“The GAO report shows that pecuniary benefits are experienced by APJs when granting institutions because it revealed that the USPTO and PTAB management ‘routinely interject themselves into the APJ decision making process and require APJs to change their decisions.’”
On September 6, New Vision Gaming and Development Inc. (New Vision) filed a brief with the U.S. Court of Appeals for the Federal Circuit (CAFC) on return from remand after the U.S. Patent and Trademark Office (USPTO) denied its request for Director Review. The case relates to a Patent Trial and Appeal Board (PTAB) decision canceling all claims of U.S. Patent No. 7,325,806 (‘806 patent) and was previously appealed to the CAFC. But since the last appeal, a report demonstrating evidence that PTAB judges are influenced by U.S. Patent and Trademark Office (USPTO) leadership gives new weight to New Vision’s arguments, says the brief.
The ‘987 patent is directed to a bonus feature for a card game where the inventive concept is the creation of a bonus hand by combining cards from two or more hands. The creation of the bonus hand is used to balance randomness and multiple players’ balance strategy in a way that makes a good card game. New Vision, owner of the ‘’987 patent, reached an agreement with SG/Bally to license the patent and the parties agreed that all disputes would be resolved in Nevada.
The royalty structure of the licensing agreement was unconventional because the royalties flowed from not from the practicing patent, but from the use of a specific game, New Vision agreed to assist SG/Bally in compliance of the gaming business, and the royalties were to continue one year past any final adjudication of invalidity. Despite their agreement, SG/Bally informed New Vision that it would not be renewing “upon the expiration of the Initial Term” but did not commit to stop using New Vision’s games.
New Vision brought suit against SG/Bally for breach of contract regarding the licensing agreement. SG/Bally responded by raising contract defense and asserted the patents were invalid. Following the district court’s partial summary judgment finding for New Vision, SG/Bally filed a covered business method (CBM) petition to the PTAB which was granted review. The PTAB issued a final written decision canceling all the claims of the ‘806 patent under 35. U.S.C. 101 after not finding it necessary to reach a conclusion regarding the ‘987 patent since it had expired.
New Vision appealed the PTAB’s decision in May 2021 and the CAFC vacated and remanded the case back to the PTAB for the limited purpose of allowing the appellant to request Director Review. New Vision’s request for Director Review was subsequently denied and the CAFC ordered a re-briefing.
Due Process Arguments
The September 6 brief first argues that the America Invents Act (AIA) institution process does not meet the “jealously protected” due process standard. Specifically, says New Vision: “The inherent tie between the PTAB’s institution decisions and the substantial revenue generated by those decisions—which account for about 40% of the PTAB’s trial proceedings budget—has created a structural bias unlike any other in federal agencies.”
New Vision also argues that the court’s decision in Mobility Workx, LLC v. Unified Patents, LLC (Fed. Cir. 2021), which rejected the due process argument, should be distinguished from the present appeal because of new developments and insights that warrant the CAFC’s consideration. The brief points to the recent Government Accountability Office (GAO) Report, which it says sheds new light on the degree to which the USPTO and PTAB management control Administrative Patent Judges’ (APJ) decision making. The GAO report shows that pecuniary benefits are experienced by APJs when granting institutions because it revealed that the USPTO and PTAB management “routinely interject themselves into the APJ decision making process and require APJs to change their decisions.”
The AIA’s Unconstitutionality
The brief further contends that the AIA’s institution process, as applied, is unconstitutional, and the PTAB’s decision in the CBM review should be vacated. Due process entitles a party to a tribunal free of potential pecuniary interest, but the GAO report demonstrates pecuniary interest does exist at the PTAB. New Vision argues that unconstitutional bias exists in at least two forms: institutional bias, which is when a procedure creates an impermissibly strong motive to rule in favor of the organization, and a decisionmaker’s own pecuniary interests in a proceeding’s outcome (structural bias).
New Vision notes that a major contributing factor to structural bias is “the existence of substantial institutional funding that relies on a particular outcome.” They argue a recurring feature of structural bias is when monetary fines imposed by the decisionmakers flow back to the decisionmaker’s benefit, even if in an indirect manner. The mixing of executive and adjudicatory responsibilities within a single agency decisionmaker is a factor to structural bias. These features are present in the PTAB’s organization, decision making process, fee structure, and APJ compensation scheme, says the brief.
Structural Bias in the USPTO
According to New Vision, the AIA review process operates under a set of abnormal conditions within the federal government: (1) fees generated by institution grants account for 40% of the PTAB’s AIA trial budget; (2) USPTO and PTAB leadership have dual roles as adjudicators and executives that manage PTAB finances; (3) APJs are subject to performance reviews from PTAB leadership in most cases; (4) the salary and bonus plan of APJs incentivizes higher production which leads to more institutions; (5) APJs are subject to oversight from both the USPTO and the PTAB; (6) the USPTO sets its own fees, currently receives funding matching its fee collection, and operates as a “revenue-generating entity;” and (7) the PTAB operates its own budget expectations as a business unit.
The brief outlines these seven points in more detail, noting the leadership of the USPTO and PTAB’s mix of administrative, financial, and judicial functions creates an appearance of bias. This puts the PTAB leadership in a position of managing the PTAB’s budget in a “business-like sense” while deciding AIA petitions solely on the merits. USPTO executives and APJs make institutional decisions while faced with revenue consequences, performance reviews, production requirements, and bonus incentives. New Vision argues this structure creates a situation where APJs are exposed to temptations that undermine the appearance of impartiality.
Disregard of the Forum Selection Clause
New Vision next argues that the CAFC should vacate the PTAB’s decision because it instituted a CBM review based on a petition that violated SG/Bally’s contractual obligations and the Director failed to properly terminate the proceeding. The agreement between New Vision and SG/Bally expressly outlined that the resolution of disputes concerning the patent should occur in Nevada. Thus, the actions by the PTAB authorized a private party to violate its contractual obligations.
Finally, the brief notes that the circumstances of the case make the decisions of the PTAB and the Director reviewable. The brief explains:
“Importantly, reversing the Director and vacating the PTAB decision does not require the Court to second-guess any patent-related or AIA-statute-related decision. New Vision’s argument does not rest on the application of any ‘institution-related statute.’”
The limited scope of New Vision’s argument requests that the CAFC review the PTAB’s decision and vacate it and rests on “whether a federal agency acts arbitrarily and capriciously when the agency’s decision authorizes the interference with a private party’s right under a private contract.”