Supreme Court Eases Standard of Appellate Review for Decisions of the U.S. Patent and Trademark Office


On June 10, 1999, the United States Supreme Court handed down a decision in the case of Dickinson v. Zurko, No. 98-377, which clarified the standard of review that the U.S. Court of Appeals for the Federal Circuit will apply to appeals from decisions of the U.S. Patent and Trademark Office ("PTO"). The Supreme Court's decision in Zurko purports to reduce somewhat the level of scrutiny that the Federal Circuit is permitted give to the administrative decisions of the PTO on patent- and trademark-related questions. The types of cases that will be effected by this decision are those dealing with refusals of the Board of Patent Appeals and Interferences to grant a patent, and patent interference proceedings where the Board awards a patent to one among two or more competing inventors. This decision may also apply to the Federal Circuit's review of decisions of the PTO's Trademark Trial and Appeal Board ("TTAB") concerning the refusal to register a trademark, or decisions of the TTAB in trademark opposition and cancellation proceedings.

The Supreme Court granted certiorari from the decision of U.S. Court of Appeals for the Federal Circuit in the case of In re Zurko, 142 F.3d 1447 (Fed. Cir. 1998). In the Zurko case, the Federal Circuit had been presented with the issue of whether the PTO correctly rejected Zurko's patent application for a computer security system, based on a finding of obviousness. The PTO cited two prior art patents in support of its conclusion that it would have been obvious to one of ordinary skill in the art of computer security to combine the teachings found in the two patents in order to arrive at the Zurko invention. The Federal Circuit, however, held that the PTO's factual finding that a step found in the Zurko process inhered in the prior art was "clearly erroneous", since it was based upon a hindsight analysis of the prior art made in light of the teachings of the Zurko invention. As a result, the Federal Circuit reversed the PTO's finding of obviousness, and allowed a patent to issue.

Historically, the Federal Circuit has reviewed the legal conclusions of the PTO de novo. That is, the Federal Circuit performed its own analysis of whether the correct legal standards were applied by the PTO in reaching its decision.1 However, the Federal Circuit has reviewed the factual findings of the PTO under a "clearly erroneous" standard of review, as it did in the Zurko case. Consequently, the Federal Circuit would not reverse the judgment of the PTO on factual issues, unless it found them to be "clearly erroneous."

The Supreme Court in the Zurko case was asked to decide between the "clearly erroneous" standard of review set forth in Rule 52(a) of the Federal Rules of Civil Procedure, which was applied by the Federal Circuit in its Zurko opinion, and the more deferential "substantial evidence" standard of review found in Section 706 of the Administrative Procedure Act ("APA"), which applies generally to the appellate review of all federal agency decisions. The "substantial evidence" standard is one which merely requires that the PTO's conclusions be logically supported by substantial evidence. This was the standard advocated by the PTO, which sought to put in place a standard of review that would give its decisions the highest degree of deference available.

The "clearly erroneous" standard of review is ordinarily applied in instances where the Federal Circuit, or any other federal appellate court, is asked to review the decision of a lower federal court, not a federal governmental agency. Under this standard, the Federal Circuit can, and often does, impose its own reasoning in place of the PTO's on matters such as the correct legal standards to be applied in making its decision, whether the factual findings of the PTO have met these standards, and whether the reasoning of the PTO in reaching its conclusions is sound. Although the "clearly erroneous" standard of review requires the Federal Circuit to grant decisions of the PTO some deference and affirm decisions unless there is a "definite and firm conviction that a mistake has been made", that court has often substituted its own decision for that of the PTO in instances where it has felt the PTO has not reached the correct result.

By contrast, under the "substantial evidence" standard of review the Federal Circuit would, in theory, be limited to determining whether the PTO's own reasoning was supported by sufficient evidence from which the PTO could have decided as it did. If there was sufficient evidence, the Federal Circuit would generally not be able to second guess the PTO's decision or otherwise substitute its own judgment or reasoning for that of the PTO. If there was not sufficient evidence, the case would be remanded to the PTO for further fact finding, until its decision was factually supportable. According to the Supreme Court in Zurko, the touchstone of the "substantial evidence" standard is whether a reasonable person would believe that the factual record logically supported the PTO's ultimate conclusions. In advocating this standard, the PTO's intent was to reduce the number of instances where the Federal Circuit reverses the PTO's decision outright and substitutes its own decision for that of the PTO.

It was against this backdrop that the Supreme Court considered the arguments made by the parties in the Zurko case. It began its analysis by noting that the parties had agreed that the decisions of the PTO constituted "agency action" and thus fell under the APA's "substantial evidence" standard, absent an exception. The Federal Circuit's decision in the Zurko case indeed found an exception under Section 559 of the APA, asserting that its predecessor court, the Court of Customs and Patent Appeals ("CCPA"), had applied the stricter "clearly erroneous" standard to PTO decisions, and as such there was a preexisting legal practice which trumped the application of Section 706 of the APA.

In its briefs to the Supreme Court, Zurko cited 89 court decisions in support of its case that appellate courts have applied the "clearly erroneous" standard of review to appeals of federal agency decisions. However, the Supreme Court found instead that the court in most of these cases set an indeterminate standard of review which used legal terms of art inartfully, or actually applied the "substantial evidence" standard. In sum, the Supreme Court found there was no clear existing practice in place at the time of the enactment of the APA which would support a departure from the "substantial evidence" standard of review set forth in Section 706.

The Supreme Court also noted that the patent statutes do not use the term "substantial evidence" or any other term to describe the standard of appellate review of PTO decisions.1 The Supreme Court also rejected several other arguments advanced by Zurko and various amicus curiae in support of a "clearly erroneous" standard. First, these parties had argued that since judges and attorneys had become accustomed to the application of the more rigorous "clearly erroneous" standard of review in patent and trademark cases, changing to a more deferential standard would be disruptive. The Supreme Court disagreed, and held that under the circumstances creating an exception under Section 559 of the APA would be even more disruptive, since it would require the departure from the uniform APA requirements which are applied to other agencies.

Zurko and the amicus curiae also argued that a change to the APA review standard will create a situation where an applicant for a patent may be subject to a different appellate standard of review, depending upon which procedural tack the applicant chose to take. Applicants for patents have two options for seeking appeal of a denial of their patent application. They can file a lawsuit against the PTO in federal district court seeking de novo review of their applications. They can also appeal an adverse decision of the PTO directly to the Federal Circuit. The district court's decision will be reviewed by the Federal Circuit (which has jurisdiction over all patent appeals) under the "clearly erroneous" court/court standard of review, while the decisions of the PTO will be reviewed by the Federal Circuit under the more deferential "substantial evidence" standard.

The Supreme Court did not believe that these two paths created an anomaly, because the district court could consider new evidence not submitted to the PTO and could render its own factual findings. Since district courts are not as well schooled in patent or technological matters as the PTO, the district courts' fact finding required the heightened scrutiny of a "clearly erroneous" standard of review. However, the Supreme Court was quick to balance its analysis of the "substantial evidence" standard with an assurance that the imposition of this more deferential standard would not immunize the PTO's fact-related reasoning from review. Particularly in patent cases, the Federal Circuit's extensive knowledge and experience with such legal and technological issues may assure that such cases will receive meaningful review no matter what the standard. Finally, adding more uncertainty to the overall mix, the Supreme Court asserted that if such an anomaly was shown to have been created by the procedural path a patent applicant chose to take on his way to Federal Circuit review of his patent application, "nothing in this opinion prevents the Federal Circuit from adjusting related review standards when necessary."

The practical effects of the Supreme Court's decision in the Zurko case are uncertain. On the one hand, it may have a significant effect on the rights of applicants for patent and trademark protection. If the Federal Circuit heeds the Supreme Court's requirement that it use the "substantial evidence" standard of review, owners of patents and trademark who seek recourse with the Board of Patent Appeals and Interferences or the TTAB may not always obtain a meaningful appellate review of adverse decisions. Inventors and trademark owners may find that they are not protected from arbitrary or incorrect decisions of the PTO in cases effecting their intellectual property rights. As a result, patent applicants may increasingly choose to obtain de novo review of the evidence by filing suit for the granting of a patent in federal district court to overcome an adverse decision of the PTO, instead of seeking a direct appeal of a PTO decision by the Federal Circuit.

On the other hand, given the Supreme Court's mention that the Federal Circuit had the discretion to formulate the proper standard of review in a given case, it is likely that the Federal Circuit will continue to step in to correct legal and factual errors that are made by the PTO in patent and trademark cases, no matter what the standard. Therefore, the Supreme Court's opinion in Zurko may have reduced the choice of the proper standard of review to a mere game of semantics.

In sum, it is clear that there will be further litigation at the Federal Circuit to interpret and apply the standards of review set forth by the Supreme Court in Zurko. This future litigation should be closely watched by inventors and trademark owners, since it will undoubtedly determine whether or not the Federal Circuit will continue to take an activist, hands-on approach to the review of the administrative decisions of the PTO and continue to serve as a true protector of these parties' rights.