Opposition Brief — Lehman v. Zurko

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hs | $upreme Court, U.S.

No. 98-077 & | FILED

IN THE oer <0 1996

Supreme Court of the United Sipe oF me cere

OCTOBER TERM, 1997

BrucE A. LEHMAN,

Commissioner of Patents and Trademarks.

" Petitioner,

Mary E. Zurko, THOMAS A. CASEY, Jr.,

Morrie GLASSER, JupiTtH S. HALL, CLIFFORD E. KAHN,

ANDREW H. Mason, PAUL D. SAWYER,

Lestie R. KENDALL, and STEVEN P. LIPNER,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

TO PETITION FOR A WRIT OF CERTIORARI

Of Counsel ERNEST GELLHORN

JANICE M. MUELLER (Counsel of Record)

Assistant Professor of Law JEFFREY S. LUBBERS

Suffolk University Law School ANN G. WEYMOUTH

Beacon Hill, 41 Temple Street Suite 100

Boston, MA 02114 2907 Normanstone Lane, NW

(617) 573-8171 Washington, D.C. 20008-2725

(202) 319-7104

A. SIDNEY JOHNSTON

Counsel for Respondents

CESARI AND MCKENNA

30 Rowes Wharf

Boston, MA 02110

(617) 951-2500

IRENE KOSTURAKIS

RUSSELL WONG

Law Department

Compaq Computer Corporation

P.O. Box 692000

Houston, TX 77269-2000

(281) 514-5167

WILSON - Eres PRINTING Co.. Inc 789.0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether the Administrative Procedure Act bars the

United States Court of Appeals for the Federal Circuit

from applying the long-standing “clearly erroneous”

standard to review of fact-finding by the Patent and

Trademark Office?

CERTIFICATE OF INTEREST

Counsel for Respondents, Mary E. Zurko, et al., hereby

certifies pursuant to S. Ct. R. 29(6) as follows:

1. The individuals listed below are the nominal parties

in this matter because applications for patents must be

in the names of natural persons who are the inventors. 35

U.S.C. 111:

Mary E. Zurko, Thomas A. Casey, Jr., Morrie

Glasser, Judith S. Hall, Clifford E. Kahn, Andrew Hi.

Mason, Paul D. Sawyer, Leslie R. Kendall, and

Steven B. Lipner.

2. The name of the real party in interest to whom the

inventors have assigned their interest in the inventiom,

35 U.S.C. 152, is:

COMPAQ COMPUTER CORPORATION, a Dela-

ware corporation

3. There is no parent company of Compaq Computer

Corporation. The sole nonwholly owned subsidiary of

Compaq Computer Corporation is:

COMPAQ COMPUTER TECHNOLOGIES

(CHINA) CO. LTD., a joint venture

CONCLUSION

TABLE OF CONTENTS

QUESTION PRESENTED ..0.0..0..2:-1ccccccccccoreseesecereneenenens

CERTIFICATE OF INTEREST

TABLE OF AUTHORITIOS 2... .n.nccc-cnccececenevenees

REASONS FOR DENYING THE PETITION _......

I. THE FEDERAL CIRCUIT UNANIMOUSLY

FOUND THAT TFE “CLEARLY ERRONE-

OUS” STANDARD HAS BEEN APPLIED TO

PTO BOARD FACT-FINDING REVIEW FOR

INTERPRETATION OF SECTION 559 SUP-

PORT CONTINUANCE OF THE “CLEARLY

ERRONEOUS” REVIEW STANDARD

A. The APA Continued The “Clearly Errone-

ous” Standard For Review Of PTO Fact-

Finding ..... Oa ee

B. The Structure, Purpose, Contemporane-

ous Interpretation Of The APA Support The

Plain Language Reading Of Section 559 That

It Did Not Displace More Stringent Statu-

tory Or Common Law Standards Of Review..

C. The Federal Circuit’s Holding That A More

Stringent Pre-Existing Standard Of Judicial

Review Overrides A More Deferential APA

Standard Is Not Contrary To Decisions Of

a en in ll a i

THE FEDERAL CIRCUIT’S UNANIMOUS

REAFFIRMATION OF THE “CLEARLY ER-

RONEOUS” STANDARD IS SUPPORTED BY

OVER A CENTURY OF EXPERIENCE AND

SOUND POLICY REASONS 0...

(iii)

TABLE OF AUTHORITIES

Cases: Page

Allen v. Wright, 468 U.S. 737, rehearing den., 468

U.S. 1250 (1984) . 7

Americen Peper Inst. 9. “American Elec. "Power

Serv. Corp., 461 U.S. 402 (1983) 16

Application of Kunzmann, 326 F.2d 424 (CCPA

ae 10

Assn. of Data Processing Services Orgs. v. Board

of Governors, 745 F.2d 677 (D.C. Cir. 1984)... 14, 15

Citizens to Preserve Overton Park, Inc. v. Volpe,

401 U.S. 402 (1971) ...... Bed Fa OO: PU eee 17

Cousins v. Dep't of Transportation, 880 F.2d 608

TRE SSE oS eae 13, 14

Director, OFWCP v. Greenwich Collieries, ‘B12

U.S. 267 (1994) .. 18

Fregeau v. Mossinghoff, 716 F.2d 1084. (Fed. Cir.

=e 9, 22

Gechter v. Davidson, 116 F.3d 1454 (Fed. Cir.

ed Tt EEL TT SE FE | TN 21

General Motors v. Coe, 120 F.2d 736 (D.C. Cir

ae a ce tie os Fae Be 9

Graham v. John Deere Co., 383 U.S. 1 (1966)... 19

In re Alappat, 38 F.3d 1526 (Fed. Cir. 1994)... 20

In re Kemps, 97 F.3d 1427 (Fed. Cir. 1996)... 10

In re Lueders, 111 F.3d 1569 (Fed. Cir. 1997)... 22

In re Napier, 55 F.3d 610 (Fed. Cir. 1995)... 7

IT&T v. Local 184, IBEW, 419 U.S. 428 (1975) _. 11

Johns-Manville Corp. v. Ladd, 328 F.2d 563 (D.C.

9 ea an 10

Mantz v. Jackson, 140 F.2d 161 (CCPA 1944)... 9

Morgan v. Daniels, 153 U.S. 120 (1894) .. 7,8

Motor Vehicle Mfrs. Assn. v. State Form Mutual

Auto. Ins. Co., 4638 U.S. 29 (1983) —.................. 13, 17

Ranney v. Bridges, 188 F.2d 588 (CCPA 1951)... 10

Rodli v. Phillippi, 154 F.2d 189 (CCPA 1946)... 9

Steadman v. SEC, 450 U.S. 91 (1981) —............ a 18

Teras v. United States, 118 S.Ct. 1257 (1998)... 7

Thompson v. Chapman, 36 F.2d 300 (CCPA

| ea ren ee ee 9

United States v. Freuhauf, 365 U.S. 146 (1961)... 7

TABLE OF AUTHORITIES—Continued

Page

United States v. Menendez, 48 F.3d 1401 (5th Cir.

EE a Se ee 18

United Transp. Union-Ill. Legislative Bd. v. Inter-

state Commerce Commn., 52 F.3d 1074 (D.C.

TS Pe ee ee eee 18, 19

Vermont Yankee Nuclear Power Corp. v. Natural

Resources Defense Council, Inc., 485 U.S. 519

RE re eee Oe eee Fe ee ee 17

Zublin v. Pickin, 70 F.2d 732 (CCPA 1934)... 9

Statutes and Rules:

Administrative Procedure Act of 1946, Publ. Law

404, 79th Cong., 60 Stat. 237-244 (June 11,

ES SE en ee 11

APA Codification, Publ. L. 89-554, 80 Stat. 378

8 ee ee 11

Federal Courts Improvement Act, Publ. 97-164, 96

Stat. 25 (1982) .. Ss SP 10

Publ. L. 70-914, 45 Stat. 1475 (1929) sections 9

5 U.S.C. 554(e) .. a eecndibesanaittiedh 19

5 U.S.C. 559... ie Sieh Ce eT

5 U.S.C. 706 (2) .. TM TE

5 U.S.C. 706 (2) (A) _....... A 2o Et EE EP ee a, Re 5

SS a SE ee ae ed 5

A ETL Pe A as ee As Sa Oe 20

EES SE ESE Se 20

2 EE an Bo ee ee ee 20

15 U.S.C. 57a(e) (3) (A) aptiheatititiiliitglins 14

I a 14

ERA + 2 ne 18

EE REE Se eee ee ml 14

RE RR Re EAL IIe 14

I A EE a RT AE cE Im 1, 3,19

RR ES a I pot Re. Sa ks oe 19

35 U.S.C. 141... 2, 21

RR a ee 21

ERAN a TR a A ty Se a eS 19, 20

87 C.F.R. 1.195 —..... 20

EE ————————————————E

TABLE OF AUTHORITIES—Continued

ee eeeEEeE—————y————————E

S. Ct. R. 10... suemamenmengemmanmnanapesiatitiitiads

Miscellaneous :

S. Breyer, Vermont Yankee and the Court's Role in

the Nuclear Energy Controversy, 91 Harv. L.

Rev. 1833 (1978) —.......... niiliniipilitinitliaine

92 Cong. Rec. 2163 (1946), reprinted in Staff of

Senate Comm. on the Judiciary, Administrative

Procedure Act—Legislative History 1944-46, 351

ED ccicnticcncctdmntintibtiiniatinatiasiin te etna

Final Report of the Attorney General's Comm. on

Administrative Procedure, 8. Doc. No. 8, 77th

- BS fF & Ff. | ee aes

H.R. Rep. No. 901, 89th Cong., Ist Sess. 3 (1965) ..

Panel Discussion, Present At The Creation: Regu-

latory Reform Before 1946, 38 Admin. L. Rev.

§ FF. ers ee ares

G. Rich, A Brief History of the United States

Court of Customs and Patent Appeals 80

ee ee ee: eS

S. Rep. No. 97-275 (1982), reprinted 1982

U.S.C.C.A.N. 11, 15, 97th Cong., 2d Sess. ....... re

S. Rep. No. 1380, 89th Cong., 2d Sess. 18 (1966)...

The New Century Dictionary 15 (New York: D.

Appleton-Century Co. 1946) 0...

U.S. Department of Justice, Attorney General's

Manual on the Administrative Procedure Act

SEN WE Pee

In THE

Supreme Court of the United States

OcTOBER TERM, 1997

No. 98-377

Bruce A. LEHMAN,

Commissioner of Patents and Trademarks,

Petitioner,

Mary E. Zurko, Tuomas A. Casey, Jr.,

Morrie GLasser, Jupirm S. HALL, CLirrorp E. KAHN,

ANDREW H. Mason, Paut D. Sawyer,

Leste R. KENDALL, and STEVEN P. LIPNER,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

TO PETITION FOR A WRIT OF CERTIORARI

PRCCEEDINGS BELOW

Respondents filed an application for a patent with the

Patent and Trademark Office (“PTO”) on February 13,

1990, U.S. Patent Application No. 07/479,666 (“the

‘666 application”). After a preliminary narrowing of

the claims, a PTO examiner rejected them as “obvious”

under 35 U.S.C. 103. On appeal to the Board of Patent

Appeals and Interferences (“PTO Board” or “Board”),

the examiner's decision was affirmed. Ex parte Zurko,

No. 94-3967 (Bd. Pat. Apps. & Int. Aug. 4, 1995).

Respondents appealed directly to the United States Court

of Appeals for the Federal Circuit pursuant to 35 U.S.C.

141, and a Panel of that court reversed, unanimously

holding that the Board’s conclusion of obviousness was

based on “clearly erroneous” findings of fact. In re

Zurko, 111 F.3d 887 (Fed. Cir. 1997). On rehearing,

the en banc court again reversed the Board and unani-

mously held that “section 559 of the Administrative

Procedure Act permits, and stare decisis warrants, our

continued application of the clearly erroneous standard

in our review of these fact-findings.” In re Zurko, 142

F.3d 1447, 1449 (Fed. Cir. 1998).

STATEMENT OF FACTS

Respondents’ ’666 application sought patent protection

for an invention which improves security in computing

system transactions. Its claims recite a multi-step method

for assuring that the command given on an open, unsecure

route (an “untrusted” pathway) is confirmed through a

secure route (“trusted” pathway) before it is implemented.

User verification through a secure route prevents un-

author‘zed users from misrepresenting the sender’s com-

mands. Since sensitive information such as credit card

numbers and personal finances are transmitted through

computing systems (e.g., the Internet), the need for rea-

sonably priced protection will increase as computer-based

transactions increase. Respondents’ invention meets this

need.

The Information Discloure Statement filed by respond-

ents during prosecution of the application listed several

references and the Examiner cited two of them. The first

cited reference was to the UNIX system which parsed

commands (by interpreting a keyboard entry) in an un-

trusted code and passed the parsed command to trusted

code for execution. The second, FILER2, repeated back

potentially dangerous commands, such as commands that

would erase or overwrite a file, to the user for confirma-

tion, but did so only through an untrusted pathway.

Neither reference, however, disclosed a repeat-back com-

mand in a secure (i.e., trusted) system.

The methods disclosed in the prior art differ from the

claims of the ‘666 application in several respects which

the Federal Circuit concluded would not have been ob-

vious under 35 U.S.C. 103. Respondents’ invention “out-

sources” the work of parsing to untrusted code while

using the security of the trusted code to communicate

user verification. That is, unlike the prior art, respond-

ents achieve verification by parsing a command in an un-

trusted program and by establishing a two-way pathway

before performing a confirmation or repeat-back with

trusted code over the two-way trusted pathway. The

claimed invention permits the parsing chores to be dele-

gated to the untrusted computing environment while main-

taining the benefits of the trusted code. This delegation

reduces the amount and complexity required of the trusted

codes. These differences are summarized by the follow-

ing Table: *

1 This table (with clarifying modifications) was presented to the

Federal Circuit Panel below; the citations are to the appendix t

appellants’ brief. Brief for Appellants to Federal Circuit 16 (May

17, 1996).

COMPARISON OF PRIOR ART DISCLOSURES

WITH ZURKO CLAIM

Parsing of Repeat-back of

Commands Commands

System Untrusted Trusted Untrusted Trusted

Code Code Pathway Pathway

UNIX (A95) (prior art) “

FILER2 repeat-back 4

(A103) (prior art)

UNIX + FILER2 repeat- “

back (PTO’s proposed

combination: A6-A8)

Prior trusted systems v

(A29)

Respondents’ wv “

Claimed

Invention (A18)

As this table illustrates, the UNIX system made no use

of repeat-back commands whereas FILER2 was limited

to repeat-back commands in an untrusted environment.

Despite these differences, the Board concluded that the

primary missing link—establishing a trusted path and then

communicating the repeat-back over it with a command

parsed in untrusted code—was “inherent or implicit” in

the prior art. In re Zurko, 111 F.3d at 888 (quoting

Board decision).

On review, a panel of the United States Court of

Appeals for the Federal Circuit unanimously reversed the

PTO’s denial of a patent because the Board “has not

pointed to any [prior] teaching of performing repeat-back

commands in a trusted and secure system.” 7d. at 889.

After examining the record evidence, the court con-

cluded that:

[Neither UNIX nor FILER2 reaches either ex-

plicitly or implicitly communicating with the user

over a trusted pathway .... In addition, the Board

also clearly erred in finding that UNIX, FILER2

and the record teach communicating with the user

over both a trusted and an untrusted path as claimed

[by the Board]. Indeed, the Board’s findings that

one skilled in the art knew that communications in

trusted environments must be over trusted paths

teaches away from using both a trusted and an un-

trusted path. (/d. at 889-90, emphasis in original

and added. )

The Board’s determination that respondents’ claimed

method for improving the security of computer systems

would have been obvious could not be sustained because

it was based on “impermissibly used hindsight” and

“clearly erroneous” factual findings. Jd. at 889. But the

Panel did not consider whether the Board’s decision

would have been upheld or reversed had its findings been

reviewed using the “more deferential standard as required

by the Administrative Procedure Act, 5 U.S.C. 706(2)

(1994)” because modification of the court's long-standing

“clearly erroneous” precedent could be made by “only the

court sitting en banc.” Id. at 889 n.2.

Accepting petitioner’s request for rehearing, the Federal

Circuit, sitting en banc, considered whether “Patent and

Trademark Office fact-findings [should be reviewed] unde~

the Administrative Procedure Act standard of review in-

stead of the presently applied ‘clearly erroneous stand-

ard.’” In re Zurko, 116 F.3d 874 (Fed. Cir. 1997).

The court noted that this issue had been created by the

“Commissioner [who] has campaigned aggressively” but

not consistently for application of one or more of the

deferential standards set forth in 706(2) of the APA—

arguing sometimes for the “substantial evidence” standard

under subsection (E), other times for the “arbitrary and

capricious” test under subsection (A), and still others for

either or both to be applied. In re Zurko, 142 F.3d at

1449 (listing cases). The court reviewed the APA’s-de-

velopment, structure and terms and interpreted 559 as

continuing statutory or common law standards to the ex-

tent that such pre-existing standards were “more search-

ing” and thus were “additional requirement[s]” and had

“not since been statutorily modified” by the APA. 7d. at

1452. From its review of the patent acts from 1790 to

the present, their provisions for judicial review, and the

review standards applied by the courts during this time,

the Federal Circuit found that its predecessor courts gen-

erally applied a “clearly erroneous” standard when review-

ing PTO fact-finding, although not always using identical

language in applying it. Jd. at 1454. Moreover, in all

cases the reviewing courts had “require[d] more rigorous

review than is required by the APA” under 706(2), and

in none of the pre-1946 cases had they “used the sub-

stantial evidence . . . [or] arbitrary and capricious stand-

ard[s]” of the APA. 7d. Finally, “[flollowing Congress’

enactment of the APA, the CCPA continued to review

Patent Office decisions as it had done before 1947... .,”

id. at 1455, and the Federal Circuit has consistently

applied the “clearly erroneous” standard since its forma-

tion in 1982.

As a result, the Federal Circuit, en banc, unanimously

“conclude[d] that [its] more searching clear error stand-

ard of review is an ‘additional requirement’ that was

‘recognized’ in our jurisprudence before 1947, which we

therefore continue to apply under the exception in section

559.” Id. at 1457. This conclusion was “buttressed by

the principle of stare decisis.” Id. The Commissioner had

“made no suggestion that [the] current standard of review

is unworkable, intolerable, prejudicial, burdensome, or

even that it adversely affects the administration of the

patent system.” Jd. at 1458. The court therefore held

that it would continue to review PTO fact-findings under

the “clearly erroneous” standard and that the decision of

the Board should be reversed.

REASONS FOR DENYING THE PETITION

For the past five years, the Commissioner of Patents

and Trademarks has engaged in an unremitting campaign

to increase his power over patentability claims by seeking

to displace the “clearly erroneous” standard of judicial

review of PTO Board of Patent Appeals and Interferences

fact-finding with a more deferential standard under Sec-

tion 706(2) of the APA. 5 U.S.C. 706(2). However,

after hearing the Commissioner's appeal en banc, the Fed-

eral Circuit unanimously upheld the application of the

“clearly erroneous” test because its continuation was

authorized by Section 559 of the APA as an “additional

requirement” imposed at the time the Act was adopted.

It is this settled law, first applied to the review of patent-

ability determinations by this Court in Morgan v.

Daniels, 153 U.S. 120, 125 (1894), that the petitioner

seeks to overturn.

The petitioner fails to show that there is any basis for

his claim that the APA requires rejection of the more

demanding “clearly erroneous” standard of review of PTO

fact-finding.* His argument is contrary to the plain lan-

2In addition, this matter is not ripe for review because there

was no finding below that the Board’s decision would be upheld

applying the APA standards in 706(2). The Panel made clear that

it made no such determination (111 F.3d at 889 n.2): the order for

rehearing did not encompass that issue (116 F.3d at 874) although

specifically raised by respondents in opposing the Commissioner’s

motion for rehearing (Brief of Appellants Opposing Petition for

Rehearing 4-6 (June 20, 1997) ); and the contrary statement in the

introduction of the en bane court’s opinion—“[c]oncluding that the

outcome of this appeal turns on the standard of review used” (142

F.3d at 1449)—is an erroneous assumption based neither on the

record nor any argument made to the court. See United States v.

Freuhauf, 365 U.S. 146, 157 (1961) (advisory opinion if the issue

“not necessary for decision”); Allen v. Wright, 468 U.S. 737, 751,

rehearing den., 468 U.S. 1250 (1984) (relief requested “must be

‘li’ *)° to follow from a favorable decision”) ; see also In re Napier,

55 F.3d 610, 614 (Fed. Cir. 1995) (standard of review irrelevant

because Board’s fact-finding could be affirmed under more stringent

standard) ; cf. Texas v. United States, 118 S.Ct. 1257, 1259 (1998)

(matter “not ripe” if it “may not occur at all’’).

guage of Section 559 of the APA, to the purpose and

structure of the Act, to both contemporaneous and cur-

rent interpretations of Section 559, and to the unanimous

views of the court which has congressionally assigned

responsibility for bringing uniformity to review of patent-

ability issues. The current system of meticulous review

by an appellate court with specialized jurisdiction has

been a remarkable success, bringing consistency and ra-

tionality to complex patent questions. No reason has been

given by the petitioner for changing this well-functioning

system.*

I. THE FEDERAL CIRCUIT UNANIMOUSLY FOUND

THAT THE “CLEARLY ERRONEOUS” STANDARD

HAS BEEN APPLIED TO PTO BOARD FACT-

FINDING REVIEW FOR OVER A CENTURY

Close examination of PTO fact-finding by reviewing

courts under the “clearly erroneous” standard has been

the rule since Morgan v. Daniels, 153 U.S. at 129 (“testi-

mony as a whole is not of a character or sufficient to

produce a clear conviction that the patent office made a

3 There are, however, several statements in petitioner’s “Reasons

For Granting The Petition” which are not in dispute. These in-

clude: (a) that the PTO and its Board are “agencies” within the

meaning of the APA and thus generally are subject to the APA’s

provisions on judicial review set forth in 706(2) (Solicitor Gen-

eral’s Brief 11-12, 18-14) (“SG Br.”); (b) that the patent laws

grant a “dissatisfied” applicant two routes for review, namely, di-

rect review by the Federal Circuit or, alternatively, initial review

before a District Court followed by an appeal to the Federal Circuit

(SG 12 & 18 n.3); (c) that the patent laws otherwise do not specify

any specific standard of review (SG Br. 13); (d) that 706(2) gen-

erally provides a default standard for review of agency action (SG

13-14); (e) that the patent laws created a comprehensive statutory

scheme for determination of patent applications by a specialized

agency (SG 18-19); and (f) that proper administration of the

patent system is important to the Nation’s economic development

(SG Br. 19-20). None, however, favors petitioner’s argument; all

are fully consistent with respondents’ analysis herein.

mistake”). Subsequent cases generally applied the same

or similar tests to measure whether the PTO’s fact-finding

was adequately justified. See, e.g., Thompson v. Chap-

man, 36 F.2d 300, 302 (CCPA 1929) (“We conclude,

therefore, that the decision of the Board of Appeals. . .

was not against the weight of the evidence, and was not

clearly erroneous, and therefore is affirmed.”). As is

usual under the common law, courts occasionally used

different terms to identify the test being applied. See,

e.g., General Motors v. Coe, 120 F.2d 736, 737 (D.C.

Cir. 1941) (“clearly wrong”); Mantz v. Jackson, 140

F.2d 161, 164 (CCPA 1944) (appellant has burden of

showing that the decisions of the examiner and Board

“are erroneous”); Rodli v. Phillippi, 154 F.2d 139, 140

(CCPA 1946) (“most cogent evidence of mistake and

miscarriage of justice” in fact-finding); Zublin v. Pickin,

70 F.2d 732, 733 (CCPA 1934) (“material error”);

see also Fregeau v. Mossinghoff, 776 F.2d 1034, 1038

(Fed. Cir. 1985) (“no substantive difference between

‘thorough conviction’ and ‘definite and firm conviction’ ”’

and “the clearly erroneous standard” applied today). In

addition, all opinions addressing the standard of review

issue before 1947 “require[d] more rigorous review than is

required by the APA.” Zurko, 142 F.3d at 1454. The

Federal Circuit summarized the case law being applied

before the APA was adopted as the “clear error [test]

or its close cousins.” /d. at 1457: see also id. at 1455

(“manifest error standard . . . [is] at least a close cousin

of the clear error standard”).

When the APA was adopted in 1946, no one suggested

that it modified the existing “clearly erroneous” standard

which had been applied to review PTO fact-finding since

at least 1894. Thus, the Court of Customs and Patent

Appeals continued to apply it after 1946. For example,

4The CCPA was established by Congress in 1929 to review, inter

alia, patentability issues decided by the PTO Board. Pub. L. 70-

in Ranney v. Bridges, 188 F.2d 588, 596 (CCPA 1951),

the court discussed the standard of review as follows:

It will be understood that in considering tions

of error as to findings of fact made by the tri

of the Patent Office this court follows the proper and

well established practice of appellate courts in re-

fusing to reverse such findings unless we are con-

vinced from our own study of the record that the

findings are manifestly wrong because [they are]

against the weight of the evidence.

Accord Application of Kunzmann, 326 F.2d 424, 426

(CCPA 1964) (applying “clearly erroneous” standard);

Johns-Manville Corp. v. 5 add, 328 F.2d 563 (D.C. Cir.

1964) (PTO fact-findings not overturned “ ‘unless clearly

infected with error’”). See also In re Kemps, 97 F.3d

1427, 1430 (Fed. Cir. 1996) (reviewing cases) .°

II. THE TERMS, STRUCTURE, !"JRPOSE AND INTER-

PRETATION OF SECTION 559 SUPPORT CONTIN-

UANCE OF THE “CLEARLY ERRONEOUS” RE-

VIEW STANDARD

Section 559, originally the final section in the APA,

provides that the Act did not “limit or repeal additional

914, 45 Stat. 1476 (1929); see G. Rich, A Brief History of the

United States Court of Customs and Patent Appeals 80 (1980). It

was replaced by a newly created Federal Circuit established iin

1982 to review, inter alia, patentability issues decided by the PTO

Board. Federal Courts Improvement Act, Publ. 97-164, 96 Stat.

25 (1982).

5 Despite petitioner’s contention in a footnote that judicial re-

view of PTO factual determinations did not employ “a uniform

standard of review” (SG Br. 17 n.7), he has not presented or pre-

served the issue of whether there was a pre-existing review stand-

ard “otherwise recognized by law” under Section 12 in 1946 as a

question for review by this Court. Both petitioner’s formulation

of the “question presented” by the case at bar and his argument

make clear that the sole basis for petitioner’s appeal is his claiim

that the “additional requirements” provision of 559 does not apply

to 706(2). SG Br. 15.

standard of review of PTO Board decisions in 1946. The

plain language of Section 559, its location as the final

section in the original Act, the drafters’ purpose of “re-

stating” the existing standards of judicial review in Sec-

ting i

tion 706(2) of the APA, and both contemporaneous and

current interpretations of 559 that the APA did not re-

peal more demanding standards, fully support the Federal

Circuit's conclusion that the “clearly erroneous” test was

not displaced by the more deferential standards in 706(2).

A. The APA Continued The “Clearly Erroneous”

Standard For Review Of PTO Fact-Finding

Section 12 of the APA, as originally enacted, Publ.

Law 404, 79th Cong., 60 Stat. 237-244 (June 11, 1946),°

provided:

' CONSTRUCTION AND EFFECT

Sec. 12. Nothing in this Act shall be held to

diminish the constitutional rights of any person or

to limit or repeal additional requirements imposed

by statute or otherwise recognized by law. Except

as otherwise required by law, all requirements or

privileges relating to evidence or procedure shall

apply equally to agencies and persons... . No sub-

sequent legislation shall be held to supercede or

modify the provisions of this Act except to the extent

that such legislation shall do so expressly. . . . [em-

6 Section 12 of the APA was codified by Publ. L. 89-554, 80 Stat.

378 (September 6, 1966), into 15 U.S.C. 559; this codification

changed both the wording and placement of Section 12 in the orig-

inal Act but not its legal effect. See H.R. Rep. No. 901, 89th Conzy.,

Ist Sess. 38 (1965); S. Rep. No. 1380, 89 Cong., 2d Sess. 18 (1966) ;

see also /T&T v. Local 134, IBEW, 419 U.S. 428, 482 n3 (1975)

(“no substantive changes were intended”). However, because these

differences may have contributed to the erronous argument in peti-

tioner’s brief, we refer only to the original law in Section 12 in

this brief.

phasis added; deleting sentences relating to the Act's

effective date which are not relevant herein)

Petitioner argues that the first sentence of Section 12

either does not apply to “matters” addressed by the APA

or applies only to additions relating to its “core provi-

* ic in

but not to judicial review. SG Br. 15. But the text of

Section 12 refutes these contentions. No language in either

Section 12 or any other provision of the APA conditions

or otherwise bars application of the “additional require-

An examination of the terms “additional” and “require-

ments” separately and as combined also makes clear that

they “naturally” encompass more stringent standards for

ing in the language of Section 12 specifies that such addi-

7The word “additional” is an adjective meaning something

“added” or “supplementary.” The New Century Dictionary 15

(New York: D. Appleton-Century Co. 1946). Likewise the term

“additional” is used in Section 12 to modify the noun “require-

ments” which is defined as something that is “demanded or obliga-

tory” as a condition. Jd. at 1531. When the two terms are com-

bined, as in Section 12, they are meant to specify that added obli-

gations imposed on agency procedures or court review which were

recognized at the time the APA was approved, and which were

more demanding than those set forth in the APA, were to continue

in force.

Petitioner's ipse dizit that the language of Section 12 “is per-

haps most naturally read to refer only to matters not addressed by

the APA” (SG Br. 15) is not supported by normal usage, as peti-

tioner seems to claim, or explained by italicizing the word “addi-

tional” in the term “additional requirements.” Petitioner appar-

ently would read the word additional as “in addition to but not

otherwise covered by any provision of the APA” or as “not related

to standards for judicial review”—but such limiting terms are not

to be found in Section 12 and they cannot be inferred from any

other source. On the other hand, Congress expressly added such a

limitation in the second sentence of Section 12 (as quoted above)

when it provided that all “requirements or privileges” of the APA

apply equally to agencies and persons but only insofar as they “re-

lat{e] to evidence or procedure.”

tional requirements were continued in force only if “con-

sistent with” or “not different from” the judicial review

standards in the APA. See SG Br. 15-16. The sole re-

quirement was that they be in addition to, i.e., more rigor-

ous than, the APA standard. Under the petitioner's read-

ing of Section 12, that it applies only to unrelated require-

ments not covered by the APA, the term “additiongl re-

quirements” in Section 12 would lose all meaning because

ST ae Seen

B. The Structure, Purpose, And Contemporaneous In-

terpretation Of The APA Support The Plain Lan-

guage Reading of Section 559 That It Did Not

Displace More Stringent Statutory Or Common Law

Standards of Review

Petitioner argues that Section 12 cannot apply to the

standards for judicial review set forth in the APA because

“an important general purpose of the APA was to ‘sup-

plant a variety of pre-existing methods for obtaining [ju-

dicial] review that differed from one agency to another.’”

SG Br. 16, citing Cousins v. Dep't of Transportation, 880

F.2d 603, 606 (Ist Cir. 1989) (Breyer, J.). But Cousins

does not support petitioner’s argument that the APA over-

rode all pre-existing standards of judical review, and the

hallmark of the APA's provisions on standards of review

is their substantial flexibility in setting review minima and

in permitting growth thereunder. See, e.g., Motor Vehicle

Mfrs. Assn v. State Farm Mutual Auto. Ins. Co., 463

U.S. 29 (1983) (approving “hard look” review of rule-

making under “arbitrary and capricious” test).

The ruling in Cousins upon which petitioner relies did

not in any way address the standard to be applied to re-

view of agency fact-finding. It related solely to the issue

of obtaining judicial review—i.e., whether plaintiff had

an implied right of action under another statute. (Indeed,

the plaintiff in Cousins did not assert that his claimed

private right of action existed at the time the APA was

adopted in 1946 or that it was an additional, more

gent requirement.) Rather, the plaintiff claimed

was entitled to an implied right of action

Rehabilitation Act of 1973, 29 U.S.C. 794,

most 30 years after the APA. Responding to thi

the First Circuit, sitting en banc, unanimously

plaintiff's cause of action could not be found

Rehabilitation Act because it “rarely makes sense to

that a substantive statute creates an ‘implied private

of action’” (880 F.2d at 606) and because the plainti

already had a claim under the APA. Cousins

reference to Section 12 of the APA and pointedly notes

that “Congress did not intend the APA to limit review

available elsewhere.” Jd. at 605. In other words, the

First Circuit recognized that additional bases for review

continued after the APA became law and that the APA

was not intended to displace them.

Petitioner also asserts, without support, that there is

“no reason to think that [Congress] intended to preserve,

rather than to eliminate, deviations from the norm it was

prescribing” for judicial review in Section 706(2). SG

Br. 17. But that is exactly what Section 12 was designed

to do when either of two conditions was met: (a) that

the “additional requirements [were] imposed by statute

or otherwise recognized by law”; or (b) that “subsequent

legislation” which “supersede[d] or modif[ied] the provi-

sions of this Act . . . {did so] expressly.” Petitioner's argu-

ment would make both the first and second conditions in

Section 12 a nullity.*

8 Subsequent statutes frequently impose standards of review

different from those specified in the APA—e.g., substitution of

“substantial evidence” review for informal rulemaking. 15 U.S.C.

2060(¢) (Consumer Product Safety Act); 15 U.S.C. 57a(e)(3)(A)

(FTC Trade Regulation Rules); 29 U.S.C. 655(f) (Occupational

Safety and Health Act). Those more stringent provisions are not

overridden by the APA even when inconsistent with it because they

are “unquestionably an ‘express’ alteration” modifying the APA

terms pursuant to the final sentence of Section 12 (as quoted p. 11).

Assn. of Data Processing Services Orgs. v. Board of Governors, 745

she

flit

BEE

tive Procedure Act—Legislative History 194446, 351

(1946) (Legislative History) (Congressman Walter:

APA was designed to check the abuses which inevitably

follow “unlimited power.”). The judicial review stand-

ards in 706(2) “assume[d] that if the notice, hearings,

and finding procedures are adopted as recommended they

will obviate the reasons for change in the area and scope

of judicial review.” Jd. at 2163, quoted in Zurko, 142

F.3d at 1451; see also Final Report of the Attorney Gen-

eral’s Comm. on Administrative Procedure, $8. Doc. No.

8, 77th Cong., Ist Sess. 92 (1941) (“the machinery which

it has recommended in this report for administrative ad-

judications will inspire confidence and will obviate the

reasons for change in the scope of judicial review”).

There are few contemporaneous interpretations on the

meaning of Section 12. It was not proposed by the Ar-

torney General's Committee Report, appeared for the

first time late in the Act’s development, and did not war-

rant separate analysis in the U.S. Department of Justice,

Attorney General's Manual on the Administrative Proce-

dure Act (1947) (“Attorney General's Manual’). The

most complete interpretation of the first sentence of sec-

tion 12 appears in the appendix attached to the Attorney

General’s Statement regarding the APA (also attached as

Appendix B to the Attorney General's Manual) where

then Attorney General Tom Clark stated:

The first sentence of section 12 is intended simply

to indicate that the act will be interpreted as supple-

F.2d 677, 686 (D.C. Cir. 1984) (Scalia, J.). But under petitioner’s

argument, such “deviant requirements” would not be saved by the

terms of Section 12.

menting constitutional and legal requirements im-

posed by existing law. (Attorney General's Manual

139) (emphasis added).

Clark’s statement is supported by the Manual’s explana-

tion that the APA’s judicial review provisions “must be

carefully coordinated with existing statutory provisions

and case law.” Id. 93. See also Panel Discussion, Present

At The Creation: Regulatory Reform Before 1946, 38

Admin. L. Rev. 511, 529 (1986) (Professor Kenneth

Culp Davis on the meaning of the first sentence of Section

12: “Note that in that one sentence Congress recognized

three kinds of law—constitutional law, statutory law, and

common law. Nothing in the APA cuts back protections

provided by any one of three. . . . Section 559 means

that the APA may not be interpreted to add to or to sub-

tract from common law rights. That is what the words

clearly say.”).

C. The Federal Circuit’s Holding That a More Strin-

gent Pre-Existing Standard of Judicial Review

Overrides A More Deferential APA Standard Is

Not Contrary To Decisions Of This Court

Petitioner argues that the decision below is inconsistent

with four decisions of this Court. SG Br. 13-18. In fact,

none supports his argument.

Petitioner cites footnote 7 in American Paper Inst. v.

American Elec. Power Serv. Corp., 461 U.S. 402, 412

n.7 (1983)—that “[i]n the absence of a specific com-

mand in PURPA [the agency's enabling statute] to em-

ploy a particular standard of review,” the “standard

prescribed in the Administrative Procedure Act for judi-

cial review” governs—to argue that “[t]he bsence of

. . . Specific standard does not . . . authorize a reviewing

court to adopt whatever standard it deems appropriate

under the circumstances.” SG Br. 13. But the ruling

in American Paper did not involve an interpretaton of

Section 12 of the APA or consider in any way the inter-

play between the first sentence of Section 12 and the

review standards specified in 706(2). It merely made the

unexceptional point that in the absence of a more specific

standard elsewhere, the APA is the default rule. See

note 3 supra.

Citizens to Preserve Overton Park, Inc. v. Volpe, 401

U.S. 402 (1971) similarly did not involve an application

of an APA review standard where a more stringent pre-

APA standard was imposed by statute or otherwise recog-

nized in law. Its application of the APA's “arbitrary and

capricious” test where a post-APA statute contains no

standard of review again merely supports the conclusion

that the APA is the default standard in the absence of

anything more specific in an agency’s organic act or else-

where (or under Section 12 of the APA).

Petitioner’s reliance upon Vermont Yankee Nuclear

Power Corp. v. Natural Resources Defense Council, Inc..

435 U.S. 519, 543-49 (1978), to argue that the Federal

Circuit improperly exceeded the proper bounds of review,

is similarly misplaced. He contends that Vermont Yankee

prohibits “interference” with an agency “to a greater

extent than specifically authorized by the APA (or by

some other applicable statute).” SG Br. 17. But Vermont

Yankee does not limit the application of recognized

standards for judicial review; it bars only the imposition

of additional procedural requirements beyond those speci-

fied in the APA or “otherwise recognized by law” at the

time the APA was adopted. See State Farm, 463 US.

at 50 (rejecting argument that a more stringent interpre-

tation of the APA standard of judicial review was con-

trary to Vermont Yankee and noting that it is not “a

talisman under which any agency decision is by definition

unimpeachable”); see also S. Breyer, Vermont Yankee

and the Court's Role in the Nuclear Energy Controversy,

91 Harv. L. Rev. 1833 (1978) (Vermont Yankee al-

lowed “more stringent scrutiny of [agency] decision by

the reviewing courts”).

Nor is Steadman v. SEC, 450 U.S. 91 (1981) to the

contrary. There the Court held that the burden of per-

suasion standard in APA adjudications is met by a “pre-

ponderance of the evidence” because that is the meaning

intended by Congress when it adopted the APA. The

petitioner in Steadman had made no claim under Section

12 that a statute or other recognized law imposed any

additional requirement. In addition, Steadman involved

only the procedures the agency was to follow, not the

standard of review a court is to apply when reviewing

agency action. See also Director, OFWCP v. Greenwich

Collieries, 512 U.S. 267, 272 & 275 (1994) (“emerging

consensus on a definition of burden of proof” includes

burden of persuasion because that was its “ordinary mean-

ing . . . in 1946, the year the APA was enacted”).®

9 Two recent interpretations of the opening sentence of Section

12 of the APA further support the Federal Circuit’s holding that

it applies to the judicial review provisions in Section 10(e). First,

in United States v. Menendez, 48 F.3d 1401, 1409 (5th Cir. 1995),

the Fifth Circuit held that a section of the Endangered Species Act,

16 U.S.C. 153i, 1540(a)(1) (ESA), specifying a more restrictive

record on judicial review of agency enforcement actions overrode

the less restrictive provision in 706(2) as follows:

Section 12 of the APA, however, states that none of its pro-

visions “limit or repeal additional requirements imposed by

statute or otherwise recognized by law.” 5 U.S.C. § 559. Thus,

while we agree with the government that the APA is generally

applicable to ESA, nevertheless the ESA’s provision that judi-

cial review be “‘on the record made before the Secretary ...

considered as a whole,” without anything comparable to the

“or those parts of it” language of section 10(e) of the APA,

precludes our reliance on that portion of section 10(e). (Jd.

at 1409, footnote omitted).

Second, in United Transp. Union-Ill. Legislative Bd v. Inter-

state Commerce Commn., 52 F.3d 1074 (D.C. Cir. 1995), the court

expressly recognized that the APA’s generic authority could be dis-

placed by a more restrictive requirement established under long-

Ill THE FEDERAL CIRCUITS UNANIMOUS REAF-

FIRMATION OF THE “CLEARLY ERRONEOUS”

STANDARD IS SUPPORTED BY OVER A CEN-

TURY OF EXPERIENCE AND SOUND POLICY

REASONS

Petitioner’s speculations of possible adverse conse-

quences from continuing the century-old standard for

judicial review of PTO decisions (SG Br. 19-21) are

contrary to all experience under the “clearly erroneous”

standard, principles of stare decisis and the policies Con-

gress recognized in establishing the Federal Circuit in

1982. S. Rep. No. 97-275 at 5 (1982), reprinted 1982

U.S.C.C.A.N. 11, 15, 97th Cong., 2d Sess. (Federal

Circuit created and assigned exclusive jurisdiction to re-

view patentability and related issues so as to “produce

desirable uniformity” and increase “doctrinal stabilty”).

The “clearly erroneous” test reflects the fact-based

nature of patentability and invention priority issues, see,

e.g., Graham v. John Deere Co., 383 U.S. 1, 17 (1966)

(obviousness under 35 U.S.C. 103 dependent on “several

basic factual inquiries”), and the specialized nature of the

PTO process for issuing patents. Board proceedings,

while adjudicative in nature because they apply patent law

to grant or deny specific claims of the applicant, are con-

ducted in ex parte hearings held without public notice

(35 U.S.C. 122), do not permit oral testimony or cross-

examination of adverse evidence (37 C.F.R. 1.133 &

standing agency practice. That case involved issuance by the ICC

of a declaratory order outside of formal adjudications in 5 U.S.C.

554(e) where such orders are expressly authorized by the APA.

The appellant had argued that the APA’s declaratory order process

in 554(e) set the outer limits of what the agency could do, and

that it therefore could not use the declaratory order process ex-

cept in a formal adjudication. However, the District of Columbia

Circuit rejected this argument because, inter alia, Section 12 of the

APA provides that none of its provisions “limit . . . additional

requirements . . . recognized by law.” Jd. at 1079 n.10.

1.195), and otherwise do not conform to the “closed

record” procedures required in trial-type administrative

adjudications. Neither patent examiners nor Board mem-

bers are trained in record-creating and fact evaluation

whereas such skills are required of independent adminis-

trative law judges. In addition, the Commissioner has

unparalleled power to control who will participate in PTO

Board decisions and thus to predetermine their findings.

See In re Alappat, 33 F.3d 1526, 1536 (Fed. Cir. 1994)

(en banc) (upholding Commissioner’s power to add mem-

bers to the Board on rehearing and thus “to control Board

decisions through his authority to designate Board pan-

els”); id. at 1535 n.10 (“Examiners-in-chief—[who serve

as Board members] are appointed by the Secretary of

Commerce upon nomination by the Commissioner. Thus,

principles respecting the independence of judges or other

concepts associated with the judicial process are not neces-

sarily applicable to Board members.”); compare 5 U.S.C.

3105, 5372, 7521 (assuring independence of ALJs from

agency influence).

These distinctive fact-gathering procedures are justified

by the technical and scientific issues that dominate the

PTO and Board processes and the need to maintain

secrecy in protecting the applicant’s trade secrets if the

application is denied. But the nature of that process also

explains the less deferential review given PTO Board fact-

finding, especially in light of the critical importance of

accurate patentability decisions to applicants and the Na-

tion’s economy. Because fact-finding by the PTO Board

is based solely on a paper record, the agency does not

have a better view of the facts than the Federal Circuit.

While the process of relying solely on a paper record is

part of the justification for more demanding court review

under the “clearly erroneous” test, that standard does not

permit the court to substitute its judgment for the agency's

regarding the facts to be found from the record. As with

appellate review of trial court findings under the “clearly

erroneous” standard in F.R.C.P. 52(a), reversal of the

Board’s fact-finding requires a determination by the court

not just that the evidence supports a different outcome

but also that the court has a “definite and firm conviction

that a mistake has been made.” In re Zurko, 142 F.3d at

1449,

Finally, the patent system has been remarkably” stable

over time and the creation of the Federal Circuit has con-

tributed to a more uniform interpretation of patent appli-

cations. Petitioner is unable to offer a convincing ration-

ale for changing the standard of review of PTO fact-

finding and for upsetting the equilibrium created by

Congress and the courts between the PTO’s modified fact-

gathering procedures and the requirement of more inten-

sive judicial review. No reasons to change the standard

of appellate review were offered by the Commissioner to

the lower court. See Zurko, 142 F.3d at 1458 (“While

it is unclear what prejudice might befall patentees and

patent applicants were the standard [of review of PTO

fact-finding] to be changed, the Commissioner has made

no suggestion that our current standard of review is un-

workable, intolerable, prejudicial, burdensome, or even

that it adversely affects the administration of the patent

system.”). Congress established the dual system of re-

view of Board decisions by authorizing applicants a right

of review to the Federal Circuit either directly from the

PTO or after appeal first to the District Court, 35 U.S.C.

141 & 145. Modification of the standard of review ap-

plied in direct appeals would mean that a different stand-

ard of review would be applied to such appeals (i.e., the

APA standard) as compared with appeals from the Dis-

trict Court (i.e., “clearly erroneous” under F.R.C.P.

52(a)). Petitioner offers no justification for such an

anomaly that would follow from its argument; and the

Federal Circuit has repeatedly criticized that possible re-

sult. Gechter v. Davidson, 116 F.3d 1454, 1459 (Fed.

Cir. 1997) (“From a practical, judicial policy standpoint

- + + Patentability (validity) issues such as anticipation,

whether decided by the Board or by district courts, should

be viewed similarly.”); Fregeau, 776 F.2d at 1038 (such

a difference in standards should not depend on “the re-

view route chosen”); see also In re Lueders, 111 F.3d

1569, 1577 & a.14 (Fed. Cir. 1997) (Congress ratified

long-standing “practice of appellate courts reviewing the

PTO’s boards [fact-finding] without enhanced deference”

in 1982 Act). Petitioner’s contention that the decision

below, if allowed to stand, might “unsettle the law” by

inviting other courts to alter their review standard of

agency fact-finding (SG Br. 21) is rank speculation with-

out record support. In fact, it is the threat of petitioner’s

proposed chang e in the settled standard of review that has

Ssasslead” the pateat ber in tile cone”

CONCLUSION

Contrary to petitioner’s claim, it is the Commissioner

of Patents who has sought to “aggrandize” his power by

forcing a change in the century-old standard for review

of fact-finding by the PTO and Board. The en banc Fed-

eral Circuit, on the other hand, examined his claims with

care and unanimously decided that settled law should be

followed because the current standard was carried forward

by the Administrative Procedure Act. If that standard is

to be changed at this late date, it is a decision for Con-

gress to make. Under the circumstances, the petition for

a writ of certiorari should be denied.

10 That the oral argument below drew a “standing room” crowd

(SB Br. 22 n.9) is irrelevant and not a “compelling reason” for

concluding that this is a case of exceptional importance warranting

review by this Court. S. Ct. R. 10.

Respectfully submitted,