PTAB Bias Claims Not a Proper Basis for Constitutional Damages Claim, Rules Tennessee Judge

  • September 23, 2022
  • Category: Patent Litigation Feature
    Market Sector: E-Commerce and Software

The Patent Trial and Appeal Board (PTAB) has seen a variety of challenges to the America Invents Act (AIA) review regime since its inception, including some lawsuits in the past few years that have alleged that this system is structurally biased against patent owners. Among them were a pair of cases alleging in part that the Board’s compensation scheme for its Administrative Patent Judges (APJs) incentivized the institution of non-meritorious petitions by basing bonus payments on the number of trials instituted—an argument that the Federal Circuit rejected last October. Now, the Western District of Tennessee has dismissed a different case alleging structural bias, this one based on a Supreme Court ruling allowing damages claims for constitutional violations by federal officials.

The Federal Circuit Rejects Bias Claims Based on APJ Compensation System

Those two earlier appeals were filed by patent owners Mobility Workx, LLC and New Vision Gaming & Development, both contesting the invalidation of their respective patents but also the structure of the Board itself under the US Constitution’s Due Process clause—though the latter issue was only decided as to Mobility Worx. That appellant’s opening brief alleged several due process violations, including that the Board’s leadership mixes both judicial responsibilities, in the form of its oversight of AIA review decisions; with executive responsibilities, namely its management of the PTAB’s finances as a fee-supported “business unit” within the USPTO. That dependency on fees, argued Mobility Workx, incentivizes the PTAB’s APJs to grant more institution decisions due to certain pressure to bolster fee revenue. Additionally, the patent owner asserted that individual APJs face an additional financial incentive to institute more cases—each of which grants the APJ additional “decisional units” used as a performance metric—because this allegedly helps their performance reviews and resulting bonus compensation.

Another entity—US Inventor (USI), an organization representing the interests of inventors—sought to quantify the impact of this alleged bias toward institution in two amicus briefs, filed in August 2020 in New Vision and in September in the MobilityWorkx case in apparently substantially identical form. In those briefs, USI claimed to have identified a statistically significant “October Effect” whereby the PTAB’s Administrative Patent Judges (APJs) are allegedly more likely to institute trial on less meritorious (or “questionable”) petitions in October than in September. USI claimed that October is significant because it is the first month of the USPTO’s fiscal year, and it suggested that APJs are “stuff[ing] the pipeline” with “questionable” petitions at the beginning of each fiscal year to “guarantee . . . future work” and to “please their budget-minded bosses”. Underpinning USI’s brief (the “USI Study”) was its so-called “Questionable Institution Ratio”, a statistic that purports to measure the relative number of trial institution decisions that are “questionable” based on the final outcome of those trials.

RPX examined USI’s results in detail in a critique published in October 2020, making certain adjustments designed to compensate for methodological errors and other defects, and also tested USI’s hypothesis using a fuller dataset. That analysis found that the USI Study failed to support a conclusion of bias at the PTAB with any statistical significance. Moreover, in a follow-up published in April 2021—once complete data became available for PTAB trials instituted in September and October of 2019—RPX determined that the updated data clearly show that no October Effect exists.

In October 2021, a divided Federal Circuit rejected the appellant’s claims of bias, holding that any financial incentives present were “too remote” under applicable precedent to constitute a due process violation, also rejecting arguments based on USI’s brief alleging statistical evidence of this bias. Circuit Judge Pauline Newman dissented in part as to both bias and constitutionality, arguing for the latter that institution decisions as presently structured may violate the Appointments Clause under the Supreme Court’s Arthrex decision.

For more on that decision, see “Divided Federal Circuit Rejects Claims of PTAB Bias” (October 2021).

B.E. Technology and CEO Assert Constitutional Damages Claim Under Bivens Decision

A different type of structural bias claim was raised by B.E. Technology, L.L.C. and its CEO, named inventor Martin David Hoyle, who filed their Tennessee complaint in August 2021 after the defendants in the former’s targeted advertising campaign—including Alphabet (Google), Meta, Microsoft, Samsung, and Sony—won the invalidation of two asserted patents (6,628,314; 6,771,290) in a set of PTAB challenges. The Federal Circuit affirmed those rulings in late 2016 (2015-1882, 2015-1827), and the patent owner opted not to appeal to the Supreme Court based on the “limited facts known to” it and its counsel at the time.

Per the plaintiffs, they were motivated to file their complaint after learning about two allegedly unconstitutional practices: one in which the USPTO director and Chief APJ would seek to “indirectly influence” PTAB proceedings, including by designating APJs predisposed to a particular outcome; and the aforementioned bonus payments system. The plaintiffs alleged that both practices had been improperly wielded against B.E. Technology: former USPTO Director Michelle K. Lee, here a codefendant, had allegedly selected the three APJs serving on the PTAB panels here at issue (Kalyan K. Deshpande, Sally C. Medley, and Lynne E. Pettigrew, also named as codefendants) based on their high invalidation rates, with those APJs subsequently receiving high bonuses. Additionally, according to the complaint, “Hoyle learned that some of B.E. Technology’s other patent applications (unrelated to the ’314 and the ’290 patents discussed herein) had been flagged for enhanced scrutiny pursuant to the USPTO’s surreptitious Sensitive Application Warning System (‘SAWS’) program”, under which all patents related to targeted advertising technologies were purportedly flagged for additional scrutiny. Also problematic, the plaintiffs further plead, was the existence of the “secret internal review committee within the PTAB called the AIA Review Committee”, which at the time was tasked with giving guidance on decisions prior to issuance. Allegedly, because of that secrecy, the plaintiffs were “ultimately deprived of their right to know who else might have contributed, influenced, or made the ultimate decision in B.E. Technology’s IPR proceedings”.

The resulting due process claim was brought under the Supreme Court’s 1971 decision in Bivens v. Six Unknown Named Agents, which established an implied cause of action for damages “to compensate persons injured by federal officers who violated the prohibition against unreasonable search and seizures” (as the Court later summarized in Ziglar v. Abbasi, 2017). While the Court has since allowed similar remedies for gender discrimination under the Fifth Amendment Due Process Clause (in Davis v. Passman, 1979) and for the failure to provide adequate medical treatment to a federal prisoner under the Eighth Amendment Cruel and Unusual Punishments Clause (Carlson v. Green, 1980), the Court “‘has made clear that expanding the Bivens remedy is now a ‘disfavored’ judicial activity’ and has refused to extend Bivens to any new context ‘for the past 30 years’” (as later recounted by the Tennessee court). Whether a case raises a sufficient a new context for such an expansion requires a “meaningful” difference from prior Bivens cases, with a variety of examples provided in Ziglar:

A case might differ in a meaningful way because of the rank of the officers involved; the constitutional right at issue; the generality or specificity of the official action; the extent of judicial guidance as to how an officer should respond to the problem or emergency to be confronted; the statutory or other legal mandate under which the officer was operating; the risk of disruptive intrusion by the Judiciary into the functioning of other branches; or the presence of potential special factors that previous Bivens cases did not consider.

Additionally, courts must consider whether the judiciary is better suited than Congress to weigh the costs and benefits of such a damages claim: “[I]f there are sound reasons to think Congress might doubt the efficacy or necessity of a damages remedy as part of the system for enforcing the law and correcting a wrong, the courts must refrain from creating the remedy in order to respect the role of Congress in determining the nature and extent of federal-court jurisdiction under Article III”. Nor, the Tennessee court further noted, may a court “fashion a Bivens remedy if Congress already has provided, or has authorized the Executive to provide, ‘an alternative remedial structure’”, which, if so provided, would be “reason enough” to limit the judiciary’s ability to establish a Bivens cause of action.

On September 19, District Judge Jon P. McCalla granted the defendants’ motion to dismiss, ruling first that the plaintiffs were seeking to apply Bivens in a new context—rejecting the plaintiffs’ contrary argument that their claim falls within the line of cases recognizing Bivens causes of actions for Fifth Amendment Due Process violations. Rather, the court agreed with the defendants that this case would present a “new context for Bivens because of the meaningful differences between this case and the three Supreme Court-recognized Bivens actions. For example, under Bivens, Carlson, and Davis, the statutory and regulatory regimes for patent protection were not implicated, nor were high-ranking officers of the USPTO involved in any of those actions”.

Judge McCalla then proceeded to assess whether any “special factors counseling hesitation” under Ziglar. Here, he favorably cited the defendants’ point that “Congress has enacted considerable statutory and regulatory authority in the area of patent law, which would indicate that ‘there are sound reasons to think Congress might doubt the efficacy or necessity of a[n additional] damages remedy as part of the system for enforcing the law and correcting a wrong’”. Given that Congress has established monetary damages and injunctive relief as available remedies for patent infringement, and has also provided mechanisms to challenge patent validity, the court observed, “it follows that Congress would have implemented a remedy for unconstitutional takings of patents as well if it had so desired”. Moreover, Judge McCalla noted that the plaintiffs’ claims “implicate the conduct of high-level officers implementing the PTAB’s policies”. “These special factors alone would disfavor extending Bivens to this context”.

“Perhaps most importantly”, underscored Judge McCalla, the plaintiffs “had an alternative remedy to correct the due process violation” through an appeal of the PTAB’s final written decisions to the Federal Circuit. Even if it were true that the plaintiffs did not raise due process arguments in their appeal because they did not learn about the facts underlying their applications until afterward, the court pointed out that they still had the ability to “appeal the taking, and the appeal alone provided procedural protection against an unconstitutional taking”—further noting that it is undisputed that the PTAB’s invalidity decisions are supported by substantial evidence. “Because PTAB decisions can be appealed to the Federal Circuit, any improper bias or abuse by PTAB officials can be guarded against by the judicial branch, thus ensuring that the PTAB panels’ reasoning is sound and making a Bivens suit for invalidated patents unnecessary”, the court concluded.

Further details on the B.E. Technology campaign, including additional litigation filed in the wake of its AIA review setbacks, can be found here: “Its First Round Hitting a PTAB Buzzsaw, B.E. Technology Brings Newer Patents to Bear” (May 2020).

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