The Supreme Court of the United States recently concluded that the U.S. Patent and Trademark Office (PTO), no matter how great its expertise, cannot account for evidence it has never seen.  Therefore, 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.

In a unanimous decision, the Supreme Court of the United States affirmed the U.S. Court of Appeals for the Federal Circuit and held that 35 U.S.C. §145 imposes no special limitation on a patent applicant’s right to introduce new evidence in a civil action involving district court appeals from final determinations of the U.S. Patent and Trademark Office (PTO).  Justice Thomas delivered the majority opinion.  Justice Sotomayor, concurring, added the decision did not foreclose a district court’s authority to exclude evidence “deliberately suppressed” from the PTO.  As a result of this ruling, applicants disappointed by rulings of the PTO Board of Patent Appeals and Interferences (Board), rather than appeal directly to the Federal Circuit (under 35 U.S.C. §141), may consider filing a civil action under §145 with the opportunity to supplement the administrative record.  Kappos v. Hyatt, Case No. 10-1219 (S. Ct., Apr. 18, 2012).

Summary

The Supreme Court, affirming an en banc Federal Circuit ruling, held that the only limitations on the admissibility of new evidence in a §145 proceeding are those already imposed by the Federal Rules of Evidence and Federal Rules of Civil Procedure.  The Supreme Court also held that, if new evidence is presented on a disputed question of fact, the district court must make de novo factual findings that take account of both the new evidence and the administrative record before the PTO.

Procedural Background

The case stems from a patent application filed by Gilbert P. Hyatt.  During prosecution, the examiner issued a final office action rejecting all pending claims for a failure to comply with the requirements of 35 U.S.C. §112.  Hyatt appealed to the Board, which reversed some of the examiner’s rejections, but upheld others.  Hyatt filed a civil action at the U.S. District Court for the District of Columbia under §145.

In response to a summary judgment motion filed by the PTO, Hyatt submitted a declaration identifying portions of the specification that he claimed supported the rejected claims under §112.  The PTO objected to the declaration, arguing the new evidence should not be considered because Hyatt did not raise it before the PTO, despite being able to do so.

The district court agreed with the PTO, ruling that Hyatt’s failure to present the evidence to the PTO constituted a negligent act.  With no new evidence submitted, the district court reviewed the Board’s fact findings for substantial evidence and granted the PTO’s summary judgment motion.  Hyatt appealed to the Federal Circuit.

In an initial panel decision (IP Update, Vol. 12, No. 8), the Federal Circuit affirmed the lower court’s ruling.  The panel majority, while acknowledging that new evidence can be submitted in §145 proceedings under certain circumstances, concluded that new evidence should not be permitted if it could and should have been introduced at the PTO.  The panel also held that the Administrative Procedure Act imposed limitations on the introduction of new evidence in §145 actions.

The Federal Circuit later heard the appeal en banc.  In its en banc ruling, the Federal Circuit held that applicants are free to introduce new evidence in §145 proceedings subject only to the Federal Rules of Evidence and the Federal Rules of Civil Procedure, even if the applicant had no justification for failing to present the evidence to the PTO.  (IP Update, Vol. 13, No. 3).  The court also held that the district court must make de novo findings to take new, conflicting evidence into account during §145 proceedings.

The Supreme Court Ruling

The Supreme Court began by analyzing the express terms of §145, concluding that the statute neither imposes unique evidentiary limits in district court proceedings nor establishes a heightened standard of review for factual findings by the PTO.  

The Supreme Court then considered the PTO’s argument that district courts should give administrative deference to its factual findings, and only consider new evidence if the party did not have an opportunity to present it to the agency.  The Supreme Court rejected the argument, finding that no matter how great its expertise, the PTO cannot account for evidence it has never seen.  Thus, the Supreme Court concluded, 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.  The Supreme Court further held that the principles of administrative exhaustion do not apply in a §145 proceeding because, by the time such a proceeding occurs, the PTO’s process is complete.

The Court also analyzed the predecessor statute to §145, R.S. 4915, and cases analyzing that statute: Butterworth v. United States ex rel. Hoe (1884) and Morgan v. Daniels (1894).  Noting a perceived tension between the two cases, the Court explained that Butterworthwas more analogous and guided its decision here.

In Butterworth, the Supreme Court observed that an R.S. 4915 proceeding should be “prepared and heard upon all competent evidence adduced and upon the whole merits.”  Likewise, the Supreme Court concluded that a district court conducting a §145 proceeding may consider “all competent evidence adduced,” and is not limited to considering only new evidence that could not have been presented to the PTO.

The Supreme Court further found that when new evidence is introduced in a §145 proceeding, the district court, in its role as fact-finder, must assess the credibility of new evidence, reconcile the new evidence with the administrative record and evaluate the weight the new evidence deserves.  The Supreme Court explained, “where new evidence is presented to the district court on a disputed fact question, ade novo finding will be necessary to take such evidence into account together with the evidence before the board.”  The Supreme Court moreover agreed with the Federal Circuit that the district court may, in its discretion, “consider the proceedings before and findings of the Patent Office in deciding what weight to afford an applicant’s newly admitted evidence.”

The Supreme Court found it unlikely that patent applicants would withhold evidence from the PTO intentionally with the goal of presenting that evidence for the first time to a non-expert judge, noting that an applicant who pursues such a strategy would be intentionally undermining his claims before the PTO on the speculative chance that he or she would gain some advantage in the §145 proceeding by presenting new evidence to a district court judge.

Concurring Opinion

In the concurring opinion, Justice Sotomayor noted there may be situations in which an applicant’s conduct before the PTO calls into question the propriety of admitting evidence presented for the first time in a §145 proceeding before a district court.  In those situations, a district court maintains its authority to exclude evidence “deliberately suppressed” from the PTO or otherwise withheld in bad faith, consistent with “the ordinary course of equity practice and procedure.”  Otherwise, when a patent applicant fails to present evidence to the PTO due to ordinary negligence, a lack of foresight or simple attorney error, the applicant should not be stopped from presenting the evidence for the first time in a §145 proceeding.

Practice Note

Patent applicants need not fear that if they fail to bear the financial burden of submitting essentially all possible evidence to the Board, they are foreclosed from using §145 as an effective vehicle for supplementation of the record on appeal.  However, in cases where no new evidence is introduced in a §145 procedure, the standard of review will be the same as that which applies in a §141 appeal, i.e., the “substantial evidence” standard.  Thus, there is no reason to file a §145 appeal unless the introduction of new evidence is contemplated.

In its en banc ruling, the Federal Circuit addressed the question of whether issues (and evidence related to those issues) not raised before the PTO may be raised before the district court in a §145 proceeding.  The Federal Circuit answered in the negative.  The Supreme Court, however, in its decision, did not directly address whether an applicant is precluded from raising a new issue.  Based on the rationale of the high court decision, it appears that new evidence would be admissible, regardless of whether it  relates to issues not raised before the PTO (subject, of course, to the limitations of the Federal Rules of Evidence and Federal Rules of Civil Procedure).

Given the similarity between §145 and its Lanham Act counterpart, 15 U.S.C. §1071(b), the standards set forth in the Hyatt v. Kappos decision are likely to apply to proceedings challenging decisions the Trademark Trial and Appeal Board.