[00:00:00] Speaker 06: The United States Court of Appeals for the Federal Circuit is now open and in session. [00:00:04] Speaker 06: God save the United States and its honorable court. [00:00:11] Speaker 00: Good morning, everyone. [00:00:12] Speaker 00: The first argued case is number 20, 1399, New Vision Gaming against SG Gaming. [00:00:20] Speaker 00: Mr. Dowd. [00:00:22] Speaker 04: Good morning, your honors, and may it please the court. [00:00:24] Speaker 04: My name is Matthew Dowd. [00:00:26] Speaker 04: And I, along with my colleagues Robert Scheffel and David Downey, represent the appellant New Vision Gaming. [00:00:33] Speaker 04: We are appealing the board's decision in two CBM proceedings. [00:00:39] Speaker 04: And we are asking for this court to vacate the board's decision on several grounds. [00:00:46] Speaker 04: I would like to start with our due process argument. [00:00:49] Speaker 04: in terms of the structural bias that is associated with the current funding and payment system associated with the initial decision-making of AIA proceedings. [00:01:00] Speaker 05: Counsel, before you get to due process under the doctrine of constitutional avoidance, if there's another way to resolve this case, we ought to do so, correct? [00:01:09] Speaker 04: Judge Moore, there is that concern about constitutional avoidance, but that doctrine applies primarily in cases [00:01:19] Speaker 04: where the court is being asked to invalidate a statute as being contrary to the Constitution. [00:01:27] Speaker 04: In this particular case, that is not what we're asking. [00:01:30] Speaker 05: What we're asking... Counsel, you're asking us to declare something unconstitutional, is that correct? [00:01:37] Speaker 04: Judge Moore, correct. [00:01:38] Speaker 04: We're asking that the internal agency procedures that have been implemented here are [00:01:45] Speaker 04: in violation of the due process clause of the Constitution. [00:01:49] Speaker 04: So in that respect, yes. [00:01:51] Speaker 05: In terms of your initial question, though, the Constitutional Avoidance Doctrine, again, primarily applies to situations where a court is asked to strike down... You have any Supreme Court cases, Mr. Dow, that suggest that the Doctrine of Constitutional Avoidance doesn't apply when you're asking us to render unconstitutional and internal agency procedure as opposed to rendering unconstitutional statute? [00:02:15] Speaker 04: Your Honor, I don't have any available at the moment. [00:02:19] Speaker 04: I'm happy to supplement after arguments. [00:02:22] Speaker 05: Okay, counsel, let's assume that I believe under the doctrine of constitutional avoidance that if there's a way to resolve a case that doesn't require reaching a constitutional issue that I should do so. [00:02:34] Speaker 05: Are there arguments you've made in this case for why we should vacate and remand that don't require us to decide a new constitutional issue? [00:02:44] Speaker 04: Judge Moore, I would emphasize that. [00:02:46] Speaker 04: Let me say one point. [00:02:49] Speaker 05: As to my question first, you can say whatever you want. [00:02:51] Speaker 05: Are there issues you've presented in this case that would allow us to vacate and remain without reaching a new constitutional issue? [00:03:03] Speaker 04: I don't believe so, Your Honor, because what we've argued is that... Mr. Dowd, are you now abandoning your Arthrex challenge? [00:03:12] Speaker 04: No, we're not abandoning the Arthrex. [00:03:14] Speaker 05: So you're not abandoning your Arthrex challenge. [00:03:16] Speaker 05: We have already decided Arthrex. [00:03:18] Speaker 05: So it does not involve our deciding a new constitutional issue. [00:03:21] Speaker 05: It's simply applying Arthrex to the facts of this case. [00:03:24] Speaker 05: And would that not allow us to vacate and remand without reaching a new constitutional issue? [00:03:33] Speaker 04: Judge Moore, I think perhaps you're correct. [00:03:36] Speaker 04: And I'm sorry, when you were asking your question, I wasn't thinking in terms of that angle of our arguments. [00:03:42] Speaker 04: I understand my colleagues on the other side have presented that argument. [00:03:46] Speaker 04: There is merit to that. [00:03:48] Speaker 04: So to the extent that the court would decide that based on the current application of this court's arthritis decision that this case can be decided, remanded to the board, and then avoid the due process argument, I believe that you are correct. [00:04:08] Speaker 04: I don't have, like I said before, I don't have authority one way or the other. [00:04:12] Speaker 04: The difficulty with that, I believe, is that it leaves the due process argument unresolved. [00:04:22] Speaker 04: My colleagues on the other side haven't necessarily, I don't believe they've argued in their briefs or pressed the argument of constitutional avoidance. [00:04:32] Speaker 04: They have suggested, to be fair, they have suggested that the case can be remanded under authorized, so we don't necessarily disagree with that. [00:04:42] Speaker 04: But in terms of deciding the due process argument, it leaves that an open question and it doesn't address the problem with both the arguments that we raise on the due process and then the forum's question clause, which if I've answered your question, I would like to turn to those two issues today. [00:05:05] Speaker 04: And I will... Okay, yes. [00:05:06] Speaker 00: Please turn to those issues. [00:05:09] Speaker 04: So I'll turn first to the due process problems in this case. [00:05:13] Speaker 04: And I would start with what this court said in Patlex over 30 years ago when Gordon Gould raised questions about the re-exam process and the two-tiered payment system associated with that. [00:05:27] Speaker 04: And the court in Patlex noted that there was merit in some of the concerns expressed by Gould. [00:05:35] Speaker 04: What we would say is that those concerns are amplified given the unique structure of the AIA proceedings, the way the institution decisions are made, the way the... Can you start getting into what you think is the concrete mechanism of biasing the board members' decisions exercising delegated institution authority? [00:06:03] Speaker 04: Judge Sharonto, I think that there are at least several points. [00:06:08] Speaker 04: I think the strongest argument though is when you look at it as a whole, and I could start with the leadership APJ and as a concrete example what occurred in the Hulu case when that was remanded. [00:06:25] Speaker 04: made a decision one way and the panel decided that the case should not be instituted. [00:06:34] Speaker 04: The presidential opinion panel then stepped in and effectively overruled the APJ panel, the initial panel. [00:06:44] Speaker 04: And then since then, the panel has now instituted in that case. [00:06:50] Speaker 04: And that's an example where you have the chief APJ [00:06:54] Speaker 04: who is essentially wearing the two hats that's similar to a situation the Supreme Court identified in Ward versus Villeges Monterey. [00:07:02] Speaker 02: And what is the Chief APJ's structural bias? [00:07:09] Speaker 04: So the Chief APJ, his structural bias is wearing the two hats both as adjudicator and as administrator of a substantial monetary budget. [00:07:19] Speaker 04: and running the PTAB as a business unit within an agency that is run as a business. [00:07:26] Speaker 04: And this is one of the key distinctions that makes this case one both unique compared to the other precedent that has been decided both by the Supreme Court and other regional circuit courts. [00:07:38] Speaker 04: And it also distinguishes this case from how the court dealt with the PTO's process and the re-exam process in Patlex. [00:07:48] Speaker 04: Since 1992, then in 1999, and then again in 2011, the law has changed the way the PTO is funded, such that it's run as a business unit, and the PTAB, and this is in the PTO's own documents, and the PTO doesn't dispute this, that it's essentially running as a business unit, so money in, money out. [00:08:14] Speaker 04: The chief APJ knows that [00:08:17] Speaker 04: its budget is tied to the revenue associated with the institution decision making, which accounts for 40% of the PTAP's AIA budget and there's 25% of the PTAP's overall budget. [00:08:31] Speaker 04: And when we look at those percentages in similar cases, such as Rose versus Village of Peninsula, [00:08:39] Speaker 04: where the district court in Ohio struck down a mayor's court. [00:08:44] Speaker 04: And one of the key points that it relied on was that an administrator who is also wearing two hats. [00:08:51] Speaker 05: Council, this is Judge Moore. [00:08:53] Speaker 05: Did you raise the due process challenges before the agency? [00:08:58] Speaker 04: Your Honor, we did not. [00:09:00] Speaker 04: And we acknowledge that we did not. [00:09:03] Speaker 04: And I think our colleagues on the other side asked for several points on that. [00:09:10] Speaker 04: Our response to that is twofold. [00:09:14] Speaker 04: When New Vision was responding to the CBM, the documents from the PTA revealing the full extent of the structural bias were not available. [00:09:24] Speaker 04: And second, probably more than twofold, but second is that I'm not entirely sure how New Vision could have gotten the documents during the PTAP proceeding or even entered them into the PTAP proceeding. [00:09:39] Speaker 04: And then the third is, and I think this is most important, is that there's really no dispute about the veracity or authenticity of the documents that we've provided that were provided by the PTO from a FOIA request. [00:09:53] Speaker 04: And I understand that this court guards the waiver issue, and rightfully so. [00:10:00] Speaker 04: Just this past week in the Qualcomm v. Apple case, the court decided the standing issue that wasn't raised below. [00:10:07] Speaker 04: The waiver is somewhat prudential. [00:10:11] Speaker 04: When it's a legal issue and there are no disputes of fact, the court... But, counsel, this isn't a legal issue. [00:10:16] Speaker 05: It's a constitutional issue. [00:10:18] Speaker 05: Don't you think that there's a difference there? [00:10:21] Speaker 05: I mean, Doctor of Constitutional Avoidance would, I think, suggest we ought not to decide a constitutional issue raised for the first time on appeal. [00:10:31] Speaker 04: Judge Moore, I won't disagree that that's where the weight of authority lies. [00:10:36] Speaker 04: In most cases, not all cases, but in most cases, the appellate court is on firm ground to avoid deciding a constitutional issue for the first time. [00:10:46] Speaker 04: But at the same time, this case is not so different from what happened in Arthrex itself. [00:10:52] Speaker 02: Is this a case in which had the issue been raised to the board and you filed a brief to the board which got sent up the chain to the chief APJ and to the director and they looked at it [00:11:15] Speaker 02: Could anybody have done anything to eliminate the, what you say is a constitutional biasing effect from the institution decision in your particular case? [00:11:29] Speaker 02: Or do you think that it's hands, that all of those officials hands were tied and they couldn't do anything about it, which was not an insignificant aspect of why we decided the Arthrex matter. [00:11:43] Speaker 04: Judge Toronto, so I'll answer your question in two ways. [00:11:48] Speaker 04: From a practical perspective, I think that there's little doubt that had we raised this issue before the PTAF, the outcome would have been that the panel would have decided that there was no institutional bias. [00:12:07] Speaker 04: I also question whether there would be any availability to run the issue up the chain, as you say. [00:12:13] Speaker 04: And if that were the case, that would actually only amplify our concerns, because what we're saying is that there's this institutional bias in terms of ensuring from the APJ leadership that enough funds flow to continue. [00:12:29] Speaker 02: Can I just ask, didn't you say, I think it's maybe on page 57 of your brief, [00:12:36] Speaker 02: that the PTO on its own accord can fix this bias problem? [00:12:43] Speaker 04: Judge, you're correct. [00:12:44] Speaker 04: We did say that they can fix it. [00:12:48] Speaker 04: We didn't say that they would or could fix it within the context of any particular CBN proceeding or AIA proceeding. [00:12:56] Speaker 04: I think those are two different issues. [00:12:58] Speaker 04: From a practical standpoint, this would involve a more elaborate evaluation of what sort of funding mechanism or what sort of decisional apparatus could be in place that satisfies [00:13:11] Speaker 04: due process and at the same time ensuring that there isn't an institutional bias side one way or the other. [00:13:18] Speaker 04: That, I don't understand that to be able to have been decided within the context of anything. [00:13:27] Speaker 04: I see that I'm into my rebuttal time if I could just. [00:13:30] Speaker 00: Please continue the thought and then I'm going to ask you also to tell us briefly about the forum selection issue. [00:13:39] Speaker 00: So please continue. [00:13:41] Speaker 04: Thank you, Judge Newman. [00:13:44] Speaker 04: So what I would say is that the PCO can fix it. [00:13:50] Speaker 04: We believe that they should fix it. [00:13:52] Speaker 04: And the best way would be through perhaps some rulemaking process. [00:13:57] Speaker 04: We haven't provided a solution to it, to the current problem. [00:14:02] Speaker 04: Perhaps it could be by dividing the decision making between [00:14:08] Speaker 04: and putting a wall between the APJs who decide the institution decision versus deciding the merits on the final written decision. [00:14:18] Speaker 04: So yes, we agree that the PPO and the agency can fix it [00:14:22] Speaker 04: But we disagree that there would be any way, either practically or legally, to fix it within the context of an AIA proceeding. [00:14:31] Speaker 04: And then one last point on your question, Judge Toronto, is that there is case law, and we have cited in our brief, that questions whether a [00:14:44] Speaker 04: board or a panel or a judge who is accused or suggested of being structurally biased can in fact solve the problem. [00:14:55] Speaker 04: Ultimately, at the end of the day, we cite Concrete Pipe, the Supreme Court case that suggests [00:15:00] Speaker 04: The injury itself is being submitted, the actual injury, the constitutional injury is the fact that your client, your proceeding is submitted to an adjudicator who has potential bias. [00:15:14] Speaker 02: Can I just pursue that for one more minute? [00:15:20] Speaker 02: So just elaborate for me on how this works. [00:15:26] Speaker 02: If there's a bias by the decision makers, at least [00:15:31] Speaker 02: maybe the initial decision makers in favor of saying yes to the institution question as opposed to no. [00:15:40] Speaker 02: Do I understand your theory is that that is because somehow they or others in a position to influence them get more money if they say yes rather than no and wouldn't that require a comparison of what [00:15:59] Speaker 02: they or the other powers that be would be doing if they said no and moved on to other matters in front of the office. [00:16:11] Speaker 02: Isn't your argument dependent on some kind of comparison like that, which I don't remember seeing any demonstration of. [00:16:22] Speaker 02: If there's plenty of business to go around and they don't do [00:16:26] Speaker 02: the trial, as it's called, they would be doing something else. [00:16:31] Speaker 02: How do we know that relevant people make less money if they do something else instead of going on to the final written decision? [00:16:41] Speaker 04: Judge Toronto, I think your question touches a little bit about [00:16:46] Speaker 04: trying to show actual bias, which the Supreme Court, both in Toomey and Ward have said, you don't have to show actual bias. [00:16:55] Speaker 04: But what I would point to is if you look at the trend, and this is two points, Your Honor, if you look at the trend of institution rates, we've focused on, if you look, we cited a graph that was provided by the PTO. [00:17:14] Speaker 04: And when you look at the institution rates early on, like the first year or so, the institution rates were extraordinarily high. [00:17:23] Speaker 04: And if we do want to extend the discussion to consideration of actual proof, then we would argue, but we haven't argued because we don't think we need to argue, but we would argue that that data point suggests that at that time, [00:17:39] Speaker 04: the board felt the need to fill up the pipeline to ensure that there was work for the APJs. [00:17:46] Speaker 04: Now, I'll also offer this, currently it's a counterfactual in that the facts don't necessarily, we haven't gotten there yet, but take for example a situation where, and my colleagues on the other side explain that institution rates are declining and we don't disagree with that, but if we get to the point [00:18:08] Speaker 04: that institution rates are declining so much whereby customers, like the PTO customers, stop using this process, that will be problematic. [00:18:18] Speaker 02: And that, it goes more to the structure of... But is there any case in this area, either of the, any of the three Supreme Court cases, I guess all of them involve mayors, and two of them found a problem, right, and one of them didn't. [00:18:36] Speaker 02: Is there, is there any case that finds an unconstitutional structural bias, um, not based on an individual adjudicators, um, possible self enrichment, but on this more general idea of wanting to help be part of a growing administrative empire? [00:19:00] Speaker 02: I, I, is there any case like that? [00:19:05] Speaker 04: Judge Tarantino, I'd say that there is no exact case on point or on all fours, given the facts that we have in this case, because, again, the current funding situation for the PTO is extraordinarily unique. [00:19:19] Speaker 04: The closest case I do think is Patlex, right? [00:19:24] Speaker 02: Tell me about why this is meaningfully different from the DC Circuit's FERC case. [00:19:32] Speaker 04: Delaware Riverkeeper, Your Honor. [00:19:36] Speaker 04: And so there are important distinctions. [00:19:40] Speaker 04: In that case, the DC Circuit emphasized that FERC's funding was entirely beholden on Congress's appropriations. [00:19:51] Speaker 02: Is that not true here? [00:19:55] Speaker 04: So I know my colleague from the PTO argues it's true, but from a practical perspective, [00:20:01] Speaker 04: And this is where it becomes important to understand that the issue is just not causing bias, but the appearance of whether the process is unbiased or not. [00:20:10] Speaker 04: Here, we know for a fact that for the past several years, the PTO, through the current statutory scheme, essentially gets all of the money that it generates through its decisions. [00:20:25] Speaker 02: Because Congress each year decides that that's a good idea. [00:20:29] Speaker 04: Yes, correct, and that's what Congress wanted it to do. [00:20:33] Speaker 04: They structured it so that essentially the revenues that are generated one year become the budget for next year. [00:20:43] Speaker 02: Am I remembering right that the statute allows this special treasury fund to be spent by the PTO only, subject to an appropriation? [00:20:57] Speaker 02: I may not have quite the language be quoting, but I thought it's subject to the appropriation. [00:21:03] Speaker 02: Otherwise, there might be an anti-assignment offense being committed. [00:21:09] Speaker 04: Correct, Judge Toronto. [00:21:10] Speaker 04: I believe you're correct. [00:21:12] Speaker 04: I don't know if that's the precise language. [00:21:14] Speaker 02: I think I'm remembering right, and the government can correct me if I'm wrong, that the government may, I think, have several [00:21:26] Speaker 02: responses, but I think it's the government's view that it is a sufficient response that ultimately Congress is in charge of all of this. [00:21:36] Speaker 02: And as long as Congress is in charge of all of this, the structural bias that was found improper in the two Supreme Court cases, at least, just isn't present full stop. [00:21:53] Speaker 02: That everything else is [00:21:55] Speaker 02: just too attenuated, complicated, otherwise insufficient. [00:22:03] Speaker 04: Right. [00:22:03] Speaker 04: So Judge Trump, I don't think that's quite right in terms of how the Supreme Court decided to me and Ward and also more getting back to Delaware Riverkeeper. [00:22:15] Speaker 04: It wasn't the fact that Congress said it was okay, because if that were really the holding, then we could get to the next step where, well, if Congress has said anything is okay, then you can't have a violation of due process, but we know that's not correct. [00:22:31] Speaker 04: What the D.C. [00:22:33] Speaker 04: Circuit pointed out in particular in Delaware Riverkeeper was that it was too tenuous because the agency essentially had no expectation [00:22:43] Speaker 04: that they would receive funds if they started granting permits under its authority to raise more money. [00:22:51] Speaker 04: That is not the situation here. [00:22:53] Speaker 04: And here's another important distinction between, well two more important distinctions between our case and Delaware Riverkeeper. [00:23:03] Speaker 04: One, there is no indication that in that case any of the adjudicators [00:23:09] Speaker 04: were or had the potential to get bonuses based on productivity. [00:23:15] Speaker 04: We do have that here. [00:23:17] Speaker 04: There is also, and that particular point, again, also distinguishes... Let me just ask. [00:23:24] Speaker 02: So part, I guess, of what I was thinking is something like this, and just correct the picture. [00:23:30] Speaker 02: If you look at the individual APJs, they might get bonuses, but they're not in any way in charge of the money. [00:23:38] Speaker 02: On the other hand, there are two possible people in charge of the money, I suppose. [00:23:43] Speaker 02: Again, correct me if I'm wrong. [00:23:45] Speaker 02: The chief APJ and the director. [00:23:47] Speaker 02: But they're not going to get bonuses. [00:23:53] Speaker 02: So as long as both those things are true and there's not in one hand the power to make the decision, get bonuses, [00:24:05] Speaker 02: and control the money, why doesn't that eliminate the problem? [00:24:16] Speaker 04: So Judge Taranto, I think it's the last point, the second point about the folks who are in charge of the money not getting bonuses, which I think is not quite right. [00:24:26] Speaker 02: Is the director going to get money? [00:24:31] Speaker 04: Let me correct what I just said. [00:24:33] Speaker 04: I agree with that proposition, but it's not consistent with what the Supreme Court said in Ward. [00:24:39] Speaker 04: Because the Mayor didn't have any personal financial interest. [00:24:47] Speaker 04: It was the fact that he was wearing two hats and then making decisions that would benefit the village council in that case. [00:24:56] Speaker 04: But in our case, it's the fact that we have leadership APJs [00:25:01] Speaker 04: who are making adjudicatory decisions and also making decisions about the finances, right? [00:25:11] Speaker 04: So in Ward, and this is also identified, I believe it was in Marshall versus Jericho as well, but you don't have to have a direct pecuniary interest [00:25:26] Speaker 04: to see a due process violation. [00:25:30] Speaker 05: Mr. Gabb, this is Judge Moore. [00:25:31] Speaker 05: Why doesn't 314D bar judicial review of your forum selection clause issue? [00:25:39] Speaker 04: Well, Judge Moore, I think our argument is that our review is something that is not associated with the merits of the institution decision. [00:25:52] Speaker 04: We believe, if you read QOZO, QOZO specifically cars out, or I think it's SAS or QOZO, APA review under 706A or C. [00:26:02] Speaker 04: 706A deals with arbitrary and capricious. [00:26:06] Speaker 04: What we're saying here is that it is arbitrary and capricious for the board to completely ignore the forum selection clause. [00:26:15] Speaker 04: And when you read the board's decision, both the initial decision [00:26:19] Speaker 04: at appendix, page seven and eight, and then if you look again at appendix, I believe it's 70 to 77. [00:26:26] Speaker 04: The board gave zero consideration to the forum selection clause. [00:26:33] Speaker 04: The other side doesn't dispute that there was a forum selection clause. [00:26:37] Speaker 04: The other side doesn't dispute that they were barred from bringing a PTAP decision. [00:26:42] Speaker 04: What we're saying is that it's an abuse of discretion to undertake an erroneous [00:26:48] Speaker 04: legal analysis. [00:26:50] Speaker 04: And that's what has happened here. [00:26:52] Speaker 04: And that erroneous legal analysis essentially has nothing to do with the merits of patentability or patent eligibility. [00:26:59] Speaker 04: This is why we take it different from the other cases that this court has decided. [00:27:05] Speaker 04: Now, if you do decide that the court doesn't have jurisdiction to review that type of dispute and it should be dismissed, then we understand [00:27:18] Speaker 04: But up until this point, this court, I don't believe, has ever gone that far to say that the board can entirely ignore a forum selection clause. [00:27:29] Speaker 04: And that's what we're saying. [00:27:31] Speaker 04: That's the answer to your question, Judge Moore. [00:27:36] Speaker 00: Well, let's take another moment on the merits of the forum selection issue on the assumption that we may feel that we need to resolve it. [00:27:51] Speaker 04: Okay, Judge Newman, unless there are other questions, what I would say is that I know the case, the Federal Circuit has decided the Dodo case and what the [00:28:02] Speaker 04: PTAB did in our view is essentially say that the PTAB has no ability to even consider the foreign selection clause. [00:28:14] Speaker 04: And what we're saying is that the proper legal analysis, again, not doing anything with the merits of the likelihood of success on invalidating any of the claims, was whether this particular party was, in fact, a party that could have [00:28:32] Speaker 04: and was permitted to bring a PTAT proceeding. [00:28:37] Speaker 04: Under the agreement, SG contracted away that right for valuable consideration. [00:28:45] Speaker 04: We have a problem with a board's analysis when it condones a private party's action that is, in essence, a breach of that contract. [00:28:56] Speaker 04: In my view, I don't see anywhere in the AIA where Congress intended to enable a federal agency to then enable a private party to breach a private contract. [00:29:09] Speaker 04: This is not a question about whether SG Gameman would have or was likely to proceed on the merits of its petition. [00:29:18] Speaker 04: It was a question that was completely divorced from the substance of patentability or patent eligibility. [00:29:25] Speaker 04: And on that front, we see that this case is distinguishable from this court's prior precedent. [00:29:32] Speaker 04: We haven't seen any case. [00:29:34] Speaker 04: Maybe there's a case pending. [00:29:36] Speaker 04: But I'm not aware of any case that has gone so far to say and to authorize the board to completely disregard a foreign selection clause. [00:29:45] Speaker 04: I understand my colleagues' arguments on the other side. [00:29:49] Speaker 04: If the court does come out and agree with my colleague, then that will be the law. [00:29:53] Speaker 04: But until now, I'm not aware of any precedent that so holds. [00:30:00] Speaker 00: Okay. [00:30:00] Speaker 00: All right. [00:30:01] Speaker 00: Let's hear from the other side, and we'll save your rebuttal, Mr. Dowd. [00:30:04] Speaker 04: Thank you, Your Honor. [00:30:07] Speaker 00: Okay. [00:30:08] Speaker 00: We'll hear from Ms. [00:30:10] Speaker 00: Gersheng. [00:30:12] Speaker 06: May it please the court, I'm Dana Karasong for the government, and I'm here to address the constitutional and reviewability issues, sharing time with SG Gaming. [00:30:22] Speaker 06: I'd like to start with the structural due process argument, which, as I think the court noted, is waived. [00:30:29] Speaker 06: That whole argument is based on a factual premise, that APJs have some kind of incentive to institute when they shouldn't. [00:30:38] Speaker 06: And there is no record here. [00:30:40] Speaker 06: because they didn't present this to the APJs, who are the people who know best how their compensation works and what incentives they face. [00:30:50] Speaker 02: Do you think that you can't win or shouldn't win on the current record? [00:30:59] Speaker 06: No, we absolutely win on the current record. [00:31:02] Speaker 06: There are three facts that we all know to be true, and they settle this case. [00:31:07] Speaker 06: The first [00:31:08] Speaker 06: APJs do not make more money if they institute. [00:31:13] Speaker 06: An institution decision counts exactly the same as a non-institution in the performance review process. [00:31:20] Speaker 06: Also, these proceedings are currently being conducted at a loss, and the PTAD has more than enough work. [00:31:29] Speaker 06: The APJs have all the assignments that they want. [00:31:31] Speaker 00: Right, but how do you reconcile this with the [00:31:35] Speaker 00: widespread bonus system for APJs? [00:31:40] Speaker 06: Yeah, so the APJ bonus system, just like the mayor in Dugan, APJs get paid the same amount no matter how they decide their decisions. [00:31:54] Speaker 06: Their performance reviews take into account the number of decisions that they issue as one of four factors, but not the outcome. [00:32:04] Speaker 06: It is not inconstitutional to have a bonus system that rewards people who work hard and do good work. [00:32:10] Speaker 06: So in that process, a decision to institute counts exactly the same as a decision not to institute. [00:32:18] Speaker 00: So what percentage of the APJs receive a bonus, a year-end bonus? [00:32:26] Speaker 06: Yeah, you know, again, that goes back to the value of having a record because [00:32:33] Speaker 06: I don't think the answer to that is in this record. [00:32:36] Speaker 00: No, that's a simple matter of arithmetic. [00:32:38] Speaker 00: All of this is on the public record. [00:32:39] Speaker 00: I just haven't done any calculations. [00:32:44] Speaker 00: So do you know the answer? [00:32:45] Speaker 06: I believe it's about two-thirds of APJs receive a bonus. [00:32:50] Speaker 06: Again, these are small bonuses. [00:32:53] Speaker 06: We're not talking law firm bonuses. [00:32:54] Speaker 06: They're less than 6% of the average APJs pay. [00:32:57] Speaker 06: And one of the factors is the amount of work [00:33:02] Speaker 06: the APJ does, but the PPAP has plenty of work. [00:33:07] Speaker 06: They have a backlog of over 7,000 ex parte appeals, and the APJs get decisional unit credit for those as well. [00:33:17] Speaker 06: Their AAA petitions are increasing. [00:33:21] Speaker 06: There are other kinds of work that you can do. [00:33:24] Speaker 06: that also gets taken into account in the performance review system. [00:33:28] Speaker 05: Council, if you could touch more, isn't the bonus pool for APJs and the way in which it's allocated awfully similar to the same one that exists for examiners? [00:33:38] Speaker 05: And if we were to reach this and suggest there's a problem, couldn't it potentially be an incredibly widespread problem and not just limited to APJs? [00:33:46] Speaker 05: I guess my question is, isn't the way you all do these bonuses for APJs awfully similar to the way you do it for all the employees at the office? [00:33:55] Speaker 06: There are a lot of similarities, yes, Your Honor. [00:33:58] Speaker 06: The effect of a structural due process decision here could be very concerning, right? [00:34:08] Speaker 06: It's always easy to allege that somebody has some kind of incentive because everything an agency does indirectly affects the agency and in some sense the agency staff, right? [00:34:19] Speaker 06: And you can always draw some kind of chain of reasoning. [00:34:22] Speaker 06: And agencies would be really hamstrung if it worked that way. [00:34:26] Speaker 06: And that's why the Supreme Court has looked for direct substantial pecuniary link or really direct control over the finances. [00:34:35] Speaker 02: And again, the Supreme Court... What was the direct link in Ward? [00:34:39] Speaker 02: And then also, just so that I don't forget, at least as I was writing down, you said you had three things that were sufficient now without a factual record. [00:34:48] Speaker 02: And I got the first two, they don't make more money by saying yay as opposed to nay. [00:34:53] Speaker 02: They got plenty of work so they, you know, they're not losing out and sitting idly so they can't make their quota. [00:34:59] Speaker 02: But I didn't get the third thing or you may have said it. [00:35:02] Speaker 02: I didn't write it down. [00:35:04] Speaker 06: The third one is these proceedings are currently being conducted at a loss. [00:35:08] Speaker 06: So if you're worried about the agency's budget and trying to pad the agency's coffers, you wouldn't do it by having more proceedings that are being conducted at a loss. [00:35:19] Speaker 06: So in terms of control over money, we have Ward on the one hand. [00:35:26] Speaker 06: That was one person. [00:35:27] Speaker 06: The mayor had executive control and had control over the finances, was responsible for the finances. [00:35:36] Speaker 06: The touchstone of this case is really Dugan. [00:35:39] Speaker 06: In Dugan, the mayor was a member. [00:35:42] Speaker 02: I think Mr. Dowd said that in Ward, the mayor was not [00:35:49] Speaker 02: personally getting richer by making more of these decisions, which I gather you don't disagree with, that there wasn't a personal enrichment of the mayor. [00:36:04] Speaker 02: What was the mechanism by which the Supreme Court, that the mechanism of bias for the mayor in that case that isn't present here? [00:36:17] Speaker 06: Yeah, so in Ward, the Supreme Court said that that mayor who was solely responsible and accountable for the city's finances and was making the decisions, he wasn't enriching himself, but because of, you know, it all came down to him, he was accountable for the finances, that that was enough. [00:36:38] Speaker 06: But there are two cases from the Supreme Court where the mayor wasn't [00:36:44] Speaker 06: being enriched and on one hand we have Ward on the other hand we have Dugan and that's really our touchstone here. [00:36:50] Speaker 06: The mayor in Dugan wasn't solely responsible he was a member of a five-person board that decided what to do with the money and one of the things the board did with that money was pay his salary and the Supreme Court said that isn't enough that isn't enough control and this argument that something is [00:37:14] Speaker 06: is good for the agency as a whole is one. [00:37:20] Speaker 06: Please continue. [00:37:22] Speaker 06: Please answer the question. [00:37:24] Speaker 06: Okay. [00:37:24] Speaker 06: So this argument that something that is good for the agency as a whole is something that has been rejected over and over starting with Dugan where, you know, the town does better with money and the mayor can ask for a future raise if there's more money in the budget. [00:37:40] Speaker 06: Also, Delaware Riverkeeper, the D.C. [00:37:42] Speaker 06: Circuit said, you know, sure, more pipelines might mean more money, but it wouldn't be consistent with Dugan to call that a structural due process problem. [00:37:50] Speaker 06: In KIPAP, the Ninth Circuit addressed a case where money went to build the judges a nice new courthouse. [00:37:58] Speaker 06: And the Ninth Circuit said, you know, judges are only human. [00:38:00] Speaker 06: Obviously, they would prefer a nice new courthouse. [00:38:03] Speaker 06: That doesn't create a structural due process problem. [00:38:07] Speaker 06: In Doolin, the money went to fill the agency's depleted insurance fund. [00:38:12] Speaker 06: The Fourth Circuit said, that's not a problem. [00:38:16] Speaker 06: Van Harkin, parking ticket adjudicators got contracts from the director of revenue who would seem to have an incentive to take on revenue. [00:38:24] Speaker 06: The Seventh Circuit said, you know, the mere fact that an administrative or adjudicative body derives financial benefit from the fines and penalties imposed is not in general a violation of due process. [00:38:38] Speaker 06: So I could go on. [00:38:40] Speaker 06: There are a lot of these cases rejecting this argument. [00:38:42] Speaker 06: There are none accepting it. [00:38:44] Speaker 06: The APJs, even the three in leadership roles, have nothing like the level of direct control, even that was present in Dugan, where the mayor was in a room with five other people who were making the decision. [00:39:00] Speaker 06: Right? [00:39:00] Speaker 06: They prepare a budgetary proposal. [00:39:02] Speaker 02: Can I just ask this question? [00:39:04] Speaker 02: So the institution decisions that the APJs are making is they are making as delegates of the director. [00:39:15] Speaker 02: Does that play a role? [00:39:17] Speaker 02: That is if one just treated these decisions as the directors because the director can withdraw the delegation at any time and would that make any difference? [00:39:30] Speaker 06: If the argument is that the director who manages an agency with a $3 billion budget would want to make the PTO look bad by erroneously instituting proceedings to get $27,000 from the agency, that's not credible. [00:39:46] Speaker 06: But even the director has far less influence over this than the mayor in Dugan, which the Supreme Court told us it wasn't enough, where it was one person and a five-member board, right? [00:40:00] Speaker 06: It has to work with the Department of Commerce. [00:40:02] Speaker 06: It has to work with the advisory committees. [00:40:04] Speaker 06: Submit the budget to OMB. [00:40:06] Speaker 06: The President ultimately sends it to Congress. [00:40:08] Speaker 06: Congress ultimately decides how much money the agency gets. [00:40:15] Speaker 06: The agency can't spend more than is appropriated. [00:40:19] Speaker 06: That's 35 USC 42C1. [00:40:22] Speaker 06: So this is a much more complicated scheme than the five-person board. [00:40:28] Speaker 06: in Dugan, which we know isn't in mass. [00:40:31] Speaker 06: And it's not really a surprise, given how complicated federal spending is, that the four cases Courts of Appeals have seen involving the federal government, the Courts of Appeals have never found a structural due process problem in a federal process. [00:40:49] Speaker 06: That's the D.C. [00:40:50] Speaker 06: Circuit in Riverkeeper, this Court in Patelix, the Fourth Circuit in Doolin, and the Fifth Circuit in Benito's Villa Forte. [00:40:59] Speaker 06: So if there are no, I'm happy to answer other questions, but I know I'm well over the time, but I agree, too, with COMPLA for SCGAMING. [00:41:07] Speaker 00: Okay, any more questions for Ms. [00:41:09] Speaker 00: Karas-Wright? [00:41:10] Speaker 02: Not for me. [00:41:12] Speaker 00: All right. [00:41:14] Speaker 00: Thank you. [00:41:15] Speaker 00: Okay, just one more. [00:41:17] Speaker 00: We'll hear from Mr. Kelly. [00:41:20] Speaker 03: May it please the Court, good morning, Your Honors. [00:41:23] Speaker 03: I will start with the Forum Selection Clause issue. [00:41:26] Speaker 03: Mr. Dowd said this morning that the board completely ignored the forum selection clause. [00:41:31] Speaker 03: That's not true. [00:41:32] Speaker 03: The board analyzed the forum selection clause on the terms that New Vision argued it, which was that the board could not institute the review. [00:41:41] Speaker 03: Nowhere, anywhere before the board did New Vision argue that the board should exercise its discretion to deny the petition. [00:41:49] Speaker 03: That simply wasn't argued. [00:41:51] Speaker 00: Is that a significant distinction? [00:41:55] Speaker 00: Isn't it important to know whether or not the parties can choose a forum for adjudication of certain issues? [00:42:07] Speaker 03: Well, Your Honor, the distinction I was making was the distinction between deciding an issue that New Vision raised and speculating on a different argument New Vision could have raised. [00:42:17] Speaker 00: Yes, I agree. [00:42:18] Speaker 00: My question for you is, does that end it? [00:42:23] Speaker 03: It ends it here. [00:42:23] Speaker 03: Yes, Your Honor. [00:42:25] Speaker 03: So the problem with the form selection... Even if it came out possibly wrong? [00:42:29] Speaker 00: Your Honor, you couldn't have... Let's say we accept all of this. [00:42:37] Speaker 00: decide for one reason or another that perhaps it needs to go back and the board then conducts a full trial and all of the proceedings and all else and eventually we reach a tribunal that has authority to look at the forum selection clause and decide you're in the wrong forum. [00:43:02] Speaker 03: Your Honor, respectfully, the jurisdiction of this Court is to review the Board's decision, and Congress in Section 314D has said institution decisions are not reviewable. [00:43:15] Speaker 03: So putting aside for a second the merits of the Board's analysis of the Forum Selection Clause issue, as New Vision argued it, that's simply not appealable at this point. [00:43:25] Speaker 03: That's an institution decision that's not appealable. [00:43:29] Speaker 03: I would push back on your honor's premise that this court is the tribunal in which this issue can be relitigated. [00:43:38] Speaker 03: But again, what they're attempting to relitigate is something they never even argued to the board. [00:43:44] Speaker 03: They never mentioned a discretionary denial possibility. [00:43:47] Speaker 03: And it's not that they couldn't have raised that issue. [00:43:50] Speaker 03: We cited before the board a board decision called Dot Hill. [00:43:54] Speaker 03: And the analysis of that decision is in the joint appendix at pages 986 to 988. [00:44:01] Speaker 03: And you'll see there the board was confronted with a similar issue where the party made two arguments. [00:44:07] Speaker 03: The party first said. [00:44:08] Speaker 00: So where in your theory would the forum selection issue ultimately be decided? [00:44:16] Speaker 00: Who has authority to review that question? [00:44:22] Speaker 03: Well, the scope of the Forum's selection clause issue should be decided by a court competent to review that, which would be a district court and specifically the district court that the collateral case is already in front of. [00:44:34] Speaker 03: But I would point out to your honor that at the time at which this underlying the CBMs were instituted, New Vision went back to that court, that district court in Nevada, and they didn't say, hey, [00:44:48] Speaker 03: stop what SG Gaming is doing, they said, please stay your proceedings. [00:44:53] Speaker 03: Stop what you're doing here in Nevada because the board is going to review the patentability issue. [00:44:59] Speaker 03: And that's a more efficient way of doing it. [00:45:01] Speaker 03: That's not what we said. [00:45:03] Speaker 03: It's what NuVision said. [00:45:05] Speaker 03: And that's in their opening brief at page 13. [00:45:08] Speaker 03: They requested a stay. [00:45:09] Speaker 03: So Your Honor, is there a method for a patentee like NuVision to approach this case differently? [00:45:18] Speaker 03: There may have been. [00:45:19] Speaker 03: May I continue? [00:45:21] Speaker 00: Please continue. [00:45:23] Speaker 03: Thank you. [00:45:24] Speaker 03: There may have been a way for them to handle it and we see an example of that in the Dodo case situation where the party got an injunction and in fact the petitioner withdrew the petition. [00:45:36] Speaker 03: But here, that's not what happened. [00:45:39] Speaker 03: They didn't go to the district court and seek any relief like that. [00:45:42] Speaker 03: They sought the opposite type of relief. [00:45:44] Speaker 03: And Your Honor, just [00:45:46] Speaker 03: Baldly speculate. [00:45:48] Speaker 03: Yes. [00:45:48] Speaker 05: The CTO always has the discretion not to entertain a particular IPR for almost any reason, or in this case, the CBM. [00:45:58] Speaker 05: Isn't that right? [00:46:04] Speaker 03: Your Honor, I can't agree that they have the discretion to deny a petition for any reason. [00:46:10] Speaker 03: I know that that might be their position. [00:46:12] Speaker 03: I don't necessarily agree with that. [00:46:14] Speaker 03: But yes, they have discretion. [00:46:15] Speaker 03: This court has said it and I'll agree that the discretion is broad. [00:46:19] Speaker 05: Okay, so they have broad discretion. [00:46:21] Speaker 05: Does the party need to point that out to them and specifically site 314A? [00:46:27] Speaker 05: in every case or isn't it sort of doesn't the PTO know by now in light of our precedent that it's got broad discretion? [00:46:35] Speaker 05: I guess I'm really trying to go to the heart of your waiver point. [00:46:40] Speaker 05: You're upset they didn't point to 314A in particular and acknowledge and point out to the director his discretion. [00:46:49] Speaker 05: But do you think that argument really has to be made in every case? [00:46:55] Speaker 03: Absolutely. [00:46:56] Speaker 03: Absolutely. [00:46:56] Speaker 03: And I'm not making the argument here today, Judge Moore, that the board is not aware of its discretion. [00:47:02] Speaker 03: I think any person watching the board's activities is well aware that the board knows that they have discretion. [00:47:08] Speaker 05: The issue is how that discretion should be used and how the board should... In your view, though, instead of just arguing this with bars, they should have said, in light of these factors, you should just exercise your discretion not to entertain it. [00:47:22] Speaker 03: They, right, they should have argued whatever factors they think suggest that this case or that these petitions should not have been granted. [00:47:30] Speaker 03: That's exactly what the board requires parties to do an NHK fintive. [00:47:34] Speaker 03: They tell petitioners, set aside part of your petition and explain to us how we should use our discretion. [00:47:40] Speaker 03: And so the board, even if it has discretion, party has to tell the board why it is that it would be better for the board to deny than to grant. [00:47:51] Speaker 03: Because, for example, in this case, if they said you should deny, there would be perhaps arguments that could be made the other way. [00:47:59] Speaker 03: But that wasn't what they said to the board. [00:48:01] Speaker 03: What they said to the board is that it was prevented from instituting. [00:48:08] Speaker 05: So your argument is it's really unfair to your client, in particular, if we were to entertain this discretion argument, because you may well have had arguments to make sort of policy-oriented or overall workload-oriented or whatever that weren't simply directed to whether it's barred or not, but were directed to what a good practice would be vis-a-vis granting or denying based on discretion. [00:48:33] Speaker 05: And you didn't have an opportunity to make those arguments. [00:48:35] Speaker 05: Is that right? [00:48:37] Speaker 03: uh... it's more than that your honor it's that the board didn't have an opportunity to decide it so there's nothing for this court to review regardless of what we might have said we don't know what the board would have said we don't know if the board would have said absolutely will deny it or you know we don't think this is ever a discretionary issue we just don't know yes your honor we couldn't respond to that but more importantly the board couldn't respond to that and and that is really the heart of the forfeiture doctrine right is that [00:49:07] Speaker 03: A reviewing tribunal should at least be given the opportunity to make a decision when it's appropriate to do so. [00:49:12] Speaker 03: I would submit two things, Judge Moore. [00:49:16] Speaker 03: First, there's nothing for this court to review when it comes to discretion because it was never argued. [00:49:22] Speaker 03: Secondly, and this brings me back to my initial point, this is not a reviewable issue. [00:49:27] Speaker 03: I don't know how this court would even grapple with a review of a discretionary issue. [00:49:32] Speaker 03: Just from what I can see watching the court, it has declined every single time to grapple with the scope of the discretion and specifically how it was exercised in any individual case. [00:49:42] Speaker 03: So I don't even begin to know how the court would review a discretionary decision, having never done so. [00:49:50] Speaker 00: Okay. [00:49:51] Speaker 00: Any more questions for Mr. Kelly? [00:49:54] Speaker 01: No. [00:49:56] Speaker 00: All right. [00:49:56] Speaker 00: Thank you, Mr. Dowd. [00:49:58] Speaker 00: You have rebuttal time. [00:50:01] Speaker 04: Thank you, Your Honor. [00:50:03] Speaker 04: Let me respond to a couple of points that my colleague, Mr. Kelly, said. [00:50:07] Speaker 04: In terms of our request to stay the proceedings in the district court, that was a request to partially stay. [00:50:14] Speaker 04: And there's no question that New Vision at the time thought that would be the most efficient route, because it asked to partially stay the patent proceedings while it went to the board. [00:50:27] Speaker 04: to try to explain to the board that, given the forum selection clause, the board should not institute the proceeding. [00:50:34] Speaker 04: It's just a slight clarification that we've made in our brief. [00:50:38] Speaker 04: But in terms of SG's argument about us waiving a particular argument or us having to explain to the board that it has discretion to decide this issue, I think, at worst, New Vision's brief arguments may have been inartful. [00:50:56] Speaker 04: But there is no question that the thrust of the argument was that, given a form selection clause, the board should not institute. [00:51:05] Speaker 04: And whether that becomes a per se rule or a rebuttable presumption or part of the discretion, it was all the same argument. [00:51:15] Speaker 04: So we have never really waived that argument. [00:51:19] Speaker 04: And if I may, I'd like to respond to two points from my colleague from the PTO. [00:51:26] Speaker 04: So the PTO identified several cases, Capet, Doolin, Van Harkin, that purportedly support their side of the argument. [00:51:36] Speaker 04: What I would suggest and emphasize is that how our case is different is that you have leadership APJ who are wearing two hats are in control of a substantial portion of the board's revenues and budget. [00:51:53] Speaker 04: And in this respect, [00:51:54] Speaker 04: This case is probably more like the reasoning that was applied by the Fifth Circuit in two recent cases in 2019, and that's Caliste versus Cantrell and Kane versus White. [00:52:07] Speaker 04: And I see my time is up. [00:52:09] Speaker 00: Please continue the thought. [00:52:11] Speaker 04: Thank you, Judge Newman. [00:52:13] Speaker 04: In Kane versus White, for example, Judge Graves explained that even though none of the judges received any benefit, any personal benefit, [00:52:22] Speaker 04: to the fines and fees that were imposed during the court proceedings, the judges indirectly ignored a benefit because the funds went through a judicial fund, and those funds helped support the judge's staff and courtroom expenses. [00:52:42] Speaker 04: So in this respect, it's very similar to Cain versus White and Cleve versus Cantrell. [00:52:49] Speaker 04: I will, of course, acknowledge that those are not federal agency decisions, and I'll end on one last point in that of all of the cases that we've reviewed, all the cases that have been raised before this court, and in particular, you know, all of the other agencies and their statutory schemes that are set forth, I believe it's in footnote seven in the PTO's brief. [00:53:12] Speaker 04: None of those instances involve a federal agency that is statutorily structured to operate as a business. [00:53:21] Speaker 04: And that is one element that is critically important here. [00:53:25] Speaker 04: And when you see an agency operating as a business, the problem is you have essentially a pay for play system where petitioners and patent owners [00:53:37] Speaker 04: depending on the circumstances, they see the ultimate decision or even the initial decision somewhat affected by business considerations. [00:53:49] Speaker 04: In the private sector, there's not a problem with that. [00:53:52] Speaker 04: But in the government sector, that raises substantial problems of the appearance of impartiality. [00:53:58] Speaker 02: Does this label as a business do any [00:54:04] Speaker 02: Well, what concrete work does that do? [00:54:07] Speaker 02: I mean, it's kind of a nice, helpful word from your perspective, but it seems to me it by itself doesn't actually say anything at all about the concrete operations, all of which I think we've discussed fairly extensively here. [00:54:27] Speaker 02: So I'm not sure that this word, that this phrase as a business [00:54:31] Speaker 02: is helpful except for its sound quality, which doesn't seem like it does any work. [00:54:43] Speaker 04: Judge Toronto, I'd respectfully push back a little bit on that because [00:54:48] Speaker 04: it's much more than a sound bite because it really goes to the flow of money to and from the agency. [00:54:56] Speaker 04: And this is what distinguishes our case from all of the cases that the government does cite that in their view rule against us. [00:55:06] Speaker 04: When you have an agency, and particularly when you have the PTAB itself running as a business unit, the leadership and even the APJs, they know that [00:55:17] Speaker 04: their finances must balance. [00:55:21] Speaker 04: And that's one thing that particularly distinguishes our case from all the other federal agency cases, including Delaware Riverkeeper. [00:55:29] Speaker 04: With that, Your Honor, unless there are any further questions, I thank you for the generosity and the time today, and I will... Any more questions? [00:55:38] Speaker 00: Anything else from Mr. Dodd? [00:55:40] Speaker 00: No. [00:55:41] Speaker 00: Okay. [00:55:41] Speaker 00: Thanks to all three counsels. [00:55:43] Speaker 00: The case is taken under submission.