This past Monday the court heard oral argument in Mobility Workx, LLC v. Unified Patents, LLC, an appeal from the Patent Trial and Appeal Board that we have been following because it attracted an amicus brief. On appeal, Mobility Workx presents several arguments that inter partes review violates the Constitution. In particular, Mobility Workx argues that inter partes review violates its right to due process and qualifies as a taking under the Fifth Amendment. Judges Newman, Schall, and Dyk heard Monday’s argument. This is our argument recap.
David A. Randall argued for Mobility Workx. In his view, the case should be reversed on two grounds: first as an unconstitutional violation of due process, and second on the merits with respect to the patentability determination.
Randall began with the due process argument. He quoted Chief Justice Marshall as indicating that due process requires a dispassionate and disinterested tribunal, and that there is a neutrality requirement that is important to ensure that property will not be taken on erroneous or distorted understandings of facts or law. The due process requirement, Randall continued, does not permit incentives that offer a possible temptation, for example, to forget the burden of proof.
Judge Dyk interjected to point out that, in the briefs, Randall had taken the position that administrative patent judges have an incentive to initiate inter partes review proceedings because doing so would increase their bonuses by giving them more so-called decisional units or points. Judge Dyk pointed out that the government, however, says there is no such incentive because there are plenty of ex parte cases where APJs can earn decisional units. Is it not the case, asked Judge Dyk, that decisional units can be earned by addressing only ex parte appeals? Randall responded that there is nothing in the record to support the Director’s statement, and, he continued, what is in the record indicates at least some APJs are responsible only for America Invents Act proceedings rather than ex parte appeals. Moreover, he said, the PTAB hired around 260 APJs after the enactment of the America Invents Act, and there is no indication that there is sufficient ex parte appeals to keep all these APJs busy. After Judge Dyk pointed out that there is a substantial backlog of ex parte appeals, Randall noted that APJs get only one decisional point for an ex parte appeal and more for AIA proceedings. After Judge Schall asked a clarifying question, Randall pointed out that judges assigned to AIA proceedings must request to be assigned ex parte appeals, but those judges are not guaranteed ex parte appeals. Randall conceded, however, that the record does not indicate one way or the other the extent to which these judges are getting ex parte appeals. Judge Dyk indicated that this may mean that the appellant has not met its burden as part of its case. Judge Dyk then asked if there is an incentive to initiate if the judge can earn decisional units elsewhere. Randall responded that yes, there still is an incentive to initiate.
Judge Dyk then asked about Randall’s other due process argument that there is an incentive to initiate because initiation brings more revenue to the agency. He pointed out there is a “somewhat similar” case from the D.C. Circuit suggesting that where Congressional appropriations determine the agency’s revenue that there is no due process violation. Randall responded that the relevant statutory provisions indicate that the revenue of the U.S. Patent and Trademark Office is credited to the office. Moreover, now, he argued, the appropriations match what the revenues are. Judge Dyk, pointed out, however, that there must be an appropriation. Judge Newman interjected to highlight again that the appropriations have matched the revenues.
Randall then addressed the constitutional avoidance doctrine. In particular, he argued that substantial evidence does not support the rejection of the claims at issue in the case.
Dana Kaersvang argued for the Director of the U.S. Patent and Trademark Office, which intervened in the appeal. She indicated the government intervened to address the Constitutional issues in dispute, and she started with the argument that the structural due process challenge was waived. Judge Newman, however, asked her to assume that the challenge was not waived for purposes of the argument.
Kaersvang then proceeded to indicate that there are three “core facts” that are sufficient to indicate there is no due process violation. She first highlighted that APJs do not make more money if they institute, and that an institution counts the same as a non-institution decision in performance reviews.
Before she could highlight any other fact, however, Judge Newman interrupted to ask her to focus on incentives after institution. Judge Newman highlighted that federal judges do not get bonuses if they decide more cases in a period of time, and there is precedent that is “sort of hard to overcome” that there is a problem if bonus calculations depend upon productivity in the way alleged here.
Kaersvang responded that the bonus system is not unconstitutional; in particular it is not unconstitutional, she argued, to say that people have to do a certain amount of work to get a bonus when there is plenty of work to do. The bonus structure, however, Judge Newman highlighted, rewards a certain type of work more than other types of work. This Judge Newman found “troubling” in light of precedent.
In response, Kaersvang indicated she believes there is a misunderstanding about how the decisional units work. It is true, she said, that some types of work get more units, but it is because those things take more time than other things. In response, Judge Newman asked why that fact is not addressed by the APJ salaries. What troubled Judge Newman is that extra work results in bonuses on top of salaries. Kaersvang indicated that “it is not unconstitutional to have a system in which people who work hard and do good work get bonuses.” Kaersvang then noted that nothing in the bonus process depends on the outcome of the institution decision, and that APJs get another case right away if they deny institution.
Kaersvang turned to the relevant caselaw and argued that none of the concerns identified by the Supreme Court are present here. In particular, nothing in the bonuses turn at all on the outcome of the APJ decisions.
Judge Newman then asked another question about a “worry” she had had “ever since the AIA was adopted.” That worry, she explained, is that the statute says that institution will be decided by the Director, not by the tribunal. She explained she understands that power has been delegated to the tribunal, and that that is a “distortion” of the original plan that the Director would take the first look at the case and decide on a probable cause basis to have the APJs take another look at the case. She said she thinks the most forceful argument presented in this case related to this fact is that that threshold step is now delegated to the same tribunal that is supposed to be objectively deciding the dispute on the merits, and that there is some bias “at least towards granting the institution request.” She then asked how the PTO justifies delegating institution decisions to the final decision maker.
Kaersvang pointed out that the Federal Circuit has already rejected the argument that there is a problem with the APJs deciding both stages (institution and after a trial), and she maintained this is like federal judges deciding both a motion for a preliminary injunction and the final merits stage of a case. Judge Newman, however, highlighted that here “you have a statute that is contrary to the way it is being implemented.” She indicated, moreover, that the legislative history indicates this separation of roles was an important aspect of the enactment of the AIA. Kaersvang responded that nothing in the statute prohibits the Director from delegating these institution decisions, but also argued that the issues raised in this case did not challenge the Director’s authority to delegate.
Judge Dyk interjected to ask about the contention that the number of decisional units in ex parte appeals is less than those for an IPR final written decision, and whether there is anything in the record on point. Kaersvang indicated that evidence of this may not be in the record, but argued the key here is less credit is given for an ex parte appeal because an ex parte appeal takes less work. Judge Dyk asked for an explanation of the difference in terms of the number of units, and Kaersvang explained that she did not have that information. Judge Newman, however, indicated the answer is in the record, and it is one unit for a reexamination decision and four for an IPR. Kaersvang followed up to indicate any confusion about the facts reflects the problem that the dispute was not raised before the agency and so there was not an opportunity for the agency to collect evidence and find the relevant facts.
Judge Dyk then asked whether some judges that are assigned to AIA trial proceedings cannot get ex parte appeals work. Kaersvang indicated that is incorrect.
Judge Newman seemed to sum up her thoughts by saying, “I think there is a significant due process concern particularly when there is a direct contravention of an Act of Congress in which the decision whether to take on the case . . . and the final decision maker are the same, when they were set up by statute to be different.” She admitted “of course” the Director personally would not review the petitions for AIA trials, but delegation to an examining corps in her view was what was contemplated. She want on to say that “delegating that operation to the same entity that conducts the trial and makes the final decision was explicitly avoided in the America Invents Act,” and she is having trouble seeing that “due process [is] as well served by the way it is handled now” as compared to the way it was intended. In this regard Judge Newman highlighted the amicus brief filed in this case and its statistical data.
Kaersvang focused on the amicus brief’s argument that patent holders are more likely to win cases that are instituted in October as compared to September. Kaersvang highlighted that the brief does not say that more cases are instituted in one month or another.
Judge Dyk asked whether the concern Judge Newman raised was raised by the patent holder. Kaersvang responded that it was not raised by the patent owner and it is not briefed in this case.
Judge Dyk, moreover, said his “impression” is that “administrative judges can earn bonuses based on the amount of work that they do,” but asked whether that is correct. Kaersvang said she did not know the precise bonus structure for other administrative judges.
Kaersvang summed up the government’s position by arguing that “the facts just do not support that this is a system that encourages unnecessary institutions.”
Jason R. Mudd argued for Unified Patents. He started his time by focusing on the merits of the underlying claim construction dispute raised in the appeal. He contended that one patent claim on appeal is not challenged on the merits, and he otherwise argued the appellant’s position on appeal with respect to other claims is waived because it was not raised at the PTAB. And he argued that PTAB’s decision is anyway correct and supported by substantial evidence.
As to other constitutional issues on appeal, Mudd argued that the appellant waived its appointments clause challenge and anyway it is foreclosed by precedent. As to its Fifth amendment takings argument, Mudd argued similarly that the appellant waived it and anyway it has already been rejected by the Federal Circuit.
Notably, Mudd did not receive any questions from the panel.
In rebuttal, Randall argued that his client did raise the issue of whether the institution decision makers should be different than the final decision makers, and it raised the issue in its opening brief.
He argued, moreover, that information obtained through recent Freedom of Information Act requests reveals that there is “a high degree of temptation” for APJs to grant institution to “satisfy a personal interest” in making sure there is enough work to obtain credits for bonuses and to satisfy the PTAB’s budgetary constraints.
With respect to the second part of this argument, he noted that documents reveal that the Director set fees based on a projected institution rate of 66%. He argued that, as a result, the management of the PTAB understands that in order to meet their budget they need to hit a 66% institution rate. He finally argued that judges that grant institution are biased in favor of invalidating patent claims because they are less likely to reconsider their earlier decision.
We will keep track of any developments in this case.