Ethicon Endo-Surgery, Inc. v. Covidien Lp , 826 F.3d 1366 ( 2016 )

United States Court of Appeals
for the Federal Circuit
______________________
ETHICON ENDO-SURGERY, INC.,
Appellant
v.
COVIDIEN LP,
Appellee
______________________
2014-1771
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. IPR2013-
00209.
______________________
ON PETITION FOR REHEARING EN BANC
______________________
Before PROST, Chief Judge, NEWMAN, LOURIE, DYK,
MOORE, O’MALLEY, REYNA, WALLACH, TARANTO, CHEN,
and HUGHES, Circuit Judges. ∗
NEWMAN, Circuit Judge, dissents from the denial of the
petition for rehearing en banc.
PER CURIAM.
∗
Circuit Judge Stoll did not participate.
2 ETHICON ENDO-SURGERY, INC. v. COVIDIEN LP
ORDER
Appellant Ethicon Endo-Surgery, Inc. filed a petition
for rehearing en banc. A response to the petition was
invited by the court and filed separately by the appellee
Covidien LP and intervenor Michelle Lee, Director, U.S.
Patent and Trademark Office. Several motions for leave
to file amici curiae briefs were also filed and granted by
the court.
The petition, responses, and briefs of amici curiae
were referred to the panel that heard the appeal, and
thereafter were referred to the circuit judges who are in
regular active service. A poll was requested, taken, and
failed.
Upon consideration thereof,
IT IS ORDERED THAT:
The petition for rehearing en banc is denied.
The mandate of the court will be issued on June 29,
2016.
FOR THE COURT
June 22, 2016 /s/ Peter R. Marksteiner
Peter R. Marksteiner
Clerk of Court
United States Court of Appeals
for the Federal Circuit
______________________
ETHICON ENDO-SURGERY, INC.,
Appellant
v.
COVIDIEN LP,
Appellee
______________________
2014-1771
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board in No. IPR2013-
00209.
______________________
NEWMAN, Circuit Judge, dissenting from denial of rehear-
ing en banc.
The America Invents Act divides inter partes review
into two distinct phases, heard by two distinct entities.
First, the Director makes a threshold institution determi-
nation. 35 U.S.C. § 314. If instituted by the Director, the
Patent and Trial Appeal Board then conducts a trial and
determines the validity of the challenged claims. 35
U.S.C. § 6(b)(4). Ignoring this statutory division of re-
sponsibilities, the PTO has assigned the institution deci-
sion to the PTAB, 37 C.F.R. § 42.4(a). Under current
practice, the same administrative patent judges responsi-
ble for instituting an IPR preside over the merits trial.
2 ETHICON ENDO-SURGERY, INC. v. COVIDIEN LP
Ignoring the statutory division of responsibility is con-
trary to the plain text and carefully designed structure of
the America Invents Act, and imperils the public confi-
dence in the fairness and correctness of these proceedings.
“The rulemaking power granted to an administrative
agency charged with the administration of a federal
statute is not the power to make law. Rather, it is the
power to adopt regulations to carry into effect the will of
Congress as expressed by the statute.” Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 213–214 (1976). I respectfully
dissent from the court’s denial of en banc consideration.
The America Invents Act is, fundamentally, economic
legislation. By modifying heavily criticized patent proce-
dures, Congress hoped to increase confidence in the PTO
and spur the nation’s innovation and investment in new
technologies. See, e.g., H.R. Rep. No. 112-98, pt.1, at 40
(2011) (“If the United States is to maintain its competitive
edge in the global economy, it needs a system that will
support and reward all innovators with high quality
patents.”); see also 153 Cong. Rec. H10284 (daily ed. Sept.
7, 2007) (statement of Rep. Eshoo) (“The rapid pace of
innovation and increasingly complex patent filings have
strained the Patent and Trademark Office and patent
claims of questionable validity have been granted.”).
To reaffirm the nation’s commitment to predictable
and fair patent rights, Congress created new administra-
tive proceedings, to provide “quick and cost effective
alternatives to litigation,” H.R. Rep. 112-98 at 48, for the
purpose of “improv[ing] patent quality and restor[ing]
confidence in the presumption of validity that comes with
issued patents in court,” id.The legislative record reveals that proposals for post-
grant proceedings were quite controversial. See Patent
Act of 2005: Hearing on H.R. 2795 Before the H. Sub-
comm. on Courts, the Internet, and Intell. Prop., 109th
Cong. 15 (2005) (Statement of Gary L. Griswold, Presi-
ETHICON ENDO-SURGERY, INC. v. COVIDIEN LP 3
dent, AIPLA) (“AIPLA opposes having a second window
for bringing an opposition for the life of a patent. The
proposed second window, where the burden of proof is a
‘preponderance of the evidence’ instead of ‘clear and
convincing evidence,’ will increase the risks faced by
patent holders and dampen their enthusiasm for invest-
ing in the development and commercialization of their
patented technologies.”). The record is replete with
similar concerns of commentators, patentees, and the
PTO.
In response to these concerns, Congress meticulously
incorporated safeguards against delay at the PTO and
harassment of patentees. See H.R. Rep. 112-98, pt. 1 at
48 (“[T]he changes made . . . are not to be used as tools for
harassment or delay or a means to prevent market entry
through repeated litigation and administrative attacks on
the validity of a patent. Doing so would frustrate the
purpose of the section for providing quick and cost-
effective alternatives to litigation.”).
The carefully designed post-grant procedures also en-
sured that constitutionally mandated patent rights were
not abrogated without due process of law. See James v.
Campbell, 104 U.S. 356, 358 (1881) (“When [the govern-
ment] grants a patent the grantee is entitled to it as a
matter of right, and does not receive it . . . as a matter of
grace and favor.”).
The Director’s institution decision was such a protec-
tion: “The Patent Office made clear that a higher thresh-
old is necessary to weed out marginal challenges and
preserve the office’s own resources.” 157 Cong. Rec.
S1041 (daily ed. Mar. 1, 2011) (statement of Sen. Kyl); see
also 154 Cong. Rec. S9987 (daily ed. Sept. 7, 2008)
(statement of Sen. Kyl) (“Proposed section 322 includes a
number of provisions that are designed to limit the use of
post grant review proceedings as a delaying tactic and to
mitigate these proceedings’ negative impact on efforts to
4 ETHICON ENDO-SURGERY, INC. v. COVIDIEN LP
enforce a patent.”); Patent Reform Act of 2007: Hearing
Before the Subcomm. on Courts, the Internet, and Intell.
Prop. of the H. Comm. On the Judiciary, 110th Cong. 16
(statement of Rep. Berman) (“Postgrant provides the
ability to challenge the validity of a patent and provides
mechanisms to prevent harassment.”).
By statute, “institution” is an initial determination
committed to the discretion of the Director. 35 U.S.C. §
314(a). This initial step permits the Director to reject a
petition that is cumulative, harassing, anti-competitive,
or non-meritorious; it also permits the Director to decline
to institute if the resources of the Office are over-
burdened. When the Director grants a petition, the
merits trial is conducted by an independent PTAB panel.
The panel is authorized to exercise judicial powers, but-
tressed by discovery, witness testimony, briefs, oral
arguments, and the power in the PTAB to amend and
cancel claims. See 35 U.S.C. § 6(b).
The purpose of the PTAB trial is to correctly and fi-
nally determine the validity of challenged claims. Con-
gress repeated multiple times in the statute the
requirement that the Director (not the PTAB) makes the
institution decision. See, e.g., 35 U.S.C. § 314(c) (notifica-
tion must be made of “the Director’s determination under
subsection (a)”); § 314(d) (the Director may join parties
“[i]f the Director institutes an inter partes review”). The
America Invents Act is equally clear that a panel of the
PTAB conducts an instituted review and issues a final
written decision on validity. See 35 U.S.C. §§ 316(c),
318(a).
The two phases have different evidentiary rules, rec-
ords, witness and argument structures, burdens of proof,
time limits, and rights of appeal. This division of authori-
ty protects patentees by ensuring that the threshold
decision to institute neither pre-ordains nor prejudices the
later decision on the merits. Independence of the two
ETHICON ENDO-SURGERY, INC. v. COVIDIEN LP 5
decision-makers is crucial to achieving the statutory
purpose.
Congress was well aware that these strictures were
binding on the office; a House Report on a predecessor bill
commented on the authority of the PTO to promulgate
rules contrary to statute. H.R. Rep. No. 110-314, at 45
(2007) (“Where Congress has seen fit to provide specific
limitations or conditions in statute, the USPTO may not
surpass or take away these limitations or conditions by
promulgated rule.”). Congress intended the PTO to use
its limited rulemaking authority not to override the text
and structure of the statute, but to “address potential
abuses and current inefficiencies.” H.R. Rep. 112-98, pt. 1
at 48 (2011).
In promulgating 37 C.F.R. § 42.4(a), the PTO ignored
this statutory division of responsibilities, and assigned
the PTAB to handle both the institution and merits
phases of inter partes review. This consolidation of deci-
sion-makers violates the statute. “When an agency’s
interpretation of a statute it is entrusted to administer is
contrary to the intent of Congress, as divined from the
statute and its legislative history, we owe it no deference.”
Muwwakkil v. Office of Pers. Mgmt., 18 F.3d 921, 925
(Fed. Cir. 1994).
The majority panel decision and the Director frame
the issue as a simple exercise of the Director’s rulemaking
and/or delegation authority. This question obscures the
legislative point; the Director may generally subdelegate,
and may exercise procedural rulemaking authority, with
regard to these proceedings. Here, however, the statute
creates an explicit distinction between the institution
phase assigned to the Director, and the merits phase
conducted by the PTAB. The question presented, there-
fore, is whether the PTO may ignore the explicit statutory
provision and congressional intent to the contrary. The
answer is unequivocally no. When the statute is explicit
6 ETHICON ENDO-SURGERY, INC. v. COVIDIEN LP
as to the agency’s statutory function, there is no discre-
tion to contravene it.
The current practice of assigning the same PTAB
panel to both institute and conduct an inter partes review
is not only contrary to the statute, but has the taint of
prejudgment. Many commentators, including the amici
curiae in this case, point to the PTO’s own statistics as
evidence of prejudgment, calling the merits phase “a
largely rubber-stamp proceeding.” 3M, et al. Br. at 3.
Whatever the merit of these criticisms, the numbers do
not bode confidence. The Board has reversed course and
found patentability after institution in just 9% of inter
partes reviews. See PTAB Statistics, at 10 (April 30,
2016) (134 trials of 1511 instituted trials), available at
http://www.uspto.gov/sites/default/files/documents/2016-4-
30%20PTAB.pdf. In covered business method review, the
figure is 2%. Id. at 11 (3 trials of 180 instituted trials).
At the claim level, the numbers tell a similar story. Of
the 12,336 claims decided by the Board, the Board invali-
dated 10,175, or 82.5% of claims. Id. at 13. With inclu-
sion of the 1,919 claims disclaimed or cancelled by the
patentee, just 15.2% of instituted claims survived inter
partes review. Id.
It is our judicial obligation to ensure agency compli-
ance with statutory text and purpose. The departure by
the PTO is not only contrary to the statute, but has dev-
astating consequences for the public confidence in post-
grant proceedings and the patent system as a whole. The
nation’s economic health depends on public confidence in
an unbiased and balanced patent system. I respectfully
dissent from the denial of en banc reconsideration.