January 23, 2012
On January 9, 2012, the U.S. Supreme Court heard oral argument in Kappos v. Hyatt. The Hyatt case is important for those who prosecute patent applications before the U.S. Patent and Trademark Office (USPTO), and especially for those who must decide on whether to appeal from an adverse USPTO decision.
As earlier reported, under the law, if a patent applicant is unsuccessful in obtaining a patent before the USPTO, the applicant has two procedural routes to challenge the USPTO's adverse decision in the federal courts. The applicant either may appeal the USPTO's decision to the Court of Appeals for the Federal Circuit or may bring a civil action against the USPTO in the U.S. District Court for the District of Columbia. The Hyatt case concerned the latter route—the civil suit against the USPTO under §145.
In ruling for Hyatt in the Circuit Court, the Federal Circuit held that “new evidence is admissible in a civil action” subject only to the Federal Rules of Evidence and Federal Rules of Civil Procedure. Thus, the Federal Circuit held that a civil suit against the USPTO is not confined to the administrative record.
On appeal to the Supreme Court, the U.S. government argued that a decision adverse to a patent application should not be reviewed de novo in a civil action; that any evidence that could have been presented during the patent examination but was not, should not be admissible; and that the USPTO’s decision and its factual findings should be entitled to deference consistent with the lower standard of substantial evidence. The government argued that this deferential standard of review should apply even in a civil action in order to respect the USPTO as the “primary decisionmaker” on whether or not to grant a patent.
Hyatt’s counsel argued that the review in a civil action is de novo and that “then the question becomes what is the appropriate standard of review when there is new
evidence.…” According to Hyatt, the standard of review is set forth in the Administrative Procedure Act, where a reviewing court can “set aside agency action, findings and conclusions found to be … (f) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.” Hyatt took no position on the standard of review when an applicant seeks review in a civil action without introducing new evidence.
Overall, the oral argument focused on three primary issues: 1) whether an adverse USPTO decision against granting a patent is subject to de novo review in a district court in a civil action to obtain a patent, 2) what the scope of evidence is that can be introduced in such a civil action, and 3) what burden of proof a reviewing court should apply to factual determinations made by the USPTO.
Justice Sotomayor observed that the USPTO’s argument “is confusing the nature of the review, which is de novo, with the burdens that attach to the proof.” As to the former, Justice Sotomayor observed that “the legislative history is replete with the commissioner of patents himself saying that [the law] required de novo review.” She further commented that the standard suggested by the government “just can’t be derived from the statute” and “if you admit that Congress intended a [civil] action to permit new evidence, if it wanted to limit the evidence to something that could not have been found with due diligence or whatever your limitations are, why did it speak more broadly? [T]he statutory language suggests ‘as the facts in this case,’ not in the case before the USPTO. As law—‘as equity might permit.’”
Justice Ginsburg appeared concerned the USPTO position would effectively conflate a direct appeal to the Federal Circuit with a civil action. Justice Ginsberg asked “why would Congress create two judicial review routes, one in district court, reviewable in the Federal Circuit, the other directly in the Federal Circuit, if there’s no difference? That is, if in both of them, it’s not de novo review, it is reviewing what the . . . agency did under the ordinary standard for reviewing agency action.” Echoing this concern, Justice Kagan expressed skepticism of the USPTO’s position, adding “So … you have Justice Ginsburg’s problem, which is these are two channels that are [then] exactly the same.”
The justices also seemed troubled with a burden of proof that could vary with whether or not new evidence is introduced in the civil action.
However, some justices appear to be leaning toward construing prior precedent as requiring a reviewing court to give deference to a USPTO determination based on its expertise, and only overturn it if the Court is “thoroughly convinced” that they were wrong.
Chief Justice Roberts and Justice Breyer expressed concerns a patent applicant would withhold evidence for the tactical advantage to seeking review in a civil action. Hyatt’s counsel responded with the commonsense observation that “no applicant would hold back evidence in an effort to … produce that sort of tactical advantage, because … it’s frankly more straightforward and easier to try to meet those objections in the [Patent] Office.”
The Court’s decision when rendered will have broad implications for future civil actions against the USPTO. Notably, if the Court holds that a more deferential standard of review applies even where new evidence is offered, the Hyatt decision may have possible application to other agency actions reviewable under the Administrative Procedures Act.
A decision in the Hyatt case is expected within the next several months. For more information, please contact Fitch Even partner Kendrew H. Colton, the author of this alert.