Automated Merchandising Systems, Inc. v. Lee

United States Court of Appeals
for the Federal Circuit
______________________
AUTOMATED MERCHANDISING SYSTEMS, INC.,
a Delaware Corporation,
Plaintiff-Appellant
v.
MICHELLE K. LEE, Director, U.S. Patent and
Trademark Office, in her official capacity as the
Under Secretary of Commerce for Intellectual
Property and Director of the United States Patent
and Trademark Office,
Defendant-Appellee
______________________
2014-1728
______________________
Appeal from the United States District Court for the
Eastern District of Virginia in No. 1:13-cv-01289-AJT-
JFA, Judge Anthony J. Trenga.
______________________
Decided: April 10, 2015
______________________
JAMES DANIEL BERQUIST, Davidson Berquist Jackson
& Gowdey, LLP, Arlington, VA, argued for plaintiff-
appellant. Also represented by DONALD LEE JACKSON.
MEGAN BARBERO, Appellate Staff, Civil Division,
United States Department of Justice, Washington, DC,
argued for defendant-appellee. Also represented by MARK
2 AUTOMATED MERCHANDISING v. LEE
R. FREEMAN, JOYCE R. BRANDA; NATHAN K. KELLEY,
WILLIAM LAMARCA, LORE A. UNT, Office of the Solicitor,
United States Patent and Trademark Office, Alexandria,
VA; DANA J. BOENTE, DAVID MOSKOWITZ, Office of the
United States Attorney for the Eastern District of Virgin-
ia, Alexandria, VA.
______________________
Before PROST, Chief Judge, TARANTO, Circuit Judge,
and FOGEL, District Judge. *
TARANTO, Circuit Judge.
Automated Merchandising Systems, Inc. (AMS) peti-
tioned the United States Patent and Trademark Office to
terminate four pending inter partes reexaminations of
four AMS patents that had been the subject of a patent-
infringement suit between AMS and Crane Co., the
requester of the reexaminations. After AMS and Crane
entered into a consent judgment, which dismissed the
infringement suit and stated that the parties stipulated to
the validity of the patents, AMS argued to the PTO that
the reexaminations must stop because, under 35 U.S.C. §
317(b) (2006), the consent judgment was a “final decision
. . . entered against a party in a civil action . . . that the
party has not sustained its burden of proving the invalidi-
ty of any patent claim in suit.” The PTO denied AMS’s
petition to terminate the reexaminations.
When AMS challenged that decision in district court
under the Administrative Procedure Act (APA), 5 U.S.C.
§§ 701–706, the court held that § 317(b) did not require
termination of the reexaminations. Automated Merch.
Sys., Inc. v. Rea, No. 1:13-CV-1289, 2014 WL 4628552, at
* Honorable Jeremy Fogel, District Judge, United
States District Court for the Northern District of Califor-
nia, sitting by designation.
AUTOMATED MERCHANDISING v. LEE 3
*3–6 (E.D. Va. Aug. 6, 2014) (AMS). The court concluded
that the consent judgment, though final, was not a deci-
sion that Crane failed to prove invalidity of the patents,
as the judgment stated, regarding invalidity, only that the
parties stipulated to validity. Id. We now affirm, though
not on the district court’s ground of § 317(b)’s inapplicabil-
ity. We conclude that AMS’s challenge to the PTO’s
refusal to terminate pending reexaminations cannot
proceed because the refusal is not a “final agency action”
under the APA, 5 U.S.C. § 704.
BACKGROUND
AMS sued Crane in the Northern District of West
Virginia for infringement of four patents, U.S. Patent
Nos. 6,384,402, 6,794,634, 7,191,915, and 7,343,220. In
early 2011, years into the litigation, Crane requested an
inter partes reexamination of each patent under 35 U.S.C.
§§ 311–318 (2006). 1 Finding that Crane had raised sub-
stantial new questions of patentability as to all four
patents, the PTO initiated four inter partes reexamina-
tions. Id. §§ 312(a), 313.
While the reexaminations were underway, AMS and
Crane settled their suit in the Northern District of West
Virginia. Pursuant to the settlement, the court issued a
consent judgment stating, in relevant part, that “[t]he
parties stipulate that [the four patents] are valid,” that
“[a]ll claims . . . are dismissed with prejudice,” and that
“[t]his judgment is final.” J.A. 62. AMS then asked the
1 The America Invents Act (AIA) repealed the pro-
visions authorizing inter partes reexaminations. Pub. L.
No. 112-29, § 6, 125 Stat. 284, 299–305 (2011). But the
pre-AIA provisions apply here because Crane requested
the inter partes reexaminations before the effective date
of the AIA. Id. § 6(c)(3)(C), 125 Stat. at 305.
4 AUTOMATED MERCHANDISING v. LEE
PTO, several times, to terminate the reexaminations
under § 317(b), which read, in relevant part, as follows:
Once a final decision has been entered against a
party in a civil action arising in whole or in part
under section 1338 of title 28, that the party has
not sustained its burden of proving the invalidity
of any patent claim in suit . . . , then neither that
party nor its privies may thereafter request an in-
ter partes reexamination of any such patent claim
on the basis of issues which that party or its priv-
ies raised or could have raised in such civil ac-
tion . . . , and an inter partes reexamination
requested by that party or its privies on the basis
of such issues may not thereafter be maintained
by the Office . . . .
The PTO refused to terminate the reexaminations.
For example, with regard to the ’634 patent, it found no
“decision” by the West Virginia court “that [Crane] ha[d]
not sustained its burden of proving the invalidity of any
patent claim.” J.A. 75. The PTO also stated that its
refusal to terminate the proceedings was “a final agency
action.” J.A. 81, 97.
AMS filed suit in the Eastern District of Virginia, in-
voking the court’s jurisdiction under 28 U.S.C. §§ 1331,
1338, 1346, and also relying for “jurisdiction” on the APA,
5 U.S.C. §§ 701–706, the Declaratory Judgment Act, 28
U.S.C. § 2201, and the mandamus authority of 28 U.S.C.
§ 1361. AMS argued that, in light of the consent judg-
ment, § 317(b) required the PTO to terminate the reexam-
inations. The PTO did not dispute the district court’s
authority to reach the merits of that challenge.
The district court rejected AMS’s position on the
merits. It held that § 317(b)’s prohibition on maintaining
a reexamination does not apply unless there has been “an
actual adjudication on the merits.” AMS, 2014 WL
4628552, at *5. In AMS’s case, the district court deter-
AUTOMATED MERCHANDISING v. LEE 5
mined, “[t]he Consent Judgment’s . . . language . . . cannot
be reasonably understood as anything more than a will-
ingness on the part of the court to dismiss the case based
on the parties’ settlement without its adjudication of the
merits.” Id. at *4. The district court thus denied AMS’s
summary-judgment motion to terminate the reexamina-
tions and granted summary judgment in favor of the PTO.
Id. at *6.
AMS has appealed to this court. We have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(1).
DISCUSSION
We review a grant of summary judgment de novo, ap-
plying the same standard as the district court. Burandt v.
Dudas, 528 F.3d 1329, 1332 (Fed. Cir. 2008) (applying
Fourth Circuit law). If review under the APA is author-
ized, we must “hold unlawful and set aside agency action,
findings, and conclusions found to be . . . arbitrary, capri-
cious, an abuse of discretion, or otherwise not in accord-
ance with law.” 5 U.S.C. § 706(2).
A
Although the PTO did not raise the issue before the
district court, it argues now that its refusal to terminate
the reexaminations was not a “final agency action” subject
to judicial review under 5 U.S.C. § 704. Just as AMS
treated the APA as a matter of “jurisdiction” in its com-
plaint, the PTO here characterizes the APA’s final-
agency-action requirement as “jurisdictional.” The sense
of that term the PTO invokes is one that entitles a party
to have an issue decided on appeal even when, like the
PTO here regarding the § 704 issue, it failed to raise the
issue in the district court. Appellee’s Brief at 14–22; see
Kontrick v. Ryan, 540 U.S. 443, 455 (2004).
We need not decide whether the APA’s final-agency-
action requirement is jurisdictional in that sense. We
assume, arguendo but with some basis, that it is not. See
6 AUTOMATED MERCHANDISING v. LEE
Air Courier Conference of Am. v. Am. Postal Workers
Union, 498 U.S. 517, 523 n.3 (1991) (“The judicial review
provisions of the APA are not jurisdictional, Califano v.
Sanders, 430 U.S. 99 (1977), so a defense based on exemp-
tion from the APA can be waived by the Government.”).
Nevertheless, we may consider whether the APA re-
quirement is met in this case. Under certain circum-
stances, we may consider issues not previously raised,
and we find such circumstances present here.
Considerations relevant to overlooking a failure to
preserve an issue include whether
(i) the issue involves a pure question of law and
refusal to consider it would result in a miscarriage
of justice; (ii) the proper resolution is beyond any
doubt; (iii) the appellant had no opportunity to
raise the objection at the district court level; (iv)
the issue presents significant questions of general
impact or of great public concern; or (v) the inter-
est of substantial justice is at stake.
L.E.A. Dynatech, Inc. v. Allina, 49 F.3d 1527, 1531 (Fed.
Cir. 1995) (internal quotation marks and brackets omit-
ted); see Singleton v. Wulff, 428 U.S. 106, 121 (1976) (“We
announce no general rule. Certainly there are circum-
stances in which a federal appellate court is justified in
resolving an issue not passed on below, as where the
proper resolution is beyond any doubt . . . .”).
Several criteria for discretionary disregard of forfei-
ture combine to justify consideration of the APA issue
here. Proper resolution of the issue—which is a matter of
law and which does not involve the merits of the § 317(b)
challenge to the PTO’s decision—is beyond doubt, as
explained infra in Part B. Moreover, whether a refusal to
terminate ongoing PTO proceedings is immediately
reviewable presents a significant question of continuing
public concern, affecting a range of PTO proceedings in
the regular operation of the agency. See Cemex, S.A. v.
AUTOMATED MERCHANDISING v. LEE 7
United States, 133 F.3d 897, 902 (Fed. Cir. 1998) (ad-
dressing pure issue of statutory construction not raised
below—application of the Tariff Act—because the issue
involved “ ‘significant questions of general impact’ ” ). And
the issue has been fully briefed by the parties. See Inter-
active Gift Exp., Inc. v. Compuserve Inc., 256 F.3d 1323,
1345 (Fed. Cir. 2001) (“ ‘A circuit court will disregard the
rule [of waiver] in compelling circumstances[,] . . .
[p]articularly . . . if the issue has been fully briefed, if the
issue is a matter of law or the record is complete, if there
will be no prejudice to any party, and if no purpose is
served by remand . . . .’ ”) (quoting 19 James W. Moore et
al., Moore’s Federal Practice § 205.05, at 205–58 (3d ed.
1997)).
For those reasons, we will consider whether the PTO’s
refusal to terminate the reexaminations constituted a
final agency action.
B
Under the APA, “[a]gency action made reviewable by
statute and final agency action for which there is no other
adequate remedy in a court are subject to judicial review.
A preliminary, procedural, or intermediate agency action
or ruling not directly reviewable is subject to review on
the review of the final agency action.” 5 U.S.C. § 704. It
is undisputed that no statute makes the challenged
refusal to terminate the inter partes reexaminations
immediately reviewable. Accordingly, the refusal is not
reviewable unless it is a “final agency action for which
there is no other adequate remedy in a court.”
Generally, two requirements must be met for an
agency action to be final. “First, the action must mark
the ‘consummation’ of the agency’s decisionmaking pro-
cess—it must not be of a merely tentative or interlocutory
nature. And second, the action must be one by which
‘rights or obligations have been determined,’ or from
which ‘legal consequences will flow.’” Bennett v. Spear,
8 AUTOMATED MERCHANDISING v. LEE
520 U.S. 154, 177–78 (1997) (citations omitted); see also
Franklin v. Massachusetts, 505 U.S. 788, 797 (1992) (“The
core question is whether the agency has completed its
decisionmaking process, and whether the result of that
process is one that will directly affect the parties.”). The
PTO’s refusal to terminate the inter partes reexamina-
tions here does not qualify as a final agency action under
those standards.
The PTO’s refusal was anything but the “ ‘consumma-
tion’ of the [PTO’s] decisionmaking process”; it was,
instead, “interlocutory” in nature. Bennett, 520 U.S. at
178. An analogy is apt: the PTO’s refusal to stop the
proceedings here was as interlocutory, as far from final,
as the run-of-the-mill district-court denial of a motion to
dismiss. See Van Cauwenberghe v. Biard, 486 U.S. 517,
524 (1988) (noting strong general rule and narrowness of
exceptions). An ultimate merits determination regarding
the validity of any of the patent claims at issue has not
yet been reached in any of the reexamination proceedings.
The reexaminations could end with decisions in AMS’s
favor, which would moot any controversy over how to
interpret § 317(b). The PTO’s refusal to terminate simply
permits each reexamination to reach such a final disposi-
tion—nothing more. See, e.g., Chemsol, LLC v. United
States, 755 F.3d 1345, 1355 (Fed. Cir. 2014) (extending
deadline for administrative action is not final agency
action); Patlex Corp. v. Mossinghoff, 771 F.2d 480, 485
(Fed. Cir. 1985) (“The determination that a substantial
new question of patentability exists is a preliminary
decision. It is not a final determination . . . .”), modifying
758 F.2d 594 (Fed. Cir. 1985); see also FTC v. Standard
Oil Co., 449 U.S. 232, 239–43 (1980) (decision to initiate
administrative proceedings is not final agency action);
DRG Funding Corp. v. Sec’y of Hous. & Urban Dev., 76
F.3d 1212, 1214 (D.C. Cir. 1996) (“[The final-agency-
action requirement] serves several functions. It allows
the agency an opportunity to apply its expertise and
AUTOMATED MERCHANDISING v. LEE 9
correct its mistakes, it avoids disrupting the agency’s
processes, and it relieves the courts from having to engage
in piecemeal review which is at the least inefficient and
upon completion of the agency process might prove to
have been unnecessary.”) (internal quotation marks and
citation omitted).
The PTO’s refusal to terminate the proceedings also is
not an action “by which ‘rights or obligations have been
determined,’ or from which ‘legal consequences will
flow.’ ” Bennett, 520 U.S. at 178. AMS has lost no patent
rights from the refusal to terminate the proceedings. Any
loss of patent rights for the patents at issue will not occur
until completion of the relevant reexamination. The only
direct consequence that flows from the PTO’s refusal to
stop the proceedings is that AMS must continue to partic-
ipate in the reexaminations to preserve its interests.
Alone, however, an agency’s imposition of the burden of
participating in administrative proceedings is not enough
to render that action final. Standard Oil, 449 U.S. at 242;
see Van Cauwenberghe, 486 U.S. at 524 (similar point for
finality rule applicable to district-court litigation).
If AMS receives an adverse ruling from the PTO in
any of the reexaminations, AMS will at that time have an
“adequate remedy in a court.” 5 U.S.C. § 704. Under the
APA, the “intermediate” agency action of refusing to stop
the reexaminations, not elsewhere declared to be unre-
viewable, “is subject to review on the review of the final
agency action.” Id. The PTO has conceded that, under 35
U.S.C. § 315(a)(1) (2006), “AMS can appeal any adverse
[final determination of patentability]” to this court for
“consider[ation of] whether the reexamination proceed-
ings should have been terminated under § 317(b).” Appel-
lee’s Brief at 20.
Accordingly, there is clearly no final agency action
here. And that conclusion is not altered by the fact that,
in Cooper Techs. Co. v. Dudas, 536 F.3d 1330 (Fed. Cir.
10 AUTOMATED MERCHANDISING v. LEE
2008), we affirmed, on the merits, a district court’s grant
of summary judgment to the PTO regarding the agency’s
refusal to terminate ongoing reexamination proceedings.
Id. at 1332. Cooper did not discuss the APA’s final-
agency-action requirement, so it is not precedential on the
issue, even if the requirement is jurisdictional. See, e.g.,
Cooper Indus., Inc. v. Aviall Servs., Inc., 543 U.S. 157, 170
(2004) (“Questions which merely lurk in the record, nei-
ther brought to the attention of the court nor ruled upon,
are not to be considered as having been so decided as to
constitute precedents.”) (internal quotation marks and
citation omitted); Lewis v. Casey, 518 U.S. 343, 352 n.2
(1996) (“[T]he existence of unaddressed jurisdictional
defects has no precedential effect.”); United States v. Cnty.
of Cook, Ill., 170 F.3d 1084, 1088 (Fed. Cir. 1999) (no
precedential effect of decisions on issues not squarely
addressed); cf. Arbaugh v. Y&H Corp., 546 U.S. 500, 511
(2006) (“ ‘drive-by jurisdictional rulings,’ ” in which legal
rules are labeled “jurisdictional” through “unrefined
dispositions,” have no precedential effect).
AMS therefore cannot proceed under the APA. And
mandamus and the Declaratory Judgment Act, the other
statutory avenues of relief that AMS invoked in its com-
plaint, are also foreclosed.
Mandamus relief under 28 U.S.C. §§ 1361, 1651 is
unavailable. AMS can present its § 317(b) argument on
appeal from any final adverse PTO determination in the
reexaminations and, if correct about § 317(b), can secure
reversal of such a determination. Because AMS has an
adequate remedy and its only present harm is the burden
of participating in the proceedings at issue, it is not
entitled to mandamus relief. See Mallard v. U.S. Dist.
Court for the S. Dist. of Iowa, 490 U.S. 296, 309 (1989);
Bankers Life & Cas. Co. v. Holland, 346 U.S. 379, 383
(1953).
AUTOMATED MERCHANDISING v. LEE 11
Relief under the Declaratory Judgment Act, 28 U.S.C.
§ 2201, is also unavailable. AMS has not relied on that
Act in its arguments to us, and for good reason. The Act
provides a “discretionary” remedy that “courts traditional-
ly have been reluctant to apply . . . to administrative
determinations” that are not final or otherwise ripe for
review. Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967)
(courts should use discretion “to protect the agencies from
judicial interference until an administrative decision has
been formalized and its effects felt in a concrete way”),
overruled on other grounds by Califano v. Sanders, 430
U.S. 99, 105 (1977); see Lane v. U.S. Dep’t of Agric., 187
F.3d 793, 795–96 (8th Cir. 1999) (declaratory-judgment
action not ripe for lack of final agency action). “A declara-
tory judgment action should not be used to circumvent the
usual progression of administrative determination and
judicial review.” Agri-Trans Corp. v. Gladders Barge
Line, Inc., 721 F.2d 1005, 1011 (5th Cir. 1983). A contra-
ry conclusion here would impermissibly employ the gen-
eral, discretionary declaratory-judgment remedy to
override the specific requirements of the APA addressing
review of agency action. See, e.g., Corley v. United States,
556 U.S. 303, 316 (2009) (“[A] more specific statute will be
given precedence over a more general one.”) (internal
quotation marks and citation omitted).
Because the PTO’s refusal to terminate the proceed-
ings at issue was not a final agency action, the district
court did not err in granting summary judgment in favor
of the PTO.
CONCLUSION
For the foregoing reasons, the judgment of the district
court is affirmed.
AFFIRMED