Chapter §9.10 Federal Circuit's Standards of Review in §103 Determinations

• Jurisdiction: United States

§9.10 Federal Circuit's Standards of Review in §103 Determinations

The Federal Circuit routinely reviews determinations under 35 U.S.C. §103 made by the USPTO⁸³⁸ in the context of ex parte examination of patent applications and in post-issuance review proceedings of issued patents, as well as §103 determinations rendered in federal district court litigation over the validity of issued patents. Although ultimately a question of law,⁸³⁹ the nonobviousness determination of §103 must be based on underlying findings of fact.⁸⁴⁰ The Federal Circuit applies different standards of review for these factual findings depending on the identity of the fact finder.

[A] USPTO

[1] Factual Findings

The Federal Circuit hears appeals from obviousness rejections made by the USPTO in pending patent applications as well as inter partes and post-grant review determinations of unpatentability based on obviousness. The Circuit is required to give the USPTO considerable deference when the agency makes properly supported factual findings on the Graham factors.⁸⁴¹ In accordance with the judicial review provisions of the Administrative Procedure Act, such USPTO findings may be overturned by the Federal Circuit only if "unsupported by substantial evidence."⁸⁴² The substantial evidence standard, a term of art in administrative law, asks whether a hypothetical reasonable fact finder could have arrived at the agency's decision.⁸⁴³ If she could have, then the agency's finding will be upheld. The fact that the record contains evidence pointing both ways on a particular issue is not sufficient to overturn the agency's finding.⁸⁴⁴

Given the adjudicational nature of AIA-implemented post-grant review proceedings (e.g., inter partes review), owners of patents struck down for obviousness in IPRs have argued that the less deferential "clear error" standard of Fed. R. Civ. P. 52, which applies to fact findings made by federal district courts, should also apply to PTAB fact findings in IPRs. These arguments have not succeeded. The Federal Circuit in April 2016 rejected them in two related cases involving patents cancelled by the PTAB for obviousness.⁸⁴⁵ By an 11-1 vote, the Circuit denied en banc rehearing in Merck & Cie v. Gnosis S.P.A.⁸⁴⁶ and the companion case S. Alabama Med. Sci. Found. v. Gnosis S.P.A.⁸⁴⁷ Circuit Judge Newman dissented from both denials.⁸⁴⁸ Although Judge O'Malley (joined by Judges Wallach and Stoll) voted with the majority to deny rehearing en banc in both cases, she also offered an opinion contending that

§9.10 STANDARDS OF REVIEW FOR §103

application of the substantial evidence standard of review is seemingly inconsistent with the purpose and content of the AIA. This court is bound by binding Supreme Court precedent— Dickinson v. Zurko, 527 U.S. 150 (1999)—and this court's own— In re Gartside, 203 F.3d 1305 (Fed. Cir. 2000)—to apply the substantial evidence standard of review to factual findings by the Board, however. Because Congress failed to expressly change the standard of review employed by this court in reviewing Board decisions when it created IPR proceedings via the AIA, we are not free to do so now. I, thus, concur in the denial of en banc rehearing in this case because there is nothing that could come of our en banc consideration of the question posed. I write separately, however, because I agree with the dissent to the extent it argues that a substantial evidence standard of review makes little sense in the context of an appeal from an IPR proceeding. But the question is one for Congress. ⁸⁴⁹

[2] "Harmful Error" Requirement

The Federal Circuit in In re Chapman⁸⁵⁰ explained that the "harmless error" rule applies to appeals from the USPTO just as it does to appeals from federal district courts.⁸⁵¹ The rule requires that an appellant establish not only the existence of error below, but also that the error was in fact harmful because it affected the decision below.⁸⁵² The appellant in Chapman succeeded in showing that two of three alleged errors were indeed harmful.

Chapman sought to patent certain divalent antibody fragments (antibodies are proteins that bind to and inactivate antigens as a part of an immune response). The government conceded before the Federal Circuit that the USPTO Board had made three factually erroneous statements in its opinion rejecting Chapman's claims as obvious under §103; Chapman, as the party seeking a patent, bore the burden of showing that the errors were harmful. Disagreeing with the government's contrary position, the Federal Circuit concluded that two of the three errors were harmful...