Argument Recap

Earlier this month, the Federal Circuit heard oral argument in In re Chestek PLLC. In this case, the Federal Circuit is reviewing the Trademark Trial and Appeal Board’s rejection of Chestek’s trademark application based on non-compliance with the domicile address disclosure requirement. Judges Lourie, Chen, and Stoll heard the argument. This is our argument recap. 

Andrew M. Grossman argued for Chestek. He began by arguing that, when the Patent and Trademark Office issued its rule requiring all trademark applicants to disclose their domicile addresses, it failed to “engage in reasoned rulemaking.” He contended the PTO’s decision to adopt the requirement was arbitrary and capricious because it “provided no reasoning whatsoever for that decision.” One judge sought clarification on whether the PTO’s decision was a “logical outgrowth of [its] earlier proposal to indicate that [applicants] had counsel.” Grossman clarified that Chestek’s argument that the PTO’s rulemaking was arbitrary and capricious is separate, focusing on the fact that “the agency didn’t provide any rationale for the decision” that included the requirement in the final rule. Additionally, he responded, Chestek disagrees that the requirement “was a logical outgrowth of what was in the proposed rule,” because it “provided no notice . . . that the agency intended to collect” information on domicile addresses. He pointed out that, instead, the proposed rule “specifically disclaimed that the agency was imposing any kind of reporting requirement” and insisted the rule “would not impact domestic filers.” 

One judge asked if it was correct that, as the proposed rule stated, the “requirement is similar to the requirement that currently exists in other countries.” Grossman, in response, argued this language referred to “requirements of domestic counsel representation in those countries.” He asserted that, while he is not sure if it is true, “if that was . . . relevant to the agency’s decision making, it would have been in the record.” The judge suggested the PTO must have “a way to implement the rule” related to representation and “figure out who needs counsel and who doesn’t.” In this regard, the judge continued, asking for an address “sounds like a logical outgrowth” of the requirement of counsel. In response, Grossman argued the question “highlights the problem here,” which is that “there are multiple ways the agency could have done this” better but did not. 

The argument turned to whether the rule was procedural or substantive. One judge asked why rulemaking had to occur given that there were procedural ways to achieve this change. Grossman responded that, “even if a rule is procedural, an agency still has to be rational in its rulemaking and explain what it’s done, which the agency here didn’t do.” He further asserted the rule is not procedural because procedural rules address “internal housekeeping measures of the agency,” such as the agency’s use of applicant information. He argued that, instead, if the agency is “imposing a new condition . . . on the receipt of a government program,” the rule is a “substantive requirement of law.” One judge sought clarification on whether Chestek’s argument is that “any time an agency asks for new information,” it is substantive law. Grossman responded that it is “when it is a new condition for receipt of a government benefit.” 

Grossman reiterated that “the baseline” requirement of an agency to avoid arbitrary and capricious action is explaining why it made the change in question. In this case, he continued, “the agency didn’t acknowledge that it was making any change in the preamble. . . and then provided no explanation” for the change in the rule. He argued this requirement to explain its action is a “relatively low” standard, but he said the PTO failed to meet it because the “final rule has no rationale whatsoever.” In particular, the final rule “doesn’t acknowledge the change” it made to the 70-year-old requirements under the Lanham Act.

Grossman argued the PTO changed its requirements without considering “the impact on applicants’ and prospective applicants'” privacy and safety when the agency’s regulations require public disclosure of the disclosed information. In response, one judge suggested there is nothing in the comments on the proposed rule regarding “notions of privacy concerns.” Grossman responded by pointing out that “the proposed rule did not provide any requirement that anybody come forward with their domicile address.” Instead, he argued, the proposed rule kept the original address requirement but stated that “in some instances, the examiner might engage in some type of investigation . . . if there was a concern of fraud.”

A judge asked whether the court should factor in to its analysis the PTO’s subsequent attempts to mitigate privacy concerns. Grossman argued “no” for two reasons. First, he contended, those actions “are not relevant for assessing the rationality of the rule” given that the agency is “limited to what is in the final rule.” Second, he argued, the fact that, upon release of the rule, the agency “faced a massive public backlash” and “spent the next year scrambling” underscores the issue’s importance. In short, Grossman argued, the agency made a mistake by trying to “patch things up without going through another rulemaking and without soliciting public comments.” He argued that, if they had “provided notice” and “engaged in reasoned rulemaking,” it would have ended up with a “better and sounder policy.” 

Mary Walker argued for the PTO. She asserted Chestek is “a corporate entity that has expressly disavowed any privacy or other personal interest in not providing its domicile address to the USPTO” and, moreover, “did not comply with a requirement for a complete application.” She argued the Board affirmed the refusal of its application because it “declined to provide domicile address as required by the rules” and “failed to avail itself of the petition process to request relief.”

One judge asked if, in this case, it would be “appropriate for an applicant to challenge the validity of a regulation through a [TTAB] appeal of a denial of an application” and then subsequently challenge that regulation in the Federal Circuit. Walker responded that the government is not challenging “the jurisdiction of the court or the procedure in bringing the action.” She, however, said the “court should take into account” that all of the injury or concerns raised by Chestek do not impact it, which makes the analysis “speculative.” She continued by arguing that “what is clear in both the proposed rule making and the final rule is that the agency may request [domicile] information of any applicant.” Whether the PTO requires it at the beginning of the application or later, she argued, the effect is the same. She asserted “the injury here just doesn’t flow from the rule making itself, at least with respect to the particular rules the appellant is arguing about here.” 

Another judge asked whether the court should affirm because Chestek “can’t really make a case for challenging the validity of the regulation in this instance because [it] can’t show injury.” Walker, in response, argued the court has the power to affirm “on the basis that the Board properly applied the regulation to the applicant and the applicant failed to comply with the regulation.” She further argued the court should consider “how speculative some of [Chestek’s] arguments are.”

One judge asked what case law the government is relying on to support its argument and what evidence the court should rely on to say Chestek’s alleged harm is speculative.  Walker responded that the government is “not relying on particular case law,” but anyway the thinks the rule making was “entirely proper.” She suggested the government has no concern with the court affirming based on that fact, suggesting “there is a theory on which the court could affirm essentially as harmless error.” 

Next, Walker argued that the rule is procedural because it did not “alter the rights or interests of the parties” or change the “substantive trademark analysis” during the examination of an application. She argued that “courts have been clear that even when a procedural rule has a substantive effect, for example, in denying an application . . . that doesn’t transform an otherwise procedural rule into one that is substantive.”

One judge asked why the rule is not arbitrary and capricious given that “other ways could have been used to determine if someone was a foreign applicant and thus needed an attorney.” Walker responded that the rule making was not arbitrary and capricious, not only based on “logical outgrowth. . . that applies to the notice and comment rule making process,” but also generally given that “there are reasons provided” for the domicile requirement. She asserted the government added the rule in response to a “huge influx in improper and likely fraudulent applications.” In response, a judge asked where the government discussed this reasoning in the final or proposed rule. Walker admitted that neither says that “exactly” but pointed out that both did provide definitions for domicile.

In his rebuttal, Grossman first argued that “it is common that parties challenge rules that are enforced on them in the context of those proceedings.” Second, he asserted that, because “the rule that we contend is invalid was enforced against us, and our application was denied on that basis,” Chestek did suffer an injury, and therefore there is harm. Third, he contended, “under arbitrary and capricious review, it doesn’t matter whether the rule is procedural.” But, he argued, even if the court found the rule procedural, the action was arbitrary and capricious because the agency failed to “acknowledge what the problem is” and provide a “reasoned explanation” for the rule. Fourth, Grossman asserted that, in this case, the rule’s scope does not make sense when applied to applicants who already had domestic council and “concede[d] their foreign entity status.” 

We will continue monitoring this case and report on developments.