An Analysis of Kappos v. Hyatt

The district court refused to admit the declaration because Hyatt had not presented it in the Board proceedings and did not show any excuse for not doing so. On appeal, a Federal Circuit panel affirmed, but this decision was vacated for en banc review. The Federal Circuit then held “that Congress intended that applicants would be free to introduce new evidence in Section 145 proceedings subject only to the rules applicable in all civil actions, the Federal Rules of Evidence and the Federal Rules of Civil Procedure” even if the applicant could not show justification for failure to present the evidence to the PTO. Hyatt v. Kappos, 625 F.3d 1320, 1331 (Fed. Cir. 2010). The en banc court also held that when new, conflicting evidence is introduced in a ' 145 proceeding, the district court must make de novo findings taking the new evidence into account. Id. at 1336.

The Supreme Court's Decision

The Supreme Court granted certiorari. The PTO argued to the Supreme Court first that new evidence should be admitted in a ' 145 proceeding only if the applicant had no reasonable opportunity to present it to the PTO. Second, the PTO argued that, even if new evidence is introduced, the Board's factual findings should be overturned only if the new evidence established clear error. The PTO's arguments were based on administrative law principles and existing case law.

Justice Clarence Thomas, writing for the Court, first reviewed the language of the statute, which reads:

An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) of this title may unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the District of Columbia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board of Patent Appeals and Interferences, as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant. 35 U.S.C. ' 145.

On its face, this wording does not impose any limitations on the evidence that can be introduced, nor does it mandate a heightened standard of review for the PTO's factual findings.

The PTO argued that notwithstanding the express language, the statute should be read in the light of traditional principles of administrative law, found in the Administrative Procedures Act (“APA”). 132 S. Ct. at 1695, 96. Because ' 145 requires a court to review the decision making of an executive agency with specific authority and expertise, the PTO argued that the district court should defer to the PTO's factual findings. In addition, the PTO argued the traditional rule that a party must exhaust administrative remedies before seeking court review of an agency decision should be applied to prevent the introduction of new evidence unless there had been no opportunity to present it to the agency. Id. at 1696

The Supreme Court held that while the PTO was correct regarding the limitations on court review of agency decisions under the APA, the civil action procedure provided by ' 145 is not so limited. Id. Rather, the district court must act as fact-finder with respect to new evidence and, when it does, it “makes little sense” for the court to defer to the PTO's findings. 132 S. Ct. at 1696. According to the Court, “the PTO, no matter how great its authority or expertise, cannot account for evidence it has never seen.” Id.

As to the exhaustion argument, the Supreme Court held that by the time a ' 145 action occurs, the PTO proceeding is complete. Id. Section 145 does not provide for remand to the PTO to consider new evidence, and remand is not needed because the district court in a ' 145 proceeding has the ability to act as fact-finder as to new evidence.

The Court then considered the evidentiary and procedural rules in effect when ' 145 was enacted in 1952. Id. The section can be traced back to the 1836 Patents Act, which first established the PTO. From the earliest days, the Act allowed judicial review of the PTO's refusal to grant a patent. As the Act developed, the 1870 version contained provisions for administrative review of an examiner's decision not to grant a patent, allowing an appeal first to a three-member board of examiners-in-chief, then to the Commissioner for Patents, and finally to an en banc sitting of the Supreme Court of the District Columbia, as the trial court was called at the time. This administrative review procedure was described as an appeal based on the evidence produced before the Commissioner. However, the prior remedy of a civil action in the district court was preserved, allowing that court to “adjudge” whether the applicant was “entitled according to law, to receive a patent for his invention ' as the facts in the case may appear.” Id.

These provisions are the precursor to ' 145, and two cases under the older version of the statute are relevant to the interpretation of ' 145: Butterworth v. United States ex rel. Hoe, 112 U.S. 50 (1884) and Morgan v. Daniels, 153 U.S. 120 (1894). In Butterworth, the Court distinguished the civil action option from review by the Supreme Court of the District of Columbia (which review was confined to the record developed in the PTO), stating the civil action would be decided “upon all competent evidence adduced and upon the whole merits.” 112 U.S. at 61. Prior lower court decisions had made clear that the parties to the civil action could introduce new evidence.

Ten years later, in Morgan, a party challenged the PTO's factual findings, but produced no new evidence. The Supreme Court described the dispute as one over a question of fact that had already “been settled by a special tribunal [e]ntrusted with full power in the premises” and characterized the proceeding not as an independent civil action, but as “something in the nature of a suit to set aside a judgment. 153 U.S. at 124. Given that view of the nature of the proceeding, Morgan held the agency's findings should not be overturned by “a mere preponderance of evidence.” Id.

In Kappos, the Court noted that “one might perceive tension between the two cases,” but was able to distinguish their holdings, noting that Morgan addressed interference proceedings, which are governed by ' 146 not ' 145 of the Patent Act and did not involve any new evidence. Because the case before the Court involved a proceeding in which new evidence was offered, the Court found Butterworth, not Morgan, to be the controlling precedent. Based on this view of the proceedings, the Court concluded that under ' 145 the district court may consider “all competent evidence adduced” and is not limited to new evidence that could not have been presented to the PTO.

The Court then concluded that once new evidence is introduced, the district court must act as fact-finder and “can only make those determinations de novo because it is the first tribunal to hear the evidence in question.” 132 S. Ct. at 1700.

The Court did agree with the Federal Circuit that the district court may, in its discretion, “consider the proceedings before and findings of the Patent Office in deciding what weight to afford an applicant's newly admitted evidence.” Id. (quoting Federal Circuit's opinion, 625 F.3d at 1335). In other words, an applicant's failure to introduce evidence before the PTO goes to the weight of that evidence ' and not its admissibility ' in the district court action.

The Court's view of the scope of the district court's powers on appeal conforms with a common-sense view: Because the Patent Act contains, in different sections, two different avenues for review of the PTO decision, it would make little sense if both the Federal Circuit (an appellate court that is not able to evaluate new evidence) and the district court (with its traditional role of fact-finder) were confined to consideration of the PTO record.

Implications

Although Kappos addressed the Patent Act specifically, the decision may have implications for cases brought in district courts to challenge decisions of the Trademark Trial and Appeal Board (“TTAB”). The Trademark Act contains similar dual routes for contesting a decision of the TTAB: either an appeal to the Federal Circuit Court of Appeals, 15 U.S.C. ' 1071(a), or a civil action that may be filed in any federal district court, 15 U.S.C. ' 1071(b). Subsection 1071(b)(3) expressly contemplates evidence in addition to the record developed in the PTO (“the record in the United States Patent and Trademark Office shall be admitted on motion of any party, upon such terms and conditions as to costs, expenses, and the further cross-examination of the witnesses as the court imposes, without prejudice to the right of any party to take further testimony” (emphasis added)).

The Kappos decision may also encourage defendants to continue pushing against the “clear and convincing evidence” standard for obviousness challenges based on prior art not considered by the PTO during examination. In Kappos, the Court considered that de novo determination of new evidence by the district court was mandated “as a logical matter” because the district court was the first tribunal to hear the new evidence and the district court “cannot meaningfully defer to the PTO's factual findings if the PTO considered a different set of facts.” Id. (citing Microsoft Corp. v. i4i Ltd. Partnership, 131 S.Ct. 2238 (2011)). In Microsoft Corp., it will be recalled, the Court held that invalidity of a patent must be established by clear and convincing evidence because that standard of proof was embodied in the statutory language of ' 282 of the Patent Act, even though such deference may seem illogical when the invalidity challenge is based on evidence, such as prior art never considered by the PTO in the examination leading to the patent. Perhaps, though, the Court does not consider an illogicality to be a proper test for statutory language.

John M. Cone and Megan M. O'Laughlin are with Hitchcock Evert, LLP in Dallas, and their practices focus on IP litigation.

Gilbert Hyatt appealed the Patent and Trademark Office's rejection of all 117 claims of his patent application titled “Improved Memory Architecture Having a Multiple Buffer Output Arrangement” to the Board of Patent Appeals and Interferences (“Board”) under ' 134(a). The Board allowed 38 of the claims, but denied the remaining 79 for lack of written description and enablement. Kappos v. Hyatt , 132 S. Ct. 1690, 1695 (2012). At that stage, Hyatt had two routes to obtain review of the Board's decision: an appeal under 35 U.S.C. ' 141 to the Federal Circuit Court of Appeals, or a civil action under ' 145 in the U.S. District Court for the District of Columbia.

A Civil Action

Hyatt chose to file a civil action in the district court. The U.S. Patent and Trademark Office (“PTO”) moved for summary judgment based on the findings made by the Board. In opposition, Hyatt filed a new declaration in which he identified portions of the specification that, he alleged, disclosed to a person of ordinary skill in the art the limitations that the Board said were not described and enabled.

The district court refused to admit the declaration because Hyatt had not presented it in the Board proceedings and did not show any excuse for not doing so. On appeal, a Federal Circuit panel affirmed, but this decision was vacated for en banc review. The Federal Circuit then held “that Congress intended that applicants would be free to introduce new evidence in Section 145 proceedings subject only to the rules applicable in all civil actions, the Federal Rules of Evidence and the Federal Rules of Civil Procedure” even if the applicant could not show justification for failure to present the evidence to the PTO. Hyatt v. Kappos , 625 F.3d 1320, 1331 (Fed. Cir. 2010). The en banc court also held that when new, conflicting evidence is introduced in a ' 145 proceeding, the district court must make de novo findings taking the new evidence into account. Id. at 1336.

The Supreme Court's Decision

The Supreme Court granted certiorari. The PTO argued to the Supreme Court first that new evidence should be admitted in a ' 145 proceeding only if the applicant had no reasonable opportunity to present it to the PTO. Second, the PTO argued that, even if new evidence is introduced, the Board's factual findings should be overturned only if the new evidence established clear error. The PTO's arguments were based on administrative law principles and existing case law.

Justice Clarence Thomas, writing for the Court, first reviewed the language of the statute, which reads:

An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences in an appeal under section 134(a) of this title may unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the District of Columbia if commenced within such time after such decision, not less than sixty days, as the Director appoints. The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board of Patent Appeals and Interferences, as the facts in the case may appear and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law. All the expenses of the proceedings shall be paid by the applicant. 35 U.S.C. ' 145.

On its face, this wording does not impose any limitations on the evidence that can be introduced, nor does it mandate a heightened standard of review for the PTO's factual findings.

The PTO argued that notwithstanding the express language, the statute should be read in the light of traditional principles of administrative law, found in the Administrative Procedures Act (“APA”). 132 S. Ct. at 1695, 96. Because ' 145 requires a court to review the decision making of an executive agency with specific authority and expertise, the PTO argued that the district court should defer to the PTO's factual findings. In addition, the PTO argued the traditional rule that a party must exhaust administrative remedies before seeking court review of an agency decision should be applied to prevent the introduction of new evidence unless there had been no opportunity to present it to the agency. Id. at 1696

The Supreme Court held that while the PTO was correct regarding the limitations on court review of agency decisions under the APA, the civil action procedure provided by ' 145 is not so limited. Id. Rather, the district court must act as fact-finder with respect to new evidence and, when it does, it “makes little sense” for the court to defer to the PTO's findings. 132 S. Ct. at 1696. According to the Court, “the PTO, no matter how great its authority or expertise, cannot account for evidence it has never seen.” Id.

As to the exhaustion argument, the Supreme Court held that by the time a ' 145 action occurs, the PTO proceeding is complete. Id. Section 145 does not provide for remand to the PTO to consider new evidence, and remand is not needed because the district court in a ' 145 proceeding has the ability to act as fact-finder as to new evidence.

The Court then considered the evidentiary and procedural rules in effect when ' 145 was enacted in 1952. Id. The section can be traced back to the 1836 Patents Act, which first established the PTO. From the earliest days, the Act allowed judicial review of the PTO's refusal to grant a patent. As the Act developed, the 1870 version contained provisions for administrative review of an examiner's decision not to grant a patent, allowing an appeal first to a three-member board of examiners-in-chief, then to the Commissioner for Patents, and finally to an en banc sitting of the Supreme Court of the District Columbia, as the trial court was called at the time. This administrative review procedure was described as an appeal based on the evidence produced before the Commissioner. However, the prior remedy of a civil action in the district court was preserved, allowing that court to “adjudge” whether the applicant was “entitled according to law, to receive a patent for his invention ' as the facts in the case may appear.” Id.

These provisions are the precursor to ' 145, and two cases under the older version of the statute are relevant to the interpretation of ' 145: Butterworth v. United States ex rel. Hoe , 112 U.S. 50 (1884) and Morgan v. Daniels , 153 U.S. 120 (1894). In Butterworth, the Court distinguished the civil action option from review by the Supreme Court of the District of Columbia (which review was confined to the record developed in the PTO), stating the civil action would be decided “upon all competent evidence adduced and upon the whole merits.” 112 U.S. at 61. Prior lower court decisions had made clear that the parties to the civil action could introduce new evidence.

Ten years later, in Morgan, a party challenged the PTO's factual findings, but produced no new evidence. The Supreme Court described the dispute as one over a question of fact that had already “been settled by a special tribunal [e]ntrusted with full power in the premises” and characterized the proceeding not as an independent civil action, but as “something in the nature of a suit to set aside a judgment. 153 U.S. at 124. Given that view of the nature of the proceeding, Morgan held the agency's findings should not be overturned by “a mere preponderance of evidence.” Id.

In Kappos, the Court noted that “one might perceive tension between the two cases,” but was able to distinguish their holdings, noting that Morgan addressed interference proceedings, which are governed by ' 146 not ' 145 of the Patent Act and did not involve any new evidence. Because the case before the Court involved a proceeding in which new evidence was offered, the Court found Butterworth, not Morgan, to be the controlling precedent. Based on this view of the proceedings, the Court concluded that under ' 145 the district court may consider “all competent evidence adduced” and is not limited to new evidence that could not have been presented to the PTO.

The Court then concluded that once new evidence is introduced, the district court must act as fact-finder and “can only make those determinations de novo because it is the first tribunal to hear the evidence in question.” 132 S. Ct. at 1700.

The Court did agree with the Federal Circuit that the district court may, in its discretion, “consider the proceedings before and findings of the Patent Office in deciding what weight to afford an applicant's newly admitted evidence.” Id. (quoting Federal Circuit's opinion, 625 F.3d at 1335). In other words, an applicant's failure to introduce evidence before the PTO goes to the weight of that evidence ' and not its admissibility ' in the district court action.

The Court's view of the scope of the district court's powers on appeal conforms with a common-sense view: Because the Patent Act contains, in different sections, two different avenues for review of the PTO decision, it would make little sense if both the Federal Circuit (an appellate court that is not able to evaluate new evidence) and the district court (with its traditional role of fact-finder) were confined to consideration of the PTO record.

Implications

Although Kappos addressed the Patent Act specifically, the decision may have implications for cases brought in district courts to challenge decisions of the Trademark Trial and Appeal Board (“TTAB”). The Trademark Act contains similar dual routes for contesting a decision of the TTAB: either an appeal to the Federal Circuit Court of Appeals, 15 U.S.C. ' 1071(a), or a civil action that may be filed in any federal district court, 15 U.S.C. ' 1071(b). Subsection 1071(b)(3) expressly contemplates evidence in addition to the record developed in the PTO (“the record in the United States Patent and Trademark Office shall be admitted on motion of any party, upon such terms and conditions as to costs, expenses, and the further cross-examination of the witnesses as the court imposes, without prejudice to the right of any party to take further testimony” (emphasis added)).

The Kappos decision may also encourage defendants to continue pushing against the “clear and convincing evidence” standard for obviousness challenges based on prior art not considered by the PTO during examination. In Kappos, the Court considered that de novo determination of new evidence by the district court was mandated “as a logical matter” because the district court was the first tribunal to hear the new evidence and the district court “cannot meaningfully defer to the PTO's factual findings if the PTO considered a different set of facts.” Id. (citing Microsoft Corp. v. i4i Ltd. Partnership, 131 S.Ct. 2238 (2011)). In Microsoft Corp., it will be recalled, the Court held that invalidity of a patent must be established by clear and convincing evidence because that standard of proof was embodied in the statutory language of ' 282 of the Patent Act, even though such deference may seem illogical when the invalidity challenge is based on evidence, such as prior art never considered by the PTO in the examination leading to the patent. Perhaps, though, the Court does not consider an illogicality to be a proper test for statutory language.

John M. Cone and Megan M. O'Laughlin are with Hitchcock Evert, LLP in Dallas, and their practices focus on IP litigation.