Supreme Court Affirms Kappos v. Hyatt, Paving the Way for New Evidence and Expansive Review of Patent Applications

Yesterday, in a unanimous decision, Kappos v. Hyatt, the Supreme Court affirmed a ruling of the Court of Appeals for the Federal Circuit holding that in a civil action under 35 U.S.C. § 145, a patent applicant has the right to present new evidence to the District Court regardless of whether that evidence previously was or could have been presented during the proceedings before the PTO. Further, when such new evidence is presented, the District Court must review any related factual conclusions affected by the new evidence de novo, without giving deference to any prior decision or finding of the PTO.

By way of background, Hyatt’s patent application, related to computer micro-controller designs, was rejected under 35 U.S.C § 112 for lack of written description and enablement. The Board of Patent Appeals and Interferences upheld the rejection and dismissed a request for rehearing on the basis that it raised new issues. Hyatt had submitted a declaration in support of his new and amended claims. In dismissing the request, the Board found that this declaration evidence could have been previously raised to either the examiner or the Board. The District Court agreed with the PTO, ruling that Hyatt’s failure to present the evidence to the PTO constituted a negligent act. The Federal Circuit reversed.

Under U.S. patent law, when the PTO denies an application for patent, an applicant has two routes of judicial review: an appeal of the denial to the Federal Circuit under 35 U. S. C.§ 141, or file a civil action in district court under 35 U. S. C.§ 145, whereby the Court will determine whether the applicant is entitled to receive a patent for his invention. In a § 141 proceeding, the Federal Circuit reviews the Board’s decision on the administrative record that was before the PTO and, therefore, no opportunity exists for the applicant to offer new evidence. Further, the Federal Circuit may only review factual findings if unsupported by substantial evidence. In a § 145 action, the patent applicant sues the Director of the PTO in District Court. The applicant may present new evidence, but until today, limitations on the applicant’s ability to introduce new evidence and the appropriate standard of review were as yet determined.

“[T]here are no limitations on a patent applicant’s ability to introduce new evidence in a §145 proceeding beyond those already present in the Federal Rules of Evidence and the Federal Rules of Civil Procedure.” Kappos, slip op. at 14. Specifically, the Court rejected importing principles of the Administrative Procedue Act, which provides that review is limited to the administrative record and affords deference to the administrative rulings. “[I]f new evidence is presented on a disputed question of fact,the district court must make de novo factual findings that take account of both the new evidence and the administrative record before the PTO.” Id. If no new evidence is introduced, then the Court reviews the action on the administrative record and deference will be given to PTO factual findings subject to the agency’s standard of review. As with any evidence introduced in a civil action, if the District Court questions its credibility or reliability based upon the proceedings before and findings of the Patent Office, the District Court may give less weight to evidence introduced by the applicant in a § 145 action. The Court rejected a heightened standard proposed by the Director, where only new evidence that could not reasonably have been provided to the agency in the first instance is admissible in a § 145 action. The Court also rejected the Director’s proposed clear error standard of review.

In concurrence, Justice Sotomayor, joined by Justice Breyer, opined that an applicant should be estopped from later introducing evidence it had purposely withheld, but “when a applicant fails to present evidence to the PTO due to ordinary negligence, a lack of foresight, or simple attorney error, the applicant should not be estopped from presenting the evidence for the first time in a §145 proceedings.” Id. at 2-3 (Sotomayor, J., concurring). Notably, Hyatt filed the application before the 1995 rule change and, therefore, any delay in issuance likely means additional revenue persisting for 17 years from the issue date.

The significance of a § 145 civil action is that it affords an applicant the opportunity to introduce new evidence after the close of the administrative proceedings. In practice, this ruling allows an applicant to proceed with an ex parte appeal as part of regular prosecution practice with the knowledge that a civil action, whereby new evidence, such as expert testimony or test data obtained after proceedings before the Board, is available. This is especially important in light of limitations in which testimony may be presented in an ex parte appeal.

With the Kappos v. Hyatt decision, patent practitioners now have new considerations when facing a patent application rejection.