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IP Alert: PTAB's Structure and Funding Pass Due Process Muster

November 3, 2021

On October 13, in Mobility Workx v. Unified Patents, LLC, the Federal Circuit rejected a series of due process challenges to the structure of the Patent Trial and Appeal Board (PTAB), leaving the PTAB to continue with business as usual. The court held that the structure and funding of the PTAB do not violate constitutional guarantees of due process based on (a) the fee-generating structure of the PTAB, (b) the alleged financial interests of the PTAB judges, and (c) the Director’s delegation of authority for the institution decision to the same PTAB judges who will render a final decision if trial is instituted. The panel concluded, however, that Mobility is entitled to a remand under Arthrex for rehearing by the Director to address substantive questions, and to consider Mobility’s argument that the PTAB’s failure to issue a final determination within 12 months of institution requires dismissal of the petition or issuance of a certificate confirming the challenged claims.

In reaching its conclusion that the structure and funding of the PTAB do not violate the constitution’s guarantees of due process, the court analyzed three Supreme Court cases.

In the first, Tumey v. Ohio, the Supreme Court found that in a “mayor’s court,” due process was violated because the mayor received compensation if the defendant was convicted and had to pay fees, but did not receive such compensation if the proceedings resulted in an acquittal. Because the mayor was the chief executive of the village and was responsible for the finances of the village, and since the structure of the mayor’s court provided that the convicted parties’ fees funded the village, the Court determined that there was a violation of due process.

In the second, Dugan v. Ohio, the Court found no violation of due process because the mayor (a) exercised only judicial functions; (b) received a salary set by others, and (c) did not receive fees from the mayor’s court.

In the third, Ward v. Monroeville, because the mayor had “executive responsibilities for village finances” that might “make him partisan to maintain the high level of contribution from the mayor’s court,” the Court again found that due process was violated.

The court concluded that although Mobility contended that the Chief APJ, Deputy Chief APJ, and Vice Chief APJs participate in AIA review proceedings and “provide policy direction and ensure the quality and consistency of AIA decisions,” while also “oversee[ing] fiscal planning and expenditures of the Board” they do not have responsibility for the agency’s finances. It is the Director, and not these leadership APJs, who has responsibility for USPTO’s budgetary request to the Office of Management and Budget. Also, because it is Congress that sets the USPTO budget, the agency’s fees for work on AIA proceedings, including institution and post-institution, do not automatically become available to the agency. With all of this considered, the court concluded that the leadership APJs roles in budgeting are too remote and do not constitute a violation in due process.

Mobility also argued that “performance bonuses give individual APJs an unconstitutional interest in instituting AIA proceedings.” However, due to the backlog of ex parte appeals, the court concluded that there is no showing that APJs are incentivized to institute AIA proceedings in order to earn performance bonuses.

One of the most interesting arguments made by Mobility is that the Director violates due process and the Administrative Procedure Act by delegating authority to institute AIA proceedings. Mobility argued that APJs suffer pre-judgment bias or the appearance of such bias because the Director delegated the initial institution decision to “the exact same panel of Judges that ultimately hears the case.” The majority disregarded this argument, noting that the Federal Circuit had “previously rejected a nearly identical challenge” in Ethicon Endo-Surgery.

Judge Newman dissented, taking a much different position on this portion of the decision. Currently, institution decisions conducted by the PTAB are a final decision. Judge Newman questioned whether, when authored by inferior officers without supervision or control or review by a principal officer of the agency, the procedure for institution may violate the Appointments Clause. Although the America Invents Act assigned the institution decision to the Director, soon after enactment the agency assigned institution to the PTAB, retaining no control or supervision or review by the Director. Further, in Judge Newman’s view, delegating institution to PTAB APJs eliminated the legislative design whereby separate entities conduct separate determinations.

Finally, Mobility raised an Appointments Clause challenge based on the PTAB’s final decision. The Federal Circuit agreed that a “limited remand” is required under Arthrex, to allow the Acting Director to decide whether to review the PTAB’s final written decision pursuant to newly established USPTO procedures. The court also noted that Mobility may argue during the remand that the claims should be confirmed, or the petition should be dismissed because the PTAB failed to reach a final determination within the 12-months after institution.

This case is relevant for patent owners and petitioners practicing before the PTAB who may have received an adverse institution decision. In particular, Judge Newman’s dissent suggests a potential for future challenges to the constitutionality of the Director’s delegation of institution authority to the PTAB. This issue may receive more attention in light of Arthrex, although the majority’s view was contrary to this perspective.

For more information on this decision, please contact Fitch Even partner Thomas F. Lebens, author of this alert.

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