The Patent Office Can Commiserate With the ITC In Administrative Procedure Act Woes

Cindy Chen | August 8, 2014

Align Technology, Inc. v. ITC

July 18, 2014

Federal agencies such as the International Trade Commission and the United States Patent and Trademark Office enjoy broad administrative authority, and in the case of the ITC, independence. [1] These agencies’ authority, though broad, is not unbounded. The Administrative Procedure Act (APA) reins in that authority by allowing courts to vacate agency decisions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” up U.S.C. §706(2)(A). Align Technology v. ITC marks an instance where a federal agency is found to have overstepped its broad authority.

Align Technology, Inc. owns patents relating to dental aligners. As teeth are unique, dental aligners must be custom-designed for each patient. Align’s patents disclose various methods of obtaining data to determine the positioning of a patient’s teeth for the purpose of creating a three-dimensional digital model of the teeth. Digital data are then extracted from the three-dimensional digital model as blueprints for manufacturing successive dental aligners to incrementally move the patient’s teeth to their desired alignment.

Align had entered into a Consent Order, which prohibits its competitors from importing into the United States dental aligners and “manufactured articles” that infringe Align’s patents. However, suspecting that its competitors were importing digital data for manufacturing dental aligners, Align initiated an enforcement proceeding at the International Trade Commission (the “Commission”) against its competitors.

In its Notice of Institution, the Commission recommended that the administrative law judge (ALJ) consider the threshold issue of whether digital data are “within the scope of the articles covered by the Consent Order”. The Notice of Institution then instructed that the ALJ’s decision should be issued as an Initial Determination under 19 C.F.R. §210.42(c).

The ALJ decided that digital data were within the scope of the Consent Order, and as such, Align’s competitors violated the Consent Order. However, the ALJ issued its decision as an Order, and not the Initial Determination as instructed in the Notice of Institution. Unhappy with the decision, Align’s competitors sought the Commission’s review of the ALJ’s Order. The Commission not only granted the review, but reversed the Order. Align’s competitors appealed.

The Federal Circuit did not take favorably to the Commission’s review and reversal of ALJ’s Order. Quite the contrary, the Federal Circuit found that the Commission’s review was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” The Commission’s Rules of Practice and Procedure explicitly instruct that an ALJ’s ruling may not be appealed to the Commission before an initial determination is issued, unless the requirements for an interlocutory review are satisfied. 19 C.F.R. §210.24. Further, a ruling must meet certain criteria to be considered an initial determination. 19 C.F.R. §210.42(d).

Writing for the majority, Judge Chen followed closely the established rules of statutory construction in interpreting the Commission’s Rules of Practice and Procedure. Judge Chen looked at the plain and clear language of the rules, and found the language to expressly distinguish between a reviewable initial determination and a non-reviewable order. For instance, Rule 210.42(c) enumerates the types of motions that would result in an ALJ’s rulings on them being treated as an initial determination.The Order at issue in Align fell squarely into the non-reviewable category.

Judge Chen then looked at the Commission’s precedent of denying review of orders like the one at issue in Align, and saw no good reason for the Commission to have strayed from its precedent. Judge Chen identified a number of mechanisms that the Commission had reserved for itself, in its Rules of Practice and Procedure, for waiving, suspending, or amending the applicable rules so as to convert the non-reviewable Order at issue in Align into a reviewable initial determination. As the Commission could have taken honest advantage of those mechanisms, there was no need for the Commission to sidestep its own rules.

The Commission insisted that it had good and sufficient reason for reviewing the Order. Judge Chen was unconvinced, as the Commission had never articulated any such reason. Equally unconvincing was the Commission’s argument that the ALJ “mistakenly issued” the decision as an order. For gratuitously elevating a non-reviewable order into a reviewable initial determination, the Commission acted in a manner that was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” The Federal Circuit panel accordingly vacated the Commission’s reversal of the ALJ’s Order.[2]

The Federal Circuit’s opinion in Align is a reasonable reminder that while an agency’s rulemaking authority may be broad, perhaps even so broad that the agency could prescribe for itself the option of waiving, suspending, or amending its own rules, but as long as a rule remains in force, the agency is bound by it, and courts are bound to respect and enforce it. In its reasonableness, Align is not very remarkable.

What is interesting about Align, however, is the fact that the majority opinion is penned by Raymond Chen. For almost 15 years, Raymond Chen was a solicitor at the United States Patent and Trademark Office. As solicitor, Raymond Chen was often involved in defending the Patent Office, before the Federal Circuit, against complaints brought under the APA for allegedly arbitrary, capricious, or otherwise unlawful conduct.[3]

Since the Patent Office implemented the new inter partes review proceeding under the America Invents Act (AIA), a number of unhappy patent owners and petitioners have relied on the APA to contest the legality of the Patent Office’s procedural rules governing such proceeding. Speculations thus readily arise as to whether Judge Chen, with his background deeply rooted in the Patent Office, could play a role in establishing a body of administrative patent law, as the Patent Office continues to exercise its broad rulemaking authority under the AIA, and continues to be challenged for such exercise.

Synopsys, Inc. was the latest to sue the Patent Office for implementing inter partes review procedures that are allegedly “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” (“A Likely Uphill Battle for Synopsys in Suit Against the Patent Office”). Synopsys, a petitioner seeking to invalidate a patent, contested the legality of the Patent Office’s rules allowing the institution of inter partes review only as to some of the challenged claims on some of the asserted grounds of unpatentability asserted.

There were others before Synopsys. For example, the petitioner in Dominion Dealer Solutions, LLC v. Rea contested not the legality of some inter partes review procedure, but the validity of the Patent Trials and Appeals Board’s (PTAB) denial to institute inter partes review. In so denying, the petitioner argued that the PTAB acted unlawfully under section 706(A)(2). The PTAB’s offense was its alleged failure to properly credit the expert declarations that the petitioner had submitted in support of its patent challenges. The petitioner contended that its requests for inter partes review would have been granted but for the PTAB’s dismissal of those declarations.

The district court dismissed the petitioner’s complaint for lack of subject matter jurisdiction, as section 314(d) of the AIA bars the appeal of the Patent Office’s determination concerning the institution of an inter partes review. Such determination is “final and nonappealable”, as the clear language of the statute unequivocally instructs. The Federal Circuit relied on the same rationale in rejecting the petitioner’s request for a writ of mandamus vacating the Patent Office’s non-institution decision. In re Dominion Dealer Solutions, LLC (Order) (Fed. Cir., Apr. 24, 2014).

As a result of the clear explicit instructions in the AIA, the Federal Circuit in Dominion Dealer did not reach the question of whether the underlying inter partes review practice of the Patent Office prompting the original complaints were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

In contrast, when Synopsys reaches the Federal Circuit, which it has the potential to do, the Federal Circuit would likely have to examine whether the Patent Office’s practice of instituting inter partes review only for some of the challenged claims comports with the APA. Unlike Dominion Dealer, Synopsys directly attacked the legality of a procedural rule, rather than the validity of a substantive ruling from the Patent Office. And how would Synopsys fare in that hypothetical appeal to the Federal Circuit? Cooper Technologies Co. v. Dudas, 536 F.3d 1330 (Fed. Cir. 2008), seems to hint that the odds are not in Synopsys’s favor.

The American Inventors Protection Act of 1999 (AIPA) created the inter partes reexamination procedure. To implement that procedure, the Patent Office had to first define what applications would be eligible for inter partes reexamination. The statutory language of AIPA made inter partes reexamination available to all patents that issued from an “original application”. The Patent Office interpreted “original application” as including continuations, and finalized a rule so defining “original application.” This definition allowed a patent owned by the patentee in Cooper to be attacked, as the patent in question issued from a continuation application. Displeased, the patentee accused the Patent Office’s interpretation of “original application” of being “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” under Section 706 of the APA.

The Federal Circuit disagreed. Finding that the Patent Office has broad authority to administer procedural regulations governing “the conduct of proceedings in the Office,” the Federal Circuit decided that the Patent Office’s rules establishing the procedure of inter partes reexamination ought to enjoy Chevron deference. 35 U.S.C. §2(b)(2); Chevron, U.S.A., Inc. v. Natural Resources Defense Counsel, Inc., 467 U.S. 837 (1984).[4] The Federal Circuit then determined that as Congress had tasked the Patent Office with the interpretation of “original application”, the Patent Office’s interpretation need only be “permissible” or reasonable to pass the APA muster. And permissible was what the Federal Circuit thought of the Patent Office’s interpretation of “original application.”

The Patent Office would find one line of reasoning in Cooper particularly helpful to its defense against attacks, now and future; on the Patent Office’s inter partes review practice:

In this case, the Patent Office expressly interpreted “original application” as used in the AIPA, shortly after the AIPA was enacted. See 65 Fed. Reg. at 76757. “[T]he Supreme Court has instructed that ‘an administrative practice has particular weight when it involves a contemporaneous construction of a statute by the [persons] charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly while they are yet untried and new.’” Daewoo Elecs. Co. v. Int’l Union of Elec., Elec., Technical, Salaried & Machine Workers, AFL-CIO, 6 F.3d 1511, 1522 (Fed. Cir. 1993) (quoting Zenith Radio Corp. v. U.S., 437 U.S. 433 (1978). We therefore must give the Patent Office’s construction “particular weight” in our analysis.

The inter partes review created by the AIA is certainly “untried and new”. Moreover, as discussed in A Likely Uphill Battle for Synopsys in Suit Against the Patent Office, the AIA gives the Patent Office practically a free rein to construe relevant statutory provisions of the AIA in prescribing rules and regulations for the inter partes review proceedings. Following the Federal Circuit’s line of reasoning in Cooper, a cocoon of administrative deference would then seem to protect the Patent Office as it builds a procedural framework for inter partes review. And if Judge Chen’s emphasis on the Commission’s Rules of Practice and Procedure in Align offers any insight, it would be in his textbook approach to statutory construction, which should signal the Patent Office to trust the statutory language of the AIA to be its strongest defense.

Full Opinion


[1] The International Trade Commission is an independent federal agency, while the Patent Office exists as an agency within the Department of Commerce.

[2] To prevent the issue of the proper interpretation of the Consent Order from landing at the Federal Circuit again, Judge Chen determined for good measure that the Commission incorrectly interpreted the scope of the Consent Order as excluding digital data. More particularly, the Consent Order need not have explicitly spelled out digital data for them to be covered.

[3] See, e.g., Hyatt v. Kappos, 625 F.3d 1320 (Fed. Cir. 2010); Tafas v. Doll, 559 F.3d 1345 (Fed. Cir. 2009); Cooper Technologies Co. v. Dudas, 536 F.3d 1330 (Fed. Cir. 2008); Arnold Partnership v. Dudas, 362 F.3d 1338 (Fed. Cir. 2004); and In re Lee, 277 F.3d 1338 (Fed. Cir. 2002).

[4] The Supreme Court in Chevron held that courts must defer to an agency’s reasonable interpretation of a statute, not only when Congress expressly delegates interpretative authority to the agency, but also when Congress is silent or leaves ambiguity in a statute that the agency is charged with administering. Id., at 842-44. Deference is not appropriate where Congress has spoken directly on the statute at issue, that is, where the search for the plain meaning of the statute yields a clear result and the intent of Congress is unambiguous.

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