En banc Federal Circuit holds APA does not apply to judicial review of Patent Office's factual determinations

No one doubts that the United States Patent and Trademark Office is an agency of the United States Government. No one doubts that the determinations of its Board of Patent Appeals and Interferences rejecting a patent for obviousness are final agency actions adversely affecting the applicant, but ever since the enactment of the Administrative Procedure Act the courts have refused to find that the APA's judicial review provisions apply to review of those agency decisions. In the most recent case, In re Zurko, -- F.3d --- (Fed. Cir. 1998), an en banc Federal Circuit unanimously held that the traditional standard used by courts for reviewing the Board's factual decisions, the "clear error" standard, should continue to be used, rejecting arguments that either the "substantial evidence" or "arbitrary, capricious, or abuse of discretion" standards from the APA applied. In the eyes of the litigants and the court, this means that the court's review is more exacting than it would be under the APA standards, both of which were perceived as more deferential.

This issue had involved the Administrative Law and Regulatory Practice Section after the Federal Circuit ordered rehearing en banc of the case and invited amicus briefs on the subject. This unusual request garnered amicus briefs from a number of attorney associations, including the Patent, Trademark & Copyright Section of the Bar Association of the District of Columbia, the Federal Circuit Bar Association, the New York Intellectual Property Law Association, and the American Intellectual Property Law Association, all of which argued that the APA standards should not apply to judicial review of these decisions. The ABA, with its cumbersome bureaucracy for approving Sections taking positions on issues, did not weigh in on the subject, but the issue was debated before the Section at two Section meetings, including a presentation by the Counsel for the Patent and Trademark Office. Ultimately, Ernest Gellhorn, Section Delegate, argued the case in his private capacity on behalf of appellant Zurko against use of the APA judicial review standards.

The argument for the Patent and Trademark Office was straightforward -- by its plain language the APA judicial review provisions would appear to apply to patent decisions. The legislative history was inconclusive. On the one hand, there was abundant history for predecessor bills that APA judicial review would not apply to patent determinations, including explicit exemptions in the bills. On the other hand, the explicit exemptions were not included in the APA as passed, and there was no legislative history explaining why the change was made. To further bolster its case, the Office cited to other types of patent cases in which the courts had applied the APA standards, but none of these cases were reviews of Board factual determinations or of decisions as to patentability. In addition, the Office itself was inconsistent and uncertain in its arguments about which of the APA standards would apply -- "substantial evidence" or "arbitrary and capricious."

Opposed to the Patent and Trademark Office's plain language argument was a half century of practice in not utilizing the APA judicial review provisions for reviewing patent decisions. At the same time, courts had not been uniform in articulating what the standard of review was, at least until the creation of the Federal Circuit in 1982, after which that court had uniformly applied the "clear error" standard.

The resolution of this conflict turned on the interpretation and application of a sentence in one of the APA's more obscure provisions, 5 U.S.C. § 559, which states: "This subchapter, chapter 7 [the chapter of the APA that relates to judicial review], and [other sections of the APA] do not limit or repeal additional requirements imposed by statute or otherwise recognized by law." The history of this provision is also obscure, but it appears to have been part of a general housekeeping provision intended to ensure that, if other laws existed that imposed particular requirements beyond those being enacted in the APA, the generally applicable APA would not eliminate those particular requirements. Accordingly, the court asked whether, when the APA was enacted, there were additional requirements for judicial review of patent claims then recognized by law. That is, did the then existing case law impose a standard of judicial review of patent claims that was more exacting than (and hence an "additional" requirement beyond) the APA.

The court canvassed the history of the Patent and Trademark Office from its origins in 1790 to the present day, including the extent and nature of the judicial review of patent determinations made throughout that period. It found that "[i]t would be disingenuous to suggest that the courts employed a uniform standard of review prior to 1947." Nonetheless, the court held that the various standards of review employed had in common that they required more rigorous review than that contemplated by the APA. Under the APA, the court said, judicial review involves review of agency decisions based on the agencies' reasoning, whereas the history of review of patent decisions revealed that there review of the agency's decisions was based on the court's reasoning. Thus, the APA standards of review differed from historical review of patent decisions "both in character and the amount of deference they contemplate." Accordingly, the court concluded that the "clear error" standard, or its close cousins that also were used, was "an 'additional requirement' that was 'recognized' in our jurisprudence before 1947." Nevertheless, the court went on to say that "[s]ection 559, alone, neither requires our continued application of the 'clearly erroneous' standard of review to fact findings . . . nor precludes it." Viewed in light of the court's consistent use of the clearly erroneous standard since the court's creation in 1982, however, the court held that the principles of stare decisis justified the "continued application of this heightened level of scrutiny to decisions by the board." The court said that its "ability to oversee complex legal determinations such as obviousness would be undermined if the board's underlying factual determinations were reviewed more deferentially than for clear error."

To many familiar with judicial review under the APA, the Zurko case may seem a tempest in a teapot despite the interest paid to it by the patent bar. Once upon a time, lawyers attempted to divine a difference between "arbitrary and capricious" review on the one hand and "substantial evidence" review on the other. With the development of the "hard look" doctrine, however, any vestige of difference seems to have passed away. For example, in the often cited Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29 (1983), the Court seemed to equate the two APA standards when it noted that the agency's deCision was supposed to be supported by "substantial evidence on the record considered as a whole," but said that "[t]he ultimate question before [the Court] is whether NHTSA's recission . . . was arbitrary and capricious." Similarly, it is doubtful whether in practice there is any meaningful distinction between these APA standards of review and the "clearly erroneous" standard the Federal Circuit said was applicable. In theory, there may be a difference. The "clearly erroneous" standard is generally described as the standard applicable to appellate judicial review of a lower court's findings of fact in a trial without a jury, which is supposed to be less deferential than judicial review of agency findings of fact. But in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402 (1971), which marked the beginning of modern judicial review, the Court characterized part of the "arbitrary and capricious" standard of review as including a determination of "whether there has been a clear error of judgment." Moreover, the Federal Circuit's suggestion that "[b]y making it clear that we review factual findings for clear error . . . , we hope the board understands that we are more likely to appreciate and adopt reasoning similar to its reasoning when it is both well articulated and sufficiently founded on findings of fact," sounds indistinguishable from advice the D.C. Circuit might give to agencies as to how to survive APA review. Consequently, the Federal Circuit's belief that there is a qualitatively and meaningfully different review involved in the different standards may not reflect the reality of modern administrative judicial review.

Fifth Circuit limits agency's ability to set conditions on devolution of Clean Water Act program after rejecting two claims of lack of justiciability

Under the Clean Water Act, like the other major environmental statutes, the Environmental Protection Agency may approve state programs so that the state essentially administers the federal program in the place of EPA. Each of the statutes contains a list of criteria which the state program must meet before it can be approved by EPA. In American Forest and Paper Ass'n v. U.S. E.P.A., 137 F.3d 291 (5th Cir. 1998), the court held that EPA could not require as an element of a state program that the state agencies submit proposed permits to the U.S. Fish and Wildlife Service and the National Marine Fisheries Service to avoid jeopardizing endangered species.

When EPA administers the CWA, it must comply with Section 7 of the Endangered Species Act, which requires federal agencies to coordinate with the USFWS or NMFS when their actions may affect endangered species and which forbids federal agencies from jeopardizing threatened or endangered species. Consequently, EPA coordinates with those agencies before issuing permits under the CWA and does not issue a permit if it would jeopardize a listed species. When, however, a state administers the CWA in its state under an approved program, Section 7 of the ESA does not apply -- because it only applies to federal agency actions. To avoid the loss of such coordination and substantive protection for endangered species when CWA permits are issued by a state under an approved state program, EPA included as a requirement for state program approval that the state submit proposed permits to the USFWS and NMFS and that EPA could veto any proposed permit which jeopardized a listed species. Louisiana agreed to these requirements, but an industry group brought suit challenging these requirements.

Before it could reach the merits, however, the court first had to deal with EPA objections to the justiciability of the claim. First, EPA said that the industry group could not object to the regulation establishing the requirements because it had not participated in the rulemaking. Some circuits have accepted such an argument, but the Fifth Circuit rejected it out-of-hand. Second, EPA said that the group did not have standing both because its injury was speculative and because there was no redressability. EPA said the injury was speculative because it was not clear when or if EPA actually would ever veto a permit. The court probably incorrectly stated that the injury was not speculative because the permit holders had to comply immediately (which was not true) and because EPA had made a "frank announcement of its intentions." The outcome was clearly right, however, because the next new permit application or modification would be affected, by some delay at least, by the rule, and at least one of the organization's members would be seeking a new or modified permit in the near future. EPA said that there was no redressability for the injury (or alternatively no causation between the rule and asserted injury) because Louisiana could always engage in consultation on its own and abide by EPA recommendations without the particular rule requiring it, and here Louisiana had agreed to the requirement. Thus, even if the court enjoined the rule, it would not relieve the organization's members from having to comply with Louisiana's requirement which would still stand. The court's response to this requirement did not answer this argument, but the court stated that the redressability challenge was meritless. This redressability claim is a serious one, but as the Court responded to the government's similar claim in Bennett v. Spear, 117 S.Ct. 1154 (1997), "[w]hile . . . it does not suffice if the injury complained of is 'th[e] result [of] the independent action of some third party not before the court,' that does not exclude injury produced by the determinative or coercive effect upon the action of someone else." That was precisely the situation here.

With respect to the merits, the CWA states that EPA "shall approve" a state program if it meets nine specified requirements, none of which involves protection of endangered species or coordination with USFWS or NMFS. Nevertheless, EPA interpreted a provision of the CWA authorizing it to promulgate guidelines governing state permitting programs to authorize its additional requirement, and it interpreted the ESA to require EPA to include such a requirement. The court found that the section cited by EPA did not add to the list of substantive requirements that EPA can impose on the states as a precondition of approving a state program. Moreover, Section 7(a)(2) of the ESA could not add to EPA's powers because it confers no substantive powers on federal agencies; it is merely a restriction on their own activities.

The implications of the case are substantial because EPA routinely includes additional requirements beyond those specifically listed in the CWA as a precondition to the approval of state programs. Elimination of those extra requirements, which are intended to continue protections that would be afforded if the federal agency were issuing the permit, could both have significant effects on the environment and on the ability of environmental groups to affect state programs.