“The Loper Bright reversal of Chevron Deference has upset the values of agency experience, expertise and dedication to their missions. Congress has long valued those strengths and will be going back to pre-Chevron means of assessing them.”
The Administrative Procedure Act (APA), a foundation in U.S. Patent and Trademark Office (USPTO) examination and post grant proceedings, in patent and trademark federal court cases and in International Trade Commission (ITC) proceedings, has been implemented more or less faithfully under U.S. Court of Appeals for the Federal Circuit (CAFC) scrutiny. But the APA judge-made artifact of Chevron Deference has had many attacks by business, culminating in the Supreme Court’s latest stare decisis upending in the combined-for-hearing cases of Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce (collectively, “Loper Bright“). Those changes may reach the USPTO’s, the ITC’s, the Federal Circuit’s and district courts’ APA implementation.
The Road to Loper Bright
It’s worth looking at the origins of the APA and Chevron Deference, including their purposes, effects and the current change. The APA was a response to the creation of many new agencies (often identified by initials and characterized as alphabet soup agencies) in the great depression of the 1930s and also concern over the growing power exercise of old as well as new agencies—leading to the 1946 enactment of the APA as Title 5 of the U.S. Code. Title 5 includes amendments after 1946 to cabin the agencies’ reach of regulatory and agency adjudicative powers; including the Housekeeping Act as to issuing regulatory rules for Employees (§ 301); Regulatory Flexibility Act to consider needs of small entities in rulemaking (§601); Congressional Review and Veto Act(§§ 801-808); the Paperwork Reduction Act (44 U.S.C. §§3501 et seq.). Also, the Independent Offices Appropriation Act of 1952 (same year as the 35 U.S.C. enactment) limiting power of agencies to set user fees and Executive Order 12866 requiring cost-benefit balance.
Tools for understanding include the APA itself, U.S.C. Title 5; the Supreme Court’s decision in Chevron US.A., Inc. v. Natural Resource Defense Council, Inc., 467 U.S. 837 (1984) setting the Chevron Deference protocol; and last but not least, the full-throated support of it by Justice Antonin Scalia, dedicated to the study and teaching of administrative law as a professor, U.S.D.C. Appeals Court judge, and Supreme Court Justice (ascending to the Court after the Chevron decision).
Scalia’s lecture at Duke University in January, 1989, was published in the Duke Law Journal 511 and titled, “Judicial Deference to Administrative Interpretations of Law,” and republished with his permission (he owned the copyright) for sharing in the Pepperdine University Journal of the National Association of Administration Law Judiciary, volume 10, issue 3, 10/15/1990, pages 118-130. A full copy is available here. It is a poignant read and notable for its old-fashioned typewriter text font and an opening, self-deprecating paragraph eliciting laughter (the hallmark of almost all his lectures). Gorsuch, J., concurring, in Loper Bright tries to make the case that Justice Scalia recanted his support in later years, but that dog won’t hunt. These are all valuable tools for tracking the rise and now the fall of Chevron Deference.
Some agencies have power granted by Congress to promulgate substantive as well as procedural rules (e.g. the Food and Drug Administration) and some (e.g. the USPTO, ITC and the Equal Employment Opportunity Commission) are limited essentially to procedural rulemaking. Under the APA, agency-promulgated rules must not be arbitrary or capricious and courts should defer to agencies’ reasonable interpretations of this authority in resolution of ambiguity under the imprimatur of the 1984 Chevron case. The Supreme Court’s decision in Loper Bright has limited that deference to the level of a Supreme Court decision 40 years prior to the Chevron case in Skidmore v. Swift & Co., 323 U.S. 134 (1944) (“Skidmore Deference”), giving agencies’ interpretations respectful consideration, but not more.
Decision and IP Impact
In Loper Bright, fishing boat owners challenged a Commerce Department/Marine National Fisheries Service rule requiring the industry to bear costs of observers in fishing boats in aid of assessing extent of decimation of species of marine life. Petitioners sought not only to stop the rule but also to outright overrule Chevron Deference 40 years after its adoption by the Court. A Supreme Court run-up to Loper Bright included enhanced recognition of a “major” question doctrine in West Virginia v. EPA, 142 S. Ct. 2587 (2022) regarding a rule limiting carbon dioxide emissions, holding that an administrative agency has no power to make decisions resolving ambiguities of “major questions” of extraordinary economic and political significance unless Congress “clearly” gave it such authority. “Major” and “extraordinary” are defined so far by length of the Chancellor’s foot (unmeasurable since hidden under a black robe) but may get better defined from case-to-case going forward. Some of those defining cases will come through Federal Circuit decisions in appeals of USPTO (Patent Trial and Appeal Board and Trademark Trial and Appeal Board) and of ITC final written decisions. For example, in National Federation of Independent Business et al. v. Department of Labor/OSHA, 595 U.S._, 146 S. Ct. 6611 (2022), the Court struck down an OSHA emergency ruling requiring companies of 100 or more employees to vaccinate employees or gain assurances of other vaccination. The ruling affected over 84 million employees. The Court’s majority said that OSHA’s decision was outside the scope of the Congressional charge to regulate “occupational” hazards and “safety and health” of employees. The majority held OSHA’s action untenable because infection dangers also exist outside the workplace. A dissenting cohort (Justices Breyer, Kagan, Sotomayor) pointed to 725,000 COVID-19 deaths and millions more hospitalized by the end of November, 2021, and 11,000 more deaths in the few weeks since November, and argued for deference to the numerous scientists, doctors and other experts in public health, especially as relating to work environments, backed by substantial evidence and obvious likelihood of viral transmission in workplaces where multiple people often (but not always) contact each other with limited ability to avoid contact. Finally, “we” (courts) lack “background, competence and expertise to assess” workplace health and safety issues.
How will this affect IP issues? Consider these prospects:
(1) The current showdown on pending efforts of the government to exercise Bayh-Dole march-in rights to enable greater access to drugs (set against the countervailing consideration of deferred or abandoned creation of new drugs).The march-in rights have not been exercised in the long history of Bayh-Dole but the threat of exercise has led to compromise. 35 U.S.C. sec. 203 sets out the terms for exercising march-in rights.
The relevant government agency may construe Section 203(2) (reasonably?) that high pricing by the rights retaining contractor/patentee or its licensees does not sufficiently satisfy health or safety needs as to patented drugs, biologics, vehicle brakes, highway/street lighting, etc. and the patentee will argue that history shows that capacity to produce/distribute is the issue not pricing. But remember the Epi-pen pricing scandal (not a march-in case but informative). Respective percentages of government and private financial support of making the invention might come into play, along with other fact issues best tracked by agencies.
(2) The Federal Trade Commission (FTC) regulation ending non-compete employment agreements, including overbroad nondisclosure agreements (amounting to virtual non-competes) while otherwise allowing non-solicitation and proper scope of NDAs, is now in the arena. A recent Department of Labor (DOL) “guidance” is substantially to the same effect. Both are likely to fail in courts and Congress. Meanwhile there is a tsunami of enacted and pending state laws and a proposed Uniform Act re non-competes promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL) adopted by very few states and likely to be replaced with revisions and a new roll out to follow. Loper Bright does not reach state action but does loom over the FTC and DOL actions.
(3) The new joint efforts of the USPTO and FDA to work together to improve quality filtering of applications to patent new drugs and biologic products and methods has prompted industry concern, even though implementation of President Biden’s executive order 14036 (to enhance quality of issued patents and limit high-priced drugs based on questionable patents) has been handled carefully by the USPTO and FDA. The efforts have been limited to merging of respective search resources, cross-training and reassurance that the collaboration is designed to promote quality while advancing competition that can lower drug prices for all Americans but not to impose changes of law or regulation of either agency.There is, so far, no activity approaching the issue of march-in rights discussed at (1) above. But that could come to pass. What then? Agency “reasonable” determination? Courts‘ “best” determination?
(4) Challenges to the FDA’s continuing its long ago grant of mifepristone marketing approval were rejected, with resolution of the issues being postponed for lack of standing of petitioners in FDA v. Alliance for Hippocratic Medicare, S. Ct. (2024). Note the American Bar Association’s (ABA’s) amicus brief in that case cautioning the Supreme Court that review of administrative agency actions should include respect for the FDA’s particular expertise in the specific context of “complex chemical and pharmacological considerations.” Also, “[if] judicial review becomes so aggressive that it appears rooted in arbitrary or personal or political preference, then it too can undermine public confidence in the judicial system and the predictability on which Congress, the Executive Branch and the people appropriately rely.”
The ABA quoted Justice Kavanaugh’s (as a circuit appellate judge) observation in Cytori Therapeutics, Inc. v. FDA, 715 F. 3d 722, 727 (D.C. Cir. 2013); “[a]” court is ill-equipped to second guess that kind of agency scientific judgment under the guise of APA’s arbitrary and capricious standard.” After the Court’s dismissal for lack of standing in the Hippocratic case, it remains for resolution another day soon to come, as the anti-abortion groups return to the Court with new petitioners of adequate standing seeking out bespoke tailored judges. The Hippocratic case had the nuance of an alleged failure of the FDA to fully follow its own standards. But the FDA gave full scrutiny to efficacy and safety considerations and excused itself after years of accumulated evidence corroborating and expanding safety of its earlier findings. The incentives of the patent system can be undermined by unpredictability of durability of FDA marketing approval no less so than by the Supreme Court’s revision of 35 U.S.C. § 101 by its Alice step two “inventive concept” as present and past Federal Circuit judges have stated (politely but firmly). The APA has served well to provide rigor, fairness and consistency in judgment of validity or not and infringement or not, notwithstanding the Loper Bright majority’s assertion of a plethora of see-saw changes by agencies. The Loper Bright reversal of Chevron Deference has upset the values of agency experience, expertise and dedication to their missions. Congress has long valued those strengths and will be going back to pre-Chevron means for assessing them.
Congress can veto agency actions. The delegation of authority to agencies was intended to develop and appreciate agency strengths under control of the APA over four decades of APA and many supporting court decisions. The Loper Bright upset resembles the Dobbs upset of Roe v. Wade 50 years later. Moreover, in briefing and oral argument in Loper Bright, the Solicitor General argued that courts can work to eliminate ambiguity by parsing a statute to the best of their ability and only when still finding insoluble ambiguity turn to the agency’s reasonable construction. The Loper Bright majority insisted that only a “best” construction will suffice but that begs the question of whether a best construction is more likely attainable by a district or appellate court than by an agency.
The majority attribution of best construction to courts does not justify ignoring the need, often in play, for finding or having found necessary facts (province of the agency) that can make agency reasonable construction the best one or not. A court reviewing a regulation, when enacted and challenged, or later when it is alleged that injury has occurred, has the first shot at defining ambiguity or not and also deciding if the agency is running outside its lane of Congressional delegation (all part of step 1 of a two-step process familiar to patent attorneys). It is only when the court of first instance or the appellate court decides those gating factors are absent that agency experience, accumulated knowledge and insights are used for reasonable construction (step 2) .
(5) There will eventually be new agencies (or assignment to existing agencies) to monitor and guide fair, reasonable and non-discriminatory (FRAND) exercise as in the European Union or China or other models and/or a new national right of publicity and/or new variation of the Department of Justice enforcement complementing private parties’ court remedies of the 2016 Federal Defend Trade Secrets Act based on the Electronic Espionage Act of 1966. How well will they function without Chevron Deference?
(6) Consider also the USPTO Office of Enrollment and Discipline and its evolved standards of proof and sanctions of suspension, disbarment and restitution as a punishment depending on whether admission to practice by way of examination (utility or design patent and trademark) or admission to a state highest court (trademark) is a federal public or private right.
(7) Although the Copyright Office is a part of the Library of Congress, a legislative and not executive agency, an amendment to 17 U.S.C. §701 makes the office subject to the APA and its rules are part II of 3 7 C.F.R., and part I covers patent and trademark rules.
What Lies Ahead
But the many jurisdictions of the Federal Circuit apart from patent and trademark review (and 28 U.S.C. §1338(b) and 1367), adjunct jurisdiction, and many other jurisdictions of the Federal Circuit may also be as affected by Chevron Deference, complicating the Circuit’s already burdened docket. Those other jurisdictions encompass appeals from decisions of the U.S. Court of lnternational Trade, Court of Federal Claims, other courts of Appeals for Veterans Claims, Government Contract Appeals, as well as offices of Merit Systems Protection Board, Congressional Workplace Rights, Government Personnel Appeals Board as well as its familiar to IP attorneys jurisdiction over appeals from the USPTO in patent and trademark cases and, appeals from ITC final written decisions and district court patent decisions. Annual statistics of the Federal Circuit show those other jurisdiction cases to outnumber the patent/trademark cases, and the 28 U.S.C. 1338(b), 1367 cases are sometimes greater in number or in impact, such as the Federal Circuit’s Oracle v. Google copyright decisions, with a $12 billion-plus damages prospect dissolved by a Supreme Court reversal of the Federal Circuit’s denial of a Fair Use defense.
What lies ahead is much litigation delaying the implementation or rules after months or years of new rules development, followed by notice of rulemaking, public input, adjustments, adoption. Also, Congress will need to expand its committees’ resources to act as pilot programs ahead of agency action to foresee potential pitfalls. Courts will also need such expansion, notwithstanding the Loper Bright majority’s assertion that briefing by parties and amici will suffice to guide courts to a “best” result. Congress may soon find itself rereading Justice Scalia’ s 1989 Duke Law Review speech/article with new insight and wondering whether to moderate Loper Bright, reasonable results, best results and relative competence.
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