Today, the Supreme Court issued two decisions, described below, of interest to the business community.

Administrative Law—Chevron Deference

Encino Motorcars, LLC v. Navarro, No. 15-415

Under Chevron U.S.A. Inc. v. NRDC, an agency is ordinarily entitled to deference when it interprets a statute through notice-and-comment rulemaking. Today, however, the Supreme Court issued a unanimous reminder that Chevron is not absolute, refusing to accord deference to a Department of Labor regulation interpreting a narrow question about the Fair Labor Standards Act.

The regulation at issue concerns whether service advisors at automobile dealerships are entitled to time-and-a-half overtime pay for working more than 40 hours in a given week. By statute, "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements" is exempted from the right to overtime pay. And from 1978 until 2011, the Department of Labor's position was that service advisors fell within the statutory definition of "salesman."

In 2008, the Department issued a notice of proposed rulemaking that would codify that longstanding interpretation. But the final regulation, issued in 2011, abruptly changed course and defined "salesman" to mean only an employee who sells automobiles, trucks, or farm implements—and not one who sells automobile service.

In today's decision, the Supreme Court declined to defer to the 2011 regulation. The Court held that the regulation was procedurally defective because it failed to explain why the Department was abandoning its longstanding interpretation and failed to account for the reliance interests engendered by the previous interpretation. As a result of the procedural defect, the Court held that the regulation was not entitled to any deference.

The Court's six-Justice majority, in an opinion written by Justice Kennedy, directed that the underlying claim for overtime pay be remanded to the Ninth Circuit for a determination of whether the statute, interpreted de novo, entitles the plaintiff to overtime pay. Justice Thomas, joined by Justice Alito, issued a dissenting opinion. While agreeing that the regulation was not entitled to deference, Justice Thomas would have proceeded to reject the plaintiff's claim for overtime on the merits.

Patent Act—Inter Partes Review

Cuozzo Speed Techs, LLC v. Lee, No. 15-446

When a third party wishes to challenge a patent as obvious or lacking novelty, the third party may invoke an administrative procedure known as inter partes review.

That procedure was created by the Leahy-Smith America Invents Act of 2012, and, today, the Supreme Court resolved two significant questions regarding how these review proceedings must be administered.

First, the Court held that the Patent Office's decision whether to initiate inter partes review is not appealable, even following a final determination on the merits, in view of Section 314(d) of the Patent Act, which expressly renders the initiation decision "nonappealable." (The Court suggested that, if the basis for challenging the initiation decision were based on constitutional principles, then Section 314(d) may not be enforceable.)

Second, the Court held that the Patent Office acted within its discretion in promulgating a regulation specifying that, when reevaluating a patent claim through inter partes review, the claim must be accorded its "broadest reasonable construction."

The standard of construction is meaningful because of nuances in the patent process. When an applicant seeks a patent, the examiner evaluates the prior art to determine whether the proposed claims are novel and non-obvious. The proposed claim language is given its "broadest reasonable interpretation" so that the claim must overcome the broadest array of prior art. During prosecution, if conflicting prior art is identified, the applicant may offer a narrowed amended claim. In infringement litigation, by contrast, patent claims are interpreted pursuant to their "ordinary meaning as understood by a person of skill in the art."

Before the Supreme Court, Cuozzo challenged the "broadest reasonable construction" standard on the theory that there was little "opportunity to amend" the patent should a conflict with the prior art be identified. The Court disagreed, identifying circumstances in which the Patent Office had granted amendments to patents during inter partes review. The Court therefore agreed with the Patent Office that inter partes review is "less like a judicial proceeding and more like a specialized agency proceeding," such that using the broadest reasonable construction "protect[s] the public" because it "helps ensure precision while avoiding overly broad claims, and thereby helps prevent a patent from tying up too much knowledge."

The opinion for the Court was authored by Justice Breyer.

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