Dethmers Manufacturing Company, Inc. v. Automatic Equipment Mfg Co., Defendant/cross-Appellant

DYK, Circuit Judge,

concurring-in-part and dissenting-in-part.

I respectfully dissent from the majority’s refusal to defer to the PTO’s interpretation of its own regulations. This case involves no issue of statutory construction. Nor does it involve any questions as to the validity of the 37 C.F.R. § 1.175 (“Rule 175”), which is plainly statutorily authorized. See 35 U.S.C. § 2 ; United States v. Mead Corp., 533 U.S. 218 , 121 S.Ct. 2164, 2171 , 150 L.Ed.2d 292 (2001). Rather, the sole issue is whether the Patent and Trademark Office (“PTO”) properly interpreted its own regulation concerning the *1378 requirements for a declaration in a reissue proceeding.

The PTO, at our invitation, has filed an amicus curiae brief urging that we give substantial deference to the PTO’s interpretation. 1 The majority declines to give deference to the PTO’s interpretation of its own regulation and holds that our earlier decisions in In re Constant, 827 F.2d 728 , 3 USPQ2d 1479 (Fed.Cir.1987), and Nupla Corp. v. IXL Manufacturing Co., 114 F.3d 191 , 42 USPQ2d 1711 (Fed.Cir.1997), require us to apply a de novo standard of review. I disagree. Applying the proper standard of review, I conclude that we should reverse the district court’s holding of invalidity as to all the claims.

The standard of review issue was not directly addressed in either Constant or Nupla, and those cases do not even mention the pertinent Supreme Court decisions, which are discussed below. The panel is not bound by an implied holding of our earlier decisions. We have recognized that a decision applying a particular rule is not binding precedent if the issue was not discussed by the court. See, e.g., Special Devices, Inc. v. OEA, Inc., 269 F.3d 1340, 1346 (Fed.Cir.2001) (Although a prior decision of this court ruling on an issue may have implied that the lower court issued a final decision with respect to the issue, the question of “finality ... was raised neither by the parties nor sua sponte by [this] court. Because [the prior decision] did not confront and decide the same issue, it is not precedent on the question before us.”); United States v. County of Cook, Illinois, 170 F.3d 1084, 1088 (Fed.Cir.1999) (stating that prior decisions of this court that did not squarely address an issue are not binding precedent); Nat’l Cable Television Ass’n v. Am. Cinema Editors, Inc., 937 F.2d 1572, 1581 , 19 USPQ2d 1424, 1431 (Fed.Cir.1991) (“When an issue is not argued or is ignored in a decision, such decision is not precedent to be followed in a subsequent case in which the issue arises.”); see also Brown Shoe Co. v. United States, 370 U.S. 294, 307 , 82 S.Ct. 1502 , 8 L.Ed.2d 510 (1962) (“[w]e are not bound by previous exercises of jurisdiction in cases in which our power to act was not questioned but was passed sub silentio ....”); Brecht v. Abrahamson, 507 U.S. 619, 631 , 113 S.Ct. 1710 , 123 L.Ed.2d 353 (1993) (reaffirming longstanding rule that if a decision does not “squarely ad-dres[s][an] issue,” a court remains “free to address the issue on the merits” in a subsequent case).

In any event, Constant and Nupla preceded the seminal Supreme Court decision in Dickinson v. Zurko, 527 U.S. 150 , 119 S.Ct. 1816 , 144 L.Ed.2d 143 , 50 USPQ2d 1930 (1999). There the Supreme Court held that the standards of the Administrative Procedure Act (“APA”), 5 U.S.C. § 706 , apply to our review of the PTO. Id. at 165 , 119 S.Ct. 1816 , 144 L.Ed.2d 143 , 50 USPQ2d at 1937. Until that decision we had reviewed PTO fact-finding for clear error, rather than affirming the PTO’s fact-finding unless it was arbitrary, capricious, an abuse of discretion, or unsupported by substantial evidence, as demanded by the APA. Id. at 153, 119 S.Ct. 1816 , 144 L.Ed.2d 143 , 50 USPQ2d at 1932. The Court rejected the argument that “review of the PTO’s patent denials demands a stricter fact-related review standard than *1379 is applicable to other agencies.” Id. at 165, 119 S.Ct. 1816 , 144 L.Ed.2d 143 , 50 USPQ2d at 1937. Thus, we were clearly-told that under the APA the PTO is to be treated like any other agency.

Applying the approach of Zurko, I conclude that we are obligated by clear Supreme Court precedent to give deference to the PTO’s own interpretation of its regulations. Recently, in United States v. Cleveland Indians Baseball Co., 532 U.S. 200 , 121 S.Ct. 1433, 1445 , 149 L.Ed.2d 401 (2001) the Court held that an agency’s interpretation of its own regulations “attracts substantial judicial deference.” There, the question was whether back wages should be taxed by reference to the year they should have been paid or by reference to the year they were actually paid. The Court deferred to the Internal Revenue Service’s (“IRS”) interpretation of its own regulations to resolve the question. Id. at 1444-45. Because the agency’s interpretations of its regulations were reasonable, they were entitled to deference. Id.

This rule of deference is not new. Giving deference to agency interpretations of their own regulations has long been the rule. See Udall v. Tollman, 380 U.S. 1, 16 , 85 S.Ct. 792 , 13 L.Ed.2d 616 (1964) (holding that when “[w]hen faced with a problem of statutory construction, this Court shows great deference to the interpretation given the statute by the officers or agency charged with its administration. ... When the construction of an administrative regulation rather than a statute is in issue, deference is even more clearly in order.”); Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 , 65 S.Ct. 1215 , 89 L.Ed. 1700 (1945) (holding that an agency’s interpretation of its own regulation is controlling unless plainly erroneous or inconsistent with the regulation); see also Vt. Yankee Nuclear Power Corp. v. Natural Res. Def. Council, Inc., 435 U.S. 519, 524 , 98 S.Ct. 1197 , 55 L.Ed.2d 460 (1978) (“[T]his Court has for more than four decades emphasized that the formulation of procedures was basically to be left within the discretion of the agencies to which Congress had confided the responsibility for substantive judgments.”); Fed. Power Comm’n v. Transcon. Gas Pipe Line Corp., 423 U.S. 326, 333-34 , 96 S.Ct. 579 , 46 L.Ed.2d 533 (1976) (“The Court, it is true, has power to affirm, modify, or set aside the order of the Commission in whole or in part.... But that authority is not power to exercise an essentially administrative function.”).

We have frequently deferred to agency interpretations of their own rules, most recently, in American Express Co. v. United States, 262 F.3d 1376 (Fed.Cir.2001). In that case, a taxpayer contested the IRS’s interpretation of its own Revenue Procedure to include certain revenue of the taxpayer as taxable income in a particular tax year. The Revenue Procedure at issue had been promulgated by the IRS to clarify the year in which certain income had to be included as taxable income. We held that when confronted with a question regarding the IRS’s interpretation of its own Revenue Procedure that “substantial deference is paid to an agency’s interpretations reflected in informal rulings.” Id. at 1382-83 (citing Auer v. Robbins, 519 U.S. 452, 461 , 117 S.Ct. 905 , 137 L.Ed.2d 79 (1997); Cleveland Indians Baseball Co., 121 S.Ct. at 1445 ; So. Calif. Edison Co. v. United States, 226 F.3d 1349 , 1356-57 (Fed.Cir.2000)).

In other contexts we have even deferred to the PTO’s interpretation of its own regulations. See Hyatt v. Boone, 146 F.3d 1348, 1355 , 47 USPQ2d 1128, 1133 (Fed.Cir.1998). In Hyatt , the junior party in an interference proceeding challenged the effective filing date accorded to the senior party by the PTO. The senior party ob *1380 tained the challenged filing date through a chain of ten continuation applications, two of which the junior party alleged were invalid for failure to comply with certain regulations governing the prosecution of continuation applications in the PTO. Specifically, the junior party alleged that two of the ten applications were filed under the “streamlined” procedures of 37 C.F.R. § 1.60 (“Rule 60”) with photocopies of the prior specification and prior oath, but contained amended claims. Because those applications contained amended claims, the junior party alleged that they required a new oath and thus could not properly have been filed under Rule 60. Neither the PTO nor the administrative patent judge in the interference proceeding found that Rule 60 had been violated. We stated that:

The issue here raised is not one of substantive continuity of disclosure, but solely of whether a photocopy of the prior oath, instead of a new oath, was acceptable for filing, when it was in fact accepted for filing. Any technical deficiency in meeting the formal requirements of Rule 60 must be viewed in light of the agency’s acceptance of the applications as in compliance with the Rule. Regularity of routine administrative procedures is presumed, and departure therefrom, should such have occurred, is not grounds of collateral attack. Courts should not readily intervene in the day-to-day operations of an administrative agency, especially when the agency practice is in straightforward implementation of the statute.

Id. at 1355-56 , 47 USPQ2d at 1133 (emphases added). Thus, we found no error in the decisions of the PTO to grant, and the administrative patent judge to uphold, the effective filing date accorded to the senior party. Id. at 1356 , 47 USPQ2d at 1133.

Here, as in American Express and Hyatt , the agency has already decided the issue we now review. As the majority notes, the patent examiner rejected Deth-mers’s first reissue declaration because it failed to comply with Rule 175, but accepted the substitute declaration Dethmers submitted. Ante at 1368. The examiner demonstrated that he considered and decided the exact issue we now review. In Thomas Jefferson University v. Shalala, 512 U.S. 504, 512 , 114 S.Ct. 2381 , 129 L.Ed.2d 405 (1994), the Supreme Court held that deference is due to an agency’s interpretation of a regulation announced in agency proceedings, as is the case here. There, the Court gave deference to Secretary of Health and Human Service’s interpretation, rendered in an administrative proceeding, of the Service’s regulations to deny reimbursement for certain costs because “[w]e must give substantial deference to an agency’s interpretation of its own regulations.” Id.

There is simply no basis for treating the PTO differently from any other administrative agency. Indeed, there is more reason to defer to the PTO here. Rule 175 was promulgated under authority of 35 U.S.C. § 2 (b)(2)(A) which authorizes the PTO to “establish regulations, not inconsistent with law, which shall govern the conduct of proceedings in the Office.” Rule 175 is a procedural rule which sets forth a mechanism for the PTO to obtain the information it needs to determine if a reissue application complies with 35 U.S.C. § 251 , 2 but does not involve a substantive *1381 interpretation of the statute. This delegation of authority to the PTO to promulgate rules governing its own procedure is appropriate because it “helps guarantee that the rules will be written by ‘masters of the subject’ ... who will be responsible for putting the rules into effect.” Cleveland Indians Baseball Co., 121 S.Ct. at 1444 (quoting Nat’l Muffler Dealers Ass’n, Inc. v. United States, 440 U.S. 472, 477 , 99 S.Ct. 1304 , 59 L.Ed.2d 519 (1979)). The PTO is a highly specialized agency charged with, inter alia, administering the grant and issuance of patents. This court does not sit as a committee of revision to perfect the PTO’s internal administration of patent issuance procedures. Cf. Cleveland Indians Baseball Co., 121 S.Ct. at 1445 .

Applying the proper deferential standard of review, I, of course, agree with the majority’s holding that claims 1-3 and 8-10 are not invalid. However, I disagree with the majority’s holding that claims 4-7 are invalid. The fundamental difference between the PTO’s interpretation of its regulation and the panel’s interpretation is that the PTO requires reasonable compliance with the regulation’s requirements while the panel allows almost no room for error, requiring almost perfect compliance. To be sure, the panel suggests that “word-for-word correspondence is [not] required between a reissue declaration and the changes made in a reissue application,” ante at 1370, but in practice the panel finds minor departures from a strict reading of the rule to be fatal to the claims.

Reissue claim 4 depends from reissue claim 1 and further includes the limitations of application claim 2. The examiner’s conclusion that the substitute declaration complies with the regulation by identifying the error of failing to include reissue claim 4 in the original patent is reasonable. The declaration states that it was error to include “the subject matter of [application] claims 2 and 3” in the originally issued claim 1. From this it was reasonable for the examiner to conclude that it was error to include subject matter of application claim 2 in originally issued claim 1, and it was error to include subject matter of application claim 3 in originally issued claim 1. Interpretation of Rule 175 as not requiring separate mention of the failure to include a claim with the subject matter of claim 2 but without the subject matter of claim 3 was reasonable.

The examiner could also properly conclude that reissue claim 5 complies with the regulation. The majority attaches significance to the fact that reissue claim 5 depends from a claim (reissue claim 4) which the majority holds invalid. But this has no import since “dependent ... claims shall be presumed valid even though dependent upon an invalid claim.” 35 U.S.C. § 282 . Next, the majority finds that the declaration does not support reissue claim 5 because it does not mention any error associated with a failure to include in the originally issued patent a dependent claim that is essentially the same as original claim 1. But Rule 175 only applies when the patentee “claimed more or less than he had a right to claim” in the original patent and only requires an explanation “specifying the excess or insufficiency in the claims.” 37 C.F.R. § 1.175 . Reissue claim 5, as the majority concedes, is “essentially of the same scope as original claim 1,” ante at 1374-75, and thus the examiner could properly conclude that an explanation for it is not even required under Rule 175. Finally, the majority is correct to point out that “claim 5 does not correct any of the errors identified in the substitute reissue declaration,” ante at 1375, but this is simply because it is substantially identical to original claim 1, and therefore the examiner could reasonably conclude that it need not (and necessarily cannot) correct any errors in the original patent. Under these circumstances, the examiner reasonably concluded that Rule 175 required nothing *1382 more from the declaration with respect to reissue claim 5.

Although the majority holds that reissue claim 1 is supported by the substitute declaration, it finds reissue claim 6 invalid merely because the “text of the declaration does not mention the ‘pivot member’ limitation.” Ante at 1375-76. But the declaration specifically mentions that it was error to “use ... the potentially structurally limiting term ‘pivot block’ in original [application] claim 4 .... [when it was] believed that the term ‘pivot means’ would have been equally allowable.... ” The declaration then explained how this error arose and that it arose without deceptive intent. It was reasonable for the examiner to conclude that the regulation’s requirements were satisfied by use of the term “pivot member” to correct the use of the “potentially structurally limiting term ‘pivot block’ ” in the originally issue patent claim, and the declaration supports the examiner’s conclusion.

The majority points out that reissue claim 7 “appears to be broader than original patent claim 1....” Ante at 1376. This is exactly so and is entirely proper, because the purpose of the broadening reissue (as the patentee stated in the Rule 175 declaration) was to correct the paten-tee’s failure to claim all that he had a right to claim in the originally issued patent. The majority invalidates reissue claim 7 because that claim does not include limiting structural language that existed in originally issued claim 1. But the patentee explained this in his declaration when he pointed out the “second error which arose in the claims [due to] the use of the potentially structurally limiting term ‘pivot block’ in the original [application] claim 4.... ” The patentee explained in his declaration that he sought to correct this error by using the term “pivot means.” The examiner’s interpretation of Rule 175 to allow such support was reasonable.

For these reasons, I respectfully dissent from the majority’s holding that claims 4-7 are invalid.

. The PTO urged that "the agency's interpretation and application of its own regulations ... should receive substantial deference, unless plainly erroneous. Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 , 65 S.Ct. 1215 , 89 L.Ed. 1700 (1945)." In this case, the PTO argued substantial deference was due because “acceptance of the [substitute] declaration necessarily involved the agency's interpretation and application of its own regulation ... [and thus] the agency's interpretation and application should be deemed controlling unless plainly erroneous.”

. 35 U.S.C. § 251 permits reissue of a patent if the originally issued patent "through error without any deceptive intention, [is] deemed wholly or partly inoperative or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent....”