PTAB’s authority to cancel patent claims must first be reviewed by three-judge panel


May 12, 2017

An appeal asking whether Article III of the U.S. Constitution prohibits the Patent Trial and Appeal Board from canceling claims of an issued patent following inter partes review (IPR) will be heard in the first instance by a three-judge panel, rather than by the en banc court, the U.S. Court of Appeals for the Federal Circuit has decided. A patent owner petitioned for an initial en banc ruling because a decision in its favor would require the court to overrule a precedential decision, which cannot be done by a three-judge panel. A majority of the circuit judges voted to deny the petition, but Circuit Judges Kathleen O’Malley and Jimmy Reyna dissented from that denial. Judge O’Malley favored en banc consideration to resolve the issue of whether a patent confers a public or a private right, while Judge Reyna opined that the court should grant the petition because the appeal invoked the separation of powers and the private/public right distinction, and because the court’s prior decisions did not distinguish long-standing Supreme Court precedent. Circuit Judges Timothy Dyk and Pauline Newman each filed concurring opinions (Cascades Projection LLC v. Epson America, Inc., May 11, 2017, per curiam).

In 2015, Epson America, Inc., and Sony Corp. separately petitioned for IPR of U.S. Patent No. 7,688,347 (’347 patent), owned by Cascades Projection LLC. The Board instituted both proceedings. The Board issued final written decisions finding certain claims of the ’347 patent to be unpatentable. In the Sony proceeding, Cascades argued that Article III of the U.S. Constitution prohibited the Board from canceling patents, but the Board acknowledged that it "lacks authority to rule on the constitutional questions." Cascades appealed both rulings and the cases were consolidated.

The only issue raised on appeal by Cascades was whether Article III prohibits the Board from canceling patent claims. Cascades petitioned for an initial hearing by the en banc court. The Federal Circuit denied the petition without opinion. Judge Newman and Judge Dyk filed concurring opinions. Judge O’Malley and Judge Reyna filed dissenting opinions. Several amici urged the court to grant the petition.

Concurring opinions. In her opinion, Circuit Judge Pauline Newman framed the question as "whether the statutory scheme created by the America Invents Act, in which the Office is given an enlarged opportunity to correct its errors in granting a patent, with its decision subject to review by the Federal Circuit, meets the constitutional requirements of due process in disposition of property." Judge Newman believes that this issue should be resolved after full opportunity for a panel hearing, followed by en banc consideration, if appropriate.

Circuit Judge Timothy Dyk, joined by Chief Judge Sharon Prost and Circuit Judge Todd Hughes, filed a concurring opinion to emphasize that, contrary to the dissents, patent rights are public rights flowing from congressional legislation.

Dissenting opinions. In her dissenting opinion, Circuit Judge Pauline Newman expressed doubt regarding the validity of the premise that patent rights are public rights conferred by statute. In MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015), cert. denied 137 S. Ct. 292 (2016), the Federal Circuit rejected Article III and Seventh Amendment challenges to the invalidation of granted patents via inter partes review proceedings. However, the Supreme Court has held that core private rights are only subject to adjudication in Article III courts. Because MCM might be at odds with Supreme Court precedent, Judge Newman would grant Cascades’ petition to reconsider MCM en banc.

In a lengthy dissent, Circuit Judge Todd Dyk opined that "the state of current law compels en banc review." In 1898, the U.S. Supreme Court held that "[t]he only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent." McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 609 (1898). Judge Dyk observed that McCormick has never been overruled and the two Federal Circuit decisions (MCM and Patlex Corp. v. Mossinghoff, 758 F.2d 594, 604 (Fed. Cir. 1985)—purporting to distinguish McCormick in order to uphold the constitutionality of post-grant patent review procedures—offered inconsistent rationales. In addition, the core of the dispute involves substantial questions of property rights, Article III, and the Seventh Amendment, Judge Dyk noted.

According to Judge Dyk, it is essential clarify whether patents confer private rights subject to Article III adjudication or public rights derived from a federal regulatory scheme. "The relationship between patent statutes and constitutional provisions is an exceptionally important issue this court, in particular, should address," Judge Dyk said.

The case is Nos. 2017-1517 and 2017-1518.

Attorneys: Philip P. Mann (Mann Law Group) for Cascades Projection LLC. David J. Ball, Jr. (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for Epson America, Inc. Kevin P.B. Johnson (Quinn Emanuel Urquhart & Sullivan, LLP) for Sony Corporation.

Companies: Cascades Projection LLC; Epson America, Inc.; Sony Corporation

MainStory: TopStory Patent FedCirNews

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