Wednesday, January 24, 2018

Fractured decision in Arthrex. Judge Newman in dissent writes: This is a distortion of a carefully worded regulation, and changes its meaning. However, “a court is not free to disregard requirements simply because it considers them redundant or unsuited to achieving the general purpose in a particular case.” C.I.R. v. Gordon, 391 U.S. 83, 93 (1968).

The outcome:

In a pending inter partes review proceeding (“IPR”)
before the Patent Trial and Appeal Board (“the Board”),
Arthrex, Inc. disclaimed all claims that were the subject
of the petition. The disclaimer occurred before the Board
issued an institution decision. The Board then entered an
adverse judgment pursuant to 37 C.F.R. § 42.73(b). Arthrex
appeals. Because we conclude that the Board acted
within the scope of the regulation, we affirm.

Concurring, Judge O'Malley wrote:

I agree with Judge Dyk that we have jurisdiction under
28 U.S.C. § 1295(a)(4)(A) to review the Board’s adverse
judgment against Arthrex, and I agree that the
Board’s interpretation of 37 C.F.R. § 42.73(b) is consistent
with the text of that regulation. I write separately to
point out that I have doubts about whether the Director
had the authority under 35 U.S.C. § 316 (or any other
statutory provision) to issue that regulation or whether, if
so, the regulation was properly promulgated.
I question the Board’s authority to issue adverse
judgments prior to institution for another reason. 37
C.F.R. § 42.73(b) explains that “[a] party may request
judgment against itself at any time during a proceeding.”
(emphasis added). The PTO has defined the term “proceeding”
broadly, to encompass both the trial and a “preliminary
proceeding,” the period of time beginning with
the filing of the petition and ending with the institution
decision. 37 C.F.R. § 42.2. As we explained in Shaw
Industries Group, Inc. v. Automated Creel Systems, Inc.,
817 F.3d 1293, 1300 (Fed. Cir. 2016), however, “[t]he IPR
does not begin until it is instituted.” The PTO’s expansive
definition for “proceeding,” and the Board’s application of
that definition to the practice of issuing adverse judgments
prior to institution, seem to conflict with our conclusion
in Shaw.


Because Arthrex affirmatively disclaimed any such
statutory or administrative law challenge to the Board’s
reliance on 37 C.F.R. § 42.73(b), however, we may not
reach those questions in this case. This is particularly so
because, in light of the disclaimer of these questions,
neither party briefed or argued them. We, thus, must
save these inquiries for another day—one where the
relevant questions are raised and adequately analyzed by
the parties.

Judge Pauline Newman dissented:

The Petitioners’ request for inter partes review was
not “instituted” because the patentee, Arthrex Inc., disclaimed
all of the challenged claims before the PTAB
decided whether to institute the requested review. Thus
inter partes review could not be instituted, for no challenged
claims remained in the patent. See 37 C.F.R.
§ 42.107(e):

No inter partes review will be instituted based on
disclaimed claims.

Nonetheless, the PTAB issued an adverse judgment on
the disclaimed claims. The parties agree—a position
apparently shared by the panel majority—that this adverse
judgment subjects Arthrex to the estoppel provi-
sions of 37 C.F.R. § 42.73(d)(3); that is, Arthrex would be
subject to the same estoppel result as if there had been an
IPR trial and Arthrex had lost on the merits.
From this flawed statutory and regulatory interpretation,
I respectfully dissent.


Claims 1–9 were disclaimed before institution. Accordingly,
the present situation is outside of subsection
(b)(2), for there was no trial and no possibility of trial. As
required by § 42.107(e), “no inter partes review will be
instituted based on disclaimed claims.” That regulation
was applied by the PTAB, and no inter partes review was
instituted. Without institution there can be no trial, and
without trial there can be no final written decision under
35 U.S.C. § 318, and no adverse judgment based upon 37
C.F.R. § 42.73(b)(2).
The inclusion of “in the trial” in subsection (b)(2) is a
critical distinction from the other subsections, which do
not distinguish between institution and trial. This distinction
cannot be ignored. “Where an agency includes
particular language in one section of a regulation but
omits it in another it is generally presumed that the
agency acts intentionally and purposely in the disparate
inclusion or exclusion.” Yonek v. Shinseki, 722 F.3d 1355,
1359 (Fed. Cir. 2013) (alterations omitted).
The PTAB’s interpretation of subsection (b)(2) to eliminate
the words “in the trial” is an explicit change in the
Rule, requiring rulemaking procedures. Such rule change
is governed by the Administrative Procedure Act, see 35
U.S.C. § 2(b)(2)(B), for it is a substantive change in statutory
interpretation and administration. And, according to
Arthrex, it is inconsistently applied among PTAB panels.
Situations “where interested parties would have had to
divine the Agency’s unspoken thoughts” regarding a
regulation casts serious doubts on the propriety of the
rulemaking. See Int’l Union, United Mine Workers of Am.
v. Mine Safety & Health Admin., 407 F.3d 1250, 1260
(D.C. Cir. 2005) (alterations and quotation marks omitted).


Thus, my colleagues
construe the words “in the trial” as including noninstitution
where no trial is possible. This is a distortion
of a carefully worded regulation, and changes its meaning.
However, “a court is not free to disregard requirements
simply because it considers them redundant or
unsuited to achieving the general purpose in a particular
case.” C.I.R. v. Gordon, 391 U.S. 83, 93 (1968).

Our task is to assure that agency regulations conform
to the statute, and that the regulations are applied in
accordance with that conformity. See E.P.A. v. EME
Homer City Generation, L.P., 134 S. Ct. 1584, 1600 (2014)
(“However sensible (or not) the Court of Appeals’ position,
a reviewing court’s task is to apply the text [of the regulation],
not to improve upon it.”) (internal quotations omitted).
A cardinal principle of statutory and regulatory
construction is to “‘give effect, if possible, to every clause
and word.’” Williams v. Taylor, 529 U.S. 362, 404 (2000)
(quoting United States v. Menasche, 348 U.S. 528, 538-39
(1955)); see Roberto v. Dep’t of the Navy, 440 F.3d 1341,
1350 (Fed. Cir. 2006) (“The rules of statutory construction
apply when interpreting an agency regulation.”).


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