Should the U.S. Patent and Trademark Office get Chevron deference?

|The Volokh Conspiracy |

Last week, I argued that administrative law doctrines generally should not apply in patent law or criminal law. That argument was based largely on my 2000 article, "Rethinking Patent Law in the Administrative State." Jonathan Masur, who has argued that administrative law doctrines should apply in patent law, generously agreed to respond. Jonathan's comments focus on one of the questions raised by the broader debate: Should the U.S. Patent and Trademark Office (PTO) receive Chevron deference for its interpretations of the patent laws?

Jonathan writes:

Orin Kerr has written a fun and interesting post, prompted by a Duke Law Journal symposium in which I participated, arguing that patent law (and criminal law, but that's not my focus here) should not be governed by traditional administrative law principles. In particular, he argues against a set of papers by Stuart Benjamin & Arti Rai and Melissa Wasserman that claim that certain PTO decisions should be afforded Chevron deference. Orin's argument is basically about reliance. Patents provide incentives for innovators to create and disclose inventions. If the PTO could change the substantive rules of patenting-potentially pulling out the rug from underneath an applicant-it would diminish the incentives for inventors to invent in the first place. Why would an inventor invest resources in expectation of receiving a patent if the PTO might decide not to grant the patent after all?, Orin wonders.

Orin's argument about the importance of reliance interests is probably correct, at least for some types of patents. But it's not clear what it has to do with Chevron deference. As things stand, courts change patent law all the time. The Federal Circuit and the Supreme Court have altered patent law countless numbers of times in ways that dramatically affect the value of patents that have already been granted. For instance, the Supreme Court's decision in Alice v. CLS Bank dramatically altered the rules governing the patentability of software and business methods. These legal changes are retroactive. (Adam Mortara and I are working on a paper that argues that the courts should consider making some of these legal changes prospective only.) Even under current law, patent owners and applicants can't rely on the law to remain static.

If reliance is the goal (and it may not be), then the question is which body is more likely to effect legal change: the courts, as per the status quo, or the PTO, in a world in which it received Chevron deference? Maybe it's the courts, or maybe not; but Orin hasn't suggested any reason to believe that judicially managed law will be more static (and there are good reasons to believe it wouldn't be).

I agree with Jonathan that a key question is the relative stability of law promulgated by courts vs. agencies. Here's what I wrote on this issue in my article, focused, as Jonathan is, on Chevron:

Because most of the key phrases in the Patent Act exude textual ambiguity, applying the deferential Chevron standards to the PTO would permit the PTO to adopt any "reasonable" interpretation of the Patent Act it chooses, at any time, and without explanation. Within this fairly broad zone of agency discretion, the PTO would be free to restructure the terms of the patent system's offer as it saw fit. For example, the PTO could change its interpretation of the word "obvious" in Section 103 to raise or lower the obviousness threshold; alter its interpretation of "manufacture" and "composition of matter" in Section 101 to expand or contract the range of patentable subject matter; and adjust its interpretation of "known or used by others" in Section 102 to strengthen or dilute the on-sale bar to patentability.

In contrast, de novo review lodges interpretive power over the Patent Act in the relatively stable forum of the federal courts. The courts do not provide a panacea for applicants seeking certainty: some patent doctrines are intrinsically murky, and the courts occasionally alter aspects of patent doctrine. The institutional structure of the federal courts, however, is far more conducive to stability than an executive agency such as the PTO. While the PTO has thousands of employees who typically serve for short periods, the Federal Circuit is staffed by a small number of judges, each with life tenure, who may spend several decades on the bench. Unlike the PTO, the Federal Circuit is bound by the principle of stare decisis: no panel of the Federal Circuit can overrule the decision of a prior panel on any interpretation of any aspect of the Patent Act. As a result, patent doctrines evolve over time, but tend to do so slowly. The institutional constraints of the federal judiciary make the federal courts a fairly stable repository for patent doctrine, encouraging reliance on [the patent laws].

As I discuss in the article, the ability of executive agencies to change the law quickly was originally thought to be one of the main reasons policymaking agencies were necessary to modern government. Courts and Congress were thought to be like huge ships that took forever to turn, which might have worked in the era of laissez-faire but was inadequate for needs of the modern economy. In contrast, expert agencies could be like fast patrol boats that could change rules and regulate on the spot as necessary to keep the economy running. (See pages 155-63 of the article for the details.)

The flexibility and relative freedom from constraint that was historically celebrated as the greatest feature of regulatory agencies turns into a bug in a field of law premised on reliance interests. I think patent law is such a field. Granted, the Supreme Court's recent interest in reviewing the Federal Circuit's patent law decisions makes my argument less timely. We seem to be in a time when the judge-focused system is in unusual flux. But my sense is that, in general, inventors see the current system as more stable and predictable than they would see a hypothetical system with Chevron deference to the PTO.

Finally, Jonathan writes:

Orin says in his post that "[d]eference doesn't make sense without a grant of rulemaking power." As Orin is undoubtedly aware, agencies often receive Chevron deference with respect to legal interpretations contained in formal adjudications. Some of these agencies-most notably the National Labor Relations Board-have rulemaking authority but simply choose not to exercise it. There is at least one other agency, the International Trade Commission, that has no rulemaking authority but nonetheless receives Chevron deference for its formal adjudications. Some agencies simply prefer to make policy through case-by-case adjudication rather than rulemaking. Why should that be grounds for denuding the agency of Chevron deference? Either way, the agency is making policy, and the full logic of Chevron applies.

I am at fault for using imprecise terminology. When I referred in my earlier post to "rulemaking power," I merely meant power to make policy—that is, delegated authority to define what the law is. As Jonathan says, that power could be recognized, and Chevron applied, either through a rule or in an adjudication. My apologies for the confusion. And thanks again to Jonathan for the response.