Supreme Court Affirms Patent Applicants’ Freedom to Introduce New Evidence in District Court Actions Under 35 U.S.C. § 145
Patent applicants who are dissatisfied with a rejection by the Board of Patent Appeals and Interferences have two options for review. They can appeal directly to the Federal Circuit, which will review the Board’s decision on the record before the U.S. Patent and Trademark Office. Alternatively, 35 U.S.C. § 145 provides that an applicant may “have remedy by civil action against the Director” of the Patent Office in the United States District Court for the District of Columbia. The primary issue in Kappos v. Hyatt was what limitations, if any, exist on an applicant’s right to submit new evidence that was not before the Patent Office in such a district court action.
Today, the United States Supreme Court held that there are no limitations on new evidence in a section 145 action beyond those already present in the Federal Rules of Evidence and the Federal Rules of Civil Procedure. The Court also held that if an applicant submits new evidence in a section 145 action, the district court must make de novo factual findings that take into account the new evidence as well as the administrative record before the Patent Office. The Court noted, however, that the district court may consider whether the new evidence could have been presented to the Patent Office when deciding what weight to give it.
Factual and Procedural Background
This case involved a 1995 patent application submitted by Gilbert Hyatt. Hyatt’s application included a 238-page specification and 40 pages of figures. During prosecution, he amended the application to recite a total of 117 claims. The examiner issued a final office action rejecting all claims on various grounds, including lack of written description as required by 35 U.S.C. § 112, ¶ 1. Hyatt appealed to the Board, which affirmed the written description rejections for 79 of the claims.
Hyatt then filed a civil action against the Director of the Patent Office under 35 U.S.C. § 145. The Director moved for summary judgment of invalidity, arguing that the pending claims were invalid for failure to comply with the written description requirement. Hyatt opposed the motion. In support of his opposition, Hyatt submitted an extensive declaration identifying portions of the specification that allegedly described the limitations at issue. The district court found that Hyatt had acted negligently by failing to submit his declaration to the Patent Office, excluded Hyatt’s newly submitted evidence, and granted the Director’s motion for summary judgment.
Hyatt appealed, and a divided panel of the Federal Circuit initially affirmed. The majority stated that it was the “general practice” in section 145 actions to exclude evidence if a party could have presented it to the Patent Office, but did not. The majority also concluded that the Administrative Procedure Act (“APA”), which generally limits the judicial review of an agency action to the records before the agency, imposed restrictions on the admissibility of new evidence in a section 145 action. The majority found that Hyatt had acted “willfully” when he failed to present the declaration to the Patent Office and held that the district court did not abuse its discretion in excluding the declaration. The dissenting judge disagreed, arguing that the plain language of section 145, its legislative history, and applicable Supreme Court precedent all indicated that an applicant’s right to submit new evidence in a section 145 action is limited only by the Federal Rules of Evidence and Civil Procedure.
The Federal Circuit granted Hyatt’s petition for rehearing en banc and, by a 7-2 vote on most issues, largely adopted the view of the panel dissent. The majority noted that the plain language of section 145 expressly distinguished its “civil action” from an appeal (which would be limited to the record before the Patent Office) and imposed no unique limitations on the admissibility of evidence. The majority also analyzed the lengthy legislative history of section 145 and concluded that Congress had intended to create an alternative to an on-the-record appeal, under which applicants were free to submit new evidence that they could have submitted, but did not submit, to the Patent Office. The majority further determined that various Supreme Court cases addressing issues related to section 145 had recognized that “all competent evidence that the parties chose to introduce” was admissible in section 145 actions.
The en banc court thus held that the only limitations on the admissibility of evidence in a section 145 proceeding are the limitations imposed by the Federal Rules of Evidence and Civil Procedure. In particular, the court held that the APA imposed no limits on an applicant’s right to introduce new evidence in a section 145 action. Rather, the significance of the APA related to the standard of review to be applied to the Board’s decision: when an applicant chose not to introduce new evidence in a section 145 action, the district court’s review would necessarily be limited to the Patent Office record and subject to the deferential court-agency standard of review. Because the district court had applied the wrong legal standard, the court held that it abused its discretion in excluding Hyatt’s declaration.
The two dissenting judges asserted that the ruling of the en banc court conflicted with APA principles restricting the review of agency action to the agency record and that explicit statutory language was required to depart from such principles. The dissent also contended that the court’s approach denigrated the Patent Office’s expertise in evaluating claim validity, positing that non-expert district courts could now be persuaded to accept evidence that the Patent Office would have rejected. The dissent argued that new evidence in a section 145 action should be limited to evidence that could not have been presented to the Patent Office in the first instance.
The Supreme Court’s Decision
The U.S. Supreme Court granted the government’s petition for certiorari, and today a unanimous court affirmed the judgment of the Federal Circuit. In an opinion authored by Justice Thomas, the Court held that the admissibility of new evidence in a section 145 action is limited only by the Federal Rules of Evidence and Federal Rules of Civil Procedure. The Court also held that if new evidence is presented, the district court must make de novo factual findings based on the new evidence together with the record before the Patent Office. Justice Sotomayor, joined by Justice Breyer, concurred in Justice Thomas’s opinion for the Court, but wrote separately to emphasize their view that the Court’s opinion does not limit a district court’s equitable authority to exclude evidence if it was improperly withheld from the Patent Office.
The Court began by considering the Director’s argument that section 145 must be interpreted in light of the administrative law principles codified in the APA. Specifically, the Director contended that new evidence should be admissible in a section 145 action only if the applicant could not reasonably have presented the evidence to the Patent Office in the first instance. The Director also argued that the district court in a section 145 action should defer to the Patent Office’s factual findings and should overturn such factual findings only if new evidence clearly establishes that the Patent Office erred.
The Court rejected both arguments. Looking first to the text of section 145, the Court concluded that the statutory language imposes no unique evidentiary limits or heightened standard of review for Patent Office factual findings. Next, the Court held that the principles of administrative exhaustion do not apply to section 145 actions; the primary rationale underlying such principles (to avoid interruption of the administrative process) does not apply to section 145 actions because the process before the Patent Office has been completed before such an action can be initiated. The Court also observed that whereas the typical review of an agency decision is limited to the agency record, it was undisputed that new evidence could be considered in a section 145 action. It made little sense for the district court to defer to Patent Office factual findings that might be contradicted by this new evidence. The Court thus rejected the Director’s arguments that administrative law principles are relevant to actions brought under section 145.
To determine what standards should apply to section 145 actions, the Court looked to the evidentiary and procedural rules in effect when Congress enacted the statute. The Court observed that section 145 and its predecessor had consistently given patent applicants an alternative remedy to an on-the-record appeal. In particular, the Court noted that its prior jurisprudence, particularly the early case of Butterworth v. United States ex rel. Hoe, 112 U.S. 50 (1884), instructed that actions under section 145’s predecessor statute should be conducted “according to the ordinary course of equity practice and procedure.” Butterworth also specified that such actions should be “prepared and heard upon all competent evidence adduced, and upon the whole merits.” Following Butterworth, the Court held that a district court conducting a section 145 proceeding may consider “all competent evidence adduced,” not merely evidence that could not have been presented to the Patent Office. The Court thus agreed with the Federal Circuit that applicants should be free to introduce new evidence in section 145 proceedings, subject only to the rules applicable to all civil actions—the Federal Rules of Evidence and Civil Procedure.
The Court further held that when new evidence is presented in a section 145 action, the district court must make de novo factual findings based on the new evidence together with all of the evidence that was before the Patent Office. Citing its opinion in Dickinson v. Zurko, 527 U.S. 150 (1999), the Court recognized that a district court acts as a factfinder when new evidence is introduced in a section 145 action; indeed, because the district court is the first tribunal to consider such new evidence, that court is necessarily responsible for making factual findings regarding that evidence. Looking again to Butterworth, the Court also observed that a de novo standard of review would be consistent with the instruction that section 145 actions are to be heard “upon the whole merits” and conducted “according to the ordinary course of equity practice and procedure.” The Court noted that a district court may consider the Patent Office record in deciding what weight to afford an applicant’s newly admitted evidence, but that determination is separate and distinct from the issue of admissibility.
The Court accordingly affirmed the judgment of the Federal Circuit and remanded the case for further proceedings.
Justice Sotomayor’s Concurrence
Justice Sotomayor, joined by Justice Breyer, wrote separately to emphasize the view that the Court’s opinion does not affect district courts’ equitable authority to exclude evidence. For example, Justice Sotomayor observed, principles of ordinary equity would ordinarily allow the district court to exclude evidence that a party had deliberately withheld from the Patent Office in bad faith. Like the majority, however, she expected such instances to be rare.
Significance of the Decision
The Supreme Court’s decision confirms that section 145 provides disappointed patent applicants with a true alternative to an on-the-record appeal from the Patent Office. Upon receiving an unfavorable outcome at the Board level, an applicant can determine whether his or her odds of success will improve by gathering evidence in addition to or different from evidence that had been previously presented to the Patent Office. Nevertheless, although the Court’s decision may make section 145 a more attractive option, the considerably higher cost of district court litigation makes it unlikely that the number of section 145 cases will increase dramatically. Rather, section 145 actions will most likely be limited to inventions that are particularly significant, whether due to their complexity or potential commercial value—arguably, precisely the type of invention that section 145’s alternative route was designed to accommodate.
©2012 Perkins Coie LLP