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Supreme Court: De Novo Review Proper For New Evidence In Patent Cases

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on April 18 rejected a call by the U.S. Patent and Trademark Office (PTO) for stricter evidentiary rules and an elevated standard of review in challenges to adverse patentability rulings (David J. Kappos v. Gilbert P. Hyatt, No. 10-1219, U.S. Sup.). 

(Decision. Document #16-120507-006Z.)


Justice Clarence Thomas, writing for a unanimous court, noted that "the PTO, no matter how great its authority or expertise, cannot account for evidence that it has never seen." 

"Consequently, the district court must make its own findings de novo and does not act as the 'reviewing court' envisioned by the APA [Administrative Procedure Act]," Justice Thomas wrote. 

Data Compression Patent 

Respondent Gilbert P. Hyatt's initial application for a data compression patent was rejected by the PTO on numerous grounds, including written description, enablement, double patenting, anticipation and obviousness.  He appealed to the Board of Patent Appeals and Interferences (BPAI), which largely affirmed the examiner's rejection.  Hyatt was denied rehearing and ultimately filed the instant lawsuit in the U.S. District Court for the District of Columbia pursuant to 35 U.S. Code Section 145, which allows applicants dissatisfied with a board decision to sue as an alternative to a direct appeal to the Federal Circuit U.S. Court of Appeals.

The PTO moved for summary judgment, leading Hyatt to submit a declaration explaining that one of ordinary skill in the art would have found an adequate written description for each of the rejected claims. The District Court ruled that Hyatt had provided no adequate explanation for failing to submit his declaration to the PTO during prosecution, that his failure was "negligent" and that the evidence would be disregarded.  The court granted summary judgment against Hyatt, and he appealed to the Federal Circuit.

On Aug. 11, 2009, a divided Federal Circuit panel affirmed, holding that the District Court was within its discretion to exclude evidence if it concludes that the evidence was not submitted to the PTO due to fraud, gross negligence, bad faith or intentional suppression.  The Federal Circuit, in Hyatt v. Doll (576 F.3d 1246, 1275 [Fed. Cir. 2009]; See 8/17/09, Page 15), said the District Court properly disregarded Hyatt's declaration because he had "willfully refused to provide evidence in his possession in response to a valid action by the examiner." 

En Banc Rehearing 

A dissenting judge, however, wrote that the statute places no limits on the type of evidence that is admissible in a Section 145 action and, therefore, the standard Federal Rules of Evidence ought to govern.  Hyatt sought and won rehearing en banc and, in November 2010, the full Federal Circuit overturned the panel's decision, finding that the statute "provides no indication that this civil action is somehow different from a customary civil action."  Nothing in Section 145 provides that unique rules of evidence, separate from or supplementary to the Federal Rules of Evidence that apply to all civil actions, control to limit an applicant's ability to introduce new evidence before the district court, according to the appellate panel.

In remanding the case on grounds that the District Court abused its discretion in excluding Hyatt's declaration, the Federal Circuit held that the legislative history of Section 145 and its predecessor "shows that Congress intended to provide for a civil action in which an applicant would be free to introduce new evidence."  Petitioner David J. Kappos, the new director of the PTO, filed a petition for writ of certiorari, which was granted in June.  Oral arguments were held in January. 

Position Contradicted 

Affirming, the Supreme Court found "no limitations on a patent applicant's ability to introduce new evidence in a 145 proceeding beyond those already present in the Federal Rules of Evidence and the Federal Rules of Civil Procedure."  If new evidence is presented on a disputed question of fact, the court continued, district courts must make de novo factual findings "that take account of both the new evidence and the administrative record before the PTO."  

The language of Section 145 contradicts the petitioner's position, according to the court, which noted that the PTO itself conceded at oral argument that judicial review in Section 145 proceedings is not limited to the administrative record because district courts are already free to consider new evidence.  The court consequently rejected the PTO's request for Section 145 to be read in light of traditional principles of administrative law, as codified in the APA, thereby requiring a district court to defer to the PTO's factual findings.  When considering new evidence, a district court must act as a fact finder pursuant to Dickinson v. Zurko (527 U.S. 150 [1999]), the court wrote, adding that "it makes little sense for the district court to apply a deferential standard of review to PTO factual findings that are contradicted by the new evidence." 

Administrative Exhaustion 

Similarly, the court found that the principles of administrative exhaustion are inapplicable in a Section 145 proceeding by the standard set in McKart v. United States (395 U.S. 185, 193-194 [1969]), which counsels that the primary purpose of administrative exhaustion is the avoidance of a premature interruption of the administrative process. 

"By the time a §145 proceed­ing occurs, the PTO's process is complete.  Section 145, moreover, does not provide for remand to the PTO to consider new evidence, and there is no pressing need for such a procedure because a district court, unlike a court of appeals, has the ability and the competence to receive new evidence and to act as a fact finder.  In light of these as­pects of §145 proceedings - at least in those cases in which new evidence is presented to the district court on a disputed question of fact - we are not persuaded by the Direc­tor's suggestion that §145 proceedings are governed by the deferential principles of agency review," the court wrote. 

District courts should exercise "broad discretion" over the weight to be given to newly introduced evidence in a Section 145 proceeding, according to the court, which deemed "unlikely" concerns that such a ruling will encourage applicants to withhold evidence from the PTO.  "An applicant who pursues such a strategy would be intentionally undermining his claims before the PTO on the speculative chance that he will gain some advantage in the §145 proceeding by presenting new evidence to a district court judge," the court said. 

"In light of these conclusions, the Federal Circuit was correct to vacate the judgment of the District Court, which excluded newly presented evidence under the view that it 'need not consider evidence negligently sub­mitted after the end of administrative proceedings.'  The judgment is affirmed, and the case is remanded to the Court of Appeals for further proceedings consistent with this opinion," the court concluded. 

Bad Faith 

Justice Sonia Sotomayor , in a concurrence joined by Justice Stephen Breyer, observed that in the instant case, "there is no suggestion . . . that the applicant's failure to present the evidence in question to the PTO was anything other than the product of negligence or a lack of foresight."  For that reason, she indicated her agreement with the unanimous court that Hyatt was entitled to present his additional evidence to the district court.   

"But I do not understand today's decision to foreclose a district court's authority, consistent with 'the ordinary course of equity practice and procedure,' to exclude evidence 'deliber­ately suppressed' from the PTO or otherwise withheld in bad faith," she added, citing Butterworth v. United States (112 U.S. 50, 61 [1884]). 

Kappos is represented by Ginger D. Angers of the U.S. Department of Justice in Washington.  Aaron M. Panner of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington represents Hyatt. 

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