Alappat 101: Why the Federal Circuit has not authorized the PTAB practice of panel stacking

The United States Patent and Trademark Office (USPTO) has admitted to stacking panels of the Patent Trial and Appeal Board (PTAB) in order to achieve a desired outcome. While shocking, those in the patent space know this practice is not new. Defenders of the PTAB point to In re Alappat, 33 F.3d 1526 (Fed. Circ. 1994) as approving of the practice of panel stacking, which it does, at least to some extent.

Those pointing to Alappat to support modern PTAB panel stacking are, however, grossly misstating the nature of the decision in Alappat, and ignoring the fundamental shift in the adjudicative responsibilities of the Board since passage of the America Invents Act (AIA). Indeed, it is at best misplaced to rely on Alappat for the proposition that expanded panels in contested proceedings have been authorized by the Federal Circuit. At worst, citing Alappat for such a proposition is misleading.

In many regards Alappat was an unfortunate procedural decision, and one made over the very strong and sensible dissent by Judge Mayer, who was joined by Judges Michel, Clevenger and Schall. Still, it is critically important to recognize that the Federal Circuit in Alappat acquiesced to panel stacking in an ex parte appeal brought by patent applicants Kuriappan P. Alappat, Edward E. Averill, and James G. Larsen (collectively Alappat).

If expanded panels ever make sense, they would make the most sense in ex parte appeals where the Office (i.e., Director, or at the time of Alappat the Commissioner) is trying to steer office policy on patent examination, which they have a right to do. The difference now, however, is that since passage of the America Invents Act (AIA) the PTAB has become an adjudicative body that offers an alternative to district court litigation. Predetermination of litigation disputes has never, to my knowledge, been authorized by any court on any level. To the contrary, the American judicial system seeks to provide a fundamental fairness that does not allow any predetermination of the facts. Cf. Quill Corp. v. North Dakota, 504 U.S. 298, 312 (1992)(“Due process centrally concerns the fundamental fairness of governmental activity.”); Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991)(forum-selection clauses are judicially reviewable to ensure “fundamental fairness”); Strickland v. Washington, 466 U.S. 668 (1984)(“the ultimate focus of [an ineffectiveness of counsel] inquiry must be on the fundamental fairness of the proceeding whose result is being challenged.”); Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102, 112 (1987)(exercise of personal jurisdiction requires “fair play and substantial justice”); McDonald v. Mabee, 243 U.S. 90, 91 (1917)(“[G]reat caution should be used not to let fiction deny the fair play that can be secured only by a pretty close adhesion to fact.”).

Today the PTAB is using expanded panels, and in some cases phantom expanded panels where those deliberating on the merits are not disclosed to the public or parties, with respect to contests between two or more litigants. This means the PTAB is using expanded panels in order to purposefully reach a predetermined verdict. That is tantamount to picking winners and losers in a predetermined way, which so thoroughly violates American jurisprudential norms of fundamental fairness that it is shocking how anyone could actually support such a practice. Cf. SEC v. Sloan, 436 U.S. 103, 123-24 (1980)(Brennan concurring)(the suspension of trading in a company stock “without notice or hearing so obviously violates fundamentals of due process and fair play that no reasonable individual could suppose that Congress intended to authorize such a thing.”). That is not what an adjudicative body is supposed to do – ever really – but certainly not when there is a contest between two or more parties.

It is still further critically important to distinguish Alappat stacking from current PTAB panel stacking by observing that the Alappat applicants were, in fact, applicants and not patent owners. The Alappat applicants did not possess a patent, but rather were seeking a patent. While that may be of small solace to patent applicants, the truth is a patent applicant does not have a property right, vested or otherwise.

In stark contrast, patent owners that are hauled before the PTAB to defend their already issued patents in either an inter partes review (IPR) proceeding, a post grant review (PGR) proceeding, or a covered business method (CBM) proceeding do have a property right. Furthermore, an issued patent has long been treated as equivalent to a land patent by the Supreme Court, Rubber Co. v. Goodyear, 76 U.S. 788 (1869)(“[T]here is no distinction between… [a patent for land] and one for an invention or discovery.”).  Further still, issued patents are specifically vested with all the attributes of personal property by the patent statute. 35 U.S.C. 261. Therefore, a far greater level of process should be required in order to divest a patent owner of their ownership rights. That is, of course, why historically one of the reasons only Article III federal courts were given the authority to divest a patent owner of property rights in an issued patent.

In sum, as deeply troubling as Alappat is in terms of process and procedural fairness, the decision of the Federal Circuit to acquiesce to panel stacking in Alappat absolutely does not mean that panel stacking in contested cases under the AIA has been authorized by the Federal Circuit. Indeed, panel stacking, whether overt and on the record or as the result of secret internal deliberations within the PTAB, has never been authorized by the Federal Circuit relative to IPR, PGR and/or CBM proceedings. At some point whether panel stacking and admitted predetermination of outcomes is allowed in AIA contested cases will be a question of first impression at the Federal Circuit.

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Copyright: Adrian Niederhaeuser