There are two recent cases, one from the U.S. Supreme Court and one from the U.S. Court of Appeals for the Federal Circuit, that raise questions about the deference that will be given to decisions made by the U.S. Patent and Trademark Office during prosecution of patent applications and the final decision to issue a patent. These cases are Kappos v. Hyatt, 132 S. Ct. 1690 (2012), and Novo Nordisk A/S v. Caraco Pharmaceutical Laboratories, 719 F.3d 1346, 1357 (Fed. Cir. 2013).
In Kappos, a patent applicant brought a challenge to the USPTO’s rejection of an application in district court, under 35 U.S.C. § 145, for a de novo review of the decision by the USPTO to reject the application. The Supreme Court held that because the statute allowed for new evidence (evidence that was not considered by the examiner) to be introduced and considered in Section 145 cases, “it makes little sense for the district court to apply a deferential standard of review to USPTO factual findings that are contradicted by new evidence.”
In Novo Nordisk, the Federal Circuit affirmed a district court’s decision that Novo Nordisk’s patent was invalid as being obvious under 35 U.S.C. § 103. The patent at issue covered an anti-diabetic drug including a combination of repaglinide, an insulin secretagogue that stimulates insulin release in the pancreas, and metformin, an insulin sensitizer that reduces insulin resistance.
In the USPTO, there were protracted exchanges between the patentee and the USPTO examiner who continually rejected the application. To overcome these rejections, Novo Nordisk submitted a declaration from one of its scientists along with additional arguments to demonstrate that the drug combination of repaglinide and metformin provided synergistic effects and surprising results. The examiner withdrew the obviousness rejection based solely on that declaration and the synergistic effects explained by Novo Nordisk, and the patent passed to issue.
Upon issuance of the patent, Novo Nordisk sued Caraco Pharmaceutical Laboratories for patent infringement. In response, Caraco asserted that the patent was invalid as being obvious at the time the application was filed. Caraco presented evidence that: it was well known in the art that two drugs having different mechanisms for attacking diabetes can be more effective than using one drug; and it was well known at the filing date of the application to use combination therapies including insulin sensitizers and insulin secretagogues to treat diabetes. Caraco’s presentation included prior art and evidence that was never considered by the examiner. Thus, Caraco maintained that it had overcome the presumption of validity under 35 U.S.C. § 282, and carried its burden of proving invalidity by providing clear and convincing evidence.
Based on Caraco’s evidence, the district court determined an artisan of skill in the relevant art would have expected the combination of repaglinide/metformin to yield some synergistic effects. The district court recognized that the USPTO’s decision to grant patents is entitled to a certain degree of deference, as provided by the statutory presumption of validity, but noted that there is a distinction in situations where the examiner had not considered certain evidence that could have changed the examiner’s decision to grant the patent. The district court concluded Caraco had provided clear and convincing evidence and declared the patent invalid despite the USPTO examiner’s decision to grant the patent.
When Novo Nordisk appealed to the Federal Circuit, it attempted to invert the Supreme Court’s Kappos holding and argued that if evidence presented at trial is not new evidence, i.e., the evidence is merely cumulative of what was already before the examiner, the district court must defer to the findings of the examiner. This deference argument finds its roots in Title 5 of the U.S. Code. Title 5 governs federal administrative agencies and regulates how other governmental entities interact with these administrative agencies. The USPTO is a federal administrative agency under the U.S. Department of Commerce. Pursuant to 35 U.S.C. §2(b)(2), the USPTO may establish regulation in accordance with Section 553 of Title 5. When the USPTO complies with this statutory mandate and follows its rules, it is entitled to a presumption of administrative correctness. However, a court can overturn an administrative agency’s action. Some of the reasons for overturning an administrative agency’s decision listed in Section 706 of Title 5 are that it was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right,” “unsupported by substantial evidence,” or “unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.” (See 5 U.S.C. § 706(2).) So every patent granted by the USPTO constitutes a “decision” by an administrative agency and it is entitled to the presumption of administrative correctness.
The Federal Circuit rejected Novo Nordisk’s deference argument and rejected Kappos as not relevant to present issues. The Federal Circuit’s rationale signaled that the general administrative provision is not applicable to issued patents. Instead, a decision by the USPTO to grant a patent transfers the issue from one of judicial deference to one of a statutory presumption. Upon issuance, a patent is presumed valid pursuant to 35 U.S.C. § 282 and a party challenging a patent’s validity bears the burden of proving invalidity by providing clear and convincing evidence. (See American Hoist & Derrick v. Sowa & Sons, 725 F. 2d 1350 (CA Fed. 1984).) Once the challenger meets this burden, the patent owner must then submit rebuttal evidence to overcome the challenge. Hence, the focus is switched from the administrative agency to the evidence presented in court to address the statutory presumption.
Returning to the Federal Circuit’s opinion in Novo Nordisk, it affirmed the district court’s decision that Novo Nordisk’s patent was invalid as being obvious. The Federal Circuit rejected Novo Nordisk’s argument that the district court should have deferred to the examiner’s initial findings that Novo Nordisk had presented sufficient evidence of unexpected synergy and therefore was entitled to a patent. The Federal Circuit ruled the district court applied the correct legal standard for obviousness. Regarding the presumption of validity under Section 282, the Federal Circuit affirmed that once a challenger of a patent has presented a prima facie case of invalidity by the clear and convincing evidence standard, the patent owner then has the burden of presenting rebuttal evidence. Since the district court thoroughly evaluated all of the evidence of unexpected synergy before concluding that Caraco had proven by clear and convincing evidence that the combination of drugs was obvious, the district court’s decision was proper and correct.
The Federal Circuit avoided any issue of the judicial deference afforded to administrative agencies and stated: “In cases such as this we do not review the PTO’s decision. The initial determinations by the PTO in determining to grant the application are entitled to no deference. … Rather, we treat the issued patent as having a presumption of validity that must be overcome by clear and convincing evidence. No decision of the Supreme Court or this court has ever suggested that there is an added burden to overcome PTO findings in district court infringement proceedings. Neither are we persuaded that the presence or absence of PTO findings on particular issues affects the basic presumption of validity.” The Federal Circuit decision here makes a clear case that patents receive a statutory presumption of validity under Section 282. Since that presumption can be overcome by clear and convincing evidence, it presents a relatively high evidentiary bar.
As a practical matter, one wonders whether the additional evidence factor in these cases made the difference between deference and no deference to the USPTO. If the statutory presumption afforded an issued patent erases the administrative deference, does it really matter that new evidence is provided? That is a simple tradeoff of the administrative for the evidentiary advantage in court. If it is the new evidence, how does the court make the evaluation between what the examiner considered and what is presented in court, which is generally years after the fact? Is it the presence of duel experts, who may or may not have been active in the art at the time of the invention, that makes the court evaluation more meaningful?
These considerations are not trivial matters to patent owners. The Federal Circuit’s treatment of issued patents is important to all parties involved in patent activities. Under the current holdings, a defendant knows that it must overcome the presumption and present as much evidence that was not previously before the examiner. The defendant also knows that the court is more likely to give greater consideration to new evidence in determining if the invention was obvious. For patentees, it is best to expect that the USPTO’s decision to grant a patent will not carry much weight when the defendant is able to present new evidence and expert testimony that is different from what was before the USPTO examiner.
Looking into the future, it appears that the courts are moving away from reliance on the USPTO decisions and are focused more on who has the presumption and who had the burden of proof. If this is in fact a trend, we may see future cases erode the case law around the entire USPTO prosecution history and a more toward a European view that the focus is on the issued patent and not the earlier prosecution.
Anthony S. Volpe is a shareholder at Volpe and Koenig, an intellectual property law firm with offices in Philadelphia and Princeton, N.J. He has corporate and private-practice experience in securing, licensing and enforcing all aspects of intellectual property rights. Tom Gushue is an associate at the firm, where his practice focuses primarily on securing and protecting intellectual property rights for clients in the mechanical field.