Supreme Court Sides with Inventors in Kappos v. Hyatt

Darrin Auito | May 16, 2012

David J. Kappos v. Gilbert P. Hyatt

April 18, 2012

Affirmed 9-0 (CAFC en banc 7-2 decision).  Opinion by Justice Thomas.  Concurring opinion by Justice Sotomayor joined by Justice Breyer.

Summary:

The Hyatt decision is a victory for patent applicants.  Any patent applicant dissatisfied with a decision of the Board of Patent Appeals and Interferences (or Patent Trial and Appeal Board after enactment of the AIA) may file a civil action against the Director of the PTO in federal district court and introduce new evidence beyond what was submitted to the PTO.  The new evidence is subject to de novo review.

Holdings:

1.“There are no limitations on a patent applicant’s ability to introduce new evidence in a [sec.] 145 proceeding beyond those [that apply in any other court proceeding].”

2.  “If new evidence is presented on a disputed question of fact, the district court must make de novo factual findings that take into account of both the new evidence and the administrative record before the PTO.”

“In deciding what weight to afford that evidence, the district court may, however, consider whether the applicant had an opportunity to present the evidence to the PTO.”

Details:

In 1995, Gilbert Hyatt (sole inventor, pro se) filed U.S. Pat. App. No. 08/471,702 (“the ‘702 application), claiming a computerized display system for processing image information.  The Examiner rejected all 15 original claims.  In response, Hyatt cancelled some claims, amended others, and added new claims, totaling 117 claims.  The Examiner issued a final office action, rejecting all 117 claims under 35 U.S.C. §112 for lack of an adequate written description of the claimed invention.

Hyatt appealed the Examiner’s final rejection to the BPAI and submitted a table that identified portions of the specification that he asserted supported the claimed subject matter.  The BPAI allowed 38 of the claims, but denied the remaining 79 claims.  Hyatt filed a Request for Rehearing, including new arguments and citations detailing support for the rejected claim limitations.  However, the Request was denied.

Disappointed with the Board’s decision, Hyatt sought adjudication by filing a civil action under 35 U.S.C. §145 against the Director of the PTO in the U.S. District Court for the District of Columbia (“DC”), rather than appeal the Board’s decision under 35 U.S.C §141 to the CAFC.  (Under §141, the court’s decision would have been limited by §144 to the contents of the PTO record.)

The Director filed a motion for summary judgment on the ground that the Board’s decision was supported by the requisite “substantial evidence” in the PTO record.  In response, Hyatt submitted a declaration including the arguments and citations previously ignored by the Board.  The DC granted summary judgment after determining that it could not consider the declaration because Applicants are “precluded from presenting new issues, at least in the absence of some reason of justice put forward for failure to present the issue to the PTO.”  Thus, the DC determined that the only evidence remaining before the DC consisted entirely of the PTO administrative record.  Accordingly, the DC reviewed all of the PTO’s factual evidence under the Administrative Procedure Act’s deferential ‘substantial evidence” standard and granted summary judgment to the Director.

Hyatt appealed the DC’s decision to the Federal Circuit.  A divided panel (J. Moore dissented) affirmed, holding that the APA imposed restrictions on the admission of new evidence in a §145 proceeding and that the DC’s review is not “wholly de novo.”  Hyatt v. Doll, 576 F.3d 1245 (Fed. Cir. 2009).  The panel stated that, “all Hyatt needed to do was show the Examiner where in the specification support existed – something that should have been simple for him, the person most familiar with the specification.”  The panel was not persuaded by Hyatt’s arguments as to why his refusal to introduce the declaration to the PTO should not bar its introduction in the DC.  The panel also stated that a de novo trial is generally not appropriate unless specifically authorized by statute, §145 does not specifically authorize such review, and §145 is subject to the APA.

The Federal Circuit granted rehearing en banc and held (J. Moore), in view of the statutory language and legislative history, “that Congress intended that applicants would be free to introduce new evidence in §145 proceedings subject only to the rules applicable to all civil actions, the Federal Rules of Evidence and the Federal Rules of Civil Procedure,” even if the applicant had no justification for failing to present the evidence to the PTO. Hyatt v. Kappos, 625 F. 3d 1320, 1331 (Fed. Cir. 2010).  Specifically, the Federal Circuit ruled that the DC erred by exceeding its authority by applying the incorrect standard for admitting evidence in a §145 action (e.g., abuse of discretion in determining that Hyatt’s “negligence affected admissibility,” and §145 allows the entrance of any relevant evidence otherwise admissible under the FRE and the FRCP without question as to why such evidence was not presented to the PTO.)  The Federal Circuit also held that when new, conflicting evidence is introduced in a §145 proceeding, the DC must make de novo findings to take such evidence into account. Id.  The Federal Circuit vacated the DC decision and remanded the case.

Disappointed with the Federal Circuit’s en banc decision, the Director filed for a writ of certiorari, which the Supreme Court granted.  The Director argued that (1) a DC should admit new evidence in a §145 action only if the proponent of the evidence had no reasonable opportunity to present it to the PTO, and (2) when such evidence is introduced, the DC should only overturn the PTO’s factual findings if the evidence establishes that the PTO committed error in its findings.  The Director’s basic premise was that that §145 creates a special proceeding that is distinct from a typical civil suit filed in district court and is governed by a different set of procedural rules (e.g., APA standard).

The Court unanimously rejected both of the Director’s arguments.  First, the Court concluded that there are no limitations on an Applicant’s ability to introduce new evidence (e.g., not issues) in a §145 proceeding beyond the Federal Rules of Evidence and the Federal Rules of Civil Procedure.  Second, the Court also concluded that if new factual evidence is presented, the DC must make de novo factual findings that take into account both (a) the new evidence, and (b) the administrative record before the PTO.  The Court reasoned that “the PTO’s process is complete” when the §145 proceeding begins, and §145 does not provide authority to remand to the PTO to consider new evidence.

The Court looked to the statutory language and legislative history of §145 and concluded that neither imposes unique evidentiary limits in DC proceedings, or a heightened standard of review for factual findings by the PTO.

The Court stated: “The PTO, no matter how great its authority or expertise, cannot account for evidence that it has never seen,” making it necessary for the DC to “make its own findings de novo.”

The Court also rejected the likelihood that, based on the de novo review holding, an Applicant could be motivated to “withhold evidence from the PTO intentionally with the goal of presenting that evidence for the first time to a non-expert judge.”  According to the Supreme Court, this “scenario” is “unlikely” because “[a]n applicant who pursues such a strategy would be intentionally undermining his claims before the PTO on the speculative chance that he will gain some advantage in the §145 proceeding by presenting new evidence to a district court judge.”

Takeaways

An applicant that is dissatisfied with the decision in an appeal to the Board of Patent Appeals and Interferences (“BPAI”) and wants to pursue the rejected claims may:

(1)   appeal the decision to the Federal Circuit (35 U.S.C. §141), or

(2)   file a civil action against the Director (or the PTO) in the District Court for the District of Columbia (35 U.S.C. §145)

There are no limitations on a patent applicant’s ability to introduce new evidence in a §145 proceeding beyond those that apply in any other district court proceeding.  Therefore, if there is additional evidence that an applicant would like to present to support its case that was not included in the PTO record, then it may be beneficial to file a civil action under §145 instead of a direct appeal to the Federal Circuit under §141 so that the evidence receives de novo review by a new reviewing body.

The Hyatt decision is a victory for patent applicants because it provides an opportunity to submit evidence beyond the PTO record in order to refute the factual bases for an adverse BPAI decision.

Although applicants in Hyatt’s position typically have the option of filing a continuation application or an RCE in response to an adverse decision from the BPAI, there are reasons why it might be advantageous to file a civil action under §145 instead.  For example, (1) Applicants may choose to introduce oral testimony to the district court, and (2) Applicants will not lose patent term (e.g., patent term adjustments unavailable in continuing applications and RCE’s) for the time it takes to obtain and present additional evidence traversing the examiner’s rejections.

Nevertheless, Applicants still appear reluctant to initiate §145 actions.  For example, between October 1, 2000 and September 30, 2010 there were 4,247,741 U.S. patent applications filed.  However, only 14 cases ended up in the district court, which means that §145 actions are only initiated in 0.0003% of the patent applications filed at the PTO.

Section 145 only applies to patent applicants.  A patent owner or a third-party requester in an inter partes reexamination, who is in any reexamination proceeding dissatisfied with the final decision of the BPAI may only appeal the decision only to the Federal Circuit. See Teles AG v. Kappos, No. 11-00476 (BAH) (D.D.C. Mar. 5, 2012) (DC district court dismissed the patent owners’ complaint, ruling that the court lacked subject matter jurisdiction over the case; only patent applicants have the right to federal district court de novo review of BPAI decisions.)

Lastly, note the following changes coming to Sections 141 and 145 under the America Invents Act (AIA), effective September 16, 2012:

(1)   Section 145 – Remains substantially unchanged.  However, replaces reference to “Board of Patent Appeals and Interferences” with “Patent Trial and Appeal Board” (PTAB) and changes jurisdiction from “District of Columbia” to the “Eastern District of Virginia.”

(2)   Section 141 – The PTAB’s final decision in a reexamination, post-grant and inter partes review may only be appealed to the Federal Circuit – not the district court.

Full Opinion

 

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