On December 2, 2015, the United States Court of Appeals for the Federal Circuit affirmed the final written decision of the Patent Trial and Appeal Board (Board) of the US Patent & Trademark Office (USPTO) in an inter partes review proceeding, cancelling four claims of US Patent No. 7,162,549, owned by MCM Portfolio LLC (MCM).1 In affirming the Board, the court held that Article III and the Seventh Amendment of the US Constitution do not bar Congress from giving an expert agency the authority to cancel issued patents through administrative proceedings and without a jury trial. The court also reaffirmed that it lacks jurisdiction to review decisions to institute on appeal, even where those decisions are challenged on the basis that the petition was time-barred under 35 U.S.C. § 315(b) and held that the Board’s determination of obviousness was supported by substantial evidence.

In MCM Portfolio LLC v. Hewlett-Packard Co., MCM appealed the Board’s cancellation of claims 7, 11, 19 and 21 of MCM’s patent on the grounds they were obvious. MCM argued, in part, that inter partes review proceedings violate Article III and the Seventh Amendment. According to MCM, the Supreme Court’s decision in McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606 (1898), vested the power to cancel issued patents in Article III courts.

The Federal Circuit rejected MCM’s interpretation of Supreme Court precedent and held that the cancellation of patent rights by an administrative agency was proper under the “public rights” doctrine. McCormick, the Federal Circuit explained, dealt with reissue proceedings, the authority of the USPTO and the timing of when a patent owner surrenders the original patent in reissue. It “did not address Article III and certainly did not forbid Congress from granting the [USPTO] the authority to correct or cancel an issued patent.”

The court explained that “Congress has the power to delegate disputes over public rights to non-Article III courts.” After setting forth a brief history of the public rights exception to the power of Article III courts, the Federal Circuit compared the statutory scheme authorizing the USPTO to conduct inter partes review proceedings with the regimes in three recent Supreme Court cases:  Stern v. Marshall, 131 S. Ct. 2594 (2011) (bankruptcy courts), Commodity Futures Trading Commission v. Schor, 478 U.S. 833 (1986) (adversary proceedings before the Commodity Futures Trading Commission), and Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568 (1985) (Environmental Protection Agency arbitration to set compensation paid by registrants for using prior registrant data).

The court concluded that the correction and cancellation of patent rights fell within the public rights exception. “The patent right ‘derives from an extensive federal regulatory scheme’ … and is created by federal law,” the court noted. Moreover, the USPTO was created by Congress to be “‘an executive agency with specific authority and expertise’ in the patent law” and Congress saw “powerful reasons to utilize [that] expertise” by empowering the USPTO “to correct the agency’s own errors in issuing patents in the first place.” “It would odd indeed if Congress could not authorize the PTO to reconsider its own decisions.”

The court also considered its own precedent, in which it upheld the constitutionality of ex parte reexamination under Chapter 30 of Title 35 of the United States Code. In an earlier decision,2 the Federal Circuit “found that ‘the grant of a patent is primarily a public concern’” that “‘can only be conferred by the government.” In that case, the court held that the private interest in the patent “must yield to the reasonable Congressional purpose of facilitating the correction of governmental mistakes.”

Having decided that the Congressional authorization of inter partes review proceedings did not violate Article III, the Federal Circuit concluded that they also did not violate MCM’s Seventh Amendment right to a jury trial. Again relying both on the Supreme Court’s and its own precedent, the court held that where an administrative agency is given the authority to adjudicate public rights, Congress is not obligated to secure jury trials for litigants in those new proceedings.

In affirming the Board’s final written decision, the court also rejected MCM’s other arguments. The court first addressed MCM’s argument that the Board’s decision instituting inter partes review violated the one-year bar of 35 U.S.C. § 315(b). The Federal Circuit did not address the merits of MCM’s argument or the Board’s decision; instead, it remained consistent with its precedent and held that section 314(d) prohibits review of a decision to institute inter partes review, including a decision based on an assessment of the one-year bar in section 315(b).

Finally, on the issue of obviousness, the court rejected MCM’s argument that the prior art of record did not teach combining the claimed features on a single chip. The court concluded that substantial evidence supported the Board’s finding to the contrary and affirmed the Board’s conclusion of obviousness.

For more information about the topics raised in this Legal Update, please contact Sharon Israel at +1 713 238 2630 or Kyle Friesen at +1 713 238 2691.

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1 MCM Portfolio LLC v. Hewlett-Packard Co., Appeal No. 2015-1091 (Fed. Cir. Dec. 2, 2015).
2 Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985), modified on other grounds on reh’g, 771 F.2d 480 (Fed. Cir. 1985).