On Monday, November 8, 2010, the Federal Circuit issued its decision in the en banc re-hearing of Hyatt v. Kappos (No. 2007-1066) (http://tinyurl.com/34kzkos). The en banc Court departed from the August 11, 2009 panel decision (http://tinyurl.com/352tmny) and held that a patent applicant may introduce new evidence against the USPTO in a district court action under 35 USC § 145 (“Civil Action to Obtain a Patent”) (http://tinyurl.com/2vp9f8r) provided such evidence relates to issues that were raised before the USPTO. This decision will be welcomed by patent applicants who have received negative USPTO decisions on patentability, and reflects the realities—and difficulties—of marshalling evidence during patent prosecution. For additional background on the appeal, see Hyatt v. Kappos: Will a Bad Case Make Bad Law? (http://bit.ly/Hyatt72610).
The Panel Decision
After the USPTO Board of Patent Appeals and Interferences affirmed certain rejections of his patent application claims, Mr. Hyatt filed an action in the U.S. District Court for the District of Columbia under 35 USC § 145 (http://tinyurl.com/2vp9f8r). To support his claim for a patent, Mr. Hyatt submitted a declaration to address the rejections. The district court granted the USPTO's motion to exclude the declaration because Mr. Hyatt had been negligent in not submitting it during the USPTO proceedings.
Mr. Hyatt appealed to the Federal Circuit, arguing that § 145 provides for de novo review of the USPTO's refusal to grant a patent, so that an applicant can submit any new evidence as long as it is permitted by the Federal Rules of Evidence. The USPTO countered that a § 145 action is a review of agency action on record before the agency, and evidence that was not submitted during the USPTO proceedings due to negligence should be excluded.
In a decision authored by then-Chief Judge Michel and joined by Judge Dyk (Judge Moore dissented), the panel determined that a § 145 action is not a de novo proceeding. The panel reviewed cases applying predecessor and parallel statutes, and found consensus for excluding evidence that was not submitted to the USPTO due to “fraud, gross negligence, bad faith, or intentional suppression.” The panel considered the district court's “negligence” rationale, but affirmed the exclusion of Mr. Hyatt's declaration because “Hyatt willfully refused to provide evidence in his possession in response to a valid action by the examiner.”
The En Banc Majority Decision
Judge Moore (who dissented from the panel decision) authored the en banc majority decision and was joined by Chief Judge Rader and Judges Lourie, Bryson, Linn, and Prost. Judge Newman concurred-in-part and dissented-in-part, and Judges Dyk and Gajarsa dissented. Reversing the panel decision, the Court held:
35 USC § 145 imposes no limitation on an applicant's right to introduce new evidence before the district court, apart from the evidentiary limitations applicable to all civil actions contained in the Federal Rules of Evidence and Federal Rules of Civil Procedure. In doing so, we reject the Director's proposal that only “new evidence that could not reasonably have been provided to the agency in the first instance” is admissible in a § 145 action.
The Court tempered this holding, noting that "the district court as factfinder may give less weight to evidence introduced by an applicant in a § 145 action if the district court questions its credibility or reliability," such as may occur with "late-produced evidence," "inconsistent statements," or "new recollections of previously forgotten events."
In reaching its decision, the en banc majority reviewed the plain language of the statute and its legislative history, and concluded that "Congress intended to provide for a civil action in which an application would be free to introduce new evidence." However, the Court did not depart from the general rule that "parties may not raise issues in the district court that were not raised during the proceedings before the Patent Office or by the Board's final decision," but clarified that "this rule does not preclude parties from introducing additional evidence as to issues that were raised before the Patent Office."
The Standard of Review
The Court explained that when an applicant introduces new evidence in a § 145 action, “the district court … must make de novo fact findings with respect to factual issues to which the new evidence relates.” However, in a portion of the decision from which Judge Newman dissents, the Court held that, on issues for which the applicant does not introduce new evidence: “the court reviews the case on the same record presented to the agency and … must apply the APA's substantial evidence standard to Patent Office fact finding.”
Judge Newman's and Judge Dyk's Dissents
Judge Newman joined the holding that "new evidence may be provided in a civil action," but disagreed with the holding that "when no new evidence is provided, the findings and rulings of the PTO receive the same deferential treatment in the district court as would apply if the cause were not a civil action under Section 145, but instead were an Administrative Procedure Act direct appeal to the Federal Circuit under 35 USC § 141" (http://tinyurl.com/2fuxxeo). In her dissent, Judge Newman argues that the statutory scheme is such that § 145 provides de novo review by the district court, while § 141 provides APA-type review by the Federal Circuit. Judge Newman thus finds that the Court's holding creates a "redundant procedure" by which the USPTO's rulings are first reviewed deferentially by the district court, and then subject to further deferential review on appeal. For example, Judge Newman believes that the district court should be able to assess prior art references de novo, even if the applicant does not introduce new evidence on their meaning.
Judge Dyk (joined by Judge Gajarsa) similarly dissented from the majority decision, noting: “In my view today's majority decision reflects a remarkable departure from settled principles of administrative law.” Criticizing the majority holding for "craft[ing] special rules for patent cases," Judge Dyk notes:
Allowing a trial de novo in the district court denigrates the important expertise of the PTO, is contrary to established principles of administrative law, finds no support in the language of the statute, and is contrary to decisions of at least five other circuits.
The Realities of Patent Prosecution
The Court's ruling arguably squares with the realities of patent prosecution. As a practical matter, an applicant only has one opportunity to introduce new evidence as a matter of right, and that comes very early in prosecution, after the first Office Action on the merits. After that, an applicant's right to introduce new evidence is limited by 37 CFR § 1.116 (http://tinyurl.com/32wbgg5) to situations where the applicant can make a "showing of good and sufficient reasons why the … evidence is necessary and was not earlier presented." Once an application is on Appeal to the Board, 37 CFR § 41.33 (http://tinyurl.com/333wmk2) is even more restrictive, permitting new evidence only if "the examiner determines that the … evidence overcomes all rejections under appeal and that a showing of good and sufficient reasons why the … evidence is necessary and was not earlier presented has been made."
Applying these standards, it is not likely that Mr. Hyatt's declaration would have been accepted on appeal. While the declaration addressed the rejections that Board sustained, it did not address the rejections that the Board reversed. Thus, from the Examiner's perspective, Mr. Hyatt's declaration would not have overcome "all rejections under appeal."
It remains to be seen how often Section 145 will be used in view of this holding given that district court proceedings are expensive and unfamiliar to most patent applicants. In the vast majority of cases, applicants who want to present new evidence to support their patent applications do so within the USPTO, by filing a Request for Continued Examination (http://tinyurl.com/38hvhfq) or continuation application. On the other hand, with the growing backlog at the USPTO, applications face an average examination pendency of three years (http://tinyurl.com/38435my) and an average appeal pendency oftwo years (http://tinyurl.com/38npxce). Applicants who need faster resolution of patentability issues would be fully justified in seeking review (and relief) in the district court, and may do so more frequently now that the court has held the door open for new evidence to support patentability.