Mobility Workx, LLC v. Unified Patents, LLC, Appeal No. 2020-1441 (Fed. Cir. Oct. 13, 2021)

In this week’s Case of the Week, a panel of the Court of Appeals for the Federal Circuit considered, and rejected, new constitutional challenges to the structure and funding of the Patent Trial and Appeal Board (the “Board”). Judge Newman concurred with the majority that the Board’s decision should be remanded for Director approval under United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021), but authored a lengthy dissent against the majority’s rejection of Mobility Workx’s constitutional challenges, what Judge Newman referred to as her “colleagues’ endorsement of the status quo” of America Invents Act (“AIA”) proceedings.

Mobility Workx‎ appealed a final written decision that several claims of its patent were invalid and unpatentable. Before the Federal Circuit, Mobility Workx (1) challenged the merits of the Board’s decision and requested a remand to the Director of the United States Patent and Trademark Office (the “USPTO”) under Arthrex; and (2) raised a number of constitutional challenges, including that the means of funding the Board and paying Administrative Patent Judges (“APJs”) created the possibility of bias in favor of instituting AIA proceedings (and invalidating patents) and violated the Constitution’s Due Process Clause. The USPTO intervened, arguing against Mobility Workx.

The Federal Circuit began by dealing with the argument by Unified Patents and the government that Mobility Workx forfeited its constitutional challenges by failing to raise them before the Board. The Federal Circuit responded that (1) agencies generally do not have the authority to declare a statute unconstitutional, and therefore constitutional challenges to the statute under which an agency operates do not need to be raised before the agency; and (2) the court has discretion to consider new arguments on appeal.

The government also argued that the Federal Circuit should not hear Mobility Workx’s constitutional challenges because those challenges relied on factual issues that first needed to be resolved by the Board. The Federal Circuit explained that the documents on which Mobility Workx relied (documents published in the Federal Register or on the USPTO website, other agency documents received via the Freedom of Information Act, and a report from the Congressional Research Service) are the types of government documents capable of being “accurately and readily determined from sources whose accuracy cannot reasonably be questioned,” and of which the court could therefore take judicial notice. Fed. R. Evid. 201(b)(2).

Turning to Mobility Workx’s constitutional challenges, Mobility Workx used two theories to argue that the structure and funding of the Board violated due process. Three old Supreme Court cases define the framework for considering due process in this area.

In Tumey v. Ohio, 273 U.S. 510 (1927), a mayor’s court was determined to violate due process because (1) the mayor, who presided over proceedings, received compensation if a defendant was guilty, but not if they were found innocent; and (2) convicted defendants paid fees that funded the village, and the mayor was the chief executive of the village, charged with looking after its finances. Id. at 533. The Supreme Court in Tumey explained that where there is a chance for bias to affect the weighing of evidence that there may be a due process violation:

[e]very procedure which would offer a possible temptation to the average man as a judge to forget the burden of proof required to convict the defendant, or which might lead him not to hold the balance nice, clear, and true between the state and the accused denies the latter due process of law.

Id. at 532.

In Dugan v. Ohio, 277 U.S. 61 (1928), another mayor’s court was determined not to violate due process. In Dugan, the presiding mayor received a fixed salary, not one contingent on convictions. Id. at 63–64. The mayor in Dugan shared executive functions with four other city commissioners, and therefore had less direct control over or responsibility for the city’s finances to which conviction fines contributed. Id.

In Ward v. Monroeville, 409 U.S. 57, 60 (1972), a mayor’s court in which fines paid by convicted defendants went to the village was determined to violate due process. Although the mayor in Ward did not receive compensation for convictions like the mayor in Tumey, the mayor in Ward was the chief executive for the village. As the chief executive, the mayor in Ward had a direct interest in convictions, because the fines generated by convictions contributed to the economic viability of the village for which the mayor was solely responsible.

Mobility Workx first argued that APJs have an impermissible financial interest in deciding to institute an AIA proceeding. Mobility Workx argued that because (1) the USPTO generates substantial revenue from post-institution fees in AIA proceedings, and (2) the Chief, Deputy Chief, and Vice Chief APJs not only participate in AIA proceedings but also oversee the Board’s finances, this creates an “untenable dual role of managing the [Board’s] finances … and deciding AIA petitions solely on the merits,” similar to the mayors in Tumey and Ward. The Federal Circuit found this argument uncompelling for two reasons. First, while APJ leadership helps in preparing budget requests and executing the operating budget, the USPTO Director is ultimately responsible for overseeing the agency’s budget. Thus, the Federal Circuit determined that APJs have too remote a relationship to the USPTO’s budgeting for there to be a conflict of interest. The Federal Circuit went on to explain that the President, not the USPTO, submits the agency’s budget for allocation, and it is up to Congress to ultimately decide whether to allocate the budget to the USPTO. While fees generated by post-institution AIA proceedings can be re-allocated to the USPTO by Congress, and often in fact are so re-allocated, this allocation is up to Congress. The Federal Circuit concluded that the “congressional control of the USPTO’s budget renders any agency interest in fee generation too tenuous to constitute a due process violation under Tumey.”

Mobility Workx’s second argument was that APJs have unconstitutional interests in instituting AIA proceedings because instituting AIA proceedings could increase an APJ’s salary and bonus. APJs can earn bonuses and salary increases if they earn a certain number of “decisional units” in a year. One way to earn decisional units is by authoring decisions, which Mobility Workx argues creates an unconstitutional incentive to institute AIA proceedings. The Federal Circuit responded that decisional units are granted for authoring a decision regardless of outcome, so that a decision not to institute a proceeding is just as good as a decision to institute a proceeding from a decisional unit perspective. The Federal Circuit also pointed out that decisional units could be earned from decisions in ex parte appeals, of which there was a significant backlog, so that APJs do not have an incentive to author AIA decisions at all. The Federal Circuit therefore concluded that APJs have too remote an interest in instituting AIA proceedings, if there is any interest at all, to constitute a due process violation.

Mobility Workx raised two other constitutional challenges that the Federal Circuit had already resolved in other cases: (1) delegation of the Director’s authority to institute an AIA proceeding to APJs does not violate the Due Process Clause or the Administrative Procedure Act; and (2) subjecting a pre-AIA patent to an AIA proceeding does not constitute an unlawful taking of property.

Thus, the Federal Circuit dismissed Mobility Workx’s constitutional challenges, but did grant remand to the Board for Mobility Workx to have the opportunity to request a Director rehearing of the Board’s decision under Arthrex.

Judge Newman concurred with the majority’s remand under Arthrex, but dissented from the majority’s rejection of Mobility Workx’s constitutional arguments.

According to Judge Newman, after Arthrex, the majority should have considered Mobility Workx’s argument that it was inappropriate for the USPTO to delegate the authority to institute AIA proceedings (a final, non-appealable decision) from the Director (where the AIA placed such authority) to inferior officers, the APJs. Judge Newman pointed out that Ethicon, in which the Federal Circuit previously considered whether this delegation violated due process, was pre-Arthrex, and therefore the question needed to be reconsidered.

Judge Newman argued that delegation of the authority to institute AIA proceedings to APJs created bias and/or the appearance of bias in AIA proceedings. According to Judge Newman, the AIA properly separated the authority to investigate (and institute) AIA proceedings, and the authority to adjudicate AIA proceedings, between the Director and APJs. Judge Newman cited commentator Public Knowledge in calling it “‘unsurprising that the Board has generally invalidated patents it reviews’ because ‘[r]eview before the Board will only be granted where it is likely’ in the view of the same APJs who will conduct the trial and decide the case, ‘that at least one claim will be cancelled.’”

While the government argued that the USPTO’s employees would not be biased, Judge Newman argued that bias, including unconscious bias, was difficult for the biased party to obverse, and that due process required avoiding both actual and apparent bias. Accordingly, Judge Newman dissented from the majority’s rejection of Mobility Workx’s constitutional challenges.

By Tyler Hall 

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