Opinion ID: 767687
Heading Depth: 3
Heading Rank: 1

Heading: Review of Factfinding by the Board of Patent Appeals and Interferences

Text: 23 In Dickinson v. Zurko, 119 S. Ct. 1816, 50 USPQ2d 1930 (1999), the Supreme Court reversed our en banc decision that held that the appropriate standard of review of PTO findings of fact is the clearly erroneous standard, see Dickinson v. Zurko, 142 F.3d 1447, 1449, 46 USPQ2d 1691, 1693 (Fed. Cir. 1998), and held that we must apply one of the standards set forth in the Administrative Procedure Act (APA) at 5 U.S.C. § 706 (1994), see Zurko, 119 S. Ct. at 1818, 50 USPQ2d at 1931-32. 24 Section 706 reads in relevant part as follows: § 706. Scope of Review 25 The reviewing court shall-- 26 (2)hold unlawful and set aside agency action, findings, and conclusions found to be-- 27 (A)arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; 28 (E)unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute . . . . 29 5 U.S.C. § 706(2)(A), (E) (1994). In Zurko, the Supreme Court did not determine whether the correct standard of review for PTO findings of fact is the arbitrary, capricious or the substantial evidence test. See Zurko, 119 S. Ct. at 1821, 50 USPQ2d at 1934. We feel compelled to decide that question, in order to secure the standard of review through which we will test the decision of the Board in this case. 30 The Supreme Court has indicated that the arbitrary, capricious standard of review is highly deferential. Under that standard, a reviewing court must consider whether the decision was based on a consideration of relevant factors and whether there has been a clear error of judgment. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). Because this standard is generally considered to be the most deferential of the APA standards of review, see e.g., 6 Stein et al., Administrative Law § 51.03, at 51-117 (1999) (The narrowest scope of judicial review of an agency['s] fact findings is afforded by the arbitrary, capricious, or abuse of discretion test.), the reviewing court analyzes only whether a rational connection exists between the agency's factfindings and its ultimate action, see Hyundai Elecs. Indus. Co. v. ITC, 899 F.2d 1204, 1209, 14 USPQ2d 1396, 1400 (Fed. Cir. 1990) (noting that the touchstone of the arbitrary, capricious standard is rationality); see also 6 Administrative Law § 51.03, at 51-128. 31 On the other hand, the substantial evidence standard asks whether a reasonable fact finder could have arrived at the agency's decision, see Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938); see generally 3 Charles H. Koch, Jr., Administrative Law and Practice § 10.3[1], at 22-26 (2d ed. 1997), and is considered to be a less deferential review standard than arbitrary, capricious. See American Paper Inst., Inc. v. American Elec. Power Serv. Corp., 461 U.S. 402, 412-13 n.7 (1983) (characterizing the arbitrary, capricious standard as more lenient than the substantial evidence standard); Abbott Lab. v. Gardner, 387 U.S. 136, 143 (1967) (characterizing substantial evidence review as more generous judicial review than arbitrary, capricious review). The Supreme Court has described substantial evidence in the following manner: 32 Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. . . . Mere uncorroborated hearsay or rumor does not constitute substantial evidence. 33 Consolidated, 305 U.S. at 229-30 (citations omitted); see also AK Steel Corp. v. United States, 192 F.3d 1367, 1371 (Fed. Cir. 1999) (quoting Consolidated). The Court has emphasized that substantial evidence review involves examination of the record as a whole, taking into account evidence that both justifies and detracts from an agency's decision. See Universal Camera Corp. v. NLRB, 340 U.S. 474, 487-88 (1951). The Court has also stated, however, that the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence. See Consolo v. Federal Maritime Comm'n, 383 U.S. 607, 620 (1966). 34 Moreover, courts have recognized that the arbitrary, capricious standard is one of default. See Association of Data Processing Serv. Orgs., Inc. v. Board of Governors of Fed. Reserve Sys., 745 F.2d 677, 683 (D.C. Cir. 1984) (the arbitrary, capricious standard is a catch-all, picking up administrative misconduct not covered by the other more specific paragraphs.); see also Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1575 n.25 (10th Cir. 1994). In other words, the arbitrary, capricious standard applies when the substantial evidence test of section 706(2)(E) is deemed inapplicable. See Aircraft Owners & Pilots Ass'n v. FAA, 600 F.2d 965, 969 (D.C. Cir. 1979). Thus, we return to the statute. 35 Section 706(2)(E) provides that substantial evidence review is afforded to agency factfinding performed during an adjudication in two circumstances: (1) factfinding performed in a case subject to sections 556 and 557 of this title, and (2) factfinding performed in a case reviewed on the record of an agency hearing provided by statute. 5 U.S.C. § 706(2)(E). Factfinding by the Board does not fall within the first category, as § 554 excludes PTO adjudication from the trial-type procedures set forth in 5 U.S.C. §§ 556 and 557. Specifically, section § 554(a)(1) excludes agency adjudication from these requirements when the subject matter of that adjudication is subject to a subsequent trial de novo, see 5 U.S.C. § 554(a)(1) (1994), 6 as in the case of Board adjudication, see 35 U.S.C. § 145 (1994) (Civil action to obtain a patent); id. § 146 (1994) (Civil action in case of interference). Accordingly, these interrelated statutes dictate that Board factfinding does not fall within the first category of § 706(2)(E). 36 We next consider whether our review of Board factfindings made in the course of its adjudicatory proceedings falls within the second category of § 706(2)(E), i.e., or otherwise reviewed on the record of an agency hearing provided by statute. 5 U.S.C. § 706(2)(E). Section 144 explicitly provides that we must review Board decisions on the record developed by the PTO, see 35 U.S.C. § 144 (1994) (The United States Court of Appeals for the Federal Circuit shall review the decision from which an appeal is taken on the record before the Patent and Trademark Office.) (emphasis added), and it is for this reason that the Commissioner is required to convey the record to us in the event of an appeal, see id. § 143. Moreover, the hearing upon which the record is based is provided by 35 U.S.C. § 7(b), which states that: 37 The Board of Patent Appeals and Interferences shall, on written appeal of an applicant, review adverse decisions of examiners upon applications for patents and shall determine priority and patentability of invention in interferences declared under section 135(a) of this title. Each appeal and interference shall be heard by at least three members of the Board of Patent Appeals and Interferences, who shall be designated by the Commissioner. Only the Board of Patent Appeals and Interferences has the authority to grant rehearings. 38 35 U.S.C. § 7(b) (1994) (emphasis added). Thus, the plain language of §§ 7 and 144 of Title 35 indicates that we review Board decisions on the record of an agency hearing provided by statute, and that we should therefore review Board factfinding for substantial evidence. See also Thomas Leonard Stoll, A Clearly Erroneous Standard of Review, 79 J. Pat. & Trademark Off. Soc'y 100, 106 (1997) (arguing in favor of substantial evidence review based on 35 U.S.C. §§ 7(b) and 144). 39 In appeals from the Board, we have before us a comprehensive record that contains the arguments and evidence presented by the parties, including all of the relevant information upon which the Board relied in rendering its decision. See 35 U.S.C. § 143 (1994) ([T]he Commissioner shall transmit to the United States Court of Appeals for the Federal Circuit a certified list of the documents comprising the record in the Patent and Trademark Office.). That record, when before us, is closed, in that the Board's decision must be justified within the four corners of that record. The record before us on appeal thus dictates the parameters of our review. We cannot look elsewhere to find justification for the Board's decision. Furthermore, the record reflects the results of a proceeding in the PTO during which the applicant has been afforded an opportunity to bring forth the facts thought necessary to support his or her position. Accompanying the record is a detailed opinion from the Board. We have expressly held that the Board's opinion must explicate its factual conclusions, enabling us to verify readily whether those conclusions are indeed supported by substantial evidence contained within the record. See Gechter v. Davidson, 116 F.3d 1454, 1460, 43 USPQ2d 1030, 1035 (Fed. Cir. 1997) ([W]e hold that the Board is required to set forth in its opinions specific findings of fact and conclusions of law adequate to form a basis for our review.). 40 In addition to the statutory language discussed above, Supreme Court precedent and the law of our sister circuits also indicate that substantial evidence review is appropriate in view of the plenary nature of the record before us. The Supreme Court has stated generally that the basic requirement for substantial evidence review is that the agency hearing produce a record that serves as the foundation for the agency's action. See Overton Park, 401 U.S. at 415; Camp v. Pitts, 411 U.S. 138, 141 (1973) (noting that substantial evidence review is appropriate when reviewing findings made on a hearing record). In Zurko the Court echoed these prior decisions when it intimated that substantial evidence review is the appropriate standard for our review of Board factfinding. See Zurko, 119 S. Ct. at 1823, 50 USPQ2d at 1936 (A reviewing court reviews an agency's reasoning to determine whether it is 'arbitrary' or 'capricious,' or, if bound up with a record-based factual conclusion, to determine whether it is supported by 'substantial evidence.'). 41 Chrysler Corp. v. DOT, 472 F.2d 659 (6th Cir. 1972), is instructive. In that case, the court had to determine whether the arbitrary, capricious or the substantial evidence test should be applied to automobile safety standards promulgated by the Secretary of Transportation. Those standards emerged from a statutorily mandated agency rulemaking hearing that was not formal in the sense of cases subject to sections 556 and 557 of the APA. The agency argued that the appropriate standard of review was the most deferential arbitrary, capricious standard, because the promulgated safety standards emerged not from formal adjudication, but from informal rulemaking. See id. at 667. To the contrary, the industry petitioners argued that the default standard should not apply, because the safety standards arose from hearings compelled by statute, and the scope of appellate review was confined to the record made before the agency in the informal rulemaking process. See id. The court concluded that the substantial evidence test of section 706(2)(E) should apply because the agency was required by law to compile a record that would restrict the scope of appellate review. See id. at 668. Consequently, only the evidence in the record could be used by the appellate court to justify or refute the agency action. In contrast, the court noted that when an agency decision is made on the basis of data contained in its own files or on its own views or opinions . . . a reviewing court cannot test the rules as promulgated against the evidence in the agency's record. Id. at 669. In those circumstances, the more deferential standard of review would be appropriate. 7 42 The reasoning of the D.C. Circuit also supports our conclusion that substantial evidence review applies when the reviewing court must confine its review of agency factfinding to the record produced by the agency proceeding. In Data Processing, the D.C. Circuit considered the APA standards of review, and concluded that [t]he distinctive function of paragraph (E)--what it achieves that paragraph (A) does not--is to require substantial evidence to be found within the record of closed-record proceedings to which it exclusively applies. Data Processing, 745 F.2d at 684 (emphasis added); see also id. at 683 (The [substantial evidence test] is only a specific application of the [arbitrary, capricious test], separately recited in the APA . . . to emphasize that in the case of [section 706(2)(E)] proceedings the factual support must be found in the closed record as opposed to elsewhere.). 43 Because our review of the Board's decision is confined to the factual record compiled by the Board, we accordingly conclude that the substantial evidence standard is appropriate for our review of Board factfindings. See 5 U.S.C. § 706(2)(E).