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Case: 18-1489 CASE PARTICIPANTS ONLY Document: 51 Page: 1 Filed: 11/08/2018

No. 2018-1489

IN THE UNITED STATES COURT OF APPEALS


FOR THE FEDERAL CIRCUIT

TRADING TECHNOLOGIES
INTERNATIONAL, INC.,
Appellant

v.

IBG LLC, INTERACTIVE BROKERS LLC,


Appellees

UNITED STATES,
Intervenor

Appeals from the United States Patent and Trademark Office,


Patent Trial and Appeal Board in No. CBM2016-00090

BRIEF FOR THE UNITED STATES

JOSEPH MATAL JOSEPH H. HUNT


Acting Solicitor Assistant Attorney General
THOMAS W. KRAUSE
Deputy Solicitor MARK R. FREEMAN
FARHEENA RASHEED SCOTT R. MCINTOSH
Senior Counsel for Patent Law MELISSA N. PATTERSON
and Litigation KATHERINE TWOMEY ALLEN
United States Patent and Trademark COURTNEY L. DIXON
Office Attorneys, Appellate Staff
Civil Division, Room 7230
U.S. Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530
(202) 514-1201
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TABLE OF CONTENTS

Page

STATEMENT OF RELATED CASES ..............................................................................xi

STATEMENT OF JURISDICTION ...................................................................................1

STATEMENT OF THE ISSUES..........................................................................................1

STATEMENT OF THE CASE .............................................................................................1

A. Post-Issuance Patent Review ........................................................................... 1

B. Prior Constitutional Challenges To Post-Issuance Patent Review ............ 6

C. Prior Proceedings ............................................................................................... 9

SUMMARY OF ARGUMENT ........................................................................................... 10

STANDARD OF REVIEW ................................................................................................ 15

ARGUMENT ......................................................................................................................... 15

I. TRADING TECHNOLOGIES FORFEITED ITS CONSTITUTIONAL


ARGUMENTS ................................................................................................................ 15

II. APPLYING COVERED BUSINESS METHOD REVIEW TO PRE-AIA PATENTS


COMPORTS WITH THE CONSTITUTION ................................................................... 17

A. Conducting Covered Business Method Review Of Pre-AIA


Patents Is Not A Retroactive Application Of The Law ............................17

B. Covered Business Method Review Of Pre-AIA Patents Comports


With Article III And The Seventh Amendment .........................................25

C. Covered Business Method Review Of Pre-AIA Patents Comports


With Due Process ............................................................................................27

D. Covered Business Method Review Of Pre-AIA Patents Does Not


Effect A Fifth Amendment Taking Of Property Without Just
Compensation...................................................................................................35
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III. TRADING TECHNOLOGIES’ APPOINTMENTS CLAUSE CHALLENGE IS


FORFEITED AND MERITLESS .................................................................................... 40

A. Trading Technologies Has Forfeited Its Appointments Clause


Challenge ...........................................................................................................40

B. Administrative Patent Judges Are Inferior Officers Whose


Appointment Congress Permissibly Vested In The Secretary Of
Commerce .........................................................................................................40

CONCLUSION ..................................................................................................................... 54

CERTIFICATE OF SERVICE

CERTIFICATE OF COMPLIANCE

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TABLE OF AUTHORITIES

Cases: Page(s)

Alaska Airlines, Inc. v. Brock,


480 U.S. 678 (1987) .............................................................................................................51
Association of American Railroads v. U.S. Dep’t of Transp.,
821 F.3d 19 (D.C. Cir. 2016) ...................................................................................... 53, 54
Bank Markazi v. Peterson,
136 S. Ct. 1310 (2016) .........................................................................................................28
Bilski v. Kappos,
561 U.S. 593 (2010) ........................................................................................................ 5, 29
Blonder-Tongue Labs., Inc. v. University of Ill. Found.,
402 U.S. 313 (1971) .............................................................................................................37
Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,
489 U.S. 141 (1989) .............................................................................................................29
Brown v. Department of the Navy,
229 F.3d 1356 (Fed. Cir. 2000) ..........................................................................................45
Celtronix Telemetry, Inc. v. FCC,
272 F.3d 585 (D.C. Cir. 2001) ...........................................................................................24
Combs v. Commissioner of Soc. Sec.,
459 F.3d 640 (6th Cir. 2006) ..............................................................................................24
Commonwealth Edison Co. v. United States,
271 F.3d 1327 (Fed. Cir. 2001) ............................................................................. 27-28, 28
Cooper Techs. Co. v. Dudas,
536 F.3d 1330 (Fed. Cir. 2008) ..........................................................................................20
Cuozzo Speed Techs., LLC v. Lee,
136 S. Ct. 2131 (2016) .............................................................................................. 2, 21, 36
In re DBC,
545 F.3d 1373 (Fed. Cir. 2008) ............................................................................. 15, 16, 40

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Denver & Rio Grande W. R.R. v. Brotherhood of R.R. Trainmen,


387 U.S. 556 (1967) .............................................................................................................39
Department of Transp. v. Association of Am. R.Rs.,
135 S. Ct. 1225 (2015) .........................................................................................................53
Disabled Am. Veterans v. Secretary of Veterans Affairs,
327 F.3d 1339 (Fed. Cir. 2003) ..........................................................................................17
Dome Patent LP v. Lee,
799 F.3d 1372 (Fed. Cir. 2015) ..........................................................................................21

Edmond v. United States,


520 U.S. 651 (1997) ................................................................14, 41, 42, 44, 45, 46, 48, 49
Elgin v. Department of Treasury,
567 U.S. 1 (2012) .................................................................................................................15
Free Enter. Fund v. Public Co. Accounting Oversight Bd.,
561 U.S. 477 (2010) ......................................................................................... 42, 45, 49, 50
Fresenius USA, Inc. v. Baxter Int’l, Inc.,
721 F.3d 1330 (Fed. Cir. 2013) ..........................................................................................23
Freytag v. Commissioner,
501 U.S. 868 (1991) .............................................................................................................16
GPX Int’l Tire Corp. v. United States,
780 F.3d 1136 (Fed. Cir. 2015) ................................................................................... 31, 32
Graham v. Goodcell,
282 U.S. 409 (1931) ...................................................................................................... 31, 32
Granfinanciera, S.A. v. Nordberg,
492 U.S. 33 (1989) ...............................................................................................................25
Hallowell v. Commons,
239 U.S. 506 (1916) ...................................................................................................... 19, 22
Horne v. USDA,
135 S. Ct. 2419 (2015) .........................................................................................................38

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Hughes Aircraft Co. v. United States ex rel. Schumer,


520 U.S. 939 (1997) .............................................................................................................19
Huntleigh USA Corp. v. United States,
525 F.3d 1370 (Fed. Cir. 2008) ..........................................................................................35
Ingalls Shipbuilding, Inc. v. Director, Office of Workers’ Comp. Programs,
519 U.S. 248 (1997) .............................................................................................................47
Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd.,
684 F.3d 1332 (D.C. Cir. 2012) .................................................................................. 43, 52
Joy Techs., Inc. v. Manbeck,
959 F.2d 226 (Fed. Cir. 1992) .................................................................... 7, 13, 16, 26, 39
Karuk Tribe of Cal. v. Ammon,
209 F.3d 1366 (Fed. Cir. 2000) ................................................................................... 35, 38

Landgraf v. USI Film Prods.,


511 U.S. 244 (1994) ......................................................... 17, 18, 19, 22, 23, 23, 24, 28, 31

LSI Corp. v. Regents of Univ. of Minn., No. IPR2017-1068,


2017 WL 6517562 (P.T.A.B. Dec. 19, 2017) ............................................................. 15-16
Masias v. Secretary of Health & Human Servs.,
634 F.3d 1283 (Fed. Cir. 2011) ................................................................ 42, 43, 45, 48, 49
MCM Portfolio LLC v. Hewlett-Packard Co.,
812 F.3d 1284 (Fed. Cir. 2015) .................................................................... 3, 8, 15, 29, 31
In re Mouttet,
716 F. App’x 984 (Fed. Cir. 2017) ....................................................................................48
National Fed’n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012) ...................................................................................................... 50, 51

Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC,


138 S. Ct. 1365 (2018) .............................................................................. 1, 8, 9, 10, 16, 20,
25, 26, 29, 33, 36

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Patlex Corp. v. Mossinghoff,


758 F.2d 594 (Fed. Cir.), modified on other grounds on reh’g,
771 F.2d 480 (Fed. Cir. 1985) ..................................................................1-2, 7, 13, 16, 26,
33, 34, 35, 39
Pension Benefit Guar. Corp. v. R.A. Gray & Co.,
467 U.S. 717 (1984) ................................................................................................ 11, 27, 28
In re Rambus, Inc.,
560 F. App’x 1005 (Fed. Cir. 2014) ..................................................................................48
Republic of Austria v. Altmann,
541 U.S. 677 (2004) ...................................................................................................... 19, 24

Return Mail, Inc. v. U.S. Postal Serv.,


868 F.3d 1350 (Fed. Cir. 2017) cert. granted,
2018 WL 2364663 (U.S. Oct. 26, 2018) (No. 17-1594) ............................................ 3, 29
Rogers v. United States,
814 F.3d 1299 (Fed. Cir. 2015) ................................................................................... 37, 38
State St. Bank & Tr. Co. v. Signature Fin. Grp., Inc.,
149 F.3d 1368 (Fed. Cir. 1998) ..................................................................................... 5, 29
United States v. Carlton,
512 U.S. 26 (1994) ........................................................................................................ 12, 32
Usery v. Turner Elkhorn Mining Co.,
428 U.S. 1 (1976) .......................................................................................................... 28, 32

Wyatt v. United States,


271 F.3d 1090 (Fed. Cir. 2001) ................................................................ 13, 35, 36, 37, 38

U.S. Constitution:

Art. II, § 2, cl. 2 (Appointments Clause) ....................................................................... 40, 41

Art. III ................................................................................................................................ 25, 26

Amend. VII ....................................................................................................................... 25, 26

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Statutes:

Leahy-Smith America Invents Act,


Pub. L. 112-29, § 6, 125 Stat. 284, 299-304 (2011)...................... 2, 3, 4, 5, 6, 17, 27, 36
Pub. L. 96-517, 94 Stat. 3015 (1980) ...................................................................................... 2
5 U.S.C. § 7513(a) ....................................................................................................................45
28 U.S.C. § 1295(a)(4)(A) ......................................................................................................... 1
35 U.S.C. § 2(b) ........................................................................................................................46
35 U.S.C. § 3(a) ........................................................................................................................46
35 U.S.C. § 3(a)(1) ........................................................................................................ 6, 46, 51
35 U.S.C. § 3(a)(2)(A) .............................................................................................................46
35 U.S.C. § 3(a)(4) ..................................................................................................................... 6
35 U.S.C. § 3(c) ................................................................................................................. 45, 50
35 U.S.C. § 6 ............................................................................................................................46
35 U.S.C. § 6(a) ............................................................................................................. 6, 41, 51
35 U.S.C. § 6(b)(4) ..................................................................................................................... 6
35 U.S.C. § 6(c) ................................................................................................................. 44, 51
35 U.S.C. § 101 et seq. ................................................................................................ 11, 19, 36
35 U.S.C. § 101....................................................................................................... 5, 10, 19, 38
35 U.S.C. § 102.................................................................................................................. 19, 21
35 U.S.C. § 103.................................................................................................................. 19, 21
35 U.S.C. § 112.................................................................................................................. 20, 21
35 U.S.C. § 143.................................................................................................................... 4, 47
35 U.S.C. § 282(b)(2)-(3) .................................................................................... 20, 22, 32, 37
35 U.S.C. § 301(a)(1) ................................................................................................................. 2
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35 U.S.C. § 302.............................................................................................................. 2, 20, 21


35 U.S.C. § 303(a) ............................................................................................................... 2, 21
35 U.S.C. § 305.................................................................................................................. 20, 21
35 U.S.C. § 306.........................................................................................................................21
35 U.S.C. § 307(a) ............................................................................................................... 2, 21
35 U.S.C. § 311(a) (2006)........................................................................................................21
35 U.S.C. § 311(a) ....................................................................................................................20
35 U.S.C. § 311(b)...................................................................................................................... 3
35 U.S.C. § 312........................................................................................................................... 3
35 U.S.C. § 314(a) (2006)........................................................................................................21
35 U.S.C. § 314(a) ............................................................................................................... 3, 21
35 U.S.C. § 315 (2006) ............................................................................................................21
35 U.S.C. § 316 (2006) ............................................................................................................21
35 U.S.C. § 316(a) ....................................................................................................................21
35 U.S.C. § 316(a)(4) ...............................................................................................................46
35 U.S.C. § 316(a)(5) ................................................................................................................. 3
35 U.S.C. § 316(a)(8) ................................................................................................................. 3
35 U.S.C. § 316(a)(10) ............................................................................................................... 3
35 U.S.C. § 316(d)....................................................................................................................20
35 U.S.C. § 316(d)(1)(B) ........................................................................................................... 3
35 U.S.C. § 316(e) ............................................................................................................... 3, 21
35 U.S.C. § 318(a) ...................................................................................................................... 3
35 U.S.C. § 318(b).................................................................................................. 4, 21, 38, 48

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35 U.S.C. § 319.........................................................................................................................21
35 U.S.C. § 321(b).............................................................................................. 4, 5, 20, 21, 22
35 U.S.C. § 321(c) ...................................................................................................................... 4
35 U.S.C. § 322(a) ....................................................................................................................20
35 U.S.C. § 324(a)-(b)......................................................................................................... 4, 21
35 U.S.C. § 326........................................................................................................................... 4
35 U.S.C. § 326(a) ....................................................................................................................21
35 U.S.C. § 326(d)....................................................................................................................20
35 U.S.C. § 326(e) ....................................................................................................................21
35 U.S.C. § 328(a) ...................................................................................................................... 6
35 U.S.C. § 328(a)-(b)................................................................................................................ 4
35 U.S.C. § 328(b)......................................................................................................... 6. 21. 36
35 U.S.C. § 329.................................................................................................................... 4, 21
42 U.S.C. § 300aa-12(c)(2) ............................................................................................... 43, 45
42 U.S.C. § 300aa-12(d)(3)(A)................................................................................................42
42 U.S.C. § 300aa-12(e)(2)(B) ................................................................................................43
49 U.S.C. § 103(d).................................................................................................................... 53

Regulation:

37 C.F.R. § 90.3(a)(1) ................................................................................................................ 1


Legislative Materials:

157 Cong. Rec.:


S1367 (daily ed. Mar. 8, 2011).............................................................................................. 5
S5374 (daily ed. Sept. 7, 2011) .................................................................................... 33, 37

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S5375 (daily ed. Sept. 7, 2011) ...........................................................................................32


S5376 (daily ed. Sept. 7, 2011) .................................................................................... 30, 35

H.R. Rep. No. 112-98 (2011) ............................................................................................ 5, 30

Other Authorities:

Changes to the Claim Construction Standard for Interpreting Claims


in Trial Proceedings Before the Patent Trial and Appeal Board,
83 Fed. Reg. 51,340 (Oct. 11, 2018) (effective Nov. 13, 2018) ....................................22

U.S. Patent & Trademark Office, Patent Trial and Appeal Board
Standard Operating Procedure, https://www.uspto.gov/sites/
default/files/documents/SOP2%20R10%20FINAL.pdf ..................................... 46, 47

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STATEMENT OF RELATED CASES

This case is one of thirteen related cases currently pending before this Court in

which appellant Trading Technologies International, Inc., is challenging the

constitutionality of the covered business method review procedure established by the

America Invents Act. The United States filed one identical brief in the twelve other

cases, which had the same due date: IBG LLC, v. Trading Technologies International, Inc.,

Nos. 17-1732, 17-1766, 17-1769; IBG LLC v. Trading Technologies International, Inc., Nos.

17-2052, 17-2053; Trading Technologies International, Inc. v. IBG LLC, No. 17-2054; Trading

Technologies International, Inc. v. IBG LLC, No. 17-2257; Trading Technologies International,

Inc. v. IBG LLC, et al., No. 17-2323; Trading Technologies International, Inc. v. IBG LLC, No.

17-2565; Trading Technologies International, Inc. v. IBG LLC, No. 17-2621; Trading

Technologies International, Inc. v. IBG LLC, No. 18-1063; Trading Technologies International,

Inc. v. IBG LLC, No. 18-1105; Trading Technologies International, Inc. v. IBG LLC, No. 18-

1302; Trading Technologies International, Inc. v. IBG LLC, No. 18-1438; Trading Technologies

International, Inc. v. United States, No. 18-1443.

The appellant in Polaris Innovations Limited v. Kingston Technology Co., Inc., No. 18-

1831 (Fed. Cir.), raised an Appointments Clause challenge to the statute governing the

Patent Trial and Appeal Board in the proceedings before the Board and indicated its

intent to raise this issue in this Court via a notice under Federal Rule of Appellate

Procedure 44; in Polaris Innovations Limited v. Kingston Technology Co., Inc., Nos. 18-1768

(Fed. Cir.), the same party raised an Appointment Clause challenge for the first time in
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its opening brief in this Court. The United States has intervened in both Polaris cases.

Appellant in IPR Licensing, Inc. v. ZTE Corp. ZTE (USA) Inc., No. 18-1805 (Fed. Cir.),

raised a similar challenge for the first time in its opening brief on appeal, and the United

States intervened in the case. The appellant later moved to file an amended opening

brief omitting this challenge; that motion remains pending before this Court.

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STATEMENT OF JURISDICTION

The Patent Trial and Appeal Board (PTAB or Board) entered its final written

decision in CBM2016-00090 on December 7, 2017. Trading Technologies timely filed

a notice of appeal on January 30, 2018. See 37 C.F.R. § 90.3(a)(1). This Court has

jurisdiction under 28 U.S.C. § 1295(a)(4)(A).

STATEMENT OF THE ISSUES

1. Whether Congress’s authorization of the United States Patent and Trademark

Office (USPTO) to conduct covered business method review of patents issued before

Congress enacted the America Invents Act comports with Article III, the Seventh

Amendment, and the Fifth Amendment.

2. Whether the administrative patent judges of the Patent Trial and Appeal Board

are “inferior” officers of the United States under the Appointments Clause, such that

Congress permissibly vested their appointments in a department head.

STATEMENT OF THE CASE

A. Post-Issuance Patent Review


“Over the last several decades, Congress has created administrative processes

that authorize the PTO to reconsider and cancel patent claims that were wrongly

issued.” Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 138 S. Ct. 1365, 1370

(2018). This Court is well familiar with these processes.

First, in 1980, Congress created ex parte reexamination, seeking to restore public

“confidence in the validity of patents issued by the PTO.” Patlex Corp. v. Mossinghoff,
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758 F.2d 594, 601 (Fed. Cir.), modified on other grounds on reh’g, 771 F.2d 480 (Fed. Cir.

1985); see Pub. L. 96-517, 94 Stat. 3015 (1980). Still in effect today, ex parte

reexamination “enable[s] the PTO to recover administrative jurisdiction over an issued

patent in order to remedy any defects in the examination which that agency had initially

conducted and which led to the grant of the patent.” Patlex, 758 F.2d at 601. The ex

parte reexamination procedure authorizes the USPTO Director, “[o]n his own

initiative” or at the request of “[a]ny person,” to reexamine an issued patent if the

Director finds that there exists “a substantial new question of patentability” in light of

prior art “consisting of patents or printed publications.” 35 U.S.C. §§ 301(a)(1), 302,

303(a). Upon reexamination, the USPTO may cancel any claim determined to be

unpatentable. See id. § 307(a).

In 1999, Congress created “another, similar procedure” called inter partes

reexamination. See Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2137 (2016). The

inter partes reexamination procedure allowed “third parties greater opportunities to

participate in the Patent Office’s reexamination proceedings,” and, after 2002,

authorized third parties to participate in any appeal of the USPTO’s decision. See id. at

2137-38.

Finally, in 2011, Congress enacted the Leahy-Smith America Invents Act (AIA),

which overhauled the USPTO’s procedures for reconsidering issued patents. The AIA

created inter partes review, post-grant review, and covered business method review—

administrative “proceedings before the PTO for determining the patentability of issued
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patent claims,” which are designed “to provide [a] quick and cost effective alternative[]

to litigation in the courts.” Return Mail, Inc. v. U.S. Postal Serv., 868 F.3d 1350, 1353-54

(Fed. Cir. 2017) (quotation marks omitted; brackets in original), cert. granted, 2018 WL

2364663 (U.S. Oct. 26, 2018) (No. 17-1594). Congress was “[r]eacting to a growing

sense that questionable patents are too easily obtained and are too difficult to

challenge.” MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284, 1290 (Fed. Cir.

2015) (quotation marks and alteration omitted).

Inter partes review replaced inter partes reexamination. See Pub. L. 112-29, § 6,

125 Stat. 284, 299-304 (2011). An individual other than the patent owner may file a

petition for inter partes review on the ground that the invention was not novel or was

obvious in light of “prior art consisting of patents or printed publications.” See 35

U.S.C. §§ 311(b), 312. If the Director finds a “reasonable likelihood” that the challenger

can establish the unpatentability of “at least 1 of the claims challenged in the petition,”

he may institute inter partes review. Id. § 314(a).

Inter partes review includes some procedures similar to those used in litigation,

see, e.g., 35 U.S.C. §§ 316(a)(5), (8), (10). The petitioner bears the burden of proving

unpatentability by a preponderance of the evidence. Id. § 316(e). The patent owner

may seek to amend its patent by “propos[ing] a reasonable number of substitute

claims.” Id. § 316(d)(1)(B). At the conclusion of the proceeding, the Board issues a

final written decision addressing the patentability of the challenged claims. See id.

§ 318(a).
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Either party may appeal that decision to this Court, and the USPTO Director

may intervene in the appeal. See id. § 143. After any appeals are exhausted, the USPTO

issues a certificate “canceling any claim of the patent finally determined to be

unpatentable, confirming any claim of the patent determined to be patentable, and

incorporating in the patent by operation of the certificate any new or amended claim

determined to be patentable.” Id. § 318(b).

The AIA also created post-grant review, which allows a broader scope of

challenges—based on any invalidity ground that could be raised as a defense in

litigation—for challenges brought within nine months of patent issuance. See 35 U.S.C.

§ 321(b), (c). Any person other than the patent owner may petition for post-grant

review, which the Director may institute if he determines “that it is more likely than not

that at least 1 of the claims challenged in the petition is unpatentable” or that the

“petition raises a novel or unsettled legal question that is important to other patents or

patent applications.” Id. § 324(a)-(b). As in inter partes review, the challenger may

participate in the proceedings and any ensuing appeal. See id. §§ 326, 329. The

procedures for issuance of a final decision by the Board, appellate review by this Court,

and issuance of a certificate following completion of any appellate proceedings parallel

those for inter partes review. See id. §§ 328(a)-(b), 143.

This case concerns the AIA’s third method of administrative reconsideration:

covered business method review. It is a “transitional post-grant review proceeding for

review of the validity of covered business method patents.” Pub. L. 112-29, § 18(a)(1),
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125 Stat. at 329. Congress created this program to address business method patents

that proliferated following State Street Bank & Trust Co. v. Signature Financial Group, Inc.,

149 F.3d 1368 (Fed. Cir. 1998), and whose patentability was open to question under

Bilski v. Kappos, 561 U.S. 593 (2010). See H.R. Rep. 112-98, at 54 (2011); 157 Cong. Rec.

S1367 (daily ed. Mar. 8, 2011) (statement of Sen. Kyl). This transitional program applies

to patents that “claim[] a method or corresponding apparatus for performing data

processing or other operations used in the practice, administration, or management of

a financial product or service, except that the term does not include patents for

technological inventions.” Pub. L. 112-29, § 18(d)(1), 125 Stat. at 331. It is set to expire

in September 2020. See id. § 18(a)(3)(A), 125 Stat. at 330.

Only a person who has “been sued for infringement of the patent or has been

charged with infringement under that patent” may petition to institute a covered

business method review. Pub. L. 112-29, § 18(a)(1)(B), 125 Stat. at 330. Generally,

Congress specified that covered business method review is to “be regarded as, and shall

employ the standards and procedures of, a post-grant review.” Id. § 18(a)(1), 125 Stat.

at 329. Thus, as with post-grant review, the petitioner in a covered business method

review may challenge a patent on any invalidity ground that could be raised in litigation,

including 35 U.S.C. § 101’s requirements for eligible subject matter. See id. § 321(b).

And, as in post-grant review and inter partes review, the Board issues a final written

decision addressing the patentability of the challenged claims after an adversarial

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proceeding, see id. § 328(a), and USPTO issues a certificate cancelling any patent claims

determined to be unpatentable only after any appeals are taken, id. § 328(b).

Unlike post-grant review, Congress made covered business method review

available for “any covered business method patent issued before, on, or after” the

effective date of the AIA. Pub. L. 112-29, § 18(a)(2), 125 Stat. at 330. And, unlike post-

grant review, covered business method review is not limited to the nine-month window

that applies to post-grant review proceedings. During the eight years of the transitional

program, the Director generally may institute a covered business method review at any

time during a patent’s term. See id. § 18(a)(1)(B), (E), (d), 125 Stat. at 330-31.

Inter partes reviews and post-grant reviews, including covered business method

reviews, are conducted by the Patent Trial and Appeal Board. 35 U.S.C. § 6(b)(4). The

Board is composed of the Director, the Deputy Director, the Commissioner for

Patents, the Commissioner for Trademarks, and “administrative patent judges.” Id.

§ 6(a). The Director is “appointed by the President” with advice and consent of the

Senate. 35 U.S.C. § 3(a)(1), (4). Administrative patent judges are “appointed by the

Secretary [of Commerce], in consultation with the Director.” 35 U.S.C. § 6(a).

B. Prior Constitutional Challenges To Post-Issuance Patent


Review

This Court and the Supreme Court have repeatedly rejected constitutional

challenges to the administrative patent review procedures established by Congress.

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First, in 1985, this Court rejected a facial constitutional challenge to ex parte

reexamination. See Patlex, 758 F.2d at 598-601. The Court rejected the argument that

Congress violated due process by authorizing the USPTO to conduct ex parte

reexamination of patents that “were granted before passage of the reexamination

statute.” Id. at 597. The Court explained that Congress created ex parte reexamination

for the “important public purpose” of “restoring confidence in the validity of patents

issued by the PTO.” Id. at 601. And Congress authorized ex parte reexamination of all

existing patents “in order to achieve an immediate impact on the patent incentive for

invention and innovation.” Id. at 598. The Court concluded that “the overriding public

purposes Congress articulated in enacting the reexamination law with retroactive effect

are entitled to great weight,” and that Congress acted permissibly in authorizing

reexamination of patents issued before the reexamination law was enacted. Id. at 601.

Patlex further rejected the argument that ex parte reexamination violates Article

III and the Seventh Amendment. The Court held that nothing in Article III or the

Seventh Amendment prohibits Congress from authorizing the USPTO to correct its

own errors by reconsidering—and, where necessary, holding unpatentable—claims in

previously issued patents. See Patlex, 758 F.2d at 604-05. As the Court explained, “[a]

defectively examined and therefore erroneously granted patent must yield to the

reasonable Congressional purpose of facilitating the correction of governmental

mistakes.” Id.; see Joy Techs., Inc. v. Manbeck, 959 F.2d 226, 228 (Fed. Cir. 1992).

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In 2015, this Court rejected a similar challenge to inter partes review in MCM

Portfolio, holding that inter partes review does not violates Article III or the Seventh

Amendment. 812 F.3d at 1292-94. The constitutionality of inter partes review

subsequently reached the Supreme Court in Oil States. The Supreme Court sustained

this Court’s conclusion in MCM Portfolio, holding that inter partes review “falls squarely

within the public-rights doctrine” and therefore violates neither Article III nor the

Seventh Amendment. Oil States, 138 S. Ct. at 1373.

The Court initially observed that “the decision to grant a patent is a matter

involving public rights” because “patents are ‘public franchises’ that the Government

grants ‘to the inventors of new and useful improvements.’” Oil States, 138 S. Ct. at 1373.

Accordingly, the Court concluded that proceedings to decide whether to grant a patent

may be conducted by the USPTO rather than an Article III court. The Court then

explained that inter partes review similarly may be conducted by the USPTO because it

“involves the same basic matter as the grant of a patent.” Id. at 1374. Inter partes

review gives the USPTO “a second look at an earlier administrative grant of a patent”

and requires the Board to consider “the same statutory requirements that the PTO

considered when granting the patent” in pursuit of the same public purposes. Id.

The Court acknowledged that inter partes review, unlike the initial patent grant,

occurs after the patent has issued, but explained that “that distinction does not make a

difference here.” Oil States, 138 S. Ct. at 1374. The Court observed that patents “are

granted subject to the qualification that the PTO has the authority to reexamine—and
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perhaps cancel—a patent claim,” and that patents “thus remain subject to the Board’s

authority to cancel outside of an Article III court.” Id. (quotation marks and alterations

omitted). The Court further rejected the argument that a patent’s status as property

renders inter partes review impermissible. Patents “convey only a specific form of

property right—a public franchise”—and Congress therefore may reserve the authority

to revoke that property right upon a finding that it was improperly granted. Id. at 1375.

C. Prior Proceedings
Trading Technologies International, Inc. owns U.S. Patent No. 7,725,382 B2 (the

’382 patent), which claims a method for electronically trading stocks and other financial

products over the internet. The application for the ’382 patent was filed on October

25, 2006. Appx54. The USPTO issued the patent on May 25, 2010. Id. At the time

the patent issued, Congress had authorized the USPTO to cancel patents through ex

parte and inter partes reexamination.

In 2010, Trading Technologies filed suit against various competitors alleging

patent infringement. See Trading Techs. Int’l, Inc. v. BGC Partners, Inc., No. 1:10-cv-715

(N.D. Ill. Feb. 3, 2010). Following the AIA’s enactment, some of these competitors

petitioned for covered business method review of certain claims of the ’382 patent. See

CBM2016-00090. In the proceedings before the Board, Trading Technologies

defended the patentability of the challenged claims but did not argue that covered

business method review was unconstitutional or that the Board’s administrative patent

judges were unconstitutionally appointed. See Appx206-303. On December 7, 2017,


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the Board issued a final written decision finding that the challenged claims were patent

ineligible under 35 U.S.C. § 101. Appx9.

Trading Technologies appealed to this Court. Before Trading Technologies filed

its opening brief, the Supreme Court issued its decision in Oil States upholding inter

partes review under Article III and the Seventh Amendment and noting that it had not

addressed any challenge to inter partes review on retroactivity grounds. See 138 S. Ct.

1365. In its opening brief, Trading Technologies argued for the first time that covered

business method review is unconstitutional and that the Board’s administrative patent

judges were unconstitutionally appointed. The United States intervened.

SUMMARY OF ARGUMENT

I. Trading Technologies forfeited its constitutional challenges by failing to

present them to the Board. Trading Technologies has offered no explanation for its

failure to present its constitutional challenges below. The Court should therefore deem

Trading Technologies’ constitutional challenges forfeited and decline to address them.

II.A. If this Court addresses Trading Technologies’ retroactivity challenges, the

Court can easily reject them. As an initial matter, conducting covered business method

review of a pre-AIA patent is not a retroactive application of the law because it does

not impose any new legal consequences on pre-AIA conduct. The AIA did not alter

the substantive conditions of patentability, nor did it newly expose patents to the

prospect of post-issuance patent review. To the contrary, every patent in existence

when Congress created covered business method review in 2011 was granted subject to
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cancellation by USPTO through ex parte reexamination. Covered business method

review altered the USPTO’s procedures for reconsidering the validity of issued patents,

but it did not alter the substantive provisions governing the conditions of patentability.

See 35 U.S.C. § 101 et seq. Application of such changes in procedural rather than

substantive rules does not constitute a retroactive application of the law. And statutes

like the AIA that merely alter the forum in which a particular claim may be adjudicated

do not operate retroactively even where the conduct giving rise to the claim occurred

before the statute was enacted.

B. Even if applying covered business method review to pre-AIA patents were

thought to involve a retroactive application of the law, it would comport with Article

III and the Seventh Amendment. In Oil States, the Supreme Court held that inter partes

review is consistent with Article III and the Seventh Amendment. The Supreme

Court’s reasoning—that the grant of a patent involves public rights and thus need not

be adjudicated in an Article III Court or submitted to a jury—applies equally to covered

business method review. And it does not depend on whether the administrative

reconsideration scheme existed when the patent issued.

C. Likewise, retroactive application of covered business method review would

easily comport with due process. Retroactive civil legislation is permissible if it

advances legitimate legislative purposes by rational means, see Pension Benefit Guar. Corp.

v. R.A. Gray & Co., 467 U.S. 717, 729 (1984), and Congress plainly satisfied that

requirement here. Covered business method review protects the public’s interest in
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avoiding erroneously granted patents that allow private parties to monopolize ideas that

properly belong to the public. Congress created a special administrative mechanism for

review of business method patents due to their novel history and questionable validity.

Congress reasonably sought to advance the purpose of covered business method review

by authorizing review of defective patents in existence when the AIA was enacted,

which otherwise could operate against the public for more than a decade to come.

Congress acts permissibly when it legislates retroactively to give comprehensive effect

to important new legislation, particularly where, as here, the new legislation serves

curative or remedial purposes.

Retroactive legislation is permissible under the Due Process Clause even when it

upsets reliance interests, see, e.g., United States v. Carlton, 512 U.S. 26, 33-34 (1994), and

the purported reliance interests affected by covered business method review are weak.

No one has a meaningful expectation interest in shielding an erroneously issued patent

from administrative reconsideration, especially given that a patent’s validity is always

subject to challenge. Patents have always been subject to invalidation in litigation, and

since 1981 have been subject to cancellation in administrative proceedings on some of

the grounds that can be raised in covered business method review. As the Court in Oil

States made clear, patents are not irrevocably vested rights, but rather are public rights

amenable to administrative reconsideration.

This Court in Patlex Corp. v. Mossinghoff accordingly rejected a retroactivity

challenge to ex parte reexamination similar to the challenge that Trading Technologies


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presses here. 758 F.3d 594 (Fed. Cir.). The Court in Patlex concluded that Congress

acted permissibly when it authorized ex parte reexamination of all patents in existence

when the reexamination statute was enacted. The Court explained that Congress’s

important goal of correcting erroneous patent grants outweighed the expectation

interests affected by the creation of administrative patent review. Patlex squarely

forecloses Trading Technologies’ due process argument.

D. Application of covered business method review to patents issued before the

AIA was enacted also does not effect a Fifth Amendment taking without just

compensation. A “valid property interest” is a necessary element of a takings

claim. Wyatt v. United States, 271 F.3d 1090, 1097 (Fed. Cir. 2001). The USPTO’s

cancellation of an erroneously issued patent through covered business method review

is premised on a determination that the patentee never had a valid property right. Just

as a district court does not effect a Fifth Amendment taking when it finds patent claims

invalid, the USPTO does not effect a Fifth Amendment taking when it finds patent

claims unpatentable in a covered business method review. This Court previously

rejected a similar challenge to the application of ex parte reexamination to patents issued

before its enactment. See Joy Techs., Inc. v. Manbeck, 959 F.2d 226 (Fed. Cir. 1992).

III. This Court should not reach Trading Technologies’ Appointments Clause

challenge. Trading Technologies forfeited that argument, and this Court will have an

opportunity to address a properly preserved challenge in Polaris Innovations Limited v.

Kingston Technology Co., Inc., No. 18-1831 (Fed. Cir.).


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The argument is in any event meritless. Administrative patent judges are inferior

officers whose appointment Congress was free to vest in the Secretary of Commerce, a

department head. The Supreme Court has explained that “‘inferior officers’ are officers

whose work is directed and supervised at some level by others who were appointed by

Presidential nomination with the Senate’s advice and consent.” Edmond v. United States,

520 U.S. 651, 661–63 (1997). Administrative patent judges’ work is directed and

supervised by the USPTO Director and the Secretary of Commerce, both

Presidentially-nominated and Senate-confirmed officials. The Director has

unconstrained statutory authority to remove a judge from any or all Board panels, a

type of removal authority that the Supreme Court has identified as a key feature of

adjudicative officers Congress may treat as inferior. Independently, the Secretary of

Commerce has the authority to remove judges from federal employment entirely,

subject only to the general civil-service tenure protections that almost all federal

employees enjoy.

In addition to these removal authorities, the Director has myriad other ways of

controlling both the process and the substance of the judges’ work. He may: issue

regulations governing the conduct of the Board’s proceedings; issue binding policy

directions regarding the relevant laws and how they apply to various factual situations,

which may be issued in connection with pending cases and which the judges are

required to apply; and designate himself as a member of the panel that decides whether

to rehear—consistent with his policy directions—any aspect of any Board decision.


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And if, notwithstanding these many means of supervision, a Board decision with which

the Director disagrees does leave the agency, the statute provides that the decision has

no real-world effect until after the opportunity for an appeal to this Court, in which the

Director has a statutory right to intervene and seek a remand. Taken together, these

many forms of control and supervision are sufficient to make clear that administrative

patent judges are inferior officers.

STANDARD OF REVIEW

This Court reviews constitutional challenges to the patent laws de novo. MCM

Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284, 1287 (Fed. Cir. 2015).

ARGUMENT

I. TRADING TECHNOLOGIES FORFEITED ITS CONSTITUTIONAL


ARGUMENTS

Trading Technologies forfeited its constitutional challenges by failing to raise

them before the Board. “It is well-established that a party generally may not challenge

an agency decision on a basis that was not presented to the agency.” In re DBC, 545

F.3d 1373, 1378 (Fed. Cir. 2008). This Court has held in comparable circumstances

that an appellant waived its constitutional issue “by failing to raise it before the Board.”

Id. at 1377. Such a failure precludes the Board from considering a constitutional

challenge and deprives it of an opportunity to shed light on any “threshold questions

… to which the [agency] can apply its expertise.” Elgin v. Department of Treasury, 567

U.S. 1, 16, 22-23 (2012); see, e.g., LSI Corp. v. Regents of Univ. of Minnesota, No. IPR2017-

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01068, 2017 WL 6517562 (P.T.A.B. Dec. 19, 2017) (addressing Eleventh Amendment

challenge to Board’s jurisdiction). As the Court explained, permitting litigants to raise

constitutional issues for the first time on appeal encourages “sandbagging, i.e.,

‘suggesting or permitting, for strategic reasons, that the trial court pursue a certain

course, and later—if the outcome is unfavorable—claiming that the course followed

was reversible error.’” DBC, 545 F.3d at 1380 (quoting Freytag v. Commissioner, 501 U.S.

868, 895 (1991) (Scalia, J., concurring in part)).

This Court in “exceptional cases” will consider issues that were forfeited below.

In re DBC, 545 F.3d at 1379. Trading Technologies has offered no explanation for its

failure to present its constitutional arguments below, let alone pointed to exceptional

circumstances justifying the forfeiture. And although the Supreme Court decided Oil

States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365 (2018), after the

Board issued its final decision in this case, that fact does not weigh in favor of reviewing

Trading Technologies’ forfeited retroactivity argument given that this argument was

plainly available before Oil States. Indeed, comparable retroactivity challenges were

pressed by the challengers in Patlex Corp. v. Mossinghoff, 758 F.2d 594, 603 (Fed. Cir.

1985), and Joy Technologies, Inc. v. Manbeck, 959 F.2d 226 (Fed. Cir. 1992), and by amici in

Oil States itself, see Brief of Amicus Curiae Intellectual Prop. Law Ass’n of Chicago in

Supp. of Neither Party at 6-9; Brief of Amici Curiae Biotechnology Innovation Org. and

Ass’n of Univ. Tech. Masters in Supp. of Pet’r at 30-32.

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II. APPLYING COVERED BUSINESS METHOD REVIEW TO PRE-AIA


PATENTS COMPORTS WITH THE CONSTITUTION

If this Court reaches Trading Technologies’ constitutional challenges, the Court

should reject them. Congress in the AIA authorized the USPTO to conduct covered

business method review of patents that issued prior to the AIA’s enactment. See Pub. L.

112-29, § 18(a)(2), 125 Stat. at 330. Trading Technologies contends that this express

statutory authorization constitutes impermissible retroactive legislation. That

contention is doubly mistaken. The application of covered business method review to

pre-AIA patents does not impose new legal consequences on any pre-AIA conduct,

and it thus does not involve a “retroactive” application of the law at all. And even if it

did, the retroactive application of covered business method review would be fully

consistent with the Constitution.

A. Conducting Covered Business Method Review Of Pre-AIA


Patents Is Not A Retroactive Application Of The Law

The Supreme Court in Landgraf v. USI Film Products explained that “[a] statute

does not operate ‘retrospectively’ merely because it is applied in a case arising from

conduct antedating the statute’s enactment, or upsets expectations based in prior law.”

511 U.S. 244, 269-70 (1994) (citation omitted); see also Disabled Am. Veterans v. Secretary

of Veterans Affairs, 327 F.3d 1339, 1344 (Fed. Cir. 2003). Rather, to determine whether

a statute operates retroactively, “the court must ask whether the new provision attaches

new legal consequences to events completed before its enactment.” Landgraf, 511 U.S.

at 269-70. The AIA’s covered business method review provisions do not.


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1. Patents have always been subject to invalidation by federal courts and have

been subject to cancellation by the USPTO in administrative proceedings for nearly

four decades. The AIA’s post-issuance review provisions, including covered business

method review, are the latest legislative refinement of this longstanding administrative

review process. In creating covered business method review, the AIA did not alter

patent holders’ substantive rights, but merely created a new procedure for the

cancellation of patents by the USPTO. Statutes that alter the procedures for raising a

claim or change the forum for hearing a claim do not operate retroactively when applied

to claims brought after the statute’s enactment, even if the claims are based on events

that occurred before the statute’s enactment.

The Supreme Court has explained that “[c]hanges in procedural rules may often

be applied in suits arising before their enactment without raising concerns about

retroactivity.” Landgraf, 511 U.S. at 275. Rules of procedure regulate the conduct of

the adjudicatory proceeding, not the primary conduct underlying the proceeding.

Accordingly, when a statute that alters the procedures for adjudicating claims is applied

to a claim brought after the statute’s enactment, that is a prospective—not retroactive—

application of the statute. As the Supreme Court has explained, “because rules of

procedure regulate secondary rather than primary conduct, the fact that a new

procedural rule was instituted after the conduct giving rise to the suit does not make

application of the rule at trial retroactive.” Id.; see id. at 292-93 (Scalia, J., concurring).

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For similar reasons, the Supreme Court has “regularly applied intervening

statutes conferring or ousting jurisdiction, whether or not jurisdiction lay when the

underlying conduct occurred or when the suit was filed.” Landgraf, 511 U.S. at 274; see

id. at 292-93 (Scalia, J., concurring in the judgments); Republic of Austria v. Altmann, 541

U.S. 677, 693 (2004). As the Court explained, “[p]resent law normally governs in such

situations because jurisdictional statutes speak to the power of the court rather than to

the rights or obligations of the parties.” Landgraf, 511 U.S. at 274 (quotation marks

omitted). As with procedural rules, when a statute addresses “which court shall have

jurisdiction to entertain a particular cause of action,” it merely “regulate[s] the secondary

conduct of litigation and not the underlying primary conduct of the parties.” Hughes

Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 951 (1997). Indeed, the

“[a]pplication of a new jurisdictional rule usually ‘takes away no substantive right but

simply changes the tribunal that is to hear the case.’” Landgraf, 511 U.S. at 274 (quoting

Hallowell v. Commons, 239 U.S. 506, 508 (1916)).

The AIA’s covered business method review provisions do not alter the

substantive rights of any owner of a pre-AIA patent. Instead, they are merely

procedural changes to the USPTO’s administrative reconsideration of patents. Covered

business method review does not alter the Patent Act’s provisions governing the

patentability requirements, see 35 U.S.C. § 101 et seq. On the contrary, the Board in a

covered business method review considers whether to cancel patent claims on the

ground that they fail to satisfy the “condition[s] for patentability” (§§ 101, 102, 103) or
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the written description requirement (§ 112). Id. § 321(b); id. § 282(b)(2)-(3). These are

the same requirements that the USPTO considered when it granted the patent. See Oil

States, 138 S. Ct. at 1374.

Since 1980, the Patent Act has authorized the USPTO to conduct ex parte

reexamination of issued patents, and, from 1999 to 2011, the USPTO was also

authorized to conduct inter partes reexamination of issued patents whose applications

were filed after November 29, 1999, see Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1331

(Fed. Cir. 2008). Because ex parte reexamination preceded the AIA by three decades,

every patent in effect when Congress passed the AIA was granted subject to the

authority of the USPTO to reconsider the patent through ex parte reexamination (and,

for those applications filed after November 29, 1999, inter partes reexamination as

well). The AIA’s post-issuance review procedures—inter partes review, post-grant

review, and covered business method review—are merely different procedures for

administrative reconsideration of patents.

Covered business method review, like the AIA’s other post-issuance review

procedures, resembles ex parte reexamination in numerous respects. In all of these

proceedings, the USPTO is authorized to reconsider an issued patent at a third party’s

request. See 35 U.S.C. § 302; id. § 311(a); id. § 322(a). In all of these proceedings, the

patent owner has an opportunity to amend the patent to avoid the cancellation of

otherwise invalid claims. See id. § 305; id. § 316(d); id. § 326(d). In all of these

proceedings, the agency determines by a preponderance of the evidence whether the


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challenged claims were unpatentable when issued. See Dome Patent LP v. Lee, 799 F.3d

1372, 1378 (Fed. Cir. 2015); 35 U.S.C. § 316(e); id. § 326(e). In all of these proceedings,

the Director’s patentability decisions are subject to judicial review in this Court. See id.

§ 306; id. § 319; id. § 329. And in all of these proceedings, the Director issues “a

certificate canceling any claim of the patent finally determined to be unpatentable” only

after any judicial review has been exhausted. Id. § 307(a); id. § 318(b); id. § 328(b). See

also id. §§ 311(a), 314(a), 315, 316 (2006) (comparable provisions for inter partes

reexaminations). These similarities underscore that the “basic purposes” of the

procedures are the same—“namely, to reexamine an earlier agency decision.” Cuozzo

Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2144 (2016).

The AIA’s post-issuance review procedures, including covered business method

review, do differ from the procedures governing ex parte reexamination in some

respects, principally in the degree to which third-party challengers can participate in the

proceedings. See 35 U.S.C. § 305; id. § 316(a); id. § 326(a). The standards for instituting

the proceedings also differ. See id. § 303(a); id. § 314(a); id. § 324(a)-(b).

In addition, while ex parte reexamination is limited to challenges based on prior

art, see 35 U.S.C. § 302, i.e., novelty (§ 102) and nonobviousness (§ 103), covered

business method review permits cancellation of patents on any ground of invalidity, see

id. § 321(b), including eligible subject matter under § 101 and the written description

requirement under § 112. But all of the grounds for cancellation in covered business

method review were requirements for patentability when the patents were issued.
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Accordingly, these distinctions impose no “new legal consequences” on any pre-AIA

conduct. See Landgraf, 511 U.S. at 270. The application of new procedures to facilitate

the government’s enforcement of pre-existing substantive requirements is not a

retroactive application of the law.

Moreover, patents have always been subject to invalidation in district court on

the additional grounds that can be raised in a covered business method review. Covered

business method review is explicitly limited to grounds “that could be raised” as

invalidity defenses in litigation. 35 U.S.C. § 321(b); id. § 282(b)(2)-(3). Covered business

method review, therefore, “takes away no substantive right but simply changes the

tribunal that is to hear the case,’” from a district court to the USPTO. Landgraf, 511

U.S. at 274. In Landgraf, the Supreme Court relied upon its prior decision in Hallowell,

which held that a statute eliminating federal court jurisdiction over a class of claims and

referring them to the Secretary of the Interior was applicable to pending cases because,

inter alia, “the reference of the matter to the Secretary …. takes away no substantive

right, but simply changes the tribunal that is to hear the case.” Hallowell, 239 U.S. at

508. So too here. Although district court litigation uses a different burden of proof

and a different claim construction standard than was used in this proceeding,1 there was

1
After the decision in this proceeding, the USPTO published a final rule
replacing the broadest-reasonable-interpretation standard in AIA review proceedings
with the ordinary-meaning standard used in litigation. See Changes to the Claim Construction
Standard for Interpreting Claims in Trial Proceedings Before the Patent Trial and Appeal Board, 83
Fed. Reg. 51,340 (effective November 13, 2018).
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no suggestion in Hallowell that the analysis depended on the use of the same procedures

in district court and by the Secretary.

2. Additional considerations underscore the conclusion that covered business

method review of pre-AIA patents does not involve a retroactive application of the law.

The Supreme Court in Landgraf explained that if a “statute authorizes or affects

the propriety of prospective relief, application of the new provision is not retroactive.”

511 U.S. at 273; see id. at 293 (Scalia, J., concurring). Covered business method review

operates only prospectively. It does not retrospectively alter the substantive

patentability criteria in effect when a patent issued, and the result of a covered business

method review—a certificate cancelling or confirming the disputed patent claims—

affords no backward-looking relief. Critically, the cancellation of a patent in a covered

business method review does not disturb judgments that became final before the

certificate was issued. See Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330, 1344

(Fed. Cir. 2013) (applying this rule in the reexamination context); see Landgraf, 511 U.S.

at 293 (Scalia, J., concurring) (applying a statute “to undo past judicial action would be

applying it retroactively; but applying it to prevent any judicial action after the statute

takes effect is applying it prospectively”).

Finally, Justice Scalia explained in his influential Landgraf concurrence that

whether a rule operates retroactively depends on “the relevant activity that the rule

regulates.” Landgraf, 511 U.S. at 291 (Scalia, J., concurring). “Most statutes are meant

to regulate primary conduct, and hence will not be applied in trials involving conduct
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that occurred before their effective date.” Id. But “[a] new rule of evidence governing

expert testimony, for example, is aimed at regulating the conduct of trial, and the event

relevant to retroactivity of the rule is introduction of the testimony.” Id. Likewise, “the

purpose of provisions conferring or eliminating jurisdiction is to permit or forbid the

exercise of judicial power—so that the relevant event for retroactivity purposes is the

moment at which that power is sought to be exercised,” and therefore “applying a

jurisdiction-eliminating statute” to “prevent any judicial action after the statute takes

effect is applying it prospectively.” Id. at 293. Justice Scalia’s approach is similar to the

majority’s, see id. at 274-75, and has since been used by the Court, see Altmann, 541 U.S.

at 697 n.17.

Under this logic, the AIA’s covered business method review provisions regulate

the agency’s future conduct of administrative patent review rather than a patentee’s

prior conduct of obtaining a patent. Conducting covered business method review

therefore does not implicate retroactivity principles, regardless of when the patent at

issue was granted. See Combs v. Commissioner of Soc. Sec., 459 F.3d 640, 647-49 (6th Cir.

2006) (en banc) (rule eliminating a claimant-favorable presumption employed by SSA

in adjudicating disability claims was not retroactive because the “relevant activity” the

rule regulated was the future “process of adjudicating social security disability benefits

claims” rather than the claimant’s prior application for benefits); Celtronix Telemetry, Inc.

v. FCC, 272 F.3d 585, 588-89 (D.C. Cir. 2001) (rule increasing certain fees owed by FCC

licensees for late license payments was not retroactive because, although the new rule
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“may have altered the value of the rights [the challenger] acquired” with the license, the

rule regulated the conduct of late license payments rather than the “initial issuance of the

license”).

B. Covered Business Method Review Of Pre-AIA Patents


Comports With Article III And The Seventh Amendment

Even if applying covered business method review to pre-AIA patents were

thought to involve a retroactive application of the law, it would comport with Article

III and the Seventh Amendment. In Oil States, the Supreme Court held that inter partes

review is consistent with Article III and the Seventh Amendment. 138 S. Ct. at 1375,

1379. The Supreme Court explained that “the decision to grant a patent is a matter

involving public rights—specifically, the grant of a public franchise,” and thus “need

not be adjudicated in [an] Article III court.” Id. at 1373, 1374. The Court further

reasoned that “[i]nter partes review involves the same basic matter as the grant of a

patent,” “[s]o it, too, falls on the public-rights side of the line.” Id. at 1374. Finally, the

Court held that “when Congress properly assigns a matter to adjudication in a non-

Article III tribunal, ‘the Seventh Amendment poses no independent bar to the

adjudication of that action by a nonjury factfinder.’” Id. at 1379 (quoting Granfinanciera,

S.A. v. Nordberg, 492 U.S. 33, 53–54 (1989)). The Court’s logic applies equally to covered

business method review, and Trading Technologies does not contend otherwise.

In its brief, however, Trading Technologies appears to argue that retroactive

application of covered business method review to pre-AIA patents issued violates

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Article III. See Br. at 78. The Supreme Court did not render a holding on this issue in

Oil States. 138 S. Ct. at 1379. But the Court’s reasoning in Oil States forecloses this

argument. The Court rejected the Article III claim in Oil States because the grant of a

patent involves a public right that may be assigned to a non-Article III tribunal for

adjudication, and inter partes review of a patent involved the same basic subject matter

as the grant of the patent. That reasoning does not depend on whether a particular

mechanism for Executive Branch reconsideration existed when the patent at issue was

granted. Accordingly, USPTO may adjudicate the patentability of pre-AIA patent

claims through inter partes review and covered business method review without

violating Article III.

Moreover, in Patlex, this Court held that application of ex parte reexamination to

patents issued before its enactment did not violate Article III or the Seventh

Amendment. 758 F.2d at 604-05. Like the Supreme Court in Oil States, this Court

reasoned that “the grant of a valid patent is primarily a public concern” and thus could

be adjudicated by the USPTO without a jury. Id. at 604. Seven years later, this Court

reaffirmed its holding in Joy Technologies, 959 F.2d at 228-29. This Court explained that

the Supreme Court “affirm[ed] the basic underpinning of Patlex, viz., that cases

involving ‘public rights’ may constitutionally be adjudicated by legislative courts and

administrative agencies without implicating the Seventh Amendment right to jury trial.”

Id. at 228. The Supreme Court in Oil States reaffirmed that principle, and it disposes of

the Article III and Seventh Amendment claims here.


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C. Covered Business Method Review Of Pre-AIA Patents


Comports With Due Process

Even if applying covered business method review to pre-AIA patents were

considered retroactive, it would easily comport with due process. Patlex, which rejected

the argument that applying a new form of post-issuance patent review to existing

patents is unconstitutional, forecloses Trading Technologies’ challenge.

1. Congress may regulate retroactively if it has a rational basis for doing so. See

Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984). Here, Congress

unquestionably intended that pre-AIA patents be subject to covered business method

review. Congress expressly provided that covered business method review “shall apply

to any covered business method patent issued before, on, or after” the effective date of

the AIA. See Pub. L. 112-29, § 18(a)(2), 125 Stat. at 330; see also id. § 6(c)(2)(A), 125 Stat.

at 304 (similar for inter partes review). By contrast, Congress specified that post-grant

review applies only to patents with an effective filing date of eighteen months after the

AIA’s passage. See id. §§ 6(f)(2)(A), 3(n)(1), 125 Stat. at 311, 293. Congress’s different

treatment of these procedures underscores its intentional choice to extend covered

business method review to pre-AIA patents.

That legislative choice all but resolves this case. In addressing challenges to the

retroactive application of civil legislation, “the Supreme Court has held that Due

Process is satisfied ‘simply by showing that the retroactive application of the legislation

is itself justified by a rational legislative purpose.”’ Commonwealth Edison Co. v. United

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States, 271 F.3d 1327, 1341 (Fed. Cir. 2001) (en banc). Retroactive legislation that

“adjust[s] the burdens and benefits of economic life” is permissible as long as “the

retroactive application of a statute is supported by a legitimate legislative purpose

furthered by rational means.” Pension Benefit Guar., 467 U.S. at 729. The Supreme Court

has made “clear that legislation readjusting rights and burdens is not unlawful solely

because it upsets otherwise settled expectations.” Usery v. Turner Elkhorn Mining Co., 428

U.S. 1, 16 (1976); see Bank Markazi v. Peterson, 136 S. Ct. 1310, 1325 (2016).

The “burden is on one complaining of a due process violation to establish that

the legislature has acted in an arbitrary and irrational way.” Turner Elkhorn Mining, 428

U.S. at 15; see Commonwealth Edison, 271 F.3d at 1341. Courts conduct this rationality

review with “strong deference” for Congress’s choice, Pension Benefit Guar., 467 U.S. at

729, because retroactive statutes “often serve entirely benign and legitimate

purposes”—including the purpose of “correct[ing] mistakes” and “giv[ing]

comprehensive effect to a new law Congress considers salutary.” Landgraf, 511 U.S. at

267-68. And Congress has particularly broad latitude to enact retroactive legislation in

the public-rights domain, where the relevant public purposes are substantial and a

private party’s expectation interests are comparably weak. See id. at 270.

2. Congress acted rationally when it authorized the USPTO to conduct covered

business method review of pre-AIA business method patents. The patent system

“reflects a balance between the need to encourage innovation and the avoidance of

monopolies which stifle competition without any concomitant advance in the ‘Progress
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of Science and useful Arts.’” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141,

146 (1989). Covered business method review, like inter partes review, preserves that

balance by authorizing the USPTO to cancel patents that erroneously “take from the

public rights of immense value, and bestow them upon the patentee.” Oil States, 138 S.

Ct. at 1373 (alterations omitted). Congress in creating inter partes review “saw powerful

reasons to utilize the expertise of the PTO for an important public purpose,” MCM

Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284, 1290 (Fed. Cir. 2015), namely, to

“protect[] the public’s paramount interest in seeing that patent monopolies are kept

within their legitimate scope,” Oil States, 138 S. Ct. at 1374 (quotation marks omitted).

The same is true for covered business method review. As this Court has recognized,

“Congress intended” all the AIA review procedures “to provide [a] ‘quick and cost

effective alternative[ ]’ to litigation in the courts” for determining the patentability of

issued patent claims. Return Mail, Inc. v. U.S. Postal Serv., 868 F.3d 1350, 1353-54 (Fed.

Cir. 2017), cert. granted, 2018 WL 2364663 (U.S. Oct. 26, 2018) (No. 17-1594).

Indeed, Congress was prompted to enact covered business method review by the

problem of the proliferation of business method patents after State Street Bank & Trust

Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and before the

Supreme Court called into question the patent eligibility of such patents in Bilski v.

Kappos, 561 U.S. 593 (2010). The House Committee Report explained that “[a] number

of patent observers believe the issuance of poor business-method patents during the

late 1990’s through the early 2000’s led to the patent ‘troll’ lawsuits that compelled the
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Committee to launch the patent reform project 6 years ago.” H. Rep. 112-98, at 54

(2011). The Report further explained that “[a]t the time, the USPTO lacked a sufficient

number of examiners with [relevant] expertise” and “there was a dearth of available

prior art to assist examiners as they reviewed business method applications.” Id. The

AIA “respond[ed] to the problem by creating a transitional program … to implement

a provisional post-grant proceeding for review of the validity of any business method

patent.” Id.

Former Judge McConnell explained that “Congress is well within its authority to

determine that a particular subset of patents warrant closer administrative review than

other patents due to their history and development.” 157 Cong. Rec. S5376 (daily ed.

Sept. 7, 2011) (McConnell Letter) (letter from former Judge Michael W. McConnell to

Congress). He observed that business method patents “are relatively novel creatures”

and thus “were especially prone to improvident grant.” Id. “[I]n light of the continuing

confusion over such patents, and the paucity of traditional published prior art at the

time such patents were issued, it is entirely rational—and thus constitutionally

appropriate—for Congress to make the judgment that it wants to provide a mechanism

for ensuring that adequate vigor went into the PTO’s decision to issue a business-

method patent,” and for Congress to conclude “that such further review helps to ensure

that this category of patents is subject to the same quality of review as other patents

were.” Id.

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That fundamental and entirely legitimate statutory purpose is no less implicated

by business method patents that existed when Congress enacted the AIA. Congress

sensibly sought to authorize covered business method review of all existing business

method patents in order to give “comprehensive effect to a new law Congress

consider[ed] salutary.” See Landgraf, 511 U.S. at 268. Congress deliberately opted not

to limit this temporary procedure to patents issued after the AIA’s enactment, which

would have delayed the AIA’s beneficial effects and would have prevented the USPTO

from applying covered business method review to defective patents that issued before

Bilski and could operate against the public for over a decade to come. Having created

a beneficial new procedure for improving the patent system, Congress reasonably chose

to allow the USPTO to apply that procedure to all business method patents in existence

when the law took effect.

As explained, covered business method review is a curative measure designed

“to correct the agency’s own errors in issuing patents in the first place.” MCM Portfolio,

812 F.3d at 1290. This Court and the Supreme Court have repeatedly recognized that

Congress may legislate retroactively “to correct mistakes” in the prior administration of

the laws. See Landgraf, 511 U.S. at 268; see also GPX Int’l Tire Corp. v. United States, 780

F.3d 1136, 1144 (Fed. Cir. 2015) (“remedial” character of statute supports its retroactive

application). In Graham v. Goodcell, 282 U.S. 409, 429 (1931), for example, the Supreme

Court considered a challenge to “a curative statute aptly designed to remedy mistakes

and defects in the administration” of a prior tax-collection program. The Supreme


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Court rejected the argument that “vested right[s]” in the prior tax scheme barred

Congress from applying the statute retroactively. Id. As the Court explained, “[w]here

the asserted vested right, not being linked to any substantial equity, arises from the

mistake of officers purporting to administer the law in the name of the Government,

the legislature is not prevented from curing the defect in administration” simply because

doing so would deprive the challenger of the benefit of the administrative error. Id. at

429-30. Covered business method review advances comparable error-correction

purposes.

Retroactive legislation is permissible under the Due Process Clause even when it

upsets reliance interests. See United States v. Carlton, 512 U.S. 26, 33-34 (1994); Turner

Elkhorn Mining, 428 U.S. at 16; GPX Int’l Tire, 780 F.3d at 1142. And in any event, the

purported expectation interests affected by covered business method review are weak.

A patentee has no meaningful expectation that an erroneously granted patent can be

shielded from reconsideration by the granting agency, especially given that the “validity

of a patent is not a matter that is ever fully and finally settled,” but rather “remains

‘ever-present,’ because any defendant may assert an invalidity defense in patent

litigation.” McConnell Letter, 157 Cong. Rec. at S5375 (citation omitted); see 35 U.S.C.

§ 282(b)(2)-(3) (invalidity defense in litigation). Every patentee obtains its patent

knowing that the patent can be held invalid in litigation. And every patentee since 1981

has obtained its patent knowing that the patent can be cancelled administratively

(including cancellation through inter partes administrative proceedings since 1999).


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Contrary to Trading Technologies’ suggestion (at 78-79), Congress did not meaningfully

alter the relevant expectation interests when it created an improved procedure to

accomplish a result that could always occur in court or, on certain patentability grounds,

in a different type of administrative proceeding.

The Supreme Court in Oil States rejected the theory that, because patents convey

a form of personal property, Congress may not authorize the USPTO to reconsider

patents after they issue. The Court made clear that patents “convey only a specific form

of property right—a public franchise”—that is quintessentially amenable to

administrative reconsideration. Oil States, 138 S. Ct. at 1375; see also McConnell Letter,

157 Cong. Rec. at S5374 (“the theory that a patent is a vested right, which once granted

may not be taken away . . . is a fundamental misconception”). Given the limited

property interest conveyed by a public right, it was hardly unforeseeable for Congress

to authorize the USPTO to cancel patent claims that should never have been granted.

3. This Court’s decision in Patlex forecloses Trading Technologies’ due process

challenge. The ex parte reexamination statute enacted in 1980 authorized the USPTO

to conduct an administrative reexamination of all patents that “were granted before

passage of the reexamination statute.” Patlex, 758 F.2d at 597. The Court assumed that

application of ex parte reexamination to patents issued before its enactment was a

retroactive application of the law, and held that “the overriding public purposes

Congress articulated in enacting the reexamination law with retroactive effect are

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entitled to great weight, and that Congress did not act in an arbitrary and irrational way

to achieve its desired purposes.” Id. at 603.

The considerations that caused this Court to reject the retroactivity challenge in

Patlex apply equally to covered business method review. The “important public

purpose[s]” that motivated ex parte reexamination also motivated covered business

method review—to “settle validity disputes more quickly and less expensively” than in

litigation; to bring “the expertise of the Patent Office” to bear on technical patentability

questions; and to advance “‘the certainty of patent rights’ by affording the PTO a

broader opportunity to review ‘doubtful patents.’” Patlex, 758 F.2d at 602. Like the

reexamination statute, the AIA belongs to “the class of ‘curative’ statutes, designed to

cure defects in an administrative system,” entitled to “relatively favored treatment from

the courts even when applied retroactively.” Id. at 603. And Congress opted to apply

covered business method review to all existing patents for the same reason it did so

with ex parte reexamination—“to achieve an immediate impact on the patent incentive

for invention and innovation.” Id. at 598.

Furthermore, the purported expectation interests affected by covered business

method review are the same or weaker than those in Patlex. As the Patlex Court

recognized, prior to ex parte reexamination “there was no way the PTO or private

persons could have forced these patents back into the examination phase against his

will (except for their involvement in an interference).” 758 F.2d at 601. Instead, “the

cancellation of claims of issued patents … could be resolved only by action of an Article


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III court.” Id. Even so, the Court concluded that the interests supporting ex parte

reexamination outweighed the challenger’s countervailing expectation interest in

avoiding reconsideration of the patent, in part due to the “benefits that may accrue to

[patentees] following successful reexamination of the patents.” Id. at 603. Covered

business method review was not wholly new, but instead “simply allows [administrative]

reexamination on a broader array of theories than allowed [prior to its enactment].”

McConnell Letter, 157 Cong. Rec. at S5376. Thus, under this Court’s analysis in Patlex,

Congress did not impermissibly undermine expectation interests when it authorized the

USPTO to conduct covered business method review of pre-AIA patents.

D. Covered Business Method Review Of Pre-AIA Patents Does


Not Effect A Fifth Amendment Taking Of Property Without
Just Compensation

The USPTO’s cancellation of an erroneously issued patent through covered

business method review does not effect a Fifth Amendment taking of property, even if

the patent was issued before the AIA was enacted. It is a “bedrock requirement that

the existence of a valid property interest is necessary in all takings claims.” Wyatt v.

United States, 271 F.3d 1090, 1097 (Fed. Cir. 2001). The first step in analyzing a takings

claim is therefore to “determine[] whether the plaintiff possesses a valid interest in the

property affected by the governmental action.” Karuk Tribe of Cal. v. Ammon, 209 F.3d

1366, 1374 (Fed. Cir. 2000); see, e.g., Huntleigh USA Corp. v. United States, 525 F.3d 1370,

1377 (Fed. Cir. 2008).

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The USPTO’s cancellation of a defective patent through covered business

method review rests on a determination that the patentee never had a valid property

right because the patent was erroneously issued in the first instance. Just as with inter

partes review, covered business method review “involves the same basic matter as the

grant of a patent.” Oil States, 138 S. Ct. at 1374. It is “a second look at an earlier

administrative grant of a patent.” Id. (quoting Cuozzo, 136 S. Ct. at 2144). Like inter

partes review, covered business method review does not alter the Patent Act’s

provisions governing the conditions of patentability, see 35 U.S.C. § 101 et seq., and the

Board considers the same statutory requirements that the USPTO considered when

granting the patent, see Pub. L. 112-29, § 18(a)(1), 125 Stat. at 329; 35 U.S.C. § 321(b).

The Board issues a certificate “canceling any claim of the patent finally

determined to be unpatentable,” only after this Court affirms the Board’s determination

that the patent claims were unpatentable (if an appeal is taken). See 35 U.S.C. § 328(b).

Accordingly, when the Board cancels patent claims through covered business method

review, the cancellation rests on a determination that the patentee never had a “valid

property interest,” Wyatt, 271 F.3d at 1097, and thus there was nothing for the

government to take.

Indeed, just as a district court does not effect a Fifth Amendment taking when it

finds patent claims invalid in litigation, the USPTO does not effect a Fifth Amendment

taking when it finds patent claims unpatentable in a covered business method review.

When a district court determines that a patent is invalid in a suit for infringement, not
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only does that determination provide a defense to liability in the suit itself, see 35 U.S.C.

§ 282(b)(2)-(3), but it also precludes the enforcement of the patent in any other case, see

Blonder-Tongue Labs., Inc. v. University of Ill. Found., 402 U.S. 313 (1971). A final judicial

determination of patent invalidity thus has the same effect on the patent holder’s rights

as an administrative determination of unpatentability by the USPTO in a covered

business method review and consequent cancellation of the patent. Yet no one would

suggest that judicial invalidation of the patent constitutes an uncompensated taking of

property, for the court’s judgment does not involve the taking of a “valid property

interest,” Wyatt, 271 F.3d at 1097. The same is true here.

As former Judge McConnell explained, “[i]f a party is issued a patent that does

not comply with the patent laws—and the patent is therefore invalid—it is not a ‘taking’

for either a court or the PTO to determine that the patent is invalid.” McConnell Letter,

157 Cong. Rec. at S5374. Indeed, “[j]ust as it is not a taking to determine that a person

occupying land has a defective title to it, it is not a taking to determine that a patent

holder never had a right to a patent in the first place.” Id.

In Rogers v. United States, for example, this Court affirmed the grant of summary

judgment to the United States, rejecting the plaintiffs’ takings claim, because the

plaintiffs did not have valid title to the land in question. 814 F.3d 1299, 1303 (Fed. Cir.

2015). The plaintiffs argued that the deeds transferred by their predecessors-in-title to

a railroad company granted only use easements, but this Court determined that they

had transferred a fee simple interest in the disputed land, and thus the plaintiffs did not
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hold title to the disputed land. Id. Likewise, in Karuk Tribe, this Court affirmed the

determination that the plaintiffs “never had a compensable property interest” in the

disputed land, and thus the federal statute at issue “did not take any private property of

the plaintiffs.” 209 F.3d at 1370.

So too here. If this Court affirms the Board’s decisions that the patent claims

were not patent eligible under 35 U.S.C. § 101, then Trading Technologies was never

entitled to a patent on the claims, and covered business method review did not take

Trading Technologies’ Fifth Amendment property because Trading Technologies never

had a valid property interest in the patent in the first instance. Trading Technologies’

takings claim makes no attempt to address the “bedrock requirement” that a party have

a “valid property interest” in order to show that the government has taken its property

without just compensation under the Fifth Amendment. See Wyatt, 271 F.3d at 1097.

And in any case, cancellation of Trading Technologies’ patent claims will not occur until

and unless this Court has affirmed the Board’s determination of unpatentability, see 35

U.S.C. § 318(b), at which point the market value of the claims will be nil, meaning that

no compensation would be constitutionally due. See Horne v. USDA, 135 S. Ct. 2419,

2432 (2015) (just compensation “normally is to be measured by the market value of the

property at the time of the taking.”).

Trading Technologies’ takings claim also fails because, as discussed, patents have

always been subject to invalidation by district courts and have been subject to

cancellation by the USPTO in administrative proceedings for nearly four decades.


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Trading Technologies’ patents were issued subject to this administrative revocation

authority, and covered business method review is merely a new procedure for

addressing the preexisting patentability criteria. Of course, there are differences

between the statutory procedures governing covered business method review,

reexamination procedures, and district court litigation. But while a patent holder has a

property interest in a valid patent, that does not give it a property interest in the procedures

used to adjudicate the patent’s validity. As this Court held in Patlex, “a procedure

created by statute to govern litigation” is not considered “to be a property right subject

to the protection of the Constitution.” 758 F.2d at 605; cf. Denver & Rio Grande W. R.R.

v. Brotherhood of R.R. Trainmen, 387 U.S. 556, 563 (1967) (“No one has a vested right in

any given mode of procedure.”).

This Court has previously rejected a patent holder’s argument that “when its

patent issued no mechanism existed by which the PTO could reexamine claims and

find them to be unpatentable,” and thus “property rights in its patent were taken within

the meaning of the Fifth Amendment of the United States Constitution by the

reexamination and subsequent cancellation of certain of the claims of its patent.” Joy

Techs., 959 F.2d at 228. Accordingly, the legislative expansion of preexisting

administrative procedures for reviewing the patentability of issued patents does not

constitute a taking of property.

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III. TRADING TECHNOLOGIES’ APPOINTMENTS CLAUSE CHALLENGE IS


FORFEITED AND MERITLESS

A. Trading Technologies Has Forfeited Its Appointments


Clause Challenge

As with Trading Technologies’ other constitutional arguments, see supra pp. 17-

18, Trading Technologies failed to present its Appointments Clause challenge to the

Board, and this Court should accordingly hold it forfeited, as it did with the

Appointments Clause challenge in In re DBC, 545 F.3d at 1378-80. Another appeal is

currently pending before this Court in which the petitioner timely preserved an identical

Appointments Clause challenge. See Polaris Innovations Ltd. v. Kingston Tech. Co., No. 18-

1831 (Fed. Cir.). The United States intervened in Polaris to address the properly

preserved Appointments Clause issue there. Because the Appointments Clause issue is

the only constitutional issue in Polaris, that case provides an opportunity for the United

States and the other parties to address the Appointments Clause issue more

comprehensively than is possible in this case. This Court should not reach Trading

Technologies’ forfeited Appointments Clause challenge when a properly preserved

challenge is pending before the Court.

B. Administrative Patent Judges Are Inferior Officers Whose


Appointment Congress Permissibly Vested In The Secretary
Of Commerce

The Appointments Clause challenge is in any event meritless. The

Appointments Clause provides that the President “shall nominate, and by and with the

Advice and Consent of the Senate, shall appoint … Officers of the United States.” U.S.
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Const. art. II, § 2, cl. 2. Congress may, however, “vest the Appointment of such inferior

Officers, as they think proper, in the President alone, in the Courts of Law, or in the

Heads of Departments.” Id. Administrative patent judges are “inferior Officers,” and

Congress therefore permissibly vested their appointment in the Secretary of Commerce,

a “Head[] of Department[].” Id.; see 35 U.S.C. § 6(a).

1. The Supreme Court has “not set forth an exclusive criterion for distinguishing

between principal and inferior officers for Appointments Clause purposes.” Edmond v.

United States, 520 U.S. 651, 661 (1997). However, it has explained that “[g]enerally

speaking, the term ‘inferior officer’ connotes a relationship with some higher ranking

officer or officers below the President.” Id. at 662. An inferior officer is one “whose

work is directed and supervised at some level by others who were appointed by

Presidential nomination with the advice and consent of the Senate.” Id. at 663.

Edmond and its progeny illustrate the different ways in which an inferior officer’s

work may be “directed and supervised at some level.” In Edmond, the Supreme Court

held that the military judges of the Coast Guard Court of Criminal Appeals were inferior

officers. 520 U.S. at 664. Although the judges exercised “significant” duties (including

deciding issues of constitutional law and imposing death sentences), the Court

concluded that they were nonetheless inferior officers because they were “directed and

supervised at some level by” two Senate-confirmed officials. 520 U.S. at 664. The

Judge Advocate General could “remove a Court of Criminal Appeals judge from his

judicial assignment without cause … a powerful tool for control,” and the Court of
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Appeals for the Armed Forces could exercise some review—though not “plenary”

review—over the judges’ decisions. Id. at 664-65. Taken together, the Court concluded

that this “level” of supervision was sufficient to render the military judges “inferior,”

not principal, officers. Id. at 663-65.

The Supreme Court reached a similar conclusion in Free Enterprise Fund v. Public

Co. Accounting Oversight Board, 561 U.S. 477 (2010), deciding that the members of the

Public Company Accounting Oversight Board are inferior officers. That Board was

“empowered to take significant enforcement actions,” and it did so “largely

independently of the Commission.” Id. at 504. Nonetheless, the Court had “no

hesitation” deeming the Board members inferior officers because the Security and

Exchange Commission (SEC) could remove the members at will, and because the

Commission exercised some oversight authority over Board activities. Id. at 504, 510.2

This Court applied these principles in Masias v. Secretary of Health and Human

Services, 634 F.3d 1283 (Fed. Cir. 2011), holding that special masters appointed under

the National Childhood Vaccine Injury Act are inferior officers. See id. at 1293-95. The

special masters “issue decisions with respect to ‘whether compensation is to be

provided under the [Vaccine] Program and the amount of such compensation.’” Id. at

1285 (brackets in original) (quoting 42 U.S.C. § 300aa-12(d)(3)(A)). This Court rejected

2
The Court in Free Enterprise Fund had already invalidated a statutory provision
that imposed “an unusually high standard” for the Commission to remove Board
members, concluding that separation-of-powers principles precluded that removal
restriction in light of the Commissioners’ own tenure protections. Id. at 484, 492-508.
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the argument that the special masters are principal officers, despite the fact that the

Court of Federal Claims was empowered to review and set aside the special masters’

decisions only under a deferential standard of review. See id. at 1293 & n.12 (citing 42

U.S.C. § 300aa-12(e)(2)(B)). This feature, this Court observed, was similar to the review

scheme in Edmond, and the Supreme Court nonetheless concluded there that “the

limitation upon review did not render the judges ‘principal officers.’” Id. at 1294.

Moreover, this Court concluded that “the special masters are administratively

supervised by the judges of the Court of Federal Claims in a manner similar to the way

in which the Judge Advocate General of the Coast Guard was found to exercise

administrative oversight in Edmond,” pointing to the Court of Federal Claims’ ability to

“remove special masters ‘for incompetency, misconduct, or neglect of duty or for

physical or mental disability or for other good cause shown.’” Id. (quoting 42 U.S.C.

§ 300aa–12(c)(2)). Thus, even absent de novo review or at-will removal authority by

other Executive officers, this Court has concluded that officials may be inferior officers

where they are “directed and supervised” by Presidentially nominated and Senate-

confirmed officers. Id.; see also Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 684

F.3d 1332, 1340-41 (D.C. Cir. 2012) (finding copyright royalty judges to be inferior

officers where they could be removed at will by a Senate-confirmed official, and where

another inferior officer could provide guidance and exercise some review over the

judges’ decisions).

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2. The Director of the USPTO and the Secretary of Commerce—both of whom

“were appointed by Presidential nomination with the advice and consent of the Senate,”

Edmond, 520 U.S. at 663—exercise control over administrative patent judges in the ways

found constitutionally significant by this Court and the Supreme Court.

The Director and the Secretary of Commerce each independently exercise a form

of removal power over the administrative patent judges, which the Supreme Court has

recognized is a particularly significant control mechanism for purposes of distinguishing

inferior from principal officers. See Edmond, 530 U.S. at 664.

First, the Director has the unfettered statutory authority to designate which

members of the Board will compose any given panel. See 35 U.S.C. § 6(c). As a result,

the Director has the power to decide which matters any particular administrative patent

judge will be allowed to handle. The Director is free to exclude a judge from any panel

on any basis, including expectations about how the judge might approach a particular

matter or issue. Indeed, the Director could, at his discretion, choose to never assign a

particular judge to any panel, effectively removing that judge from Board service—and

short of that step, could choose never to assign a judge to any case or class of cases

presenting particular issues. The Director may thus relieve an administrative patent

judge of all of the official powers and duties of office that, Trading Technologies

contends, may only be exercised by a “principal Officer.” In this regard, the Director’s

authority over administrative patent judges mirrors the Judge Advocate General’s

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authority in Edmond to remove the military judges “from his judicial assignment without

cause.” Edmond, 520 U.S. at 664 (emphasis added).

Second, the Secretary may also remove administrative patent judges from

government service entirely, under a less protective standard than that which applied to

the special masters whom this Court found to be inferior officers in Masias. There, this

Court pointed to the Court of Federal Claims’ ability to remove the officials in question

upon a finding of “incompetency, misconduct, or neglect of duty or for physical or

mental disability or for other good cause shown.’” Masias, 634 F.3d at 1294 (quoting

42 U.S.C. § 300aa-12(c)(2)). Administrative patent judges have no similar “for cause”

removal protection. USPTO “[o]fficers and employees” are subject at most “to the

provisions of title 5, relating to Federal employees.” 35 U.S.C. § 3(c). The Secretary of

Commerce, as the appointing authority, is thus free to remove administrative patent

judges under the generalized civil-service standards applicable to federal employees: to

“promote the efficiency of the service,” 5 U.S.C. § 7513(a), which generally permits

removal for any legitimate reason provided that there is a nexus between that reason

“and the work of the agency.” See Brown v. Department of the Navy, 229 F.3d 1356, 1358

(Fed. Cir. 2000); see also Free Enterprise Fund, 561 U.S. at 509 (“Under the traditional

default rule, removal is incident to the power of appointment.”). That the Secretary

may remove administrative patent judges from the federal workforce under the same

standard that applies to any other federal employees underscores the degree to which

these judges are subject to supervision and control by Senate-confirmed officers.


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In addition to the powerful tool for control provided by these removal powers,

the Director exercises a robust level of supervision over the work of the administrative

patent judges by other means the Supreme Court has looked to. See Edmond, 520 U.S.

at 664-65. All of the “powers and duties” of the USPTO are “vested in” the Director,

who is “responsible for providing policy direction and management supervision” for

the agency. 35 U.S.C. § 3(a)(1), (2)(A). The Director exercises this policy-direction and

supervisory responsibility in a variety of ways.

Like the Judge Advocate General in Edmond, the Director is authorized to

promulgate regulations governing inter partes review. 35 U.S.C. §§ 2(b), 316(a)(4);

Edmond, 520 U.S. at 664 (detailing the Judge Advocate General’s ability to “prescribe

uniform rules of procedure” and “formulate policies and procedure” for military

judges). Beyond this regulatory authority, the Director can control the substance of the

Board’s decisions by exercising his statutory authority to provide policy direction for

the USPTO, including the Board. 35 U.S.C. §§ 3(a), 6. Thus, the Director can issue

policy directives interpreting and applying the patent and trademark laws, which the

Board must follow in its decisions. If he wishes to do so, the Director may even give

instructions regarding how the law should be applied to various fact patterns, and may

do so in connection with pending cases that present such fact patterns. Similarly, the

Director can, on his own initiative, designate any Board decision as precedential, and

thereby bind all future panels of the Board. Patent Trial and Appeal Board Standard

Operating Procedure 2 (SOP2) at 1, https://go.usa.gov/xPdvE.


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The Director’s policy-direction authority is an extremely powerful tool for

supervising and controlling the Board’s work. But it is by no means his only such tool.

The Director has used his statutory authority over the composition of Board panels to

form a standing Precedential Opinion Panel of at least three Board members that can

rehear and reverse any Board decision. SOP2 at 1-2, 5. The Precedential Opinion

Panel’s rehearing decision itself becomes a precedential decision binding on all future

panels of the Board, but only with the Director’s agreement. SOP2 at 8. The Director

can choose the Board members who sit on the Precedential Opinion Panel, and by

default the Director serves as a member of the Panel himself. SOP2 at 4; see also Ingalls

Shipbuilding, Inc. v. Director, Office of Workers’ Comp. Programs, 519 U.S. 248, 268-69 (1997)

(recognizing, outside of the Appointments Clause context, that a principal officer’s

power to select members of a tribunal and establish rules of procedure are “substantial”

means of supervision and control). Through the Precedential Opinion Panel, therefore,

the Director plays a unique and central role in rehearing individual Board decisions

before they become the final agency action reviewable in this Court.

Nor is the Director without means to superintend Board decisions once issued.

If—notwithstanding his power over the composition of panels, his policy-direction

authority, and his role in the rehearing process—a decision is issued with which the

Director disagrees, the statute gives him the right to intervene and become a party in

any subsequent appeal taken from the decision. See 35 U.S.C. § 143. Having done so,

the Director can explain the ways in which the Board has erred, and seek a remand
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from this Court for the Board to reconsider the case consistent with the Director’s view

of the law and facts. See In re Mouttet, 716 F. App’x 984, 986 (Fed. Cir. 2017) (per curiam)

(noting that “[o]n appeal, the PTO’s Director concedes that the Board erred … and is

not defending” the Board’s decision); In re Rambus, Inc., 560 F. App’x 1005, 1006 (Fed.

Cir. 2014) (remanding at the Director’s motion). Upon remand in such a case, the

Director could issue policy directives governing the issues in, or constitute a panel of

his choosing to rehear, the remanded case. Notably, the statute specifies that the

Board’s decision has no effect on the patentee’s rights until after an opportunity for an

appeal, in which the Director would have an opportunity to intervene. See 35 U.S.C.

§ 318(b) (instructing the Director to “issue and publish a certificate” canceling,

confirming, or amending claims in accordance with a Board decision only after “the

time for appeal has expired or any appeal has terminated”).

These powers of supervising and controlling administrative patent judges and

their work render those judges “inferior” to the Director. Here, as in Edmond and

Masias, Senate-confirmed officers have means of supervising the substance as well as

the process of the agency’s final decisions. See Edmond, 520 U.S. at 664-66; Masias, 634

F.3d at 1294-95. Indeed, the Director’s supervisory power is in some respects even

greater than the ones the Supreme Court and this Court relied on in those cases. The

Director need not await a Board decision that he disagrees with to set out a new

interpretation of the law that the Board is required to apply in its decisions, as was the

case in Edmond and Masias. See Edmond, 520 U.S. at 664 (noting that superior officers
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could reverse certain categories of decisions made by the military judges at issue);

Masias, 634 F.3d at 1294-95 (invoking the Court of Federal Claims’ authority to reverse

special masters’ decisions). Even before any such decision is issued, the Director may

prospectively bind all administrative patent judges to decide cases in conformity with

his understanding of the law by issuing binding policy guidance. Nor is the Director’s

authority in this respect diminished by any distinctions between factual and legal

determinations, or between de novo and deferential review. See Edmond, 520 U.S. at

664-65 (noting that the Court of Appeals for the Armed Forces’ “scope of review is

narrower” than that of the military judges, since it would “not reevaluate the facts” if

the record contained “competent” evidence); Masias, 634 F.3d at 1294 (noting similar

standard of review).

Similarly, the “oversight authority” exercised by the Director is in some regards

more direct than that invoked by the Court in Free Enterprise Fund. 561 U.S. at 510. The

Court noted that the SEC has various means of control over the “agency as a whole,”

but concluded these authorities represented “a problematic way to control an inferior

officer” individually, reasoning that “[t]he Commission cannot wield a free hand to

supervise individual members if it must destroy the [Public Company Accounting

Oversight] Board in order to fix it.” Id. at 504 (finding insufficient means of control

over individual Board members due to multiple levels of for-cause removal restrictions

even though the Commission could control the Board’s budget and relieve the Board

of authority). Nonetheless, the Court had “no hesitation” in deeming the Board
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members inferior officers in light of the Commission’s imperfect “oversight authority”

over the Board “as a whole,” when combined with the Commission’s restored removal

authority. Id. at 510, 512. As discussed, the Director here has various forms of

regulatory and policy-discretion authority over the Patent Trial and Appeal Board not

present in Free Enterprise Fund and that allow him to exert control over individual

administrative patent judges without having to disempower the Board as a whole.

3. Taken together, these various mechanisms of control render administrative

patent judges “inferior” to the Director and the Secretary. But even if the judges were

deemed insufficiently controlled, Trading Technologies errs in suggesting that the

judicial remedy would be to invalidate the judges’ appointments. Rather, this Court

should read the statute to avoid any constitutional violation. See, e.g., National Fed’n of

Indep. Bus. v. Sebelius, 567 U.S. 519, 563 (2012). This Court could construe 35 U.S.C.

§ 3(c) to exclude administrative patent judges from the scope of Title 5’s civil-service

protections, or it could construe Title 5’s “efficiency of the service” standard to permit

removal in whatever circumstances the Constitution requires. See Free Enterprise Fund,

561 U.S. at 508-09 (rejecting contention that a separation-of-powers defect in Board’s

structure “rendered it ‘and all power and authority exercised by it’ in violation of the

Constitution,” and instead severing “the unconstitutional tenure provisions” “from the

remainder of the statute”).

Alternatively, this Court could construe the statute to permit the Director to

unilaterally revise a Board decision before it becomes final. Although the statute
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provides that an “inter partes review shall be heard by at least 3 members of the Patent

Trial and Appeal Board, who shall be designated by the Director,” 35 U.S.C. § 6(c), it

also provides that “[t]he powers and duties of the United States Patent and Trademark

Office”—which includes the Board, see id. § 6(a)—“shall be vested in” the Director,”

id. § 3(a)(1). This vesting clause could plausibly be understood to endow the Director

alone with all powers of the Board, including its authority to issue final written

decisions. Even if not “the most natural interpretation” of the statute, it is certainly a

“‘fairly possible’ one” if necessary to avoid invalidating the statute on constitutional

grounds. National Fed’n of Indep. Bus., 567 U.S. at 563. Or if necessary, the Court could

sever section 6(c)’s three-member clause that creates the purported problem. If section

6(c) were narrowed to say merely that “inter partes review shall be heard by the Patent

Trial and Appeal Board,” it would undoubtedly permit the Director the discretion to

decide cases himself as a member of the Board, especially when read in conjunction

with section 3(a)’s vesting clause. See Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684

(1987) (“Whenever an act of Congress contains unobjectionable provisions separable

from those found to be unconstitutional, it is the duty of this court to so declare, and

to maintain the act in so far as it is valid,” “[u]nless it is evident that the Legislature

would not have enacted those provisions which are within its power, independently of

that which is not.”) (alteration and quotation marks omitted). Such savings measures

are not necessary here for the reasons discussed, but they are available if the Court

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otherwise regarded the existing methods of supervision as inconsistent with inferior-

officer status.

4. Trading Technologies’ arguments that administrative patent judges are

principal officers rest on mischaracterizations of the Board and its governing statutes.

Trading Technologies’ contention that the judges “are subject to minimal or no

oversight by others who were appointed by the President and confirmed by the Senate”

is incorrect. Br. 80. As explained, the Director has multiple means of controlling both

the process and the substance of the Board’s decision in all cases, both before and after

a panel issues a decision. And Trading Technologies’ assertion that the Board has “the

power to rehear its own decisions,” id., ignores the Director’s role as a member of the

Board, as well as his statutory authority to designate himself as a member of any panel,

including the panel rehearing a case and issuing a new decision that would necessarily

comply with any policy directives the Director chose to issue.

Trading Technologies seeks to rely on Intercollegiate, Br. 80, but the D.C. Circuit’s

analysis there only confirms that administrative patent judges are inferior officers. The

court recognized that copyright royalty judges had “vast discretion” to set royalty rates

in final decisions that could not be “directly revers[ed]” by any other Executive Branch

official. 684 F.3d at 1338-41. The court nonetheless concluded the judges would

“become validly appointed inferior officers” if the court invalidated a statutory

provision prohibiting the Librarian of Congress from removing the judges except for

misconduct or neglect of duty. Id. at 1341. As set forth above, the Director has no
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statutory constraints on his authority to remove judges from any panel, and the

Secretary may remove the judges from their employment for the efficiency of the

service, a significantly lower standard than the “misconduct or neglect of duty” removal

standard invalidated in Intercollegiate. Under the D.C. Circuit’s analysis, even if the

Director could not influence some aspects of the administrative patent judges’ final

decisions, those judges would thus nonetheless be properly appointed inferior officers.

But as explained, the Director in fact has myriad ways to control all aspects of the

Board’s final determinations, both before and after a panel renders a decision.

Nor does Association of American Railroads v. United States Department of

Transportation, 821 F.3d 19 (D.C. Cir. 2016), aid Trading Technologies. See Br. 80.

There, the D.C. Circuit examined the status of an arbitrator appointed by the Surface

Transportation Board to resolve disputes between the Federal Railroad Administration

and Amtrak regarding railroad “metrics and standards,” and to “render a final decision”

on the dispute, which would be published “in the Federal Register.” 821 F.3d at 23-24,

37-39. The court concluded that this arbitrator—who could effectively bind two

different governmental entities headed by presidential appointees—was a principal

officer. Id. at 37-39; 49 U.S.C. § 103(d) (providing for appointment of the

Administrator of the Federal Railroad Administration); Department of Transp. v.

Association of American Railroads, 135 S. Ct. 1225, 1231 (2015) (describing Amtrak’s Board

of Directors). The court reasoned that the statute providing for the arbitrator’s

appointment—which involved “anomaly on top of anomaly”—“[n]owhere …


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suggest[ed] the arbitrator ‘is directed and supervised at some level by others who were

appointed by Presidential nomination with the advice and consent of the Senate,’” nor

did it “provide any procedure by which the arbitrator’s decision” could be reviewed by

the Surface Transportation Board. Association of American Railroads, 821 F.3d at 23, 39.

That regime bears no resemblance to the statutory scheme here, which gives the

Director and Secretary numerous mechanisms of oversight and control over the

administrative patent judges and their decisions.

CONCLUSION

For the foregoing reasons, the decision of the Board should be affirmed.

Respectfully submitted,

JOSEPH MATAL JOSEPH H. HUNT


Acting Solicitor Assistant Attorney General
THOMAS W. KRAUSE
Deputy Solicitor MARK R. FREEMAN
FARHEENA RASHEED SCOTT R. MCINTOSH
Senior Counsel for Patent Law s/ Melissa N. Patterson
and Litigation MELISSA N. PATTERSON
United States Patent and KATHERINE TWOMEY ALLEN
Trademark Office COURTNEY L. DIXON
Attorneys, Appellate Staff
Civil Division, Room 7230
U.S. Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530
(202) 514-1201

November 2018

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CERTIFICATE OF SERVICE

I hereby certify that on November 8, 2018, I electronically filed the foregoing

brief with the Clerk of the Court for the United States Court of Appeals for the

Federal Circuit by using the appellate CM/ECF system. Participants in the case are

registered CM/ECF users, and service will be accomplished by the appellate

CM/ECF system.

s/ Melissa N. Patterson
Melissa N. Patterson
Case: 18-1489 CASE PARTICIPANTS ONLY Document: 51 Page: 69 Filed: 11/08/2018

CERTIFICATE OF COMPLIANCE

I hereby certify that this brief complies with the requirements of Federal Circuit

Rule 32(a). This brief contains 13,957 words.

s/ Melissa N. Patterson
Melissa N. Patterson