Re-examining the USPTO’s Bid for Adjudicatory Chevron Deference—a Response to One Analysis of Facebook v. Windy City

Last week, Professor Andrew Michaels published an article with IPWatchdog commenting on Facebook v. Windy City and the U.S. Patent and Trademark Office’s claim for Chevron deference for precedential decisions of the Patent Trial and Appeal Board (PTAB). While I agree with his ultimate conclusion, “the PTAB cannot speak with the force of law through adjudication even on issues where it has the authority to do so through regulation,” I disagree with the path he took to get there.

I’ve written extensively on the topic (see the bibliography is at the bottom of this article). Of my articles, the most relevant is The PTAB Is Not an Article III Court, Part 3: Precedential and Informative Opinions. More recently, I filed an amicus brief in Facebook. In my view, PTAB precedential decisions can be eligible for Chevron deference in only the rarest of circumstances:  the PTAB is the wrong entity in the USPTO to engage in rulemaking, the PTAB doesn’t follow the procedures required by statute and executive order for rulemaking, and the PTAB doesn’t have access to the personnel within the USPTO that are necessary for rulemaking.

Something’s Fishy

There are two obvious fishy smells in the USPTO’s claim for Chevron deference:

• Why does no other agency have a Precedential Opinion Panel (POP)? Why is the PTAB different than any other tribunal in the entire United States federal government? If the USPTO is the only agency with such a thing, how does the POP fit within the administrative law that governs the rest of the executive branch? (As discussed below, it doesn’t.)
• Congress enacted a number of laws that govern procedure—laws that direct agencies to think about various issues, to reduce the chances of unintended consequences. (To assist the PTO, in several notice and comment letters, I gave the PTO a consolidated roadmap though all the laws that govern rulemaking, for example, Comments on Proposed Changes to Restriction Practice in Patent Applications, at pages 21-29 (Jun. 14, 2010).) Any effort by the USPTO to observe procedures required by statute isn’t visible in the agency’s work product. A rule with Chevron deference has essentially the same binding effect as a regulation, but the agency skips all the work. Isn’t this just the USPTO trying to get all the benefit of rulemaking while skipping out on all the work that Congress and the President required?

In my view, Chevron deference to PTAB decisions could only exist where the USPTO overcomes these two hurdles:

• The lack of any grant of rulemaking authority to the PTAB (and indeed, an implied limit on the PTAB’s rulemaking authority, by virtue of delegation to the Director). United States v. Mead Corp, 533 U.S. 218, 229-230 (2001) (the case most relied on by Professor Michaels) reminds us that “where it is in doubt that Congress actually intended to delegate particular interpretive authority to an agency, Chevron is ‘inapplicable’.” On issues of agency authority, close cases go against the agency (note: there are limits on this statement, as in National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967 (2005), but in this case, the USPTO didn’t observe the procedures required for Brand X to be applicable). Section 316(a) delegates authority to the Director to act by regulation, not to the PTAB to act by whatever substitute procedure the USPTO deigns to improvise on any given day.
• The Chevron line of cases (including U.S. v. Mead, 533 U.S. at 227) tells us that deference is unwarranted if an agency’s process is “procedurally defective.” Avoiding the procedures set by the Administrative Procedure Act, Regulatory Flexibility Act, Paperwork Reduction Act, and several executive orders, is apparently the whole point of the POP process.

A key fact: The USPTO “rule” at issue in Facebook was promulgated via precedential decision in Proppant Express Investments, LLC v. Oren Technologies, LLC, IPR2018-00914, Paper 38 (PTAB Mar. 13, 2019) (precedential). The USPTO’s brief claims that Proppant followed from an order requesting briefing, on December 3, 2018. IPR2018-00914, Paper 24 (PTAB Dec. 3, 2018). However, the PTAB’s call for briefing neglects all laws that govern the start of a valid rulemaking process:

• The Proppant call for briefing was not published in the Federal Register, the statutorily-required publication venue. In fact, it wasn’t published anywhere by the USPTO—the call for briefing was posted as a “nothing special” decision on the PTAB’s obscure, non-searchable, non-indexed PTAB E2E system, and that’s it. The PTAB and USPTO gave the public no notice of its proposed rulemaking—no notice in the form required by statute, no notice via email to the PTAB’s email list, no mention on the PTAB’s “precedential and informative decisions” page, no mention on the “Patent Trial and Appeal Board Alerts” widget on the MyUSPTO web page, no nuthin’.
• Proppant gave the public only 25 days to comment, running from December 3 to December 28, 2018. The APA does not set a minimum comment period, but 30 days is usually a minimum. Executive Order 12866, § 6(a)(1) suggests that 60 days should be the norm. See also 5 U.S.C. § 553(b) and (c) (30 days); 44 U.S.C. § 3506(c)(2)(A) (60 days for some categories of rule); Bulletin on Agency Good Guidance Practices, § IV (Jan. 18, 2007) (60 days for rules with at least $100 million in economic effect, promulgated by less-than-regulation formality). Anyone with any experience with the notice-and-comment process within any organization knows that the process of assembling a subcommittee, finding a knowledgeable volunteer who has a lull in his/her case load and can crank out a first draft, gathering comments and markup from the subcommittee, and getting multiple levels of organizational approval takes well more than 25 days. Especially if most of those days collide with Christmas and New Year’s holidays.
• The USPTO gave the public no notice of the precise issue it was considering—the Proppant call for briefing was like a history exam essay question—“Events occurred. Discuss.”—with no specific identification of issues.
• To have a genuine comment period that’s not “arbitrary and capricious,” an agency must respond to the comments it receives. Kennecott v. Environmental Protection Agency, 780 F.2d 445, 449 (4th Cir. 1985) (“The court best acts as a check on agency decisionmaking by scrutinizing process…  Whether the agency has provided notice and an opportunity to comment, and has fairly considered all significant data and comments, is the heart of the judicial inquiry.”). The PTAB didn’t. There’s not a word in the March Proppant decision that responds to the amicus brief I filed in December, IPR2018-00914, Paper 30 (Dec. 28, 2018).

If the USPTO had been intentionally trying to freeze out public participation and act by stealth, but create a sham cover story, it’s hard to know what could have been done differently.

Key Arguments

Substantive vs. procedural. I disagree with Professor Michaels’ major dividing line, that the PTAB could be Chevron-eligible for “procedural” rules but not “substantive.” True, on the broad spectrum of law governed only by the rulemaking grant of 35 U.S.C. § 2(b)(2)(B), the USPTO lacks substantive rulemaking authority. But 35 U.S.C. § 316(a)(4) is a special carve-in: “The Director shall prescribe regulations … establishing and governing inter partes review.”  This grants the Director substantive rulemaking authority in a specific little field (the Director has little “islands” of substantive rulemaking authority scattered around the Patent Act. I give a list of those in my Part 3 article). Section 326(a) grants the same for post-grant review proceedings. So, if the PTAB has Chevron-eligible rulemaking authority for anything, it has that authority for substantive rules for “establishing and governing inter partes review.” The “substantive/procedural” distinction that is at the heart of Professor Michaels’ analysis is simply irrelevant when the USPTO has one of these “island” delegations of authority. In my view, the relevant distinctions are between the Director and the PTAB, and whether the USPTO followed the relevant rulemaking statutes, not substantive vs. procedural.

Delegation to the Director vs. the PTAB, “regulation” vs. precedential decision. Professor Michaels points to Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131, 579 U.S. __ (2016) to demonstrate that the USPTO’s regulations can be eligible for Chevron deference. I agree completely. Duly-promulgated regulations by the Director, yes. Precedential decisions by the PTAB, after a stealth comment period, no.

Unitary vs. bifurcated agencies. The first key defect in the USPTO’s brief is not noted in Professor Michael’s article. All the tribunals cited in the USPTO’s brief have unified rulemaking and adjudication authority—the National Labor Relations Board, Securities and Exchange Commission, Board of Immigration Appeals, etc. all are delegated both kinds of authority. Not the PTAB—the USPTO is a bifurcated agency, with adjudicatory authority in the PTAB and rulemaking authority in the Director. To pick up a quote from Mead, and substitute some parties, “On the face of the statute, to begin with, the terms of the congressional delegation give no indication that Congress meant to delegate authority to [the PTAB] to issue [binding rules] with the force of law.” In fact, the PTAB’s claim to Chevron deference is weaker than the Customs Service’s at issue in Mead: the Customs Service had some rulemaking authority, just not the right rulemaking authority. The Mead court notes that Chevron tends not to follow when an agency’s adjudications are directed to single cases that bind only the parties to the ruling. “[P]recedential value alone does not add up to Chevron entitlement.”  In an earlier case,  Martin v. Occupational Safety & Health Rev. Comm’n, 499 U.S. 144, 154 (1991), the Supreme Court explained this “unified” vs. “bifurcated” issue at some length: when Congress divides authority, Congress does not intend that the adjudicatory tribunal to exert law-making authority, and thus that adjudication-only tribunal is generally ineligible for Chevron deference. Gonzales v. Oregon, 546 U.S. 243, 258 (2006) states “the rule must be promulgated pursuant to authority Congress has delegated to the official.”  A delegation of rulemaking authority to the Director doesn’t become Chevron deference for every Tom, Dick, and Harry in the PTO.

“Procedurally defective.” The second big difference is the “procedurally defective” principle, which has emerged as a “step three” to Chevron deference. A rule can only be valid if it was promulgated with whatever level of formality and procedure are required by the specific delegation to the agency (the agency’s “organic statute”), the Administrative Procedure Act, Regulatory Flexibility Act, Paperwork Reduction Act, and several other laws and executive orders. As the Supreme Court explains it, Gonzales, 546 U.S. at 258-59 (emphasis added), “The starting point for this inquiry is, of course, the language of the delegation provision itself. … The [statute at issue in Gonzales] gives the Attorney General limited powers, to be exercised in specific ways. … The statute is also specific as to the manner in which the Attorney General must exercise this authority.”

Various laws are designed by Congress and the Office of Management and Budget to require agencies to analyze their rules in advance, to avoid unintended consequences. The USPTO has been on a tear to ignore these laws—or rather, to avoid the work they create—and the consequences are exactly those that Congress sought to prevent. Pam Chestak wrote about unintended consequences that the USPTO created by skipping out on Congressionally-mandated deliberation, in her petition discussed at Petition Asks USPTO to Undo Rulemaking on Physical Addresses in Trademark Applications. USPTO shortcutting on procedure has real-life consequences—in this case, potentially-life threatening consequences. Seventy-three patent practitioners wrote last week on the USPTO’s fee-setting rule, and noted a number of shortcuts and false statements by the USPTO, which will create nine-figure costs for the public. I wrote about this pattern a year ago, in my article, Agency Bad Guidance Practices at the Patent and Trademark Office: a Billion Dollar Problem. The PTAB, in promulgating the “ordinary meaning” rule earlier this year, shortcut almost every requirement for rulemaking, which will leave all IPR/PGR adjudications under “ordinary meaning” subject to challenge, as I wrote in An administrative law view of the PTAB’s ‘ordinary meaning’ rule.

Strikingly, neither the USPTO’s brief nor Professor Michaels’ article mentions the “procedurally defective” issue. § 316(a) delegates rulemaking authority to the Director, to be exercised by regulation (with notice-and-comment under the Administrative Procedure Act, various cost-benefit analyses under the Regulatory Flexibility Act, Paperwork Reduction Act, Executive Orders 12866 and 13771, etc.) not to the PTAB to be exercised by precedential opinion. If a rule shortcuts the rulemaking requirements of either the organic statute directed to the agency itself, or any of the rulemaking statutes that apply to all other rulemaking of all other agencies, then the rule is just plain invalid, and Chevron can’t save it.

Readers interested in further reading may find helpful the articles available at the link in my bio below.