patent arena. Substantive patent law questions are thus often answered by looking at Federal Circuit opinions.

Aqua Products v. Matal, 2015-1177 (Fed. Cir. 2017) is one of those unusual decisions in which patent law and Chevron deference came together. Aqua was an appeal from an inter partes review (IPR)—a proceeding that is handled by the USPTO’s Patent Trial and Appeal Board (PTAB). IPR enables a party to petition for patent claims in an issued patent to be declared invalid. Its purpose is to offer litigation-like procedures at the USPTO without the expense of a civil suit. While IPR is pricey, the cost is significantly less than litigation in federal court.

One of the more controversial aspects of IPR is the ability of the patent owner to amend claims during the proceeding. In Aqua, Aqua Product’s motion to amend claims during IPR was denied. Aqua Products appealed to the Federal Circuit, first to a three-judge panel and then en banc.

While the IPR statute, 35 U.S.C. Section 316 permits amendment (“during the proceeding, the patent holder has one opportunity as a matter of right to amend the claims …” 35 U.S.C. Section 316(d)(1)), the number of patents that the PTAB has permitted to be amended has been extraordinarily low. As of April 30, 2016, out of 118 motions to amend patents during IPR, 112 motions were denied and four motions were partially denied.

Aqua Products appealed on the basis that the USPTO improperly interpreted the law that permits patents in IPR proceedings to be amended. The USPTO’s position was that, before granting a motion to amend claims during IPR, the burden was on the patent owner to prove that the amended claims were patentable. Aqua Product’s contention was that the IPR statutes included no such requirement.

Sitting en banc, the Federal Circuit held that the USPTO may not place the burden on the patent owner to prove amended claims are patentable. But the court was fractured. In total, the decision included five opinions: one majority opinion (in which five judges joined and two judges concurred in result) and four opinions with various combinations of judges joining, joining in part, and dissenting.

Each opinion is difficult to understand, and the majority opinion concluded as follows: “This process has not been easy. We are proceeding without a full court, and those judges who are participating disagree over a host of issues. As frustrating as it is for all who put so much thought and effort into this matter, very little said over the course of the many pages that form the five opinions in this case has precedential weight.”

The reason for the complexity of the opinions was because of Chevron deference. The USPTO argued that the IPR statutes were ambiguous regarding IPR amendments. Therefore, the USPTO asserted that Chevron deference required the court to adopt the USPTO’s interpretation of the statues. The majority opinion deeply analyzed the language of the statutes and determined that they were not ambiguous. Therefore, the case was remanded to the PTAB to decide the patent owner’s motion to amend the claims—without the USPTO’s former requirement of placing the burden on the patent owner to prove that the amended claims were patentable.

The majority opinion grappled with determining whether the IPR statutes relating to amendment during the proceeding were ambiguous, a necessary prerequisite for applying the Chevron deference doctrine. But all such analyses (whether with regard to patent law or another specialty of law handled by an administrative agency) are difficult to make, because the word “ambiguous” is, well, ambiguous. Language that is ambiguous to some may not be ambiguous to others, and the Supreme Court’s opinion in Chevron lacks any explanation or guidance for determining whether ambiguous language appears in a statute. Thus, whether or not Chevron deference should be applied to a particular statute is not clear.

The Chevron deference doctrine has other problems. Some commentators argue that, because administrative agencies are controlled by the executive branch of the U.S. government, Chevron deference gives the executive branch authority in a role reserved exclusively for the judicial branch. In other words, Chevron deference requires federal judges to comply with executive branch controlled administrative agency interpretation of statutes, and yet it is “emphatically the province and duty of the judicial department to say what the law is.” Other commentators have argued that Chevron deference creates four branches of government (administrative, executive, judicial, legislative), while the Constitution only permits three branches.

One might thus wonder if Chevron deference is on borrowed time. On July 12, 2016, the House of Representatives passed the Separation of Powers Restoration Act in order to statutorily override Chevron deference. But the bill stalled out when Oren Hatch introduced a similar bill in the Senate, but failed to get enough votes. The appointment of Neil Gorsuch to the U.S. Supreme Court might be the final bell toll for Chevron deference; Justice Gorsuch has been clear that he is ardently opposed to the doctrine. If the question of the constitutionality of Chevron deference were to reach the U.S. Supreme Court, one would certainly wonder whether Chevron will be “running out of gas.”

– By Lawrence E. Ashery


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