As USPTO Continues Rulemaking Push, Supreme Court Eliminates Chevron Deference

July 7, 2024

In the second quarter of 2024, the USPTO moved forward with planned rulemaking on a variety of issues impacting Patent Trial and Appeal Board (PTAB) reviews, including an April proposal addressing discretionary denials that drew a wide range of stakeholder feedback. However, as Q2 came to a close, the Supreme Court cast those efforts into uncharted waters by overturning the 40-year-old judicial doctrine known as Chevron, which required judges to give deference to agency interpretations of reasonably ambiguous statutes—now raising the possibility that the USPTO will face litigation challenging its planned rule changes once implemented.

The aforementioned April proposal (released as a formal Notice of Proposed Rulemaking (NPRM)) includes just a subset of the changes from a far more sweeping—and far more controversial—proposal released in April 2023. While that earlier rulemaking package (styled as an Advance Notice of Proposed Rulemaking, or ANPRM) floated the codification and expansion of the Board’s discretionary denial practices under NHK-Fintiv as well as the creation of a standing requirement, the newer NPRM is limited to rules concerning “serial” and “parallel” petitions as well as validity arguments previously addressed by the USPTO, also creating a separate briefing process for discretionary denials and requiring the filing of pre-institution settlement agreements. Public comments submitted in response to the newer, more limited package by the June 18 deadline reflected feedback from a broad set of stakeholders including licensors, frequent defendants, industry groups, and even the US Federal Trade Commission (FTC).

Yet those efforts saw a potentially significant setback with the reversal of Chevron, which has a general matter has, until now, given many agencies wide latitude to set certain regulations.

Under Chevron, courts were required to defer to federal agencies’ interpretation of the laws governing them when those statutes were ambiguous. For cases satisfying the various “preconditions” required for Chevron to apply, courts had to apply a two-step test: they would first ask “whether Congress has directly spoken to the precise question at issue”. If the court found that “the statute is silent or ambiguous with respect to the specific issue”, it would have to defer to the agency’s reading if it was “based on a permissible construction of the statute”.

Yet on June 28, a 6-3 Supreme Court majority overturned Chevron in its decision in Loper Bright Enterprises v. Raimondo. In Loper Bright, Chief Justice John Roberts, writing for the majority, grounded its decision in the history of agency oversight, arguing that under a principle established by the Founders, courts have the sole and independent authority to interpret federal statutes on questions of law. Agency interpretations of legal issues, the majority further found, have historically been granted just “due respect” and treated as informative, while only factual determinations would be given any deference. Courts have given greater weight, the majority explained, to agency interpretations “issued contemporaneously with the enactment of the statute” and those based on an agency’s “specialized expertise”.

The fact that the Administrative Procedure Act (or “APA”, a “cornerstone” law that was enacted in 1946 and governs agency rulemaking and court oversight) provides no deferential standard for when agencies answer relevant questions of law, while doing so for agency policymaking and factfinding, confirms “that courts decide legal questions by applying their own judgment” and that “agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference”. Chevron, per the majority, violates the APA’s “command” that courts must decide all relevant questions of law and interpret statutes, by requiring agencies to “‘ignore, not follow’, the conclusion they would have otherwise reached using their ‘independent judgment’” (citation omitted).

In overturning Chevron, the majority took the significant step of breaking stare decisis, the principle under which the Supreme Court generally respects its prior precedent, finding that each of the applicable factors—“the quality of [the precedent’s] reasoning, the workability of the rule it established, . . . and reliance on the decision”—weighed in favor of reversal. For quality of reasoning, the majority argues that Chevron and cases applying it failed to “grappl[e] with the APA” and highlights the “flaws” that have led the Court to narrow the decision and provide various exceptions over the years. As to Chevron’s workability, the majority highlights the difficulty courts have faced in attempting to provide a “meaningful definition” of the requisite ambiguity. Lastly, the majority contends that Chevron has not “been the sort of stable background rule that fosters meaningful reliance” (internal quotation marks omitted) given the Court’s “constant tinkering with and eventual turn away from” that decision. This makes it a gamble whether Chevron will be invoked at all or produce a consistent outcome if it is, the majority argues. Moreover, it contends that “[r]ather than safeguarding reliance interests, Chevron affirmatively destroys them” by enabling “an agency to change positions as much as it likes”.

Stakeholders debating the likely impact of Loper Bright have focused in part on its potential impact on prior decisions. As a general matter, the majority states that the Court does “not call into question prior cases that relied on the Chevron framework”, ruling that those decisions “are still subject to statutory stare decisis despite our change in interpretive methodology” unless some “special justification” is provided beyond “[m]ere reliance on Chevron”. However, some stakeholders have echoed a counterpoint from the dissent penned by Justice Elena Kagan, who remarked that “[c]ourts motivated to overrule an old Chevron-based decision can always come up with something to label a ‘special justification’”.

Additionally, Chevron’s elimination still leaves a more limited form of deference known as Skidmore, which provides that courts may rely on agency interpretations, even for questions of law, when based on agency’s “specialized expertise”, with weight to be given dependent on “the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control”.

In any event, Chevron has been applied less frequently with respect to the USPTO. Notably, the last time that the Supreme Court applied Chevron was in a patent case, Cuozzo Speed Technologies v. Lee, in which the Court deferred to a USPTO regulation that applied a different claim construction standard (broadest reasonable interpretation) in PTAB proceedings from the one used in district court (Philips). (The USPTO subsequently used this same authority to switch the PTAB over to Philips.) Moreover, the USPTO is somewhat unique in that it is overseen by a specialist appellate court, the Federal Circuit, that has never shown deference to the USPTO on substantive rulemaking. The Federal Circuit rarely applied Chevron in evaluating rules promulgated by the Patent Office, and though it has upheld some USPTO regulations challenged on that basis, the court did not reach a consensus on the proper bounds of Chevron deference as applied to USPTO regulations while Chevron was still in effect (failing to do so in its split Aqua Products decision in 2017).

Some have observed that Loper Bright may encourage opponents of current USPTO regulations to file litigation challenging those policies—including issues where the Federal Circuit did not previously decide the propriety of those regulations under Chevron, such as whether PTAB precedential opinions were entitled to such deference. As for policies yet to be finalized, such challenges could cause roadblocks and delays for the USPTO’s rulemaking proposals on discretionary denials, as described above, and other regulations recently proposed by the Patent Office (including the proposed codification of rules governing director reviews). Nonetheless, certain stakeholders (including Christopher “Kit” Crumbley, a former PTAB Lead Administrative Patent Judge) have argued that while litigation is likely, few rules are likely to be struck down, in part because the USPTO may still bolster its regulations under Skidmore by attempting to provide fulsome, “persuasive reasoning” justifying its relevant interpretations of the law.

Stay tuned for RPX’s review of the second quarter for more on the PTAB and other trends impacting patent litigation so far this year.

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