Federal Circuit Gives Short Shrift to Bias Arguments

A number of due process theories have been floated over the past few months as the “next big thing” in potential constitutional challenges to the PTAB. Some have been arguing that PTAB judges are financially incentivized to institute Others have pointed out that judges that institute AIA trials are biased in favor of cancelling claims given it is the very same judges on the back-end.

Yesterday, the Federal Circuit shot down both theories.

In Mobility WorkX, LLC v. Unified Patents, LLC (here), the Court reviewed whether PTAB judges have an interest in instituting AIA proceedings to generate fees to fund the agency and ensure future job stability, or to earn better individual performance reviews and bonuses. The Court also revisited the use of the same judges at institution and final decision — a question it previously adjudicated.

On the financial incentives, the Patentee argued that institution fees are 24% of PTAB collections, and the PTAB Chief Judge participates in the budget process. But, the Court explained that there was no structural incentive for judges to institute trials for purposes of funding the agency:

[T]he Chief APJ,Deputy Chief APJ, and Vice Chief APJs do not have responsibility for the agency’s finances. While these leadership APJs assist the Director by preparing budget requests and executing the operating budget, the Director, not the APJs, has responsibility for USPTO’s budgetary request to the Office of Management and Budget, in consultation with the USPTO Public Advisory Committees. The leadership APJs’ role in budgeting is therefore too remote to constitute a due process violation. . . . ¶ More fundamentally, the USPTO is a fee-funded agency for which Congress annually appropriates funds . . . based on annual USPTO fee collection estimates. The agency’s fees for institution and post-institution work on AIA proceedings do not automatically become available to the agency . . . .¶ The President, not the USPTO, submits the budget, and Congress ultimately sets the USPTO budget. Congress similarly controls whether the USPTO has access to the surplus funds collected in the Patent Trademark Fee Reserve Fund.

(Internal cites/quotes omitted)

As I have pointed out previously, if the Court found otherwise, the same argument can be made for patent maintenance fees. Maintenance fees are the overwhelming bulk of USPTO funding. Thus, by the same token, one could argue that the 70-80% (historical) patent grant rate is inflated by examiners for job security.

A more specific argument has been made that PTAB judges receive bonuses for production and therefore are more likely to institute. I always found this argument odd given the bonus system was discontinued years ago (2016?) and, more importantly a credit is a credit. There is no extra credit for institution, the Court basically pointed this out as well:

Initially, we note that the number of decisional units earned by an APJ is based upon the number of decisions authored” and “does not depend on the outcomes of those decisions. . . ¶ Even though an APJ will earn decisional units for a follow-on merits decision if he or she issues a decision instituting an AIA proceeding, there has been no showing that APJs institute AIA proceedings to earn sufficient decisional units to qualify for a bonus. Decisional units can be earned by participation in non-AIA proceedings, and there is a significant backlog of ex parte appeals.

(Internal cites/quotes omitted)

Judge Newman dissented, but did so to revisit the issue of the same judges deciding institution and the final decision (previously adjudicated by the Court in its Ethicon decision). She emphasized case law where using the same investigating agent to conclude a final decision on an investigation was found to be an APA violation. But I find this hard to reconcile with PTAB practice. The APJs are not drafting the petition (akin to an investigation interest of the cited cases). Rather, they are simply passing judgement on a preliminary record, and then again on a final record that is supplemented by the trial evidence. Article III Judges do the same thing when considering Temporary Restraining Orders (TRO).