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Return Mail, Inc. v. United States Postal Service

United States Court of Appeals, Federal Circuit

August 28, 2017

RETURN MAIL, INC., Appellant

         Appeal from the United States Patent and Trademark Office, Patent Trial and Appeal Board in No. CBM2014-00116.

          Richard L. Rainey, Covington & Burling LLP, Washington, DC, argued for appellant. Also represented by Michael S. Sawyer; Eric Michael Adams, Douglas H. Elliott, The Elliott Law Firm, PLLC, Bellaire, TX; Lee Landa Kaplan, Jeffrey Potts, Smyser, Kaplan & Vesel-ka, LLP, Houston, TX.

          David Allen Foley, Jr., Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for appellees. Also represented by Benjamin C. Mizer, John Fargo.

          Before Prost, Chief Judge, Newman and Wallach, Circuit Judges.



         Patent assignee Return Mail, Inc. ("Return Mail") appeals from the final written decision of the U.S. Patent and Trademark Office's ("PTO") Patent Trial and Appeal Board ("Board") in a review of a covered business method ("CBM") patent. The Board held that the U.S. Postal Service and the United States (collectively, "the Postal Service") were not statutorily barred from filing the underlying petition for review. On the merits, the Board determined that all of the challenged patent claims were directed to ineligible subject matter under 35 U.S.C. § 101. We affirm.

         I. Background


         In 2011, Congress enacted the LeahySmith America Invents Act ("AIA"), Pub. L. No. 112-29, 125 Stat. 284, which created several new quasi-adjudicatory proceedings before the PTO for determining the patentability of issued patent claims. These proceedings include inter partes review ("IPR"), post-grant review ("PGR"), and review of CBM patents ("CBM review"). See 35 U.S.C. §§ 311-319 (IPR); id. §§ 321-329 (PGR); AIA § 18, Pub. L. No. 112-29, 125 Stat. 284, 329-31 (2011) (CBM review).

         This appeal arises from a CBM review, which unlike IPR or PGR, is limited to CBM patents-i.e., patents "that claim[] a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, " with the exception of "technological inventions." AIA § 18(d)(1). CBM review is also a "transitional" program, currently scheduled to sunset in September 2020. AIA § 18(a)(3). It is governed by AIA § 18 and, with certain exceptions, "employ[s] the standards and procedures of[] a [PGR] under [35 U.S.C. §§ 321- 329]." AIA § 18(a)(1).[1]

         CBM review proceeds in two stages. In the first stage, the PTO Director makes a threshold determination of whether to institute the proceeding, which requires a determination that "it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable" or that "the petition raises a novel or unsettled legal question that is important to other patents or patent applications." 35 U.S.C. § 324(a), (b). This task has been delegated to the Board by regulation. 37 C.F.R. §§ 42.4(a), 42.300(a). If review is instituted, the parties then proceed to the second stage, which involves discovery, the submission of additional information, and the opportunity for an oral hearing. See, e.g., 35 U.S.C. § 326(a)(3), (5), (8), (10), (12). Absent dismissal, the proceeding culminates with the Board's issuance of a "final written decision" regarding the patentability of "any patent claim challenged by the petitioner, " as well as of "any new claim added" during the proceeding. Id. § 328(a). The Board must issue its final written decision within one year after the institution of CBM review, except in narrow circumstances. Id. § 326(a)(11). Ultimately, Congress intended CBM review, like the programs for IPR and PGR, "to provide [a] 'quick and cost effective alternative[]' to litigation in the courts." PPC Broadband, Inc. v. Corning Optical Commc'ns RF, LLC, 815 F.3d 734, 741 (Fed. Cir. 2016) (quoting H.R. Rep. No. 112-98, pt. 1, at 48 (2011), reprinted in 2011 U.S.C.C.A.N. 67, 78).


         Return Mail owns U.S. Patent No. 6, 826, 548 ("'548 patent"), which is the subject of the underlying CBM review as well as related litigation in the U.S. Court of Federal Claims ("Claims Court"). The '548 patent is directed to the processing of mail items that are undeliverable due to an inaccurate or obsolete address for the intended recipient. '548 patent col. 1 ll. 20-24. The patent underwent ex parte reexamination, resulting in the cancellation of all original claims and the issuance of new claims 39-63 in January 2011.[2] Ex Parte Reexamination Certificate 6, 826, 548 C1.

         According to its specification, "[t]he processing of mail that is returned to sender historically has been a time-consuming labor-intensive process for high volume mail users." '548 patent col. 1 ll. 39-42. For instance, "[e]ven with the availability of address updating services to aid in researching for the correct address, " the process of handling returned mail "[wa]s substantially a manual one subject to human error and delays." Id. at col. 1 ll. 39-51.

         The claimed invention of the '548 patent purportedly "overcomes the historical problems with prior art manual handling" and "does so quickly, more accurately, and at substantially less cost." Id. at col. 1 ll. 55-59. It teaches encoding useful information, such as the name and address of intended recipients, on mail items in the form of a two-dimensional barcode. Id. at col. 2 ll. 4-5, col. 2 l. 66- col. 3 l. 15. Undeliverable mail items are returned to a processing location, where the barcodes are scanned. Id. at col. 2 ll. 14-20, col. 3 ll. 15-51. The scanned information is then processed, such as by obtaining corresponding updated address data from a computer or database, and the updated information is then electronically provided to the sender to be used as the sender deems appropriate. Id. at col. 2 ll. 19-27, col. 3 l. 52-col. 4 l. 33. In other words, the claimed invention allows returned mail to be processed "virtually entirely automatically through the exchange of data files between computers." Id. at col. 6 ll. 61-64.


         In February 2011, after trying unsuccessfully to license the '548 patent to the Postal Service, Return Mail filed suit in the Claims Court against the United States. It alleged under 28 U.S.C. § 1498(a) that the United States, through the Postal Service's actions, had "en-gage[d] in the unlicensed and unlawful use and infringement of the invention claimed in the '548 patent."[3] J.A. 3302. Return Mail sought relief in the form of "reasonable and entire compensation." J.A. 3297.

         In April 2014, the Postal Service filed a petition with the PTO for CBM review of claims 39-44 (the "challenged claims") of the reexamined '548 patent. It raised several grounds for unpatentability, including patent-ineligible subject matter under § 101, anticipation under § 102, and obviousness under § 103.

         In response, Return Mail not only raised patentability arguments but also contested the Postal Service's ability under the AIA to petition for CBM review. The Board held that the Postal Service had statutory "standing" and instituted review of all of the challenged claims under § 101 for ineligible subject matter.[4] In its final written decision, the Board later reiterated its standing determination and held that the challenged claims were drawn to ineligible subject matter under § 101.[5]

         Return Mail timely appealed. Section 329 of the AIA authorizes a party dissatisfied with the Board's final written decision to appeal to this court under 35 U.S.C. § 141(c). We have jurisdiction under 28 U.S.C. § 1295(a)(4)(A).

         II. Discussion

         On appeal, Return Mail argues that we should vacate the Board's decision because the Postal Service failed to meet the statutory standing requirement to petition for CBM review. It also argues in the alternative that we should reverse the Board's decision that the '548 patent claims 42-44 are directed to § 101 ineligible subject matter.[6] Return Mail does not challenge any other aspects of the CBM review proceeding.


         The "starting point" for determining whether a party is properly before an agency is "the statute that confers standing before that agency." Ritchie v. Simpson, 170 F.3d 1092, 1095 (Fed. Cir. 1999). Because the PTO is an administrative agency, the Article III standing requirement for a "case or controversy" does not apply to matters before it. Id. at 1094; see also Koniag, Inc. v. Andrus, 580 F.2d 601, 612 (D.C. Cir. 1978) ("Congress, in its discretion, can require that any person be admitted to administrative proceedings, whether or not that person . . . has satisfied the . . . constitutional standing requirements recognized by the Supreme Court."). Relevant to CBM review, AIA § 18(a)(1)(B) provides that "[a] person may not file a petition for [CBM review] unless the person or the person's real party in interest or privy has been sued for infringement of the patent or has been charged with infringement under that patent." (Emphases added).

         Here, the Board in its institution decision held that the Postal Service had standing because it had been sued for infringement within the meaning of AIA § 18. The Board reasoned that Return Mail filed its § 1498(a) action to hold the Postal Service "liable for its use or manufacture of a patented invention without license or lawful right, which falls within the definition of patent infringement." J.A. 50. It further held that the PTO, through regulation regarding the meaning of "charged with infringement, " has made it "clear that it is the ability to seek relief in Federal court that is important to the standing inquiry."[7] J.A. 51.

         After the Board instituted the underlying proceeding, Return Mail continued to submit that the Postal Service lacked standing to seek CBM review. The Board again rejected that contention and "incorporate[d]" its previous standing analysis into the final written decision. J.A. 12.


         As a threshold matter, we first consider whether we have authority to review the Board's determination that the Postal Service had standing to petition for CBM review, a question that we have never previously answered. The AIA authorizes appeals from the Board's final written decision in a CBM review proceeding. 35 U.S.C. § 329. But the statute also includes a "No Appeal" provision, 35 U.S.C. § 324(e), stating that "[t]he determination by the Director whether to institute . . . review under this section" is "final and nonappealable." (Emphasis added). The Postal Service argues that § 324(e) bars this court from revisiting whether "the Board erred in instituting the proceeding in the first place, " based in part on the determination that the Postal Service had § 18(a)(1)(B) standing. Appellees' Br. 17.

         As the Supreme Court recently reiterated, there is a "'strong presumption' in favor of judicial review" when interpreting "statutes that may limit or preclude review." Cuozzo Speed Techs., LLC v. Lee, 136 S.Ct. 2131, 2140 (2016) (quoting Mach Mining, LLC v. EEOC, 135 S.Ct. 1645, 1650-51 (2015)). As the party "seeking to overcome this strong presumption, " the Postal Service "faces a 'heavy burden'"-it must demonstrate a contrary legislative intent "by 'clear and convincing' evidence." Versata Dev. Grp. v. SAP Am., Inc., 793 F.3d 1306, 1320 (Fed. Cir. 2015) (quoting Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667, 671-72 (1986)). To the extent any "doubt about congressional intent exists, the general presumption favoring judicial review of rights-changing administrative action is controlling." Id.

         Even though the Board initially determined in its institution decision that the Postal Service had standing, that fact alone does not preclude judicial review. The AIA draws a "clear and common-sense distinction" between a final written decision by the Board and an earlier decision whether to institute CBM review. GTNX, Inc. v. INTTRA, Inc., 789 F.3d 1309, 1312 (Fed. Cir. 2015). But not all issues fall neatly into that dichotomy. Some issues are not necessarily confined to one stage of CBM review or the other, and the Board may later decide, as it did here, to revisit a determination previously made at the institution phase. We have held that the availability of judicial review does not hinge on such "timing" or "[o]verlap" of issues. Versata, 793 F.3d at 1319. Thus, even if § 18(a)(1)(B) standing is best addressed at the institution stage so as to avoid unnecessary proceedings, that the Board first decided it at the institution stage in this case is not enough, by itself, to bar judicial review.

         The Postal Service submits that the Supreme Court's decision in Cuozzo and this court's decision in Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015), [8] confirm that the Board's determination that the Postal Service had standing to petition for CBM review is not reviewable. Both cases interpreted the scope of 35 U.S.C. § 314(d), an analogous no-appeal provision for the IPR program. Because the pertinent language of § 314(d) is identical to that of § 324(e), case law interpreting the scope of § 314(d) bears on the scope of § 324(e). See CBOCS W., Inc. v. Humphries, 553 U.S. 442, 457 (2008) ("[C]onsiderations of stare decisis strongly support our adherence to [precedent] and the long line of related cases where we interpret [related statutory provisions] similarly."). Nevertheless, we conclude that Cuozzo and Achates are distinguishable and do not dictate the availability of judicial review in this case.

         In Cuozzo, the Supreme Court interpreted § 314(d) to bar judicial review of determinations under 35 U.S.C. § 314(a) regarding the "reasonable likelihood" of success of an IPR petition, as well as challenges grounded "in a statute closely related to that decision to institute [IPR]." 136 S.Ct. at 2142 (internal quotation marks omitted). The Court held that the dispute at issue-whether the petitioner met a statutory requirement to set forth grounds for an IPR petition with particularity-was barred by § 314(d) from judicial review because it merely amounted to an "ordinary dispute" about the PTO's decision to institute and was grounded in "a statute closely related to th[e] decision to institute." Id. at 2139, 2142. Here, in contrast, whether a party is statutorily allowed to petition for CBM review does not amount to "little more than a challenge to the [PTO's] conclusion" about the petition's likelihood of success on the merits.[9] Id. at 2142. Nor is it a "minor statutory technicality" that can be cured by a more precise or fulsome filing. Id. at 2140. The Board's determination of whether a party is qualified under § 18(a)(1)(B) to petition for CBM review is a condition precedent independent from a threshold analysis regarding the likelihood of success of the information contained in the petition. See City of Arlington v. FCC, 133 S.Ct. 1863, 1869 (2013) (explaining that federal agencies' "power to act and how they are to act is authoritatively prescribed by Congress, so that when they act improperly, . . . what they do is ultra vires").

         The Postal Service's reliance on Achates is also unavailing. There, we held that the PTO's determination that a petitioner has satisfied 35 U.S.C. § 315(b)'s statutory time bar to petition for IPR is unreviewable because that requirement "does not impact the Board's authority to invalidate a patent claim-it only bars particular petitioners from challenging the claim." Achates, 803 F.3d at 657. The Postal Service argues that § 18(a)(1)(B) similarly affects only who can file a petition-i.e., as long as a proper petitioner requests CBM review of a patent, the Board's authority to cancel that patent is unaffected. We disagree.

         Achates is distinguishable based on differences in the statutory framework for IPR and CBM review. First, for IPR proceedings, any "person who is not the owner of [the challenged] patent" can petition for review of a patent. 35 U.S.C. § 311(a). Put another way, "[p]arties that initiate the [IPR] proceeding need not have a concrete stake in the outcome." Cuozzo, 136 S.Ct. at 2143. In contrast, by requiring a petitioner for CBM review to have been sued for or charged with infringement of the underlying patent, § 18(a)(1)(B) ensures that CBM review is limited to parties who have some stake in the outcome. If a party is barred by § 18(a)(1)(B) from petitioning for CBM review of a patent, it cannot be assumed that the same patent could be challenged by an unrelated third party.[10] To treat these distinct grants of authority as coterminous would require us to ignore the plain terms of the respective statutes. We may not do so. See Dep't of Homeland Sec. v. MacLean, 135 S.Ct. 913, 919 (2015) ("Congress generally acts intentionally when it uses particular language in one section of a statute but omits it another." (citation omitted)); see also Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992) ("[C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there."). Second, the IPR time bar, "like other '[f]iling deadlines, ' . . . is merely a 'rule[] that seek[s] to promote the orderly progress of litigation by requiring that the parties take certain procedural steps at certain specified times.'" Achates, 803 F.3d at 658 (alterations in original) (quoting Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 435 (2011)). Unlike the IPR time bar which is simply a procedural requirement that rights be exercised in a timely manner, § 18(a)(1)(B) relates to a party's right to seek CBM review in the first instance.

         There is no doubt that, despite the AIA's no-appeal provisions, judicial review remains available on questions of "whether the [Board] exceeded statutory limits on its authority to invalidate." Versata, 793 F.3d at 1319; see also Cuozzo, 136 S.Ct. at 2141 (holding that § 314(d) does not preclude judicial review when the PTO "act[s] outside its statutory limits"). As we have explained, to hold otherwise would "run counter" to both the language of the no-appeal provisions (restricted to determinations of whether to institute) and "our long tradition of judicial review of government actions that alter the legal rights of an affected person." Versata, 793 F.3d at 1319. For example, in Versata we held that this court could review the Board's determination of whether a patent is a CBM patent under AIA § 18(a)(1)(E) because that statutory provision limits the Board's authority to invalidate a patent. Id. at 1320. The § 18(a)(1)(B) standing requirement at issue here appears in the same subsection and similarly limits the Board's authority to invalidate a patent through CBM review. Even though it is not phrased in terms of what the Director can or cannot do, Congress placed an express limitation on the reach of the CBM review program, a "special review regime" that is only available for an eight-year transitional period. Id. Where determinations are "fundamental or 'jurisdiction-al, ' in the sense that their existence is a condition precedent to the operation of the statutory scheme[, ] [such] fundamental requirements are . . . indispensable to the application of the statute . . . because the Congress has so provided explicitly." Crowell v. Benson, 285 U.S. 22, 54- 55 (1932) (footnote omitted).

         The legislative history of the AIA supports our conclusion that questions related to a party's standing touch upon the PTO's ultimate authority to act. Congress explained that the PTO's ability to conduct CBM review "is limited in certain respects" and highlighted that the PTO "cannot" grant a petition "unless the petitioner or his real party in interest has been sued for infringement of the patent or has been charged with infringement." H.R. Rep. No. 112-98, at 80 (2011), reprinted in 2011 U.S.C.C.A.N. 67, 105. That Congress did not intend the PTO to act absent a petition filed by a party with the requisite standing confirms that § 18(a)(1)(B) provides a fundamental limitation on the PTO's authority.

         For the foregoing reasons, we hold that § 324(e) does not bar judicial review of the Board's decision that a party satisfies § 18(a)(1)(B)'s requirements to petition for CBM review.


         We turn now to the Board's determination that the Postal Service had standing to petition for CBM review because it had been "sued for infringement" of the '548 patent within the meaning of § 18(a)(1)(B).

         At the outset, the parties disagree on the applicable standard of review. The Postal Service argues that the Board's determination is subject to arbitrary-and-capricious review under the Administrative Procedure Act ("APA"), while Return Mail contends that de novo review applies. It is true that we review PTO decisions under the standards set forth in the APA, but those standards allow us to also set aside agency actions that are "not in accordance with law." 5 U.S.C. § 706(2); see Pride Mobility Prods. Corp. v. Permobil, Inc., 818 F.3d 1307, 1313 (Fed. Cir. 2016) (reciting APA standards). Accordingly, where, as here, the parties' arguments raise a purely legal question of statutory interpretation, we apply de novo re-view.[11] In re Affinity Labs of Tex., LLC, 856 F.3d 883, 889 (Fed. Cir. 2017); Secure Axcess, LLC v. PNC Bank Nat'l Ass'n, 848 F.3d 1370, 1377 (2017).

         Return Mail makes several cogent arguments why a § 1498(a) suit, in some sense, is not one for "infringement." But while we recognize there are important differences between § 1498(a) suits against the government and suits for infringement against private parties, these differences, along with Return Mail's other arguments, are insufficient to compel a conclusion that Congress intended to exclude a government-related party sued under § 1498(a) from being able to petition for CBM review.


         Before discussing whether being sued under § 1498(a) constitutes being "sued for infringement" under § 18(a)(1)(B), we provide an overview of the nature of a § 1498(a) suit.

         Prior to the enactment of § 1498(a), the Supreme Court held that the government had not waived sovereign immunity for patent infringement actions sounding in tort. Schillinger v. United States, 155 U.S. 163, 170 (1894); see also United States v. Berdan Fire-Arms Mfg. Co., 156 U.S. 552, 565-66 (1895) ("Even if there were findings sufficient to show that the government had in any manner infringed upon this patent, . . . a mere infringement, which is only a tort, creates no cause of action cognizable in the court of claims."). In other words, absent a contractual relationship with the government, "a patent holder lacked a remedy for infringement by the United States." Zoltek Corp. v. United States, 672 F.3d 1309, 1315 (Fed. Cir. 2012) (en banc in relevant part). Congress responded in 1910 by enacting the precursor to § 1498(a), under which the government assumes liability for the "use or manufacture" of a claimed invention "by or for the United States without license of the owner thereof or lawful right to use or manufacture the same." 28 U.S.C. § 1498(a).

         Section 1498(a) "is an eminent domain statute, " wherein the government "has consented thereunder only to be sued for its taking of a patent license." Decca Ltd. v. United States, 640 F.2d 1156, 1167 (Ct. Cl. 1980); see also Leesona Corp. v. United States, 599 F.2d 958, 964 (Ct. Cl. 1979) (discussing § 1498's basis in eminent domain); Tektronix, Inc. v. United States, 552 F.2d 343, 346 (Ct. Cl. 1977) ("It is settled that recovery of reasonable compensation under § 1498 is premised on a theory of an eminent domain taking under the Fifth Amendment."). The government therefore remains immune from suit under the Patent Act, which provides that "[a] patentee shall have remedy by civil action for infringement of his patent." 35 U.S.C. § 281.

         Return Mail submits that because § 1498(a) is grounded in eminent domain, it cannot be a suit for "infringement." We disagree. It is true that this provision "creates its own independent cause of action, " which is "'only parallel and not identical'" to an infringement action under the Patent Act. Zoltek, 672 F.3d at 1321 (quoting Motorola, Inc. v. United States, 729 F.2d 765, 768 (Fed. Cir. 1984)). We have held that certain relief otherwise available to a patentee under the Patent Act is unavailable in § 1498(a) actions, such as § 283 injunctive relief, § 284 treble damages, § 285 exceptional case attorney fees, and § 287 damages limitations based on a failure to mark. Motorola, 729 F.2d at 768 n.3, 772. None of those distinctions, however, relates to the underlying basis of liability in a § 1498(a) suit.

         Return Mail selectively quotes from Motorola, relying on our statement that the government "is not a putative infringer but is deemed a licensee." Motorola, 729 F.2d at 772 (emphasis added). But Motorola says that the government is "not in the position of an ordinary infringer, " not that the government cannot infringe. 729 F.2d at 768 (emphasis added). In fact, Motorola has language tying § 1498(a) to infringement, stating that "the Government can only be sued for any direct infringement of a patent." Id. at 768 n.3 (emphasis added). And, to be sure, we and our predecessor court have often described § 1498(a) suits as alleging "infringement." See, e.g., Zoltek, 672 F.3d at 1327 ("[Section] 1498(a) creates a[] . . . cause of action for direct infringement by the Government or its contractors. . . . [U]nder ยง 1498(a) the Government has waived its sovereign immunity for direct infringement[] ...

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