Split Federal Circuit rejects constitutional challenge to patent board structure

(Reuters) – A U.S. appeals court on Wednesday rejected a constitutional challenge to a U.S. Patent and Trademark Office tribunal that can review and cancel patents, which was accused of having a bias toward instituting reviews because of financial incentives.

In a 2-1 decision, a panel of the U.S. Court of Appeals for the Federal Circuit ruled against Mobility Workx LLC on its claims that the Patent Trial and Appeal Board unconstitutionally favors reviewing patents because it and its judges receive more money if it grants more review requests, noting among other things that Congress controls its budget.

That control “renders any agency interest in fee generation too tenuous to constitute a due process violation,” U.S. Circuit Judge Timothy Dyk wrote.

A PTO spokesperson said the agency welcomed the decision.

Mobility and its attorney David Randall of Hackler Daghighian Martino & Novak didn’t immediately respond to a request for comment, nor did Unified Patents, which had challenged a Mobility patent at the PTAB, or its attorney Jason Mudd of Erise IP.

Unified Patents, a group of tech companies including Tesla Inc, Facebook Inc and Spotify Technology SA that challenges alleged “poor quality patents,” filed a PTAB petition in 2018 to invalidate a Mobility wireless communications patent. The board invalidated some parts of the patent in 2019, and Mobility appealed last year.

As part of its appeal, Mobility argued that the PTAB’s structure is unconstitutional because its judges have a financial interest in instituting patent reviews to generate fees, and because they get better performance reviews and bonuses if they institute more proceedings.

The system “creates a perceived structural bias that exceeds any permissible arrangement under the Due Process Clause,” of the U.S. Constitution’s 5th Amendment, Mobility said.

Dyk, joined by Circuit Judge Alvin Schall, rejected Mobility’s argument in part because the U.S. government appropriates its funds and controls its budget.

Dyk also said that while PTAB judges have to earn a certain number of “decisional units” each year for a performance bonus, these units are based on the number of decisions judges write, and don’t depend on their outcomes. PTAB judges can also earn these units through proceedings other than patent reviews.

But Circuit Judge Pauline Newman said in a dissent that the institution process as it stands is likely unconstitutional, and Mobility’s bias arguments “require more attention than my colleagues have accorded them.”

Newman cited the U.S. Supreme Court’s June decision in Arthrex Inc v. Smith & Nephew Inc. The high court found in Arthrex that PTAB judges had been appointed unconstitutionally, but solved the issue by giving the PTO director authority to review final written decisions.

Newman said an institution decision is a similar “final decision of an inferior officer, without supervision or control or review by a principal officer.” She also said the America Invents Act “assigned the institution decision to the Director, not the Board.”

The judges also unanimously agreed to remand the case for acting PTO director Drew Hirshfeld to determine whether to review the final PTAB decision, based on Arthrex.

The case is Mobility Workx LLC v. Unified Patents LLC, U.S. Court of Appeals for the Federal Circuit, No. 20-1441.

For Mobility: David Randall of Hackler Daghighian Martino & Novak

For Unified Patents: Jason Mudd of Erise IP

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