The following post comes from Clement S. Roberts (Partner at Durie Tangri and Practice Center Contributor).
Two weeks ago, the Federal Circuit handed down an en banc decision in Hyatt v. Kappos overruling a panel decision and substantially changing the rules for admitting evidence in a §145 action. Although the decision has not attracted much attention, Hyatt may make §145 actions substantially more attractive and meaningfully alter the strategic landscape for those applicants who wish to pursue their claims beyond a BPAI rejection.
After an applicant’s claims are rejected by the BPAI, the applicant has two basic options—either appeal the decision to the Federal Circuit, or bring an action in district court under 35 U.S.C. §145. If the applicant elects to appeal the decision to the Federal Circuit, the appeal is heard on the administrative record created by the PTO and pursuant to the substantial deference standard normal in judicial review of expert administrative proceedings. In a §145 proceeding, however, some new issues can be raised and (prior to Hyatt) some new evidence could be submitted to the district court.
The rules governing exactly when and under what circumstances new issues and evidence can be submitted have been somewhat murky. For example, in an earlier panel decision in Hyatt the Federal Circuit held that new evidence should be excluded in a §145 action if the applicant “could and should have introduced [it] before the Patent Office but did not despite an obligation to do so” Hyatt v. Doll, 576 F.3d 1246, 1266 (Fed. Cir. 2009). The PTO urged an even tougher standard in the en banc proceeding, arguing that “§145 should be interpreted to prohibit an applicant from introducing new evidence before the district court unless the applicant could not reasonably have provided that evidence to the Patent Office in the first instance.” Hyatt v. Kappos at 12. Thus, prior to the en banc decision, an applicant had to show something like good cause, or a lack of negligence, in order to introduce new evidence in a §145 proceeding.
No longer. In its en banc decision, the Federal Circuit did away with all restrictions (other than those found in the Federal Rules of Evidence and FRCP) on introducing new evidence in a §145 proceeding. The court reached this conclusion both by noting that §145 did not (on its face) create any evidentiary restrictions and by analyzing the legislative history surrounding the 1927 reauthorization of the predecessor statute to §145. In particular, the court found that, at the time of reauthorization, both those in favor of reauthorization and those opposed to it recognized that the remedy “allowed an applicant to introduce new evidence in the district court, regardless of whether that evidence had been provided to the Patent Office in earlier proceedings.” Id. at 19. The court simultaneously rejected the PTO’s argument that because the 1927 reauthorization did not change the statute it effectively adopted the district court’s “longstanding” practice of limiting the evidence that could be submitted in an action brought under the predecessor to §145. In the Federal Circuit’s view, the “longstanding” practice to which the PTO pointed was too fractured and made use of too many different tests to make credible the idea that Congress adopted that practice by implication when it reauthorized the statute.
The en banc decision goes on to clarify that, although the Administrative Procedure Act still applies in §145 proceedings (and thus that substantial deference to the PTO’s factual findings is required) when no new evidence is submitted, the district court should proceed on a de novo basis with respect to those issues on which additional evidence is submitted. Id at 32. Thus, by submitting new evidence in a §145 proceeding, an applicant can change the standard of review from substantial deference to de novo.
The court took pains to insist that this new rule does not undermine the deference given to BPAI decisions. For example, the opinion notes that even where new evidence is submitted, the district court “may consider the proceedings before and findings of the Patent Office in deciding what weight to afford an applicant’s newly admitted evidence” including the applicant’s failure to submit the evidence in front of the PTO. Id. at 30-31. Thus, the panel insisted that its rule “maintain[s] an appropriate level of deference to agency findings.” Id. at 33.
The extent to which this is true will depend on how the district courts balance Hyatt’s (somewhat competing) mandates to: (1) perform a de novo review when new evidence is submitted; and (2) consider the proceedings and findings of the PTO in evaluating what weight to give newly submitted evidence. In this regard, the facts of Hyatt are instructive. The only new evidence submitted during the §145 proceeding was a declaration from the inventor “in which he identified portions of the specification that one of skill in the art would understand to describe the limitations challenged by the Director.” Id. at 8. Despite the exceedingly limited sense in which such a declaration (as distinct from the specification to which it refers) is independent “evidence” of anything, the court nevertheless found that it should have been admitted and that the result was to change the operable standard of review from “substantial deference” to de novo. On the other hand, there are some hints in the opinion that this declaration may not be given much weight when the case goes back down to the district court and that the applicant may not (therefore) get much in the way of meaningfully de novo review.
It is, therefore, possible to read Hyatt as standing for the proposition that any new evidence will trigger de novo review on the issues for which it is submitted. But it is also possible to read the decision as providing a much more limited right to have the district court consider any newly submitted evidence under a standard that – while formally de novo – gives substantial deference to the PTO by weighing new evidence in light of the existing PTO record. We will have to wait to see how the decision is applied to know for certain.
Insofar as Hyatt allows applicants to get a second bite at the apple before the district court under a de novo review, the decision made §145 actions much more attractive. Even if this does not result in a substantial increase in the number of applicants who decide to appeal BPAI rejections (which, because of the cost involved in filing such an appeal seems unlikely), Hyatt may cause more applicants to use §145 proceedings in lieu of filing an appeal to the Federal Circuit. Of course, because the total number of appeals from BPAI decisions is quite small (in 2009 there were only 95 such appeals)[1] Hyatt’s direct impact is likely to be limited to a small number of cases.
Indeed, Hyatt’s most important impact may be in the way it alters practice before the PTO. Patent prosecution budgets are often fairly tight, both for individual applications and for a company’s prosecution efforts overall. By lowering the risk that evidence will be excluded from post-BPAI proceedings, the Federal Circuit also lowered the incentive to spend money finding or generating that evidence during the BPAI appeal. Given the expense of a §145 proceeding, it will still often make sense to invest the money up front, but by lowering the risk associated with waiting, Hyatt will substantially affect that cost-benefit calculation.
Hyatt may also increase the incentives for an applicant facing a hostile BPAI panel to hedge its bets by holding back some evidence for later use in the district court – but this is a less certain proposition. First, if a lower standard of review really can be obtained simply by submitting a new inventor declaration, withholding will not make much sense — simply because the applicant will always be able to generate new evidence if and when it is needed. On the other hand, if (as I suspect will be the case) courts are reluctant to spend substantial time and effort second-guessing the PTO unless the newly submitted evidence is highly material, the incentives to game the system will be higher.
Nor is the threat of inequitable conduct allegations likely to prevent this kind of gamesmanship. First, the evidence practitioners are likely to withhold will be evidence that favors patentability and thus will be exceedingly hard to use as the basis for an inequitable conduct claim. Second, if the evidence is later submitted to the district court in a §145 proceeding, that disclosure may cure any earlier acts of witholding. Third, the Federal Circuit has made inequitable conduct so hard to win that the risk created by withholding evidence is (at least statistically) quite small.
On the other hand, if applicants do withhold evidence, they will need to have (or come up with) a good reason to explain their failure to submit that evidence to the BPAI. Absent such an explanation, an applicant will run a meaningful risk that the district court will severely discount both that evidence and the applicant’s credibility overall.
Thus, although the absolute number of applications likely to be effected by the decision in Hyatt is small, the decision could meaningfully alter the strategic landscape for those applications that are valuable enough to warrant continued prosecution even after a BPAI rejection.
[1] See http://www.uscourts.gov/Statistics/JudicialBusiness/JudicialBusiness2009.aspx (Table B-8).
Tags: BPAI, BPAI rejection, en banc decision, evidenc, Federal Circuit, Hyatt v. Kappos, section 145, USPTO
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