Now that Cuozzo Speed Techs., LLC v. Lee has been submitted to the Supreme Court, the next issue that may well make its way to the Court is the propriety of the Federal Circuit’s standard of reviewing the PTAB’s AIA trial decisions. Currently, the Federal Circuit reviews these decisions for substantial evidence. At least four Federal Circuit Judges do not, however, think that the court’s application of that review standard is consistent with the AIA and have concluded that the standard makes too little sense in the context of an appeal from the PTAB’s IPR decision. But because the court is bound by Supreme Court precedent to apply that standard of review, the Federal Circuit issued an order denying a petition Merck & Cie recently filed asking the full Federal Circuit to rehear a late-2015 decision issued by a divided three-judge panel in Merck & Cie v. Gnosis S.p.A., 808 F.3d 829 (Fed. Cir. 2015) (discussed here and here), rehearing en banc denied (Apr. 26, 2016) (order linked here).
Before 1999, the Federal Circuit reviewed the Patent Office’s findings of fact pertaining to patentability determinations in ex parte prosecution matters for “clear error.” Dissatisfied with that standard of review, the Patent Office convinced the Supreme Court that the appellate standard of reviewing its factual findings should, consistent with ordinary APA court/agency standards, be the more deferential (or weaker) “substantial evidence” standard, which simply requires the reviewing court to ask whether a “reasonable mind might accept” a particular evidentiary record as “adequate to support a conclusion.” Dickinson v. Zurko, 527 U.S. 150, 162 (1999) (citation omitted). In Dickinson, the Supreme Court acknowledged the weaker review standard could be outcome determinative, but suggested that, in practice, the choice of standards rarely mattered:
The upshot in terms of judicial review is some practical difference in outcome depending upon which standard is used. The court/agency standard, as we have said, is somewhat less strict than the court/court standard. But the difference is a subtle one—so fine that (apart from the present case) we have failed to uncover a single instance in which a reviewing court conceded that use of one standard rather than the other would in fact have produced a different outcome.
Id. at 162–63. Ultimately, the Court found Zurko’s arguments, seeking an exception to the APA’s standard of review, unconvincing.
The Court may soon revisit this issue if Merck & Cie can present a convincing argument for application of the stricter standard of review. In Merck, the Federal Circuit was presented with an inter partes dispute, rather than the ex parte dispute presented in Zurko. Four Federal Circuit judges have invited such a review. Three of those judges explained that “Congress viewed IPR proceedings as cost-efficient substitutes for litigation in federal district courts” and, accordingly, it makes sense for the appellate standard of review of the PTAB’s IPR decisions to be the same as that of district court decisions addressing inter partes disputes:
To the extent IPR proceedings were intended to replace district court litigation, it would make sense for this court to review factual findings by the Board in these new IPR proceedings under the same standard we employ when reviewing factual findings of district judges—for clear error.
Concurring Opinion in Merck Order Denying Rehearing, at p. 4 (emphasis in original). These three judges also distinguished inter partes reexamination proceedings from IPR proceedings, further explaining how Congress crafted IPR proceedings to be “in line with district court proceedings” in ways meaningful to the application of the “clear error” standard of appellate review of these agency decisions.
Going further, and dissenting from the Order, the remaining Federal Circuit judge of the four explained that “application of the substantial evidence standard can lead to affirmance of a ruling that is not in accordance with the weight of the evidence.” Dissenting Opinion in Merck Order Denying Rehearing, at p. 4. And, in the related companion case, in which a petition for rehearing en banc was similarly denied, the same judge explained the pitfalls of the deferential “substantial evidence” standard: “Despite concluding that the PTAB erred in assessing [the patent owner’s] licensing evidence, the panel majority affirmed the PTAB’s obviousness determination, on the ground that it was supported by substantial evidence.” South Alabama Med. Sci. Found. v. Gnosis S.p.A., 808 F.3d 823 (Fed. Cir. 2015), rehearing en banc denied, Dissent at p. 2 (Apr. 26, 2016) (order linked here).
These cases, thus, may well illuminate the reality of differing outcomes that the Supreme Court could not discern seventeen years ago when it decided Zurko. The Court’s decision in Zurko was not unanimous: Chief Justice Rehnquist and Justices Kennedy and Ginsburg dissented and would have upheld the Federal Circuit’s then-application of the “clear error” standard of appellate review of Patent Office decisions. The continued presence of the latter two on the Court may bode well for the aggrieved patent owners in these cases, should they seek the Court’s review. These patent owners may also find a sympathetic ear in the Chief Justice, who expressed some dissatisfaction during the Cuozzo Speed oral argument with the AIA trial scheme: “it’s a very extraordinary animal in legal culture to have two different proceedings addressing the same question that lead to different results.” He may well consider it an equally extraordinary animal in legal culture to have appellate review of the same legal issue on the same facts turn on whether the dispute arose in a district court litigation or an inter partes review at the Patent Office.