Federal Circuit Affirms District Court’s Dismissal Of Declaratory Judgment Suit Challenging The Constitutionality Of Retroactive Application Of Inter Partes Review
On August 20, 2020, the United States Court of Appeals for the Federal Circuit (“CAFC”) issued an opinion affirming the decision of the U.S. District Court for the Northern District of California dismissing plaintiff-appellant Security People, Inc.’s suit under the Administrative Procedure Act (“APA”) challenging the constitutionality of the cancellation of its patent in an inter partes review proceeding (“IPR”). Security People, Inc. v. Iancu, __ F.3d __ (Fed. Cir. Aug. 20, 2020).
In 2015, the USPTO’s Patent Trial and Appeal Board (“Board”) instituted an IPR of Security People’s patent and subsequently found the challenged claim unpatentable. Security People appealed the Board’s decision to the CAFC, raising only issues related to patentability, and the CAFC summarily affirmed. The Supreme Court subsequently denied Security People’s petition for certiorari, which did not raise any constitutional arguments.
Following the Supreme Court’s denial of its petition for certiorari, Security People filed a complaint in federal district court seeking a declaratory judgment that the retroactive application of an IPR to cancel claims of its patent violated its Fifth Amendment right to due process. The district court granted the USPTO’s motion to dismiss the complaint, finding that it lacked subject matter jurisdiction because Congress established a specific means for judicial review of IPR decisions, rendering collateral APA suits in district court inappropriate. Specifically, the district court reasoned that because the America Invents Act (“AIA”) provides for broad review of the Board’s final written decisions, but limits that review to the CAFC “only,” see 35 U.S.C. § 141(c), Congress intended to preclude district court review of Board decisions under the APA. The district court explained that, accordingly, Security People should have raised its constitutional challenges, together with its substantive challenges to the patentability decision, to the CAFC.
Security People raised the following two arguments on appeal: first, that the Board lacks authority to consider constitutional claims, and that Security People could not then assert a constitutional challenge for the first time on appeal because retroactivity challenges raise issues requiring factual resolution; and, second, that its challenge was not yet ripe until final cancellation of its patent claims, which required affirmance of the Board’s decision by the CAFC, and that it had to exhaust those non-constitutional claims before raising constitutional ones.
The CAFC disagreed, explaining that Security People’s challenges misapply fundamental concepts of administrative law.
With respect to Security People’s first argument, the CAFC explained that even if it were to accept Security People’s assertion that the Board may not decide a constitutional question, the CAFC, which Congress specifically designated to conduct judicial review of Board final written decisions, can meaningfully address constitutional questions on appeal. The CAFC explained that the presence of disputed factual questions does not change that calculus, citing to the Supreme Court’s decision in Elgin v. Dep’t of the Treasury, 567 U.S. 1 (2012), in which the Supreme Court explained that either the CAFC could take judicial notice of facts relevant to constitutional questions, or, in rare circumstances that would require more, the agency could take evidence and make factual findings for CAFC review.
With respect to Security People’s second argument, the CAFC explained that Security People’s assertion—that, for the purposes of a Fifth Amendment due process claim, no deprivation of property had occurred until after the issuance of a certificate canceling its patent claim—misapprehends the law defining when agency action becomes final for judicial review. In this regard, the CAFC explained that the final written decision, not the issuance of the cancellation certificate, serves as the agency action that will directly affect the parties. And, regarding Security People’s assertion that the doctrine of administrative exhaustion prevented it from raising its constitutional claims on direct appeal to the CAFC, the CAFC explained that the doctrine “provides that judicial relief is not available for a supposed or threatened injury until the prescribed administrative remedy has been exhausted.” Sunpreme Inc. v. United States, 892 F.3d 1186, 1192 (Fed. Cir. 2018). The CAFC explained that, on the one hand, if the Board lacks authority to decide a constitutional challenge, then Security People faced no obstacle to judicial relief of its constitutional claims on direct appeal to the CAFC of the final written decision. And, on the other hand, if the Board does have the authority to decide a constitutional challenge, then Security People’s failure to raise the constitutional claims to the Board would lead to a forfeiture of the constitutional claims, not the ability to raise the claims in district court.
The CAFC further expressed its agreement with the district court’s view that the statutes providing for an exclusive preview of the Board’s final written decisions in the CAFC preclude district courts from exercising APA jurisdiction over claims challenging the constitutionality of a final written decision. In doing so, the CAFC examined both the text of 35 U.S.C. § 141(c)—“A party to an inter partes review . . . who is dissatisfied with the final written decision of the Patent Trial and Appeal Board . . . may appeal the Board’s decision only to the United States Court of Appeals for the Federal Circuit.” (emphasis by CAFC)—and the structure of the AIA’s statutory scheme, which, like other similar statutory schemes, does not foreclose all judicial review, but merely directs that the CAFC be the court that conducts the review.
With respect to the APA, the CAFC explained that while the APA authorizes judicial review of final agency actions when there is no other adequate remedy in a court, Congress, in enacting the APA, “did not intend that general grant of jurisdiction to duplicate the previously established statutory procedures relating to specific agencies.” Bowen v. Massachusetts, 487 U.S. 879, 903 (1988). The CAFC cautioned that allowing patentees to collaterally attack IPR decisions through suits under the APA “would destroy the Patent Act’s careful framework for judicial review at the behest of particular persons through particular procedures.” Pregis Corp. v. Kappos, 700 F.3d 1348, 1359 (Fed. Cir. 2012).