“The reasoning in Carr suggests that patent practitioners should not assume that they have the same leeway that the claimants in Carr had…. Constitutional challenges to agency action should be preserved before the agency, except in exceptional circumstances.”
On April 22, 2021, the United States Supreme Court issued a decision in Carr v. Saul, which dealt with a constitutional Appointments Clause challenge to Administrative Law Judges (ALJs) under the Social Security Administration (SSA). In particular, the issue in Carr was whether claimants for disability benefits had forfeited their Appointments Clause challenges by failing to raise those constitutional challenges before the agency.
The Supreme Court has now ruled that the claimants’ challenges were not forfeited. The decision favoring the claimants was unanimous, although the Court was not quite unanimous on the legal bases for the ruling. The question to be addressed in this essay is what effect, if any, Carr has on practice before the United States Patent and Trademark Office (USPTO); and in particular, whether constitutional challenges must be raised before the agency lest those challenges be forfeited.
Although the Court did not address the issue of patents or the USPTO, the reasoning in Carr suggests that patent practitioners should not assume that they have the same leeway that the claimants in Carr had. On the contrary, patent practitioners should continue to be mindful that constitutional challenges to agency action should be preserved before the agency, except in exceptional circumstances.
A Little History
Last year, the United States Supreme Court granted certiorari in two cases that appeared to have similar legal issues. Shortly before granting certiorari in Carr, the Court granted certiorari in the case now denominated as United States v. Arthrex, Inc., involving a constitutional challenge to the USPTO’s administrative patent judges under the Appointments Clause. In granting certiorari in Arthrex, the Court expressly decided not to consider the question of whether constitutional arguments need to be preserved before the USPTO.
About a month after granting certiorari in Arthrex, the Court granted certiorari in Carr, which at first glance seemed to involve Appointments Clause questions similar to Arthrex. Further, Carr would address an issue excluded from Arthrex, namely, whether “claimants seeking disability benefits under the Social Security Act must exhaust Appointments Clause challenges before the Administrative Law Judge as a prerequisite to obtaining judicial review.”
Because two cases were accepted for consideration by the Court at around the same time and seemingly involving similar legal issues, some people wondered what impact, if any, Carr might have for patent practitioners. Although Arthrex has yet to be decided (and the Arthrex case is beyond the scope of this essay), now that the Supreme Court has decided Carr, the impact can be assessed.
As I have previously written, constitutional arguments ordinarily should be made to the USPTO, lest those arguments be deemed forfeited. Even though Carr held that the claimants did not need to preserve these particular constitutional challenges before the SSA, patent practitioners ought not to expect Carr to change that general rule. On the contrary, patent practitioners should preserve constitutional arguments before the USPTO, or the challenges are at risk of being deemed forfeited.
Inquisitorial v. Adversarial
From the outset, it was recognized that the claimants’ dealings with the SSA involved considerations that may be unlike dealing with other agencies (including the USPTO). Those differences, according to the Court in Carr, contributed directly to its holding. The most significant factor is that the particular proceedings before the SSA are “inquisitorial” rather than “adversarial.”
The Court does not give much guidance into the question of how one can tell whether an agency proceeding is inquisitorial, but this distinction makes all the difference in this case. Writing for the majority, Justice Sotomayor said: “The critical feature that distinguishes adversarial proceedings from inquisitorial ones is whether claimants bear the responsibility to develop issues for adjudicators’ consideration.” In an adversarial proceeding, there may be a “general rule” that issues be properly preserved for judicial review, an obligation that Justice Sotomayor explained was a matter of “issue exhaustion” (and not a matter of “exhausting administrative remedies,” which the claimants had done).
In an inquisitorial proceeding, the obligation to preserve issues for review is significantly less than in an adversarial proceeding.
Although opinions by Justices Thomas and Breyer indicated slightly different approaches and explained what considerations they deemed most significant, the majority identified at least two principal features of the SSA proceedings that weighed against an issue exhaustion mandate. The first is a general observation that “agency adjudications are generally ill suited to address structural constitutional challenges, which usually fall outside the adjudicators’ areas of technical expertise.” The second is futility; it makes no sense to require issue exhaustion when the agency is powerless to grant the requested relief. Both factors favored the claimants in Carr.
The majority stopped short of saying that there was no obligation of issue exhaustion in all Social Security cases. Even a proceeding that is supposed to be inquisitorial may be “adversarial enough” to command issue exhaustion. In a footnote, Justice Sotomayor cautioned that the holding was limited to the facts of the case: “Outside the context of Appointments Clause challenges, such as in the sphere of routine objections to individual benefits determinations, the scales might tip differently.”
Beyond Inquisitorial and Adversarial
Although the inquisitorial nature of the SSA proceedings was the dominant consideration in Carr, additional factors were proffered during briefing and arguing as distinctions that differentiated between SSA proceedings and other agency proceedings. Some of those distinctions are:
- The incentives in the SSA situation are different from that in other agency proceedings. The need for Social Security benefits (unlike, say, patent rights) is typically a dire one, and those seeking benefits will not see it in their interests to challenge the authority of those having the power to grant or deny such benefits.
- The amounts of money involved are dramatically different, especially in comparison to patent cases. In patent inter partes review (IPR) proceedings, the amount at stake is usually so great that such proceedings almost always involve lawyers. By contrast, Social Security hearings typically are pro se. Although there are exceptions, lawyers generally are held to higher standards on matters of law than are lay persons.
- The volume of cases is wildly different. As was mentioned in oral argument, there are about 1900 federal administrative law judges in the USA, of which 1600 are with the SSA.
The Court in Carr alluded to some of these additional factors, though they do not seem to be the backbone of the decision.
Analogizing to Inter Partes Review
Turning from the SSA to the USPTO, it seems likely that post grant procedures in general will be deemed “adversarial.” Accordingly, it seems likely that some USPTO procedures, particularly IPR, will carry an issue exhaustion requirement (subject to some exceptions that will not be discussed here).
In addition to authoring Carr, Justice Sotomayor penned the majority opinion in Return Mail, Inc. v. Postal Service, No. 17-1594 (June 10, 2019). There, Sotomayor characterized an IPR proceeding as a “full-blown adversarial proceeding before the Patent Office,” evidenced by the presence of “briefing, a hearing, discovery, and the presentation of evidence, and the losing party has appeal rights.”
This alone is a pretty strong indication that IPR proceedings include an issue exhaustion requirement.
However, Carr suggested that even an inquisitorial proceeding may be “adversarial enough” to make issue exhaustion mandatory. Could it be that IPR proceedings might be deemed “inquisitorial enough” to excuse issue exhaustion?
After all, “full-blown” is perhaps too extreme an adjective. IPR proceedings do not have juries, and they do not even have a guaranteed neutral decision-maker. Appellate rights are notably limited, and some interlocutory appeals and judicial review are unavailable. Permissible issues are limited by 35 USC § 311(b), and evidentiary rules are relaxed in comparison to court proceedings. And, as was recognized in Cuozzo Speed Technologies, LLC v. Lee, it does seem odd to refer to an IPR as “adversarial” when such a proceeding does not even require actual adversaries having an actual stake in the outcome.
There is, however, considerable appellate dicta saying that an IPR has a character that is distinctly adversarial and not inquisitorial. In SAS Institute Inc. v. Iancu, the Supreme Court majority called IPR “an adversarial process” that “mimics civil litigation.” Cases such as In re Magnum Oil Tools International, Ltd. and In re IPR Licensing, for example, discuss aspects that are adversarial in nature. In SynQor, Inc. v. Vicor Corp., the Federal Circuit referred to an IPR as “formally adversarial.”
Add to that the observation that the Federal Circuit views itself, quite understandably, as an appellate court that does not much care for being the first tribunal to consider an issue. From In re Google Tech. Holdings LLC: “[W]e are, as an appellate court, charged in this instance with reviewing the Board’s conclusions. ‘The very word “review” presupposes that a litigant’s arguments have been raised and considered in the tribunal of first instance.'”
Also, the additional factors identified above (such as financial incentives and involvement of lawyers) tip the balance toward the adversarial side.
Are Other Interactions with the USPTO Inquisitorial?
Might a patent examination before an examiner, for example, be deemed “inquisitorial” so as to avoid issue exhaustion? The question may be officially unsettled, but prudence dictates that a patent practitioner should presuppose that issue exhaustion will be in play.
For one thing, interactions with examiners involve introduction of evidence, burden of proof, legal and factual “errors,” legal and factual arguments, as well as appeal rights, all of which can take on an adversarial character. For another thing, Carr specifically reserved the question of whether circumstances in particular cases might tip the balance to make such proceedings “adversarial enough” such that issue exhaustion becomes mandatory.
The more careful approach for a patent practitioner is simply to avoid questions of whether a particular interaction is “inquisitorial” or “adversarial”. This can be accomplished by getting constitutional challenges into the record as soon as practicable. In short, one way to avoid an issue exhaustion problem is to exhaust the issues.
What Does Carr Do for Patent Practitioners?
There are some aspects of Carr that may ease the burdens on patent practitioners. For one thing, a “structural constitutional challenge” may be exempt from an issue exhaustion requirement, and there is no requirement to make any constitutional challenges that are futile.
In his opinion concurring in part and concurring in the judgment in Carr, Justice Breyer deemed that these considerations alone would be enough to decide the case. Whether proceedings were adversarial or not, whether there was an issue exhaustion requirement or not, no one is obligated to present such constitutional questions to an agency when the agency lacks the power to decide them.
It may be assumed that an administrative agency (which is to a significant degree a creature of Article II of the Constitution) lacks the authority of an Article III court to say what the law is and strike down a statute. An agency also has no authority to declare its own existence unconstitutional. Asking an agency to do such things would be unreasonable.
Such extreme cases, however, are rare and should be treated as exceptions to the rule. A constitutional challenge to a particular agency action (as opposed to a “structural constitutional challenge”) might carry an issue exhaustion requirement, and any constitutional challenge based upon evidence must get that evidence into the record (or try to do so) before going up on appeal.
The better practice, both before Carr and after, is to make a record promptly before the agency to preserve a constitutional issue for judicial review.