In Ethicon Endo-Surgery, Inc. v. Covidien LP, Slip Op. 2014-1771 (Fed. Cir., Jan. 13, 2016) the Federal Circuit majority held that 35 U.S.C. § 314(d) did not preclude the Federal Circuit from hearing Ethicon Endo-Surgery, Inc.’s (“Ethicon”) challenge to the authority of the Patent Trial and Appeals Board (“PTAB”) to render a final decision, and that neither statute nor the Constitution precludes the same panel of the PTAB that made the decision to institute inter partes review (“IPR”) from making the final determination.

Background

Ethicon owns U.S. Patent No. 8,317,070 (“the ’070 patent”).  The claims of the ’070 patent are directed to a surgical device used to staple, secure, and seal tissue that has been incised.  The claimed invention is a combination of the use of staples of different pre-formed and formed heights and the use of staples with non-parallel legs.  Covidien LP (“Covidien”) sells surgical staplers that Ethicon alleged embody the claimed invention.

PTAB Decision

On March 25, 2013, Covidien requested IPR of claims 1–14 of the ’070 patent.  On August 26, 2013, a PTAB panel granted Covidien’s petition for IPR.  On June 9, 2014, the same PTAB panel that instituted the IPR issued a final decision finding the challenged claims of the ’070 patent obvious.  Ethicon appealed.

Federal Circuit Decision

First, the majority of the Federal Circuit addressed the jurisdictional issue raised by the United States Patent and Trademark Office (“PTO”), as intervenor.  The PTO argued that the Federal Circuit was prohibited from hearing the appeal by 35 U.S.C. § 314(d), which provides that the determination whether to institute an IPR shall be final and nonappealable.  The majority rejected this argument because on appeal, Ethicon did not challenge the institution decision, but rather alleged a defect in the final decision and 35 U.S.C. § 319 specifically provides for an appeal of a final PTAB decision.

Next, the Court considered whether the same panel that instituted the IPR could decide the merits.  Citing the Supreme Court and other appellate court decisions, the majority found that combining the decision to institute and the final decision in a single panel did not raise constitutional due process concerns and is akin to “a district court determining whether there is a ‘likelihood of success on the merits’ and then later deciding the merits of the case.”  The majority further rejected the argument that the PTAB’s exposure to a limited record on the decision to institute should disqualify the same panel from making the final decision.  To show actual bias, a challenger must show that “an adjudicator is exposed to unofficial, ‘extrajudicial’ sources of information.”  Because Ethicon did not allege any exposure to extra-judicial information, there were no due process concerns.  The majority also concluded that there is “nothing in the [America Invents Act (“AIA”)] or the legislative history of the statute indicating a concern with separating the functions of initiation and final decision.”  Indeed, there is a long-standing rule that agency heads have implied authority to delegate to other officials within their agency.  Further, the majority noted that even prior to the AIA, Congress assumed that the Director of the PTO would delegate.  Therefore, as a matter of inherent authority and general rulemaking authority, the Director had authority to delegate institution decisions to the PTAB.

Finally, the Court addressed Ethicon’s argument that the PTAB did not properly take into account the secondary considerations of non-obviousness. The majority agreed with the PTAB that there was no credible evidence that the commercial success of Covidien’s device was a result of the claimed invention, and that there was insufficient evidence to demonstrate a long-felt but unresolved need.

Dissent

Judge Newman dissented.  Referring to the language of the statute, Judge Newman concluded that the first decision, to institute an IPR, was required to be made by the Director, and the second final decision, regarding patent validity, was required to be made by the PTAB.

Judge Newman stated that Congress “unambiguously placed these separate determinations in different decision makers, applying different criteria.”  Judge Newman argued that this bifurcation is necessary because IPRs were intended to be a new, quick, and cost-effective way to challenge the validity of patents.  Threatening the viability of this new system created by the AIA, Judge Newman argued, threatens the existence of this “new frontier of patent litigation.”

Judge Newman further noted that practitioners have criticized the practice of allowing the same PTAB panel to both institute and finally decide the IPR because of the potential bias against the patent owner.  Due process is supposed to guarantee “a fair trial in a fair tribunal.” And allowing the same body to review its own decision may not provide an impartial adjudicator.