United States: Board Erred By Relying On New Factual Findings Without Designating A New Ground Of Rejection

This article previously appeared in Last Month at the Federal Circuit November, 2011.

In In re Stepan Co., No. 10-1261 (Fed. Cir. Oct. 5, 2011), the Federal Circuit vacated and remanded the Board's decision affirming an examiner's obviousness rejection during reexamination of U.S. Patent No. 6,359,022 ("the '022 patent") because the Board relied on a new ground of rejection.

The '022 patent pertains to polyol-based resin blends and methods of using them to create foam that is used to make thermal insulation boards for the walls of buildings. On reexamination, the examiner ruled that all of the claims were invalid as anticipated under 35 U.S.C. § 102(b) or, in the alternative, obvious under 35 U.S.C. § 103(a). On appeal, the Board affirmed the examiner's obviousness rejection, relying on the same references the examiner cited. The examiner and the Board found most of the '022 patent claims obvious in light of WO 97/21764 ("Singh"), and found the remaining claims obvious under Singh in combination with other references. The examiner, however, relied on Singh as § 102(b) prior art, which includes publications or inventions patented "more than one year prior to the date of the application" of the patent in question, while the Board treated Singh as prior art under § 102(a), which includes publications or inventions patented "before the invention thereof by the applicant." Slip op. at 3. Although the examiner did not treat Singh as § 102(a) prior art, the Board further held that a Rule 1.131 Declaration submitted by Stepan Company ("Stepan") was "ineffective to remove Singh as a reference under § 102(a)." Id. Stepan appealed.

On appeal, the Federal Circuit first explained that under 37 C.F.R. § 41.50(b), the Board has the authority to issue a new ground of rejection if the Board knows of any grounds not involved in the appeal for rejecting any pending claim. Id. at 4 (citing 37 C.F.R. § 41.50(b)). Because the Board is limited to review of the examiner's decisions, however, the authority to issue a new ground of rejection, and the rights of the applicant that flow therefrom, "ensure that the Board can fulfill its notice obligation to the applicant during prosecution." Id.

"Notice does not focus on the applicant's arguments divorced from the examiner's rejections of record that are actually appealed to the Board. Instead, it focuses on the 'adverse decisions of examiners' during prosecution which form the basis of the Board's scope of review." Slip op. at 9 (quoting 35 U.S.C. § 6(b)).

The Federal Circuit found that by making and relying on new fact-findings regarding "the sufficiency of Stepan's Declaration to swear behind the Singh reference as § 102(a) prior art, the Board relied on a new ground of rejection." Id. at 6. The Court rejected the PTO's argument that Stepan had a fair opportunity to be heard simply because Stepan presented, and the Board considered, argument and evidence to antedate Singh as a § 102(a) reference. The Court found that "the mere fortuity that Stepan addressed the validity of the Declaration on its own, without the issue being raised by the examiner, does not permit the Board to reject the Declaration as ineffective without designating its decision as a new ground of rejection." Id.

Further, the Court rejected the PTO's alternative argument that Stepan waived its administrative due process rights by not requesting a rehearing of the Board's decision. The Court interpreted the PTO's argument as asserting that the Board had discretion to determine whether to designate a new ground of rejection as "new."

In response, the Federal Circuit first noted that no deference was due the PTO's regulatory interpretation because the APA requires prior notice to the applicant of all "matters of fact and law asserted" prior to an appeal hearing before the Board. Id. at 7 (quoting 5 U.S.C. § 554(b)(3)). Thus, allowing the Board "unfettered discretion to designate a new ground of rejection" would frustrate the notice requirements of the APA.

Second, the Court found that the PTO's argument contradicts the plain text of the regulation, which states that, "[w]hen the Board makes a new ground of rejection, the appellant, within two months from the date of the decision, must" reopen prosecution or request rehearing. Id. at 8 (alteration in original) (quoting 37 C.F.R. § 41.50(b)). The applicant's obligation to pursue one of these two options, however, is only triggered after the Board makes a new ground of rejection. Thus, since the Board did not designate its new §§ 102(a)/103(a) rejection as a new ground of rejection, Stepan had no affirmative obligation to request rehearing.

Finally, because the Board did not designate its rejection as a new ground, the Federal Circuit concluded that the Board's decision was final for the purposes of judicial review and Stepan complied with its administrative process obligations pursuant to the PTO's regulations.

In sum, the Court stated: "Notice does not focus on the applicant's arguments divorced from the examiner's rejections of record that are actually appealed to the Board. Instead, it focuses on the 'adverse decisions of examiners' during prosecution which form the basis of the Board's scope of review." Id. at 9 (quoting 35 U.S.C. § 6(b)). Thus, because Stepan did not have prior notice of the Board's intent to craft and rely on new findings of fact to support a §§ 102(a)/103(a) rejection, and because it failed to identify this rejection as a new ground, the Federal Circuit found that Stepan's notice rights were violated.

Accordingly, while the Court did not express an opinion on the merits of the obviousness rejection or the use of Singh as § 102(a) prior art, the Federal Circuit vacated and remanded for Stepan to pursue its patent application in accordance with 37 C.F.R. § 41.50(b).

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