The Supreme Court decision in Loper Bright

The U.S. Supreme Court, by design or otherwise, tends to release its most consequential and controversial decisions immediately before its summer recess. True to form, on 28 June 2024, in Loper Bright Enterprises v. Raimondo, the Supreme Court overruled its 1984 decision in Chevron v. NRDC, 467 U.S. 837, which had “served as a cornerstone of administrative law”, having been cited in more than 18,000 federal-court decisions. (Loper Bright, Kagan, J. dissent, slip op. at 1 and 26).

Though the disputed agency action in Loper Bright was perhaps of less than general interest – a requirement that owners of commercial vessels operating in the Atlantic herring fisheries cover the costs of on board human monitors – the overulling of Chevron will affect how federal courts resolve disputes involving countless actions across the great multitude of federal agencies – from monitoring of pesticide residues by the Environmental Protection Agency to how disability pay is distributed by the Veterans Administration – disputes that inevitably touch countless businesses and individuals.

Federal administrative agencies are created by a multitude of statutes that provide each agency with its specific powers and responsibilities. For example, 35 U.S.C § 2 specifies “powers and duties” of the United States Patent Trademark Office (“USPTO”). The procedures to be followed by administrative agencies in general, internally and with respect to the executive and judicial branches, are provided in the Administrative Procedure Act (“APA”), which was enacted in 1946 in the wake of the great expansion of administrative power in the New Deal era. (Loper Bright, slip. op. at 9 to 13)

Under Chevron, federal courts could, and frequently did, defer to any “permissible” or “reasonable” agency interpretation of an ambiguous provision in the statute administered by the agency, if offered by the agency in support of its disputed actions. (Loper Bright, slip. op. at 1 to 5).

To its critics, such Chevron deference precluded federal courts from exercising their independent judgment to determine the “best reading” of statutes, by “plac[ing] a finger on the scales of justice in favor of the most powerful of litigants, the federal government” (Loper Bright, Gorsuch, J. conc., slip op. at 18) (citation omitted). According to its critics, Chevron deference contravened the requirements of the APA and, more fundamentally, the Constitution, including the requirements of due process (id. at 12 ) and separation of powers between executive, legislative and judicial branches (Loper Bright, Thomas, J. conc.).

To its supporters, Chevron deference recognised that statutes inevitably contain ambiguities and necessarily flowed from an implied legislative intent to delegate, within reasonable bounds, the resolution of ambiguities to technically expert and politically accountable agencies. (Kagan, J. dissent, slip op. at 1 to 3). To its dectractors, Loper Bright concentrates too much power in the judicial branch, casts doubt on many settled statutory constructions, compromises the capacity of experts at administrative agencies to effectively address pressing issues, such as climate change and artificial intelligence, and “will cause a massive shock to the legal system” (id. at 24 to 33), a shock which may prove “convulsive”. (Loper Bright, U.S. opening brief at 10).

In overturning Chevron, the Loper Bright majority did not directly address the constitutional challenges, but instead decided on the limited ground that Chevron was inconsistent with section 706 of the APA, which provides that courts reviewing the actions of an administrative agency must “decide all relevant questions of law” and “interpret” relevant “constitutional and statutory provisions” (5 U.S.C. § 706), in other words, exercise “independent judgment” in deciding whether an agency has acted within its statutory authority. (Loper Bright, slip. op. at 13 to 18, 12 to 23, and 35).

In an effort to mitigate the possibly disruptive effects of overruling Chevron, such as those highlighted in the dissenting opinion by Justice Kagan, the Loper Bright majority stressed that the results of thousands of prior decisions that had cited Chevron, and the result in Chevron itself, could not be relitigated merely on the grounds of reliance on the “judicial invention” of Chevron deference. (Id. at 34 to 35).

Likely effects of Loper Bright on U.S. patent practice

Though the “best statutory reading” requirement of Loper Bright has already been relied upon by federal courts to limit the actions of several agencies—for example, a district court in Texas in striking down nationwide rules promulgated by the Federal Trade Commission that restricted employer employee non-compete agreements (Ryan v. FTC, 3:24-CV-00986, N.D. Tex., 20 Aug. 2024)—and though time alone will tell whether Loper Bright represents a convulsive, or perhaps merely massive, shock to the U.S. legal system, it is likely that the decision will have only a limited effect on U.S. patent practice. This conclusion holds despite the last Supreme Court decision to invoke Chevron deference—to adopt, in the face of statutory ambiguity, the “broadest reasonable interpretation” claim construction standard for inter partes review (IPR) proceedings advanced by the USPTO (Cuozzo v. Lee, 579 U.S. 261 (2016))—having been unequivocally related to patent law.

As already noted, outside of IPR and other post-grant proceedings, the USPTO is empowered by statute principally to merely “establish regulations” that “govern the conduct of proceedings” and “facilitate and expedite the processing of patent applications”. (35 U.S.C. § 2(b)(2)). In its processing of patent applications, the USPTO must apply substantive patent law enacted in statutes, as interpreted by the Federal Circuit and, on occasion, the Supreme Court. For example, in 2007, the USPTO was required to revise its obviousness guidance, following a Supreme Court decision interpreting 35 U.S.C. § 103. (KSR v. Teleflex, 550 U.S. 398).

As such, the USPTO, with its powers largely constrained to the issuance of procedural rules, has generally been afforded little or no Chevron deference. (Merck v. Kessler, 80 F.3d 1543, 1550 (Fed. Cir. 1996)). To the extent that the USPTO has received Chevron deference, for example, in regard to the implementation of IPR and other post-grant proceedings, this has been because such proceedings are empowered by other than section 2 of the Patent Act.

In similar fashion, the demise of Chevron deference may affect proceedings conducted before the U.S. International Trade Commission (ITC) under the authority of the Tarrif Act of 1930, under which the owner of a U.S. patent can request a ban on the importation of infringing articles. (See 19 U.S.C. 1337(a)(1)(B)). For example, current “section 337” practice covers articles used in the infringement of method claims after importation, as affirmed in a Federal Circuit decision that expressly relied on Chevron to defer to a “reasonable” ITC intepretation of ambiguous statutory language. (Suprema v. ITC, 796 F.3d 1338, 1346-53 (Fed. Cir. 2015).  Such an interpretation, which in effect allows the ITC to consider indirect infringement as a violation of section 337, may be open to attack, though not on the sole ground that Suprema relied on Chevron.

As another example, in section 337 proceedings, those accused of infringing a method patent outside the U.S. cannot rely on the “materially changed” and “nonessential component” defenses provided in 35 U.S.C. §  271(g) that are available in district court. However, because the Federal Circuit decision that endorsed this ITC interpretation of section 337 cited but did not rely on Chevron, and instead conducted its own statutory analysis (Kinik v. ITC, 362 F.3d 1359, 1363 (2004)), the ITC position that section 271(g) defenses are unavailable is unlikely to be affected by the “best statutory reading” requirement of Loper Bright.

The Federal Circuit decision in Chestek and USPTO rulemaking

It does not follow, from the anticipated limited effects on U.S. patent practice of Loper Bright overruling Chevron by invoking APA section 706, that all is calm as regards USPTO rulemaking. Ongoing litigation concerning the applicability of a different part of the APA, section 553, may allow radical changes in how the USPTO promulgates new rules and regulations and, in a worst case, have significant negative repercussions for patent applicants and owners.

Section 553 of the APA governs not which regulations an agency may make, but rather how an agency may make regulations, by requiring the agency to provide opportunities for public notice and public comment on proposed agency rules before they are made final. Such notice-and-comment procedures provide all interested parties, not just agency insiders and well-connected outsiders, with an opportunity to scrutinize and submit detailed comments on proposed rules before they are released in final form. Section 553, however, exempts “rules of agency organization, procedure, or practice” from notice-and-comment requirements, “[e]xcept when notice or hearing is required by statute”.  (5 U.S.C. § 553(b)(4)(A)).

Read in isolation, section 553 of the APA implies the USPTO is not required to follow notice-and-comment procedures when promulgating procedural rules. However, as part of the American Inventors Protection Act (AIPA) of 1999—which introduced patent application publication and, since withdrawn, inter partes reexamination—section 2 of the Patent Act , which defines the duties and powers of the USPTO, was amended to require that regulations “be made in accordance with section 553 of title 5”.  (35 U.S.C. § 2(b)(2)(B)).  Many, including seemingly the USPTO, have understood this, arguably somewhat unclear, amendment to have created a “required by statute” exception under APA section 553, thereby mandating the USPTO to follow notice-and-comment procedures when promulgating procedural regulations. One possibly compelling argument in support of this interpretation is that the opposite reading would render the 1999 amendment superfluous.

Neverthless, in February 2024, the Federal Circuit, without referring to Chevron—the January 2024 oral arguments in Loper Bright had by then made clear that Chevron was unlikely to be upheld—interpreted section 2 of the Patent Act to mean that the USPTO was not required to follow notice and comment procedures when promulgating procedural rules. (In re Chestek, 92 F.4th 1105, 1106 (Fed. Cir. 2024)). The regulation at issue in Chestek, which had appeared without opportunity for public notice and comment, is a requirement that U.S. trademark applicants provide a domicile, that is, principal home or business, address. Id. at 1107. Though Chestek is something of a test case—it stems from an application filed by a U.S. trademark attorney apparently in deliberate non-compliance with the domicile address requirement, id. at 1107-08—the Federal Circuit decision seemingly frees the USPTO to promulgate trademark and patent procedural rules without following the notice-and-comment requirements of APA section 553.

As all patent attorneys can attest, procedural rules can matter just as much as, if not more than, substantive requirements. The prospect of the USPTO promulgating rules without an opportunity for informed and detailed public comment is thus troubling, to say the least.  An insufficiently thought out USPTO final procedural rule could easily wreak havoc, by burdening patent applicants with expensive and uncertain procedural requirements, which could perhaps only be lifted after a challenge to the regulations brought in a federal court, itself an expensive and uncertain process. If the USPTO were to abandon notice-and-comment when issuing procedural rules, the result could, to borrow a phrase, be a convulsive shock.

The Federal Circuit decision in Chestek leaves open the possibility to challenge USPTO substantive regulations, as opposed to the exempted procedural regulations, for failure to follow notice and comment requirements. Such a challenge is underway at the Federal Circuit in a long running dispute over the discretionary NHK-Fintiv standard adopted by the USPTO director for determining the admissibility of IPR requests, depending on the stage reached in parallel litigation in district court. (See Apple v Vidal, Fed. Cir. CV No. 2024-1864, Apple opening brief, 4 Aug. 2024).

A petition requesting the Supreme Court to review the Federal Circuit’s decision in Chestek has received notable amicus support, including from the Institute of Electrical and Electronic Engineers and the same counsel that represented fishing vessel owners in the companion case to Loper Bright, Relentless v. Commerce Dept. With the government brief in opposition having been filed on 14 August, and the petitioner’s optional reply due by the middle of September, the Court may decide as soon as October whether to take the case.

Statistically, the petition in Chestek is unlikely to be granted, since the Supreme Court accepts fewer than 1% of petitions. However, post Loper Bright, the Court may be inclined to take on an administrative law case that concerns the “best reading” of a statute with potentially enormous economic consequences.

If the Supreme Court declines to hear Chestek, the Federal Circuit decision will stand and the USPTO will not be required to follow notice and comment procedures when promulgating procedural regulations.  In which case, one can only hope that the USPTO will err on the side of caution, seek to avoid convulsive shocks, and continue to follow notice and comment procedures on a voluntary basis. As a hopeful indication, immediately post-Chestek, the USPTO has continued to provide opportunities to submit public comments, including in regard to the impact of artifical intelligence on different aspects of USPTO practice, in April and July 2024, and in regard to proposed changes to terminal disclaimer practice, in May 2024.

Time will tell whether the USPTO will choose to substantially depart from notice-and-comment procedures when promulgating procedural rules. If so, it would then fall to patent attorneys and other interested parties to carefully monitor, as far as possible, proposed USPTO rulemaking, in the hope of mitigating the effects of possibly ill-thought final rules that had not received the benefit of public scrutiny and comments.

Summary

Though the much discussed Loper Bright Supreme Court decision—which controversially retired the Chevron deference long afforded administrative agencies—is generally expected to have little effect on U.S. patent law and practice—it may affect IPR and other post-grant proceedings at the USPTO and ITC proceedings—a recent Federal Circuit decision, Chestek, which has freed the USPTO from following public notice-and-comment requirements when making procedural rules, may yet deliver a “convulsive shock” to U.S. patent practitioners.