Automated Merchandising v. Lee

PTO's Refusal to Terminate Pending Reexaminations Is Not Appealable

14-1728

April 10, 2015

Mashack, Mark

Decision

Last Month at the Federal Circuit - May 2015

Judges: Prost, Taranto (author), Fogel (sitting by designation)

[Appealed from: E.D. Va., Judge Trenga]

In Automated Merchandising Systems, Inc. v. Lee, No. 14-1728 (Fed. Cir. Apr. 10, 2015), the Federal Circuit affirmed the district court's dismissal of Automated Merchandising Systems, Inc.'s ("AMS") challenge to the PTO's refusal to terminate four pending inter partes reexaminations because the PTO's refusal was not a "final agency action" within the meaning of the APA. Slip op. at 3.

AMS sued Crane Co. ("Crane") in the Northern District of West Virginia for infringement of U.S. Patent Nos. 6,384,402; 6,794,634; 7,191,915; and 7,343,220. Crane then requested inter partes reexamination for each patent and the PTO instituted all four reexaminations, finding that Crane had raised substantial new questions of patentability. While the reexaminations were underway, AMS and Crane settled their suit in the Northern District of West Virginia. Pursuant to the settlement, the district court issued a consent judgment stating that the parties stipulated that the four patents were valid, that all claims were dismissed with prejudice, and that the judgment was final. AMS then made several requests to the PTO to terminate the reexaminations under 35 U.S.C. § 317(b). The PTO refused.

AMS then filed suit in the Eastern District of Virginia, arguing that the consent judgment required the PTO to terminate the reexaminations. The district court granted SJ in favor of the PTO, dismissing AMS's suit and finding that § 317(b)'s prohibition on maintaining a reexamination did not apply because the consent judgment was a dismissal based on settlement, not an adjudication on the merits. AMS appealed.

On appeal, the Federal Circuit first examined whether it could consider the PTO's argument that its refusal to terminate the reexamination was not a "final agency action," even though the PTO did not raise the argument in the district court. Although the Court declined to decide whether the APAs final-agency-action requirement was a jurisdictional requirement, the Court determined that it should consider whether the denial to terminate was a final agency action. The Court made this determination because the question was a matter of law whose proper resolution [was] beyond doubt and did not involve the merits of the 317(b) challenge, it presented a significant question of continuing public concern, and it had been fully briefed by the parties. Id. at 6. The Court then applied the two-prong test from Bennett v. Spear, 520 U.S. 154 (1997), which considers whether the PTO's action "mark[s] the 'consummation' of the agency's decisionmaking process," and whether the action is "one by which 'rights or obligations have been determined,' or from which 'legal consequences will flow.'" Id. at 7-8 (quoting Bennett, 520 U.S. at 177-78).

Examining the first prong of this test, the Court found that the PTO's refusal to terminate was "anything but the 'consummation' of the [PTO's] decisionmaking process." Id. at 8 (alteration in original) (quoting Bennett, 520 U.S. at 178). The Court observed that the refusal to terminate the reexaminations was "as interlocutory, as far from final, as the run-of-the-mill district-court denial of a motion to dismiss." Id. The Court found that the refusal to terminate was not a merits determination regarding the validity of the patent and that the reexaminations could end with a determination in AMS's favor, which would moot any controversy over the interpretation of § 317(b).

Turning to the second prong, the Court found that the PTO's refusal to terminate the reexaminations was not an action "by which 'rights or obligations have been determined,' or from which 'legal consequences will flow.'" Id. at 9 (quoting Bennett, 520 U.S. at 178). The Court explained that AMS had lost no patent rights from the refusal to terminate the proceedings, and that any loss of patent rights would not occur until completion of the relevant reexamination, at which time AMS would have an "adequate remedy in a court." Id. (quoting 5 U.S.C. § 704). The Court also noted that any appeal of an adverse decision on patentability could also consider whether the reexamination proceeding should have been terminated under § 317(b).

The Court next determined that mandamus relief was unavailable because AMS can present its § 317(b) argument on appeal from any final adverse PTO determination in the reexaminations and, if correct about § 317(b), can secure reversal of the adverse patentability determination.

Finally, the Federal Circuit explained that relief under the DJ Act was also unavailable because the DJ Act should not be used to circumvent the usual progression of administrative determination and judicial review.

Accordingly, the Court affirmed the district court's judgment, holding that the PTO's refusal to terminate the reexamination proceedings was not a final agency action and that the district court did not err in granting SJ in favor of the PTO.

Summary authored by Mark Mashack, Student Associate at Finnegan.