How Will the Supreme Court’s Post Loper Stance Affect Judicial Review of Patent Related Agency Actions

September 3, 2024

Although the case did not involve any patent issues, the Supreme Court's Loper ruling at the end of its 2023-24 Term expanding the judicial role in federal regulation has implications for patent law. Here, we briefly recap the ruling, then discuss where it is likely to have most impact on patent law through judicial review of actions of the Patent and Trademark Office ("PTO") and the International Trade Commission ("ITC").

Loper Bright Enterprises v. Raimondo

In Loper, the Court overruled the Chevron rule that, under the Administrative Procedure Act, reviewing courts must generally defer to an agency's reasonable resolution of an ambiguity or gap in its governing statute. Instead, the reviewing court must now determine for itself the single best resolution of any question of law. That rule is, however, subject to four significant caveats:

(1) discretionary decisions: the "arbitrary and capricious" standard for review of an agency's exercise of discretion and the "substantial evidence" standard for review of agency factual conclusions are unaffected-the Loper vs. Chevron debate only comes into play for questions of law;

(2) delegation by Congress: in interpreting a statute, even without Chevron deference, a court may ultimately conclude that Congress has authorized the agency to make a (reasonable) discretionary decision-Loper simply reverses the Chevron default rule that presumed Congress intended such delegation. That said, there may be limits to how much authority Congress can delegate-excessively broad and unguided deferral to agencies could offend the non-delegation doctrine (Congress cannot abdicate to an agency its constitutional responsibility to legislate), or it could be subject to a narrowing judicial construction under the "major questions doctrine" (which presumes that Congress does not intend to delegate broad and consequential policy choices to agencies without guidance);

(3) Skidmore "respect": in determining the correct answer to a question of law, under Skidmore, an agency's interpretation of its governing statute is entitled to judicial respect insofar as it has the "power to persuade," based on factors such as the thoroughness of its reasoning, the application of agency expertise, and the agency's consistency over time; and

(4) stare decisis: insofar as an agency action was previously upheld under Chevron, the decision upholding it generally retains the force of stare decisis even if a different result might prevail absent Chevron deference.

The precise scope of these caveats will be refined through a likely flood of post-Loper judicial review litigation. And Loper leaves uncertain the future of judicial deference to an agency's interpretation of its own regulations (as opposed to its governing statute)-so-called Auer deference. In Kisor v. Willkie in 2019, Chief Justice Roberts (who wrote the majority opinion overturning Chevron in Loper) joined the then-four Democratic appointees on the Court in reaffirming the Auer case, which applied essentially the same deference standard as Chevron to an agency's interpretation of its own regulations. Loper does not address Kisor/Auer, so lower courts are still bound to apply Auer deference but, given the obvious tension between Loper and Kisor and the replacement of Justice Ginsburg (who was in the 5-4 majority in Kisor) with Justice Barrett (in the majority in Loper), it seems doubtful that Auer deference will stand much longer.

Patent Law Implications

What does Loper portend for patent law? Before getting into specifics, three general considerations are worth noting.

First, PTO and ITC decisions, like almost all patent rulings, are reviewable only by the Court of Appeals for the Federal Circuit. See 28 U.S.C. § 1295(a)(1), (4), (6). So prior Federal Circuit rulings-especially rulings applying Chevron encompassed by Loper's stare decisis caveat-will be important, and the forum-shopping and circuit split issues that may plague other areas of administrative law post-Loper should generally not arise in patent law.

Second, both the PTO and the ITC have issued detailed regulations that flesh out the skeletons of their governing statutes. Not only are those regulations potentially subject to closer review after Loper; the uncertain fate of Auer deference creates potential opportunities to challenge each agency's interpretation of its own regulations.

Third, insofar, as the party-line 6-3 decision in Loper reflects and will be deployed in an ideological context in which regulated industries and Republican-aligned entities seek to curb the regulatory state, patent law may be atypical because it does not divide easily along party lines or generalized stances on regulation. Moreover, the ITC's mission currently finds support in bipartisan protectionist sentiment. Notably, while the PTO was one of 30 agencies to which congressional Republicans sent letters after Loper demanding information on their interpretive decisions, the ITC was not.

1. Effect on the PTO

The PTO was the prevailing party in the last Supreme Court case in which Chevron may have had a decisive impact: Cuozzo Speed Technologies in 2016. In Cuozzo, the Court upheld a PTO regulation providing that during inter partes review, a patent claim should be given its "broadest reasonable construction." Applying Chevron, the Court concluded that that regulation fell within the PTO's open-ended authority to promulgate "regulations ... establishing and governing inter partes review" under 35 U.S.C. § 316(a)(4), notwithstanding that it represented a deviation from the patent construction principles that apply in the courts. Justice Thomas concurred in the unanimous decision upholding the regulation, previewing criticisms of Chevron that ultimately grounded its overrule in Loper eight years later but arguing that recourse to Chevron was unnecessary since the statute's authority to promulgate regulations was express.

The ruling in Cuozzo would presumably be unchanged if the issue were raised again today, given the stare decisis caveat in Loper. Whether the same result would have been reached if Loper, instead of Chevron, had been the law in 2016, is less clear. Justice Thomas's concurrence in Cuozzo seems to place the regulation within the category of affirmative and permissible delegation by Congress under Loper, but in the post-Chevron world, the Court might be troubled by the lack of substantive guidance Congress gave the PTO regarding the policy goals of its authorized regulations.

In any event, two years later, the PTO reversed its position, promulgating a new regulation harmonizing claim construction in inter partes proceedings with claim construction in the courts. See 37 C.F.R. § 42.100(b) (promulgated by 83 Fed. Reg. 51,340 (Oct. 11, 2018)). That reversal would have been permissible under Chevron, so long as the courts deemed the PTO's later position to be within the range of reasonable implementations of the statute. See, e.g., Nat'l Cable & Telecoms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005) (upholding under Chevron an FCC regulation which took the opposite position from a prior FCC regulation that had also been upheld under Chevron). It could be challenged under Loper, which permits only one correct answer to any given question of statutory interpretation. But, following Justice Thomas's concurrence in Cuozzo, it may well be that the correct construction of section 316(a)(4) is that it delegates to the PTO the policy choice of how to construe claims in inter partes review.

Looking forward, new PTO regulations that have not been reviewed by the Federal Circuit and are thus not protected by stare decisis will be more vulnerable under Loper than established regulations. Given judicial concerns about congressional abdication and agency usurpation of legislative/policy-making functions on "major questions," the most vulnerable regulations are likely to be those that address new and emerging issues (such as AI) that Congress has not grappled with thus far. A major example is the PTO's new proposed rule on terminal disclaimers (published May 9. 2024), in which it aims to cut off the ability of a patent to outlast the term of its related patents by making the term of a related patent dependent on its relatives not being held invalid. If this rule survives the comment period intact, one expects a rapid challenge to it by interested parties. Another possible area for future challenges involves recent PTO publications providing guidance for patent examiners, such as the PTO guidance on the application of enablement under Amgen (published January 10, 2024) and the artificial intelligence policies for inventorship and subject matter eligibility (published June 6, 2024 and July 17, 2024). As guidance documents without the force of law, those publications are not themselves subject to challenge under the APA, but future PTAB rulings that rely on them may be subject to challenges alleging that they misinterpret applicable statutory provisions.

One case already pending in the Federal Circuit in which Loper could be significant is FedEx v. Qualcomm, No. 24-1236. In several decisions, the PTO has ruled that while 35 U.S.C. § 312(a)(2) requires that a petition for inter partes review identify all "real parties in interest" ("RPI"), failure to list parties whose inclusion would have no effect on the petition's eligibility to be instituted (through time bars or estoppel) is not fatal. FedEx counters with a "plain language" argument: the statute states that the PTO may consider the petition "only if" it meets several conditions, including identifying all RPI. The PTO has substantial arguments for its position, contending that Congress gave it nonreviewable discretion over whether to institute inter partes reviews and did not obligate it to scrutinize the accuracy of a petitioner's identification of RPI. But FedEx's textual argument is precisely the kind of argument that the switch from Chevron to Loper encourages.

1. Effect on the ITC

Under Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337, the ITC can issue an exclusion order barring the importation of articles that infringe a U.S. patent. Section 337 proceedings are complex, requiring (for example) that the complainant or its licensee maintain a domestic industry in articles protected by the patent. Thus, it is not surprising that multiple important questions of statutory interpretation have arisen over Section 337 and the ITC's jurisdiction. The Federal Circuit has analyzed some of these cases through a Chevron lens. While Chevron was not always decisive in these cases-because the Federal Circuit concluded the statute was clear and agency deference was unnecessary or unwarranted-there are several prominent examples in which Loper's removal of deference may have an immediate impact.

Before reaching those cases, it is worth noting the plethora of instances where the Federal Circuit has either embraced the ITC's reasoning outright or rejected it as an untenable reading of the statute. In these cases, the outcome did not hinge on Chevron deference. They include the affirmances in TianRui (extraterritorial application of trade secret law), InterDigital (technical prong requirement for licensing-based domestic industry), and San Huan New Materials (authority to adjudicate civil fines for violation of a consent order). They also include the reversals in ClearCorrect (no jurisdiction over importation of data) and Kyocera (unavailability of limited exclusion orders against downstream products of non-respondents). Chevron was also not decisive in John Mezzalingua Associates, in which the dissent addressed (and rejected) deferring to the ITC's refusal to count pure litigation as a domestic industry expense, while the majority disregarded that legal issue altogether on the ground that it was not raised by the appeal. Finally, the holding in Enercon that the ITC's statutory authority over "sale for importation" includes contracts for sale will probably survive the demise of Chevron, because the court found that the ordinary meaning of "sale" encompasses sales contracts.

However, there are several instances where the shift from Chevron to Loper could have a significant impact, as discussed below.

Indirect infringement: The ITC's authority to issue exclusion orders on goods that only indirectly infringe, at the time of importation, is currently facing a challenge. The ITC can block importation of articles that induce domestic infringement thanks to Suprema, a 2015 decision in which the Federal Circuit (en banc) gave Chevron deference to the ITC's interpretation of its governing statute. In the Sonos case, Google is asking the full Federal Circuit to reverse Suprema in light of Loper. In response, the ITC invokes the stare decisis caveat in Loper and further argues that its own interpretation of 19 U.S.C. § 1337(a)(1)(B)(i) in Suprema was the best interpretation of the statute. Sonos raises an ambiguity in Loper: does the stare decisis caveat merely protect the agency action (regulation or adjudicatory decision) that was upheld in a prior decision relying on Chevron, or does it extend to the agency's underlying interpretation of its governing statute, such that new agency actions undertaken based on that statutory interpretation are also insulated from de novo review under Loper? That said, the ITC also offers other arguments against en banc review, including potential mootness, so it is not yet clear whether the Federal Circuit will resolve that issue of principle under Loper (or whether the case will proceed to the Supreme Court). If Loper leads the court to rule in Google's favor-i.e., hold that the ITC is not authorized to exclude articles that infringe by inducement-it would be an impactful change. Method-of-use claims would become virtually useless in the ITC, and opportunities to avoid exclusion orders by carrying out the last one or two manufacturing steps onshore could materialize.

Domestic industry - timing: The ITC requires a relevant domestic industry to exist or to be in the process of being established at the time a complaint is filed. If the prospect of a domestic industry is too remote as of the complaint's filing date, the complainant's entire case can collapse. The ITC's derivation of this rule from its governing statute is currently being challenged on appeal in Roku v. ITC, No. 23-1317. The appellant contends that the statute's present-tense phrasing requires evaluation of the domestic industry at the close of the evidentiary record, rather than looking backward to the beginning of the case, and that the ITC's interpretation cannot survive the demise of Chevron deference. The ITC argues it is following Federal Circuit precedent and does not need Chevron deference to defend its position.

Domestic industry - product vs. component: As a threshold for relief, the ITC evaluates a complainant's domestic investments "with respect to the articles protected by the patent[.]" 19 U.S.C. § 1337(a)(3). A second Roku v. ITC case, No. 23-1386, concerns whether investments in the complainant's software can meet this test, when the actual article protected by the patent is third-party hardware on which the software is installed. The Federal Circuit, in a two-paragraph holding, concluded that a complainant can rely on "expenditures related to a subset of a product, if the patent(s) at issue only involve that subset." Although the Federal Circuit did not reference Chevron, Roku'spetition for certiorari notes that the ITC relied on Chevron during the appeal and exhorts the Court to exercise its independent judgment under Loper to cabin the ITC's statutory authority.

Domestic industry - technical prong: A more fundamental issue open to challenge is the ITC's equating of the technical prong of the domestic industry requirement with the test for infringement. It is not obvious that the 19 U.S.C. § 1337(a)(1)(C) language "articles protected by the patent" must mean "articles practicing the patent" rather than, say, "articles shielded from competition by the patent." Although the Federal Circuit has consistently repeated a statement from Alloc v. ITC that the technical prong test "is essentially the same as that for infringement," the court has not analyzed what "protected by" means in this context. Alloc contains no such analysis but simply cites back to Corning Glass Works v. ITC, which does not discuss the issue and was decided before "articles protected by the patent" even appeared in the statute. Given Loper, a future panel might start from scratch on interpreting "articles protected by the patent," or the court might take the issue en banc.

Conclusion

The new administrative law reveals heretofore unseen paths for challenges and potential changes to patent law at the PTO and the ITC. Litigants should consider their options and act early in their matters to preserve legal challenges just in case they become necessary on appeal.