While PTO Action was Frustrating; Applicants can only Appeal Final Agency Actions

In Odyssey Logistics and Technology Corporation v. Iancu, [2019-1066] (May 22, 2020), the Federal Circuit affirmed the district court that the challenges of Application No. 11/005,678 and 11/465,603 concerned non-final agency actions, and the challenge to the amendments to the Rules of Practice were barred by §2401.

After winning an ex parte appeal in the ‘678 application, the USPTO issued a request for rehearing, arguing that the Board applied the wrong version 35 USC 102(e), Odyssey filed petitions objecting to the rehearing procedure, and requests for re-consideration when those petitions were dismissed. Odyssey eventually made some arguments on the merits “under protest,” but instead of waiting for the Board’s decision on these arguments, Odyssey filed this challenge to the request for re-hearing in the Eastern District of Virginia.

Odyssey appealed the examiner’s rejections of the ’603 application.  And in response to the Examiner’s Answer, Odyssey believed that the answer included new grounds, and filed a petition, requesting that the Technology Center Director designate certain portions of the Asnwer as new grounds of rejection.  Rather than filing a brief replying to the examiner’s answer and waiting to see if the Board would strike certain portions of its reply as improper, Odyssey challenged the dismissal of the petition in the Eastern District of Virginia.

The district court dismissed the first two challenges because Odyssey was challenging actions not yet final before the Board; the Board could provide Odyssey with an adequate remedy, and if not, Odyssey had statutory remedies for appeal under 35 U.S.C. §§ 141 or 145.

The third challenge was to the PTO’s 2011 amendments to its rules of practice in ex parte appeals.  The district court dismissed the third challenge holding that 28 U.S.C. § 2401 barred the claims.

With respect to the first challenge, the Federal Circuit said that until the Board issues its rehearing decision, the PTO has not consummated its decision-making process and Odyssey’s rights and obligations in the ’678 patent have not been determined. Without such final action from the PTO, the APA does not entitle Odyssey to judicial review.

With respect to the second challenge, the Federal Circuit said that the dismissal of Odyssey’s petition to designate new grounds is non-final agency action because the dismissal did not determine any rights or obligations or result in any legal consequences. The Federal Circuit said that until the Board refuses to consider arguments made in Odyssey’s reply brief for exceeding the permissible scope of the brief under 37 C.F.R. § 41.41, the denial of Odyssey’s petition to designate new grounds has not determined any rights or resulted in any legal consequences. The district court was therefore correct to dismiss Count II for lack of finality. With respect to the third challenge, the Federal Circuit found the district court’s decision was unquestionably correct.   The challenged rules were published in the Federal Register on November 22, 2011; Odyssey filed  its  facial  challenge  on January  23,  2018, more than six years later.  The challenge was therefore barred by 28 U.S.C. § 2401.

Board Must Consider Applicant’s Reply to New Grounds in the Examiner’s Answer

In In re Durance, [2017-1486] (June 1, 2018), the Federal Circuit vacated the Board’s determination of obviousness and remand for the Board to consider applicants’
reply-brief arguments in the first instance.

Durance, Fu, and Yaghmaee filed a patent application on improved methods and
apparatuses for “microwave vacuum-drying of organic materials, such as food products and medicinal plants.  Applicants appealed a final rejection of the claims, and in her Answer, the Examiner raised a new structural identify argument to counter applicant’s argument against the rejection.  Applicants challenged the examiner’s structural-identity
rejection in its reply brief. Durance explained that the Examiner’s never-before articulated understanding of the corresponding structure from the specification was
extremely inaccurate.   The Board affirmed the rejection, disregarding Durance’s
reply-brief arguments by citing 37 C.F.R. § 41.41(b)(2) and stating that these arguments were “not responsive to an argument raised in the Answer.”  The Board denied rehearing, reiterating that it would not consider applicant’s reply-brief arguments, because applicants did not provide such a showing or indicate where a new argument requiring such a response was raised in the Examiner’s Answer.

The Federal Circuit noted that throughout the examination, the Patent Office continually
shifted its position on which structures and what characteristics of those structures are the bases for the Office’s grounds of rejection, such that the Court was “not confident” in the reasoning for the rejection.  As to the failure to consider arguments in applicants’ reply brief, the Federal Circuit noted that Section 41.41(b)(2) permits a reply brief to respond to “an argument raised in the examiner’s answer.” The Federal Circuit added that nothing in this provision bars a reply brief from addressing new arguments raised in the Examiner’s Answer that are not articulated in the Final Office Action, regardless of whether the examiner designated that new argument as a “new ground of rejection.  The Federal Circuit said:

If an examiner’s answer includes arguments raised for the first time, i.e., not in the Final Office Action, an applicant may address those arguments in the reply.

The Federal Circuit said that the equivocal nature of the examiner’s and Board’s remarks throughout the examination of the application, including whether inherency was the basis for the rejection, clouded the issues before applicants.  Accordingly, applicants had no notice, prior to the examiner’s answer, of the grounds on which his application was being rejected, and it was therefore proper under § 41.41(b)(2) for applicants to
to respond to the argument raised in the examiner’s answer.  The Federal Circuit rejected the Patent Office’s argument that applicant should have petitioned to have the
examiner’s answer designated as a new ground of rejection, finding no such requirement in the regulations.

 

A §145 Action May Not Be As Appealing as a Trip to the Federal Circuit

In Nantkwest, Inc. v. Matal, [2016-1794] (June 23, 2017), the Federal Circuit reversed the denial of attorneys fees to the USPTO in successfully defending civil action under 35 USC §145 brought by a patent applicant.  The statute provides that the applicant must pay “[a]ll of the expenses of the proceeding . . . regardless of the outcome.” The district court held that “expenses” did not include attorneys fees.

The Federal Circuit found that the ordinary meaning of “expenses” as defined in dictionaries and the Supreme Court’s interpretation of this term lend significant weight to the conclusion that when Congress used the phrase “all expenses,” it meant to include attorneys’ fees.  Accordingly, the Federal Circuit held “[a]ll expenses of the proceedings”
under § 145 includes the pro-rata share of the attorneys’ fees the USPTO incurred to defend applicant’s appeal.

The Federal Circuit remanded the case for the district court to enter an additional award of $78,592.50 in favor of the Director.

Although it may seem unfair that an applicant losing an appeal has to pay the Office’s cost in successfully defending the appeal of a rejection, as the Federal Circuit pointed out, this is how Congress chose to allocate the cost of an appeal to the district court.  What is unfair, however, is that this is how Congress chose to allocate the cost of an applicant’s successful appeal of an improper rejection as well.  Thus, an applicant faced with an improper rejection who brings an action under §145 and wins, is still on the hook for the Patent Office’s attorneys fees.  This unfair result alone might suggest that Congress did not intent to include attorneys’ fees in “expenses,” otherwise Congress is putting a high price on justice.

So why would an applicant chose to take a PTAB decision to district court, rather than appeal to the Federal Circuit?  The principal reason is that the PTAB may have pointed out an evidentiary defect in the applicant’s case.  If the applicant appeals to the Federal Circuit the record is fixed, and if the PTAB was correct about the defect, the Federal Circuit will simply affirm the PTAB.  However, in an action under §145 the applicant can introduce additional evidence, for example a declaration by the inventor, or by an expert, or perhaps even evidence of objective indicia of non-obviousness.  This could allow the applicant to obtain a patent, when an appeal would otherwise be futile.  Depending upon the importance of the invention, this might well be worth an additional $78,000 or so.

However is a §145 action the only way to obtain this result?  Perhaps not.  One might assume that if you do not appeal the PTAB decision that it becomes final and res judicata will prevent the application from ever getting the claims that the were the subject of the appeal. This would be a good reason to pursue the §145 action.  However, the underlying assumption may be wrong.  In In re Donohue, 226 USPQ 619 (Fed. Cir. 1985), the Federal Circuit held that the Patent Office should not apply res judicata where the applicant made a different record, for example by supplying a new affidavit or declaration:

Appellant has made a record different from that in Donohue I by submitting the Fields affidavit. This new record presents a new issue of patentability with respect to whether the previously sustained anticipation rejection can still be maintained. In view of this new issue, the PTO properly declined to make a formal res judicata rejection . . .

226 USPQ 621.  As long as Donohue remains good law, a patent applicant can file an RCE or even a continuation, supplement its records, and continue to prosecute claims whose rejection was affirmed by the PTAB (and not have to spend $80,000 on the the USPTO’s expenses in a §145 action.

It is still unfair that a successful applicant in a §145 action has to pay for the unsuccessful efforts of the USPTO in defending an improper rejection, but at least the applicant has an alternative route to continue to pursue the claims after an unsuccessful appeal to the PTAB.