In a landmark decision issued on Friday, June 28, 2004, the Supreme Court in Loper Bright Enterprises v. Raimondo overruled a prior cornerstone holding of agency law—called Chevron deference—that a court must defer to agency action with respect to an ambiguous statute.
This decision will have ramifications in virtually all areas of administrative law, not the least of which includes regulations promulgated by the United States Patent and Trademark Office. As explained below, the end of Chevron deference gives rise to many new potential challenges against existing rules governing post grant proceedings (inter partes reviews and post grant reviews) before the Patent Trial and Appeal Board.
Chevron Deference
Briefly, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (Chevron) set forth the longstanding test for when courts had to defer to an administrative action involving statutory interpretation. Under Chevron, the first question is whether Congress has directly spoken to the question at issue. If Congress's intent is clearly expressed by statute, then the court does not have to defer to the agency. If, however, the statutory language is silent or ambiguous, the court must proceed to the second step which considers whether the agency's interpretation is based on a "permissible construction of the statute."
Justice Roberts, writing for the Court, called the Chevron test "unworkable" in part due to the fact that "the concept of ambiguity has always evaded meaningful definition." The Loper Court thus held that "Chevron is overruled." In doing so, the Court explained that "courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous."
Application of Chevron Deference in Post Grant Proceedings
In general, the Federal Circuit has declined to defer to the USPTO on substantive issues, holding that the patent statute does not authorize the USPTO to "issue substantive rules."1 Nonetheless, Chevron has been cited numerous times by courts considering challenges to USPTO regulations relating to post grant proceedings. For the purpose of this article, we focus on those decisions which have relied on Chevron deference to uphold the USPTO's regulation.
One of the earliest such decisions, Cuozzo Speed Technologies v. Commerce for Intellectual Property2, concerned the standard for claim construction in an inter partes review. Cuozzo confirmed that the USPTO had permissibly required a broadest reasonable interpretation standard in view of a statute that granted it authority to issue regulations "governing inter partes review," because no statutory provision unambiguously mandated a particular claim construction standard. The USPTO subsequently used this authority permitted under Chevron to change the claim construction standard for IPRs to a stricter standard aligned with that used in federal district court.
In Ethicon Endo-Surgery, Inc. v. Covidien LP, the Federal Circuit considered whether the Director had the ability to delegate institution decisions to the PTAB.3 Answering that question in the affirmative, the Federal Circuit explained that the statute's reference to "the Director" was ambiguous with respect to whether it required her personal involvement or direct oversight. The Court thus deferred to the USPTO rule allowing the Board to institute IPRs "on behalf of the Director."
The Federal Circuit has also given Chevron deference to the USPTO's rulemaking relating to the scope of institution. In Harmonic Inc. v. Avid Technology, Inc., the Court upheld USPTO regulations permitting institution on fewer than all grounds when, in the view of the Board, other grounds were "redundant" to the instituted ground.4
Will Post Grant Proceedings Change Without Chevron Deference?
The now-overruled applications of Chevron deference provide a ready roadmap to areas where both petitioners and patentees could challenge existing USPTO rules. Petitioners looking for broader claim targets may pursue a return to the broadest reasonable interpretation with the reasoning in Cuozzo now obsolete. Likewise, petitioners could soon challenge the USPTO's exclusion of certain grounds of institution as exceeding the authority provided by 35 U.S.C. § 314.
Beyond these apparent targets, there is certain to be litigation surrounding the USPTO's ongoing rulemaking relating to discretionary denials. The USPTO's authority to deny an otherwise meritorious IPR petition derives from 35 U.S.C. § 325(d), which states the Director may deny institution in situations in which "the same or substantially the same prior art or arguments previously were presented to the Office." While the USPTO has claimed rulemaking authority with respect to discretionary denials, the new lack of Chevron deference will certainly raise questions as to the limits of this discretion.
Patent owners could pursue a number of potential avenues relating to the USPTO's rules on amended claims. The USPTO's strict presumption of "one substitute claim" for each challenged claim may be questioned in view of Section 316(d)'s broader language allowing "a reasonable number of substitute claims." Moreover, the Board's discretionary authority to deny motions to amend could be challenged as overly draconian and inconsistent with Congress's intent.
The coming months will undoubtedly see a number of challenges to USPTO rulemaking authority, with post-grant practice, as usual, in the crosshairs. Buchanan's teams of attorneys stand ready to assist clients in understanding the implications of this ruling across intellectual property and other areas of agency law.
Footnotes
1. Merck & Co. v. Kessler, 80 F.3d 1543, 1549-50 (Fed. Cir. 1996) (35 U.S.C. § 6 authorizes the USPTO to "promulgate regulations directed only to 'the conduct of proceedings in the PTO,'" but not "to issue substantive rules").
2. Cuozzo Speed Technologies v. Commerce for Intellectual Property, 579 U.S. 261 (U.S., 2016).
3. 812 F.3d 1023 (Fed. Cir. 2016).
4. 815 F.3d 1356 (Fed. Cir. 2016).
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