Last week, the Federal Circuit Court heard oral argument in Apple Inc. v. Squires, a case we have been watching because it attracted four amicus briefs. In it, Apple Inc., Cisco Systems, Inc., Google LLC, and Intel Corp. appeal a district court’s determination that the adoption of a precedential framework by the Patent and Trademark Office to govern whether the Patent Trial and Appeal Board will institute inter partes review when parallel district court litigation exists did not require notice-and-comment rulemaking under the Administrative Procedure Act. Judges Lourie, Taranto, and Chen heard the oral argument. This is our argument recap.
Mark C. Fleming argued for the appellants. He opened by arguing “substantive agency rules are subject to . . . the general commitment to public notice and participation.” He then suggested the NHK-Fintiv Rule satisfies the “two hallmarks” that render a rule “substantive” under the Administrative Procedure Act.
Judge Taranto asked how the Rule could be considered binding given “it is the Director who is the statutory grantee” of the power to institute inter partes review proceedings. Fleming answered by arguing that, although “it is possible to appeal to the Director after the Board has issued a non-institution decision,” that possibility “does not change the nature of the rule,” which, he argued, “is binding on the Board itself.” Judge Taranto pressed further, noting he “was not able to find a case” in which a rule “with a small r” was applied to an entity other than the “actual final agency decision maker.” Fleming countered by arguing that, “over the time Fintiv has been operative,” the Board has functioned as the decision maker. He said “the final decision maker has been the Board” itself. He further argued the “bare availability of subsequent discretionary review” does not “change the effect” of the Administrative Procedure Act, which, he said, “subjects all substantive agency rules to the notice-and-comment requirements.”
Judge Chen asked for “an example of factors being used and implemented by lower level agency decision makers” that are “subject to a higher level review within the agency.” Fleming explained he “searched for cases that would embrace precisely this situation,” but, he said, that search yielded none. Instead, Fleming argued, “we are left with the language of the statute” and how “it’s been applied.” Fleming suggested that, if the court were to keep the Rule in place, the court “would be creating new ground” by allowing the agency to evade notice-and-comment requirements.
Weili J. Shaw argued for U.S. Patent and Trademark Office Director John A. Squires. Shaw opened by framing the case as turning on “whether the Fintiv factors are a general statement of policy” or, instead, a “legislative rule” that requires notice-and-comment rulemaking. Shaw argued the factors are a “general statement of policy” because they advise “the public prospectively of the manner in which the agency proposes to exercise discretionary power.” By contrast, he argued, “legislative rules alter the landscape of individual rights and obligations” and bind parties “with the force and effect of law.” Shaw asserted that, under that governing framework, the Fintiv factors “are not law” and “bind none of those” parties that substantive rules bind. He emphasized the PTO “is not bound” because “Congress vested discretionary denial authority in the Director.” And, in short, he said, the Director “is not bound by the Fintiv factors.”
A judge asked Shaw to address the D.C. Circuit’s precedent treating the “effect on private interests” inquiry as relevant to whether a rule is substantive. Shaw answered by arguing “the D.C. Circuit has not always been consistent in its pronouncements” in this area. Another judge then asked what “concrete” features of the Fintiv framework prevent it from qualifying as a “substantive rule.” In response, Shaw argued that, although “regulated parties may feel pressure to voluntarily conform their behavior” to agency guidance, “the most important factor” in the analysis to determine if a rule is substantive is the “legal effect or lack thereof of the agency action.”
In his rebuttal, Fleming argued “the fact that a substantive rule . . . might have some exceptions doesn’t make it any less substantive.” He characterized the NHK-Fintiv framework as containing “just minor exceptions.” Fleming said those features “don’t change the fact that it is a substantive rule.” Fleming further argued the court has previously held “federal courts lack jurisdiction over claims that Fintiv is contrary to law and is arbitrary and capricious.” Consequently, he said, “Congress’s check on agency action through public comment is the only check left.” Without it, he continued, there is nothing “holding the agency accountable.”
We will continue monitoring this case and report on developments.