Security People, Inc. v. Iancu, Appeal No. 2019-2118 (Fed. Cir. Aug. 20, 2020)

This week’s Case of the Week deals with whether a party can challenge the outcome of an inter partes review (IPR) under the Administrative Procedure Act (APA) on constitutional grounds. In short, the Federal Circuit held that a party cannot so challenge. This appeal stems from an IPR filed by a competitor, Security People, seeking review of certain claims of Security People’s US Patent No. 6,655,180. The PTAB instituted that IPR and issued a final written decision finding the sole instituted claim unpatentable. Security People appealed that decision, raising only issues of patentability, and the Federal Circuit affirmed the PTAB. Security People then filed a petition for certiorari at the Supreme Court, again raising only issues of patentability, but the Supreme Court denied the petition. Security People then filed the suit from which this appeal arises—an action against the USPTO in the Northern District of California, seeking declaratory judgment, under the APA, that retroactive application of an IPR proceeding to cancel claims of its patent violated its Fifth Amendment due process rights.

At the district court, the PTO filed a motion to dismiss the suit on grounds of (1) subject matter jurisdiction, because collateral APA suits in district court are inappropriate due to the AIA’s establishment of specific means for judicial review of IPR decisions; (2) failure to state a claim because Security People never raised constitutional arguments in the earlier proceedings; and (3) failure to state a claim because precedent renders the claim meritless. The district court agreed with the PTO on the first ground, and dismissed the suit for lack of subject matter jurisdiction. The district court reasoned that because the AIA provides for “broad Federal Circuit review” but allows for review “only” in the Federal Circuit, Congress intended to preclude review of Board decisions under the APA.

Security People appealed, contending that the district court made two errors: first, that since the PTAB lacks authority to consider constitutional claims, it could not assert such a challenge on its first appeal; and second, that its as-applied challenge was not ripe until cancellation of its patent claims, which required affirmance by the appeals court, and that it had to exhaust its non-constitutional claims before raising constitutional claims. The Court disagreed.

As to Security People’s first argument, the Court held that, even if the PTAB cannot decide a constitutional question, the Federal Circuit, which was designated by Congress to conduct judicial review of PTAB final written decisions, can meaningfully address constitutional questions on appeal. Further, that disputed factual questions existed does not change the analysis. For one, the Federal Circuit may take judicial notice of facts relevant to a constitutional question. Moreover, where fact-finding is necessary, the PTAB has authority to take evidence and find facts for Federal Circuit review, even if it cannot decide the legal question for which those factual questions are relevant.

As to Security People’s second argument, in which it argued that for purposes of a Fifth Amendment due process claim, no deprivation of property had occurred until after the PTO issued the certificate cancelling its patent claim. The Court disagreed, and explained that such an assertion misapprehends the law defining when an agency action becomes final for judicial review. For IPRs, the PTO’s decision making process is final after issuance of the final written decision, or after a decision on reconsideration if applicable. The Court clarified that a judicially mandated outcome occurring because of a judicial review (such as the cancellation certificate) is not “agency decision-making.” Moreover, the doctrine of administrative exhaustion did not preclude Security People from raising constitutional claims on direct appeal to the Court.

Finally, the Court explained that it agreed with the district court that the AIA, which provides for exclusive review of final written decisions by the Federal Circuit, precludes district courts from exercising APA jurisdiction over claims challenging the constitutionality of a final written decision because such preclusion is “fairly discernable” from the statute’s text, structure, and purpose. The language of the AIA limits the possible forums for judicial review to the Federal Circuit and allows for comprehensive review, allowing a party to appeal if “dissatisfied” with the PTAB’s decision. Moreover, the APA authorizes judicial review of final agency actions only if there is no other adequate remedy in a court. Such is not the case for review of IPR final written decisions. The APA was not enacted to provide a general authorization for review where it would duplicate previously established special statutory procedures relating to specific agencies.

As such, the Court affirmed the district court’s decision of Security People’s suit.

The opinion can be found here.

By Erin M. Forbes


Sowinski v. California Air Resources Board, Appeal No. 2019-1558 (Fed. Cir. Aug. 21, 2020)

In this case, the Federal Circuit re-affirmed that res judicata may arise from a failure to prosecute a prior lawsuit. The individual plaintiff had previously sued the California Air Resources Board and others, alleging that credit auctions under California’s Cap and Trade Program infringed his patent directed to a pollution credit method, among other claims. In the prior suit, the plaintiff failed to respond to motions to dismiss that he had stipulated were “potentially case dispositive,” and the court had dismissed the action with prejudice as permitted by Ninth Circuit law. When the plaintiff brought identical claims against CARB in a subsequent lawsuit, the district court dismissed the action on res judicata grounds, also noting that the complaint was frivolous and failed to state a claim for relief.

The Federal Circuit affirmed the res judicata ruling, citing Ninth Circuit precedent, its own precedent, and Federal Rule of Civil Procedure 41(b) for the proposition that dismissal for failure to prosecute operates as an adjudication on the merits. The Court rejected plaintiff’s argument that the second suit pertained only to acts of infringement occurring after dismissal of the first suit, as the accused cap and trade activities were essentially the same as the activities held to be non-infringing in the prior lawsuit.

The opinion can be found here.

By Jason A. Wrubleski

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