In Kappos v. Hyatt, to be argued on January 9th, the Supreme Court will consider the standards of review in Section 145 patent proceedings brought in federal district court. You can read Ronald Mann’s preview of the case here at SCOTUSBlog. As it happens, I wrote a law review article on patent law standards of review relatively early in my career that discusses Section 145 standards of review in some detail — and that suggests how the Court should rule in Hyatt. The article is Rethinking Patent Law in the Administrative State, 42 William & Mary Law Review 127 (2000). Although I haven’t written in patent law for a while, I thought I would blog my thoughts about the Hyatt case and the broader issues it raises.
In my view, the key to understanding Hyatt is recognizing that the regulatory model used by the patent system predates the administrative state. The patent system adopts the model of a unilateral contract offer, not of the modern delegated discretion model that became popular starting in the late 19th Century. Specifically, the patent system promotes progress in the useful arts by trying to incentivize inventions through an offer: Anyone who files a patent application that satisfies the requirements of patentability gets the property right of a patent for a particular period of time. This is essentially a unilateral contract offer, in which the desired conduct is acceptance of the offer by creating an invention and filing a patent claim about it. Notably, this regulatory mechanism is very different from the administrative-law regulatory model. The administrative-law regulatory model works by delegating some amount of substantive lawmaking power to the agency, and then letting the agency regulate in its area of delegated discretion. Patent law is different: Congress hardwired in the specific standards of patentability (subject to judicial interpretation) instead of delegating power to the Commerce Department to go off and regulate inventions.
Why does this matter for patent law standards of review? It matters because the standards of review that make sense in the context of regulatory scheme that harnesses the dynamic of a contract offer are very different from the standards of review that make sense in the context of delegated power to an agency. When Congress delegates regulatory power to an agency, it has to provide for deferential review: Standards of review distribute power, and if you want to give an agency power you need to defer to its decisions within that zone of power. But the proper standards of review for a regulatory scheme that harnesses the dynamic of a contract offer are (and should be) different.
To see why, we need to understand the close analogies between patent law actions and traditional contract disputes. The standards of patent law define the terms of an offer by the government, expressed as a unilateral contract offer to the public: The filing of a successful patent application constitutes acceptance of the offer. Of course, the trick is that the patent application may or may not satisfy the standards of patent law; in a contractual sense, it may or may not constitute an acceptance. If the government agrees that its offer was accepted, it is contractually entitled to issue the patent. But if the government contends that its offer was not accepted, the government will decline to issue the patent because no contractual obligation exists. The important idea is that the patent office acts as the agent of the offeror: Its judgment that a patent must or must not be issued should be understood as the judgment of an offeror that his unilateral contact offer has or has not been accepted.
That brings us to Section 145 actions, the subject of the dispute in Hyatt. Section 145 states in relevant part:
An applicant dissatisfied with the decision of the Board of Patent Appeals and Interferences . . . may, . . . have remedy by civil action against the Director in the United States District Court for the District of Columbia . . . . The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims involved in the decision of the Board of Patent Appeals and Interferences, as the facts in the case may appear, and such adjudication shall authorize the Director to issue such patent on compliance with the requirements of law.
The contract analogy is easy to see, I hope: Section 145 actions are just breach of contract disputes. The applicant thinks that he has accepted the offer; the government says he hasn’t. The applicant therefore can file a breach of contract action in the District Court seeking the remedy of specific performance of the contract. The standard of review for a Section 145 action therefore should be the same as the standard of review in a contract law dispute: The review should be de novo, in light of all the available evidence. As I wrote in my article:
Patent law and contract law . . . traditionally offer matching de novo standards of review to findings of fact. Until recently, successful patent applicants were entitled to bring plenary actions against the patent office in United States District Court. Such suits were styled “bills in equity” during the nineteenth century, much like analogous breach of contract suits seeking specific performance from offerors. Congress later codified the right to a de novo trial at 35 U.S.C. § 145. Section 145 permits “dissatisfied” applicants to bring a civil action against the Commissioner of the PTO in the United States District Court for the District of Columbia, and authorizes the court to “adjudge that such applicant is entitled to receive a patent for his invention.” Although applicants can waive their rights to review under Section 145 by bringing a Section 141 suit directly before the Federal Circuit, Section 145 historically permitted applicants to sue the PTO in district court in a de novo action that proceeds afresh without any deference to the PTO’s findings of fact or interpretations of law.
The courts’ de novo review of the PTO’s factual findings are mirrored by the de novo review that courts give to offerors’ factual claims in breach of contract disputes. Consider the Brooklyn Bridge dispute between A and B [in which A says that he’ll pay anyone $100 if they walk across the Brooklyn Bridge, and B goes across the bridge and demands the money]. A claimed that B jogged across the bridge, and B insisted that he walked. The reviewing court would not defer to A’s view, accepting A’s belief that B jogged unless it was “clearly erroneous” or “unsupported by substantial evidence.” Instead, the court would make independent factual findings and then resolve the dispute based on its own view of the facts.
And this is backed by a very good policy reason that is at the heart of patent law: You’re less likely to invest a lot of your time and money trying to accept a unilateral contract offer if you know a court won’t enforce the contract if the offeror denies your claim. Rather, if you’re going to make that investment, you want to know that a court will enforce the contract and give you the benefit you’re entitled to receive. And the whole point of patent law is to encourage people to make that investment: The point of the law is to induce the kind of valuable research that leads to new inventions that will benefit the public. So to make the patent system work best, applicants should be able to seek de novo review of the rejection of their application in the district court in Section 145 actions.
This is just a general sketch of the argument, and just one application of a broader point. For more details, read the article itself.