Is It Safe Not to File a Copy of a Settlement Agreement Entered Into After Court Review of a Board Decision in an Interference Has Begun?

Feb 2002Intellectual Property Today, Vol. 9, No. 2, February 2002, page 28

Is It Safe Not to File a Copy of a Settlement Agreement Entered Into After Court Review of a Board Decision in an Interference Has Begun?

By Charles L. Gholz *

I. The Law Before Johnston v. Beachy

In 1998 I published a two-part article entitled The Law and Practice Under 35 USC 135(c), 80 JPTOS 561, 675 (1998). In the section of that article entitled "What is 'the termination of...[an] interference as between the said parties to an agreement or understanding' Within the Meaning of 35 USC 135 (c)?," 80 JPTOS at 585-89, I reviewed the very confusing case law on that subject.[1] The clear moral of that review was to file copies of settlement agreements entered into after court review of a board decision in an interference had begun. If the Federal Circuit ultimately held that it is unnecessary to file copies of such agreements, presumably no harm would be done by filing an unnecessary copy.[2] However, if the Federal Circuit ultimately held that it is necessary to file copies of such agreements, and if one failed to do so, the consequences would be catastrophic.[3]

II. Johnston v. Beachy

In Johnston v. Beachy, 60 USPQ2d 1584 (PTOBPAI 2001) (opinion for an expanded panel by APJ Torczon, joined by SAPJ McKelvey and APJs Schafer, Lee, Spiegel, Gardner-Lane, Medley, and Tierney), the Trial Section attempted to settle the issue by holding that "an interference is terminated when the time for seeking review is past regardless of whether such review is sought...."[4] It offered four rationales for this holding, and I will discuss each of those four rationales in the order set forth in the opinion.

First, the opinion states that the Trial Section is "bound by § 1.661 and the construction of that the Director has given to the rule..."[5] in its "regulatory history."

37 CFR 1.661 says that:

After a final decision is entered by the Board, an interference is considered terminated when no appeal (35 U.S.C. 141) or other review (35 U.S.C. 146) has been or can be taken or had.

However, 37 CFR 1.661 does not say when an interference is considered terminated when an appeal or other review has been or can be taken or had. Accordingly, 37 CFR 1.661 certainly does not settle the issue.

As for the regulatory history[6] cited by the Trial Section, it says only that:

Section 1.661 sets forth when an interference is considered terminated after a judgment is entered in the interference. For the purpose of filing copies of settlement agreements, an interference is considered terminated when the time for all appeals has expired. Tallent v. Lemoine, 204 USPQ 1058 (Comm'r. Pat. 1979). See also Nelson v. Bowler, 212 USPQ 760 (Comm'r Pat. 1981).

However, the Trial Section's opinion points out (correctly) that:

The Tallent decision held a filed settlement agreement timely because it was filed within the time permitted for filing an appeal. As Gholz observes (at 587 n. 70), the Nelson case avoids the issue as moot since Bowler would have lost even under the construction that the interference continues during judicial review.[7]

Hence, while it is true that the regulatory history asserts that, "For the purpose of filing copies of settlement agreements, an interference is considered terminated when the time for all appeals has expired," neither opinion cited in the regulatory history supports that assertion. Moreover, if the Commissioner really meant what he said in the regulatory history, he (and his successors) have had almost twenty years to amend 37 CFR 1.661 to clearly so state. The fact that the Commissioner/Director has not done so suggests (to me) that the assertion is the regulatory history should not be taken seriously. Accordingly, I believe that there really is no regulatory history compelling the result reached by the Trial Section.

Next, the Trial Section asserts that "there are many reasons to believe that Congress did not intend for § 135(c) to apply to other proceedings [i.e., to proceedings other than interferences pending before the board],"[8] and it gives three of those "many reasons".

According to the Trial Section:

First is placement: the requirement is placed in the same section as the authority for interferences in the Office (§ 135(a)) and the statute of repose from such interferences (§ 135(b)). It was not placed on its own as a general provision and, indeed, is located in chapter 12 of title 35, which is a different chapter than the locations for § 146 (chapter 13) or § 291 (chapter 29).[9]

However, 35 USC 256 (which states a ground for invalidating a claim--namely, incorrect inventorship that cannot be corrected) is in chapter 25, not chapter 29 (where the other grounds for invalidating claims are collected). The truth of the matter is that 35 USC grew over time, and not always logically. Thus, the fact that 35 USC 135 (c) is in chapter 12 rather than chapter 18 or chapter 29 is an extremely weak reed on which to rely.

Next, the Trial Section said that:

Second, is purpose: Congress and the Executive branch feared conspiracy under the cover of confidentiality afforded in interferences. Acting Secretary of Commerce, correspondence to House, published in S. Rep. 87-2169, reprinted at 1962 U.S.C.C.A.N. at 3287, 3288. When § 135(c) was enacted interferences were, and currently are, largely shielded from sight automatically by the confidentiality provisions of 35 U.S.C. 122(a), while judicial proceedings are public except to the extent that a district court judge deliberately enters a confidentiality order on the public record. Even in the unlikely event that a district court fails to act in the public interest when entering such an order, the public nature of the order and the overall proceeding will still offer ample opportunity for enforcement agencies to become involved. Hence, the need addressed in § 135(c) does not extend to judicial proceedings.[10]

I think that this is the least persuasive of the Trial Section's four rationales.

In the first place, most court review of board decisions is sought by way of direct appeals to the Federal Circuit under 35 USC 141 rather than by way of civil actions in district courts under 35 USC 146.[11] While the Solicitor does occasionally intervene in (or file amicus briefs in) 35 USC 141 appeals,[12] there is essentially zero probability that any "enforcement agenc[y]" (sic; the Antitrust Division) will become involved in such an appeal.

In the second place, the Trial Section's rationale doesn't make any sense even as to 35 USC 146 district court review of board decisions. The Trial Section is clearly right that the background of the promulgation of 35 USC 135(c) is that "Congress and the Executive branch feared conspiracy [by the parties] under the cover of confidentiality afforded in interferences." However, if the parties to a 35 USC 146 action are conspiring, they are not going to put anything in the public record of the 35 USC 146 action that would attract the attention of the Antitrust Division! In my article I concluded that "what became 35 USC 135(c) was apparently expected to assist the Antitrust Division of the Justice Department in ferreting out anti-social activity by the patent interference bar."[13] However, the only way that 35 USC 135(c) can accomplish that result is to allow the representatives of the Antitrust Division to review the settlement agreements, and the only way that the representatives of the Antitrust Division will have the opportunity to do that is if copies of the settlement agreement are filed.

Next, the Trial Section asserted that:

Finally, jurisdiction and constitutional factors bear on whether the Board should act on settlement matters arising during judicial review. Congress expressly gave both the Federal Circuit and district courts authority (§§ 141 and 146) to review an "interference", while the Board has no comparably explicit authority to adjudicate any aspect of a judicial proceeding. Moreover, the Board is situated in the Executive branch of government; the courts, in the Judicial branch. It would be odd to construe a single proceeding as continuing across constitutionally separate, collateral branches of government. Principles of separation of powers and comity would prevent us from entangling the Board in judicial proceedings unless absolutely necessary.[14]

However, construing 35 USC 135(c) to require the filing of copies of settlement agreements entered into after judicial review of a decision by the board has begun would not require the board to "act on settlement matters arising during judicial review." All that the board does with the copies of 35 USC 135(c) agreements it receives is to put them in a locked filing cabinet![15] What the consequences of those agreements are is normally up to the Antitrust Division, not to the board.[16]

III. So, Is It Safe?

In my opinion, no. While the Trial Section reached a desirable result, it is only a trial entity, and the rationales given in its opinion in Johnston v. Beachy are remarkably unpersuasive. Under the circumstances, I don't think that it would be safe to rely on the Trial Section's holding in Johnston unless and until the Federal Circuit endorses it. Accordingly, I strongly recommend that interferents continue to file copies of settlement agreements entered into after court review of board decisions has begun.

* Mr. Gholz is a senior partner in and head of the Interference Section of Oblon, Spivak, McClelland, Maier and Neustadt, PC in Arlington, Virginia. His email address is [email protected].

Published in Intellectual Property Today, Vol. 9, No. 2, February 2002, page 28.

ENDNOTES



[1] Some district courts had stated that an interference "terminates" for purposes of 35 USC 135(c) when the participants enter into an agreement that reduces their incentive to litigate with maximum vigor even though the interference is going forward before the board, and the CCPA specifically ducked the opportunity to say that interferences terminate for purposes of 35 USC 135(c) at the conclusion of the administrative phase of the proceedings.

[2] At worst, the board might refuse to accept the copy and send it back to the attorney who submitted it. Cf. LaCroix v. Bellini, 58 USPQ2d 1528 (CAPJ 2001) (non-precedential), and Nelson v. Bowler, 212 USPQ 760, 762 (Comm'r 1981) ("Since the agreement copy was filed beyond the six-month period, under the provisions of 35 USC 135(c) the Commissioner has no authority to accept it, regardless of whether or not 'good cause' is shown.")

[3] If the interferents violate 35 USC 135(c), not only is any patent involved in or that matures from an application involved in the interference permanently unenforceable, but so is the agreement. The latter consequences can be far more significant than the former. See Gholz, op. cit. supra at 581 n. 54 and 593 n. 87.

[4] 60 USPQ2d at 1589.

[5] 60 USPQ2d at 1589; footnote omitted.

[6] The regulatory history cited by the Trial Section may be found at 49 Fed. Reg. 48,416, 48,427 (12 Dec 1984).

[7] 60 USPQ2d at 1589; footnote omitted.

[8] 60 USPQ2d at 1589.

[9] 60 USPQ2d at 1589; footnote omitted.

[10] 60 USPQ2d at 1589-90.

[11] Regrettably the board has stopped publishing such statistics. However, Calvert et al., Interference Statistics for Fiscal Years 1992 to 1994, 77 JPTOS 417, 426 (1995), indicates that, for that period:

Court review was sought in 41 (28.1%) of the 146 interferences (139 two-party, seven multi-party) in which the Board rendered a decision after final hearing. 26 appeals were filed in the Court of Appeals for the Federal Circuit[,] and 15 civil actions under 35 USC 146 were filed in the U.S. district courts....

[12] See, e.g., Parks v. Fine, 783 F.2d 1036, 228 USPQ 677 (Fed. Cir. 1986), discussed in Gholz, A Critique of Recent Opinions of the Federal Circuit in Patent Interferences, 69 JPTOS 657 (1987), at pages 667-68.

[13] 80 JPTOS at 563.

[14] 60 USPQ2d at 1591; footnotes omitted.

[15] Nelson v. Bowler, 212 USPQ 760, 762 (Comm'r 1981) ("the PTO is merely the repository for copies of agreements filed under 35 USC 135(c), and does not undertake to rule on whether the statute requires that a copy of a particular agreement be filed.")

[16] Of course, in Johnston the board was called upon to decide what the consequences of Beachy's alleged failure to comply with 35 USC 135(c) in a previous interference. However, even here the legality of the agreement that Beachy had allegedly not filed in timely fashion was not at issue before the board.