CAFC Gives Centripetal Another Shot at PTAB in Case Tied to APJ’s Alleged Bias

The U.S. Court of Appeals for the Federal Circuit (CAFC) on Wednesday vacated and remanded a decision of the Patent Trial and Appeal Board (PTAB) that–despite rejecting arguments about an APJ’s alleged bias–could result in Centripetal Networks getting its request for a new PTAB panel of administrative patent judges in the face of alleged bias.

The precedential opinion, authored by Judge Cunningham, said the Board did not err in its analysis of Centripetal’s arguments for recusal of an APJ with a financial interest in Cisco—a joined party to the inter partes review (IPR) proceeding brought against Centripetal by Palo Alto Networks—but ultimately vacated the final PTAB decision nonetheless due to the Board’s failure to consider evidence presented to it of copying.

The IPR petition was brought by Palo Alto in November 2021 challenging claims of Centripetal’s U.S. Patent No. 9,917,856, titled, “Rule-Based Network-Threat Detection for Encrypted Communications.” A panel that included APJ Brian McNamara instituted review. Centripetal requested rehearing by the Board or the Precedential Opinion Panel but was denied. Cisco and Keysight Technologies then filed “substantively identical” petitions for IPR and they sought joinder to Palo Alto’s petition, which was eventually granted.

Centripetal became aware in September 2022 that APJ McNamara owned “between $1,001 and $15,000 in Cisco stock” and filed a motion seeking recusal of the panel, vacatur of the decision and a rehearing, which was denied. However, McNamara withdrew from the panel the next day.

While McNamara called Centripetal’s allegations “without merit” and said that the Motion was filed “without having sought the requisite authorization,” he withdrew in order to “reduce the number of issues and simplify the briefing.” Another APJ on the panel, APJ Amundson, also withdrew for the same reasons, but APJ Moore did not. The new panel denied Centripetal’s motion for vacatur of the institution decision, in part because Cisco was not even a party to the proceeding at the time of the decision and in part because it said Centripetal’s recusal motion was untimely, and ultimately the panel held claims 1, 24, and 25 of the ‘856 patent unpatentable as obvious.

On appeal, Centripetal argued that the final written decision should be vacated because McNamara recused belatedly, after the institution decision; that its due process rights were violated; and that the Board failed to properly consider evidence of copying provided to it.

The CAFC first found it had jurisdiction to review the case even though it related to issues surrounding an institution decision, which are “final and non-appealable” under the America Invents Act (AIA), because Centripetal’s challenge “turns on the interpretation of ethics rules that are ‘not limited to the institution stage’…. and a constitutional challenge relevant to the entire proceeding.”

Next, the court agreed with the Board that granting a recusal motion would have been inequitable. “The Board highlighted that Centripetal was aware of APJ McNamara’s public disclosures more than three months before the filing of its recusal motion and emphasized that Centripetal waited until after it had received an unfavorable decision on both its motion for re- hearing and its petition for writ of certiorari to raise its recusal concerns,” wrote the CAFC. Despite Centripetal’s arguments that its delay was justified, the court said PTAB parties in particular must “raise conflicts at the first opportunity” due to the tight timelines of proceedings. Thus, the Board did not abuse its discretion in denying the recusal motion.

Additionally, Centripetal’s recusal motion fails on the merits, said the opinion, because “the Office of Government Ethics is empowered to promulgate regulations exempting from ethics rules financial interests that are ‘too remote or too inconsequential to affect the integrity of the services’ of executive branch employees.” McNamara’s stock holding satisfied these criteria and he satisfied the other rules specifically governing “ownership of publicly owned securities by the [agency] employee,” so he did not violate executive branch ethics rules, said the CAFC.

Centripetal also argued that the Board violated its due process rights because:

“(1) the Board’s language was improperly harsh…; (2) APJs should be held to the same standards as Article III judges, because of the heightened need for impartiality…; and (3) because the Patent and Trademark Office (‘PTO’) has enacted guidance that future similar conflicts should give rise to recusal, to be fair such guidance should be retroactive…”

The court rejected all of these arguments, and as to the latter noted that the guidance in question is “explicitly not retroactive” and said “we are aware of no due process principle that prohibits an agency from imposing stricter procedural rules that only apply prospectively.”

Next, the CAFC said that Centripetal had not demonstrated any prejudice requiring vacatur of the decision, in part because the court ultimately decided to vacate the decision on the merits.

Though it was presented with evidence of “(1) testimony that Centripetal executives met with Cisco in 2016 and presented information about the ’856 patent…; (2) testimony regarding internal Cisco communications showing that Cisco intended to study Centripetal’s patents…; and (3) expert testimony contending that Cisco plausibly copied Centripetal’s technology…”, the PTAB did not discuss any such evidence in its final decision, said the CAFC.

Because the Board “had an obligation to consider the specific evidence that was put before it,” the court vacated the decision and remanded with the directive that the USPTO Director should consider whether to assign the case to a new panel of APJs, given that Palo Alto said during oral argument that it would not object to a new panel.