Barely two weeks after vacating the decision of the USPTO Board of Patent Appeals and Interferences in In re Leithem as being based on a new ground of rejection, the Federal Circuit took similar action in In Re Stepan Co. While the Board in Leithem had relied on different characterizations of the cited prior art references, the Board in Stepan had discredited a Rule 1.131 Declaration that the Examiner had not questioned on the merits. Hopefully the Board will take these decisions seriously and reverse examiner rejections it finds inadequate instead of trying to reformulate them on appeal.

The Patent At Issue

The patent at issue was U.S. 6,359,022, directed to polyol resin blends, which was undergoing reexamination. The '022 patent was filed March 19, 2002, as a continuation-in-part of U.S. 5,922,779, filed Oct. 10, 1997.

The Examiner's Rejection

The Examiner rejected the claims under 35 USC § 102(b) or 35 USC § 103 based on WO 97/2174 (Singh), alone or in combination with other references.

Singh was published June 19, 1997, more than one year before the '022 patent was filed, but less than one year before the '779 patent was filed. Stepan had tried to swear behind Singh by using a Rule 1.131 Declaration to establish an earlier date of invention, but the Examiner did not accept this line of argument.

As a threshold matter, the Examiner found that the claims were not supported by the '779 patent. Thus their effective filing date was March 19, 2002, more than one year after Singh was published, making Singh a statutory bar to patentability under § 102(b). Because a declaration cannot be used to avoid a § 102(b) rejection, the Examiner maintained the rejection.

The Board's Decision

The Board affirmed the rejections based on the same references, but cited Singh under 35 USC § 102(a), instead of 35 USC § 102(b).

In reaching its decision, the Board determined that all but three of the claims on appeal were supported by the '779 patent, contrary to the Examiner's determination. Having disqualified Singh as a § 102(b) reference, the Board considered whether the Rule 1.131 Declaration was sufficient to swear behind Singh as a § 102(a) reference.

The Board gave three reasons for finding the declaration inadequate:

  1. It failed to show that "the water content of the catalyst supplied and used prior to March 24, 1997 was unchanged through 2003"
  2. It "failed to address water that might have been present in other reactive components of the claimed resin blend or water that might have been generated by the reaction forming the polyol" and
  3. It appeared "inconsistent with the description of added water vis-à-vis the Dabco K-15 catalyst in the 022 patent.  

The Board therefore affirmed the rejections based on Singh.

The Federal Circuit Decision

On appeal, Stepan argued that the Board decision was based on a new ground of rejection. Stepan noted that the examiner had never questioned the sufficiency of the declaration, and so it never had an opportunity to respond to the alleged deficiencies.

The USPTO argued that the Board’s decision was not based on a new ground of rejection because it still found the claims to be obvious over the same prior art references. The USPTO also argued that Stepan had its opportunity to be heard "because it did in fact present argument and evidence, which was considered by the Board, to antedate Singh as a § 102(a) reference."

The Federal Circuit agreed with Stepan:

By making and relying on new fact findings regarding an issue the examiner did not raise, i.e., the sufficiency of Stepan’s Declaration to swear behind the Singh reference as § 102(a) prior art, the Board relied on a new ground of rejection.

The court cited 35 USC § 6(b) and explained further:

Mere reliance by the Board on the same type of rejection or the same prior art references relied upon by the examiner, alone, is insufficient to avoid a new ground of rejection where it propounds new facts and rationales to advance a rejection—none of which were previously raised by the examiner.

With regard to the USPTO's argument that Stepan was heard on the § 102(a) issue, the court noted:

Here, the mere fortuity that Stepan addressed the validity of the Declaration on its own, without the issue being raised by the examiner, does not permit the Board to reject the Declaration as ineffective without designating its decision as a new ground of rejection.

The Federal Circuit therefore vacated the Board decision, and remanded for further proceedings.

Stepan Not Boxed In By Rule 40.50

The USPTO had raised an alternative argument based on 37 CFR § 40.50, which provides:

(b) Should the Board have knowledge of any grounds not involved in the appeal for rejecting any pending claim, it may include in its opinion a statement to that effect with its reasons for so holding, which statement constitutes a new ground of rejection of the claim. A new ground of rejection pursuant to this paragraph shall not be considered final for judicial review. When the Board makes a new ground of rejection, the appellant, within two months from the date of the decision, must exercise one of the following two options with respect to the new ground of rejection to avoid termination of the appeal as to the rejected claims: (1) Reopen prosecution. . . . (2) Request rehearing. . . .

According to the USPTO, because Stepan had not followed this rule, it had waived the issue.

As explained by the Federal Circuit, the USPTO's argument was based on an interpretation of the rule that does not require the Board to designate its decision as being based on a new ground of rejection, but does require an applicant request rehearing if the applicant believes the Board has relied on a new ground but failed to designate it as such.

The Federal Circuit rejected this argument for two reasons:

  1. "Allowing the Board unfettered discretion to designate a new ground of rejection—when it relies upon facts or legal argument not advanced by the examiner—would frustrate the notice requirements of the APA."
  2. "[T]he PTO’s argument that Stepan was obligated to request rehearing under § 41.50(b)(2) is contradicted by the plain text of the regulation. . . . The appellant’s obligation to pursue either of these two options . . . triggers only after "the Board makes a new ground of rejection."  

The court concluded:

Because Stepan did not have prior notice of the Board’s intent to craft and rely on new findings of fact to support a §§ 102(a)/103(a) rejection and because it failed to identify this rejection as a new ground, Stepan’s notice rights were violated.

A Pervasive Problem

When I wrote about In re Leithem, I characterized the Board's practice of "affirming" a rejection based on a new rationale as a "pervasive" problem. The fact that the Federal Circuit has decided two of these cases in such a short time raises even more concerns about the extent of this practice. With a backlog of over 20,000 cases on appeal and close to 700,000 new applications awaiting examination, the Board might be tempted to dispose of cases expediently, but the USPTO cannot overlook its obligations to respect the due process of all applicants when carrying out its obligations to examine patent applications.