Court Opinion

ID: 3197756
Source: CourtListenerOpinion
Date Created: 2016-04-26 16:01:02.746112+00
Date Added: 2024-06-11T08:39:43.204695
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
               ______________________

                   MERCK & CIE,
                     Appellant

                          v.

   GNOSIS S.P.A., GNOSIS BIORESEARCH S.A.,
             GNOSIS U.S.A., INC.,
                    Appellees
             ______________________

                     2014-1779
               ______________________

    Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board, in No. IPR2013-
00117.
                 ______________________

    ON PETITION FOR REHEARING EN BANC
             ______________________

   THOMAS J. PARKER, Alston & Bird LLP, New York,
NY, for appellant. Also represented by DEEPRO
MUKERJEE, YI WEN WU; JITENDRA MALIK, Durham, NC;
KIRK T. BRADLEY, Charlotte, NC.

    JOSEPH CWIK, Amin Talati & Upadhye, LLC, Chicago,
IL, for appellees. Also represented by JONATHAN JACOB
KRIT.
                 ______________________
2                                   MERCK & CIE   v. GNOSIS S.P.A.

     Before PROST, Chief Judge, NEWMAN, LOURIE, DYK,
    MOORE, O’MALLEY, REYNA, WALLACH, TARANTO, CHEN,
            HUGHES, and STOLL, Circuit Judges.
     O’MALLEY, Circuit Judge, with whom WALLACH and
    STOLL, Circuit Judges, join, concur in the denial of the
               petition for rehearing en banc.
    NEWMAN, Circuit Judge, dissents from the denial of the
              petition for rehearing en banc.
PER CURIAM.
                          ORDER
    Appellant Merck & Cie filed a petition for rehearing
en banc. A response to the petition was invited by the
court and filed by the appellees Gnosis S.p.A., Gnosis
Bioresearch S.A., and Gnosis U.S.A., Inc.
    The petition was referred to the panel that heard the
appeal, and thereafter the petition and response were
referred to the circuit judges who are in regular active
service. A poll was requested, taken, and failed.
      Upon consideration thereof,
      IT IS ORDERED THAT:
      The petition for rehearing en banc is denied.
      The mandate of the court will issue on May 3, 2016.

                                      FOR THE COURT

April 26, 2016                        /s/ Daniel E. O’Toole
     Date                             Daniel E. O’Toole
                                      Clerk of Court
  United States Court of Appeals
      for the Federal Circuit
                 ______________________

                     MERCK & CIE,
                       Appellant

                            v.

   GNOSIS S.P.A., GNOSIS BIORESEARCH S.A.,
             GNOSIS U.S.A., INC.,
                    Appellees
             ______________________

                       2014-1779
                 ______________________

    Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board, in No. IPR2013-
00117.
                 ______________________
O’MALLEY, Circuit Judge, with whom WALLACH and
STOLL, Circuit Judges, join, concurring in the denial of the
petition for rehearing en banc.
    The panel majority considered whether the Patent
Trial and Appeal Board’s conclusion that the contested
claims of the patent-in-suit are invalid as obvious was
supported by substantial evidence. Merck & Cie v. Gnosis
S.P.A., 808 F.3d 829, 833 (Fed. Cir. 2015). Merck now
urges this court to sit en banc to decide whether applica-
tion of a more searching standard of review—clear error—
is required for appeals from inter partes review proceed-
ings (“IPR”) under the America Invents Act (“AIA”).
While I understand Merck’s concerns, and those of the
dissent, I do not believe we can alter our standard of
2                              MERCK & CIE   v. GNOSIS S.P.A.

review for Board decisions, even via en banc considera-
tion.
    I agree that application of the substantial evidence
standard of review is seemingly inconsistent with the
purpose and content of the AIA. This court is bound by
binding Supreme Court precedent—Dickinson v. Zurko,
527 U.S. 150 (1999)—and this court’s own—In re Gart-
side, 203 F.3d 1305 (Fed. Cir. 2000)—to apply the sub-
stantial evidence standard of review to factual findings by
the Board, however. Because Congress failed to expressly
change the standard of review employed by this court in
reviewing Board decisions when it created IPR proceed-
ings via the AIA, we are not free to do so now. I, thus,
concur in the denial of en banc rehearing in this case
because there is nothing that could come of our en banc
consideration of the question posed. I write separately,
however, because I agree with the dissent to the extent it
argues that a substantial evidence standard of review
makes little sense in the context of an appeal from an IPR
proceeding. But the question is one for Congress.
                       DISCUSSION
    Before Dickinson v. Zurko, this court had a “settled
practice of reviewing factual findings of the board’s pa-
tentability determinations for clear error.” In re Zurko,
142 F.3d 1447, 1458 (Fed. Cir. 1998) (en banc). In Dickin-
son, the Supreme Court disagreed, “conclud[ing] that [5
U.S.C. § 706 of the APA] does apply [to Board findings],
and the Federal Circuit must use the framework set forth
in that section.” Zurko, 527 U.S. at 152.
    In In re Gartside, we followed Zurko, concluding “that
we must apply one of the standards set forth in the
[APA].” 203 F.3d at 1311. Section 706 lays out two such
standards: “arbitrary[ and] capricious” and “substantial
evidence.” 5 U.S.C. § 706(2)(A), (E). Between these, we
concluded that the relatively more searching “substantial
evidence” standard is appropriate for review of factual
MERCK & CIE   v. GNOSIS S.P.A.                             3

findings by the Board. We came to this conclusion based
on the language of both the APA and Title 35.
     The APA provides that “substantial evidence” review
is afforded to agency factfinding “reviewed on the record
of an agency hearing provided by statute.” 5 U.S.C.
§ 706(2)(E). Title 35 gives the Federal Circuit the author-
ity to review Board decisions:
    Section 144 explicitly provides that we must re-
    view 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 Trade-
    mark Office.”) (emphasis added), and it is for this
    reason that the Commissioner is required to con-
    vey 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) . . . .
In re Gartside, 203 F.3d at 1313. In light of §§ 7 and 144
of Title 35, we concluded 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.’” Id.
    In light of In re Gartside, this court consistently has
reviewed all of the Board’s factual findings, including
those in IPRs, for substantial evidence. See Pet. for Reh’g
5 (“[E]very Federal Circuit decision stemming from an
IPR has applied the ‘substantial evidence’ stand-
ard . . . .”). I continue to believe that In re Gartside con-
trols our standard of review for all Board proceedings,
including those under the AIA.
    It is true that, when authorizing IPR proceedings un-
der the AIA, Congress created an adjudicative process
involving a petitioner, a respondent, and a merits pro-
4                               MERCK & CIE   v. GNOSIS S.P.A.

ceeding culminating in a deliberative resolution by ad-
ministrative judges. It is also true that Congress viewed
IPR proceedings as cost-efficient substitutes for litigation
in federal district courts. The AIA’s legislative history
reflects this fact:
    The overarching purpose and effect of the present
    bill is to create a patent system that is clearer,
    fairer, more transparent, and more objective. It is
    a system that will ultimately reduce litigation
    costs and reduce the need to hire patent law-
    yers. . . . .
    By allowing post-grant review of patents, especial-
    ly low quality, business method patents, the bill
    creates an inexpensive substitute for district court
    litigation and allows key issues to be addressed by
    experts in the field.
157 Cong. Rec. S5319 (daily ed. Sept. 6, 2011) (statement
of Sen. Kyl) (emphasis added). See also, 157 Cong. Rec.
S1053 (daily ed. Mar. 1, 2011) (statement of Sen.
Whitehouse) (“[T]he bill will improve administrative
processes so that disputes over patents can be resolved
quickly and cheaply without patents being tied up for
years in expensive litigation.”); 157 Cong. Rec. S1326
(daily ed. March 7, 2011) (statement of Sen. Sessions)
(“This will allow invalid patents that were mistakenly
issued by the PTO to be fixed early in their life, before
they disrupt an entire industry or result in expensive
litigation.”).
    To the extent IPR proceedings were intended to re-
place 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.
MERCK & CIE   v. GNOSIS S.P.A.                            5

    Indeed, throughout Zurko, the Supreme Court refers
to clear error review as “court/court” review and to other
standards of review contemplated by the APA as
“court/agency” review. If Congress meant to create an
adversary, party-instituted proceeding to consider what
would otherwise be considered by district courts, it follows
that review of a decision regarding patentability issued in
an IPR could be viewed more like “court/court” review.
     While we have always reviewed decisions in inter
partes reexaminations for substantial evidence, those
proceedings are different in character. Inter partes reex-
amination requests were assigned to a patent examiner in
the Central Reexamination Unit trained in the same field
of art in the initial prosecution, MPEP § 2636 (Eighth
Edition, Revision 9, August 2012), and were decided
initially by those examiners. IPRs, instead, are reviewed
in the first instance by three technically-trained Adminis-
trative Patent Judges from the Board. 37 C.F.R. § 42.108.
Once IPR is instituted, unlike in inter partes reexamina-
tions, the Board applies the Federal Rules of Evidence, 37
C.F.R. § 42.62(a), it oversees various discovery obliga-
tions, 37 C.F.R. § 42.51, and it hears oral argument, 37
C.F.R. § 42.70. And where appeals from inter partes
reexaminations were first made to the Board of Patent
Appeals and Interferences, 35 U.S.C. § 134 (pre-AIA),
appeals from IPRs are made directly to the Federal Cir-
cuit, 35 U.S.C. § 141. Congress did not merely state in
legislative hearings that IPRs were meant to substitute
for district court proceedings, it enacted substantive and
procedural changes that brought IPR proceedings in line
with district court proceedings in meaningful ways.
     The AIA directs the Board to determine whether a pe-
titioner in an IPR proceeding has met its “burden of
proving a proposition of unpatentability by a preponder-
ance of the evidence.” 35 U.S.C. § 316(e). It did not
provide any such directive to this court, however. Merck
argues that, “[b]ecause Congress intended PTAB rulings
6                               MERCK & CIE   v. GNOSIS S.P.A.

to be reviewed for correct application of the standard of
proof established by the AIA—preponderance of the
evidence—this court must review the rulings for ‘clear
error,’ not substantial evidence.” Pet. for Reh’g 10. The
fact that it might have made sense for Congress to change
our standard of review for IPRs does not mean it did so.
    While the failure to change our standard of review is
seemingly inconsistent with what Congress sought to
accomplish by creating IPR proceedings and may have
been an oversight, it is not an inconsistency or oversight I
believe we can correct. I believe we continue to be bound
by the Supreme Court’s decision in Zurko absent an
express directive to the contrary. See Zurko, 527 U.S. at
155 (relying on the “congressional specification in the
APA that ‘[n]o subsequent legislation shall be held to
supersede or modify the provisions of this Act except to
the extent that such legislation shall do so expressly.’”
(emphasis added)). I also believe that IPRs are “agency
hearing[s] provided by statute” within the meaning of In
re Gartside.
    As the dissent to the panel opinion points out, Con-
gress knows well how to expressly address the level of
review by an Article III court of a determination by an
administrative agency, such as the Board. See Merck &
Cie v. Gnosis S.P.A., 808 F.3d 829, 841 (Fed. Cir. 2015)
(Newman, J., dissenting) (noting that Congress has
“adopted [the preponderance of the evidence standard] in
other special situations. For example, Under the Service
Contract Act, ‘[i]f supported by a preponderance of the
evidence, the [agency’s] findings are conclusive in any
court of the United States.’ 41 U.S.C. § 6507(e) (formerly
41 U.S.C. § 39).”). Though it may someday do so, Con-
gress did not make such a clear statement in the AIA.
     Unless and until Congress or the Supreme Court sees
fit to change our standard of review expressly, we must
MERCK & CIE   v. GNOSIS S.P.A.                         7

continue to review factual findings of the Board for sub-
stantial evidence.
  United States Court of Appeals
      for the Federal Circuit
                 ______________________

                     MERCK & CIE,
                       Appellant

                            v.

   GNOSIS S.P.A., GNOSIS BIORESEARCH S.A.,
             GNOSIS U.S.A., INC.,
                    Appellees
             ______________________

                       2014-1779
                 ______________________

    Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board, in No. IPR2013-
00117.
                 ______________________
NEWMAN, Circuit Judge, dissenting from denial of the
petition for rehearing en banc.
    The America Invents Act created a new tribunal in
the Patent and Trademark Office. This tribunal, called
the Patent Trial and Appeal Board (PTAB), has several
assignments including conduct of the post-grant proceed-
ings authorized by the America Invents Act of 2012. Pub.
L. No. 112-29, 125 Stat. 284 (2011) (effective September
16, 2012). In an inter partes review, a petitioner’s allega-
tions of invalidity on grounds of sections 102 and 103 of
Title 35 can lead to PTAB proceedings similar to trial in
the district courts, with discovery, evidence, testimony,
briefs, hearings, and written decision. The PTAB decision
may be appealed to the Federal Circuit, but cannot be
2                                MERCK & CIE   v. GNOSIS S.P.A.

taken to remedy by civil action in the district court.
Compare 35 U.S.C. § 319 with 35 U.S.C. § 145.
    When the final decision is adverse to the patent own-
er, the PTAB cancels the affected patent or claims. An
important aspect of the America Invents Act is that the
final decision produces an estoppel against the petitioner
in any ensuing litigation. Thus these PTAB proceedings
carry a heavy load, for they affect not only the property
rights of the patent owner, but also the potential liability
and opportunity of the petitioner.
    My concern relates to the Federal Circuit’s implemen-
tation of its appellate role, for the court has adopted a
highly deferential standard of review of these PTAB
decisions, instead of the full and fair review that is appro-
priate to the America Invents Act. The entire thrust of
the America Invents Act is that these PTAB proceedings
would be an alternative to district court proceedings on
these issues, and would receive the same level of appel-
late review. The highly deferential review standard of
“support by substantial evidence” does not assure the
intended identity of result for these PTAB and district
court determinations.
    En banc action is needed to realign the Federal Cir-
cuit’s standard of review with the legislative purpose.
Thus I respectfully dissent from my colleagues’ denial of
this request for en banc consideration.
                        DISCUSSION
    To fulfill the Act’s purpose that these PTAB proceed-
ings will be a just substitute for district court proceedings
on the designated issues, and will provide confidence and
finality for the patent-based innovation communities, the
PTAB decision must be subject to full and fair appellate
review.
    Precedent does not prohibit objective review
    of PTAB decisions
MERCK & CIE   v. GNOSIS S.P.A.                             3

    Although the concurring opinion states that the
Court’s decision in Dickinson v. Zurko, 527 U.S. 150
(1999), leaves no choice but to apply the substantial
evidence standard, that view is an unwarranted enlarge-
ment. In Zurko, the Court held that the PTO is subject to
the judicial review framework of the Administrative
Procedure Act. Id. at 152 (citing 5 U.S.C. § 706). Howev-
er, Zurko did not prohibit future legislation such as here
enacted, where Congress created a new tribunal with
authority to substitute for district court actions and
results, and for these proceedings eliminated de novo
review that is otherwise available for PTO decisions.
    Statutes must be implemented to conform to “the de-
sign of the statute as a whole and to its object and policy.”
Crandon v. United States, 494 U.S. 152, 158 (1990). The
design of the America Invents Act is not only to provide
an efficient and economical surrogate for district court
determinations of patent validity, but also to bind and
estop the petitioner in any infringement proceeding. It is
noteworthy that the PTAB is reviewing past PTO actions
for error, without the deference that those actions receive
in district court.
    Viewing the America Invents Act in its entirety, the
conclusion is compelled that Congress expected that these
PTAB decisions would be reviewed on the same judicial
standard as applies to the district court proceedings that
are replaced. Our responsibility is to assure that the
legislative purpose is implemented in accordance with the
design, object, and policy of the statute. Id.
    The “substantial evidence” standard does not
    conform to the statutory plan
    The record shows a decade of study and evolution, as
Congress and the technology-concerned public collaborat-
ed to provide an improved system for litigation resolution
of the major patent validity issues. See H.R. Rep. No.
112-98, pt. 1, at 48 (2011) (Inter partes review will provide
4                               MERCK & CIE   v. GNOSIS S.P.A.

“quick and cost effective alternatives to litigation”).
Nowhere in the record is there a hint of intent to diminish
the appellate responsibility of review of validity on the
grounds of correctness in law and clear error of fact.
    “Substantial evidence” is defined as “such relevant ev-
idence as a reasonable mind might accept as adequate to
support a conclusion.” Consol. Edison Co. v. N.L.R.B., 305
U.S. 197, 229 (1938). “It must be enough to justify, if the
trial were to a jury, a refusal to direct a verdict when the
conclusion sought to be drawn from it is one of fact for the
jury.” N.L.R.B. v. Columbian Enameling & Stamping Co.,
306 U.S. 292, 300 (1939). As the Court stated in Consolo
v. Maritime Commission, 383 U.S. 607, 620 (1966), “the
possibility of drawing two inconsistent conclusions from
the evidence does not prevent an administrative agency’s
finding from being supported by substantial evidence.”
This is the distinction here of concern, for application of
the substantial evidence standard can lead to affirmance
of a ruling that is not in accordance with the weight of the
evidence. It is unlikely that Congress intended to place
PTAB decisions in that “rubber-stamp” category—for in
PTAB proceedings, with documentary and testamentary
evidence presented by both sides, substantial evidence is
usually present on both sides.
    If on appeal the Federal Circuit simply looks for sub-
stantial evidence on the side of the PTAB decision, then
the purpose of the America Invents Act to provide a
surrogate for district court proceedings is thwarted. The
decade of legislative hearings shows that the AIA-
provided path of appellate review was intended and
expected to be conducted on judicial standards, not on
administrative standards. The America Invents Act rests
on the foundation that PTAB proceedings will substitute
for district court proceedings, and that the Federal Circuit
will provide full appellate review. Note the elimination of
access to district court review under 35 U.S.C. § 145 for
post-grant proceedings, unlike the statute that existed at
MERCK & CIE   v. GNOSIS S.P.A.                           5

the time of Zurko. 527 U.S. at 164 (1999) (highlighting
the availability of 5 U.S.C. § 145 and the review of agency
action under a clear error standard of review on appeal
from a § 145 action).
    There is no hint that Congress and the concerned
communities contemplated omitting full appellate review
by the Federal Circuit, while eliminating district court
review and imposing an estoppel against the petitioner,
who may not assert in defense to a charge of infringement
any ground of invalidity “that the petitioner raised or
reasonably could have raised” in the PTAB. 35 U.S.C. §
315(e)(2). With these substantive consequences, it is not
reasonable to infer the legislative intent to apply highly
deferential review to issues traditionally subjected to
appellate review for correctness and clear error.
    The standard by which the new PTO tribunal would
determine validity was the subject of controversy in the
Congress.     The American Intellectual Property Law
Association testified that: “The proposed second window,
where the burden of proof is a ‘preponderance of the
evidence’ instead of ‘clear and convincing evidence,’ will
increase the risks faced by patent holders and dampen
their enthusiasm for investing in the development and
commercialization of their patented technologies.” Patent
Act of 2005: Hearing on H.R. 2795 Before the House Sub-
comm. on Courts, the Internet, and Intell. Prop., 109th
Cong. 15 (2005). Eventually the preponderance standard
was adopted, but with balancing provisions including the
estoppel provision and the review path to the Federal
Circuit. It is not tenable to assume silent legislative
intent to accompany this lightened burden of proving
invalidity in the PTAB and restricted path of appeal, with
a highly deferential standard of appellate review.
   The PTAB proceeding is a trial between pri-
   vate parties, and requires commensurate re-
   view
6                                MERCK & CIE   v. GNOSIS S.P.A.

    This new proceeding is not an agency grant, but adju-
dication in accordance with the law of statute and prece-
dent. At issue are property rights that were previously
granted, vesting the patent right to exclude. See James v.
Campbell, 104 U.S. 356, 358 (1881) (“When [the govern-
ment] grants a patent the grantee is entitled to it as a
matter of right, and does not receive it . . . as a matter of
grace and favor.”). This too weighs against deferential
review of PTAB decision, for cancellation of property
rights that the agency previously granted weighs against
deferential review, lest any further error be ratified.
    The legislative record shows the evolution of the
America Invents Act from a simple “opposition”-like
proposal, to a full trial proceeding whose result produces
an estoppel. Compare H.R. Rep. No. 112-98, pt. 1, at 8 as
enacted (describing the PTAB as a “court-like proceed-
ing”) with Patent Quality Assistance Act of 2004, H.R.
5299, 108th Cong. § 336(a)(2) (2d Sess. 2004) (permitting
“opposer in an opposition proceeding” to avoid any estop-
pel in court proceedings). If the PTAB decision must be
sustained if it is supported only by substantial evidence—
even if the weight of the evidence would produce a contra-
ry result—then the ambitious design of the America
Invents Act collapses. Such an intent cannot be pre-
sumed.
    Rather, the legislative record provides the expectation
that the Federal Circuit will apply the standard judicial
criteria for review. These criteria conform to the legisla-
tive purpose of providing an efficient and economical
surrogate for district court trial, as well as authorizing
challenges to patents not yet in litigation. The purpose is
to reinforce reliability of the patent-based incentive to
technological innovation, whereby valid patents are
recognized and invalid patents are eliminated. See 157
Cong. Rec. S5327 (Sept. 6, 2011) (statement of Sen.
Leahy) (“This bill will establish a more efficient and
streamlined patent system that will improve patent
MERCK & CIE   v. GNOSIS S.P.A.                          7

quality and limit unnecessary and counterproductive
litigation costs, while making sure no party’s access to
court is denied.”).
    Post-grant proceedings are not simple administrative
actions. The America Invents Act departs from the Ad-
ministrative Procedure Act in its provisions for appeal
directly to the Federal Circuit, eliminates district court
review, and imposes estoppel against the petitioner. The
substantial evidence standard of review distorts the
legislative balance. En banc consideration is necessary to
realign the appellate standard with the statutory purpose.