Madstad Engineering, Inc. v. Pato

Citations: 756 F.3d 1366; 111 U.S.P.Q. 2d (BNA) 1569; 2014 WL 2938080; 2014 U.S. App. LEXIS 12371Docket: 13-1511

Court: Court of Appeals for the Federal Circuit; July 1, 2014; Federal Appellate Court

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Mark Stadnyk and MadStad Engineering, Inc. filed a lawsuit against the United States Patent and Trademark Office (PTO) and other government officials, challenging the constitutionality of the “first-inventor-to-file” provision of the Leahy-Smith America Invents Act (AIA). They sought a declaratory judgment that this provision was unconstitutional and requested a permanent injunction against its enforcement. The district court dismissed the case for lack of standing, stating that the plaintiffs did not demonstrate sufficient legal grounds to contest the AIA. MadStad appealed this dismissal, but the Court of Appeals affirmed the lower court's ruling, concluding that the plaintiffs lacked standing, which precluded consideration of their constitutional arguments. The AIA, enacted on September 16, 2011, shifted the patent priority determination from a first-to-invent to a first-to-file system, with the AIA stipulating that inventors must independently create their invention. The case was decided without oral argument or an evidentiary hearing.

MadStad has filed an appeal asserting that the district court incorrectly determined that the plaintiffs lack standing to challenge the constitutionality of the America Invents Act (AIA). MadStad contends that the merits of its claim should be evaluated, arguing that the first-inventor-to-file provision of the AIA, and the AIA as a whole, are unconstitutional. The jurisdiction of the court under Article III is examined, with both parties acknowledging the court's jurisdiction based on 28 U.S.C. 1295(a)(1). Despite this, the court emphasizes its duty to confirm its jurisdiction as a court of limited authority, noting that MadStad had previously filed a protective appeal in the Eleventh Circuit due to uncertainty regarding jurisdiction.

The Federal Circuit has exclusive jurisdiction over appeals from district court decisions related to patent law. However, since MadStad's claims challenge the AIA's constitutionality rather than asserting a claim under the AIA itself, it must be determined whether these claims arise under a federal Act related to patents. The Supreme Court's interpretation of "arising under" federal law is referenced, particularly in cases that differentiate between state and federal issues for jurisdictional purposes. The court notes that the Supreme Court has not definitively ruled on whether constitutional challenges to patent-related Acts fall under the jurisdiction defined by 28 U.S.C. 1295 and 1338. A precedent case, Patlex Corp. v. Mossinghoff, is mentioned, where the Federal Circuit addressed the constitutionality of patent reexamination statutes but without a detailed jurisdictional analysis.

Jurisdiction over the appeal is confirmed to lie within this court, as a matter can arise under an Act of Congress even if it originates from other legal sources. Although the Supreme Court has not ruled specifically on whether a claim rooted in the Constitution can also arise under a federal statute for jurisdictional purposes, relevant jurisprudence suggests it does in this case. The Supreme Court's criteria for evaluating whether a state law claim arises under federal law include the necessity of a federal issue being raised, its actual dispute status, its substantial nature, and its resolution feasibility in federal court without disrupting the federal-state balance.

In this instance, resolving the constitutional challenge necessitates interpreting terms under the America Invents Act (AIA) and their relation to the Intellectual Property Clause of the Constitution. The dispute primarily revolves around significant questions of patent law, including the constitutionality of the first-inventor-to-file provision, which, if resolved in favor of MadStad, could invalidate the entire AIA.

The substantiality of the issues aligns with the Supreme Court's categorization of state claims challenging government action as arising under federal law. Additionally, maintaining jurisdiction over the AIA and its constitutional validity is deemed essential to prevent disruption of the balance established by Congress, which designates federal courts for patent-related actions and appeals exclusively to the Federal Circuit. Consequently, the court concludes that MadStad's claims arise under patent law, allowing proper jurisdiction over the appeal.

Regarding standing, MadStad must meet Article III requirements, demonstrating a concrete and particularized injury, traceable to the challenged action, and redressable by a favorable ruling.

The party seeking federal jurisdiction must demonstrate all necessary elements to establish standing, as outlined in Lujan v. Defenders of Wildlife. Standing is a jurisdictional issue reviewed de novo. The Supreme Court has addressed pre-enforcement standing challenges to governmental regulations, notably in Clapper v. Amnesty International USA and Susan B. Anthony List v. Driehaus. In Clapper, Amnesty, representing groups that engage in sensitive communications, challenged the constitutionality of the Foreign Intelligence Surveillance Act (FISA) after Congress amended it to allow the government to acquire intelligence from non-U.S. persons without judicial authorization. Amnesty claimed the threat of surveillance would force them to take costly measures to protect their communications. However, the Supreme Court ruled that Amnesty lacked standing, as their fears were speculative and reliant on multiple uncertain factors concerning government actions and judicial decisions. The Court expressed reluctance to support standing theories based on speculation regarding independent actors.

In a separate case, MadStad asserted standing, claiming the America Invents Act (AIA) imposed burdens such as enhanced computer security, additional patent application efforts, competitive disadvantages, and loss of business opportunities due to fears of intellectual property theft. MadStad contended that the district court only considered one of its injuries, but the court's analysis applied to all of MadStad's claims, despite treating them collectively.

MadStad's standing to challenge the constitutionality of the America Invents Act (AIA) was rejected by the district court, which relied on the precedent set in Clapper. The court found that MadStad's claims of injury, including costs incurred for counter-measures such as defensive patent applications and enhanced computer security due to perceived threats from hackers, were based on speculative future events rather than actual or imminent harm. The court determined that the alleged injuries depended on a series of contingent actions by third parties and were therefore too attenuated to establish standing.

In particular, MadStad argued that the AIA increased the attractiveness of IP theft, forcing it to invest in security measures. However, the district court deemed this reasoning overly hypothetical, requiring several assumptions about the likelihood of theft and subsequent patenting, which it found unrealistic. On appeal, MadStad contended that the threats were less speculative than those in Clapper and that it faced a substantial risk of injury sufficient to meet Article III standing requirements. MadStad emphasized that it had already incurred costs for enhanced security due to the AIA and disputed the district court's characterization of hacking as an unlikely occurrence, citing frequent intrusions and relevant statistics to illustrate the prevalence of hacking incidents in the U.S.

MadStad fails to demonstrate standing, as the alleged injury must be directly traceable to the challenged action. The district court's analysis highlighted the improbability of MadStad suffering injury due to the AIA, despite facing cyber threats like all entities. MadStad’s own cited statistics show that hacking risks existed prior to the AIA, suggesting that the company would still face threats regardless of the Act's existence. MadStad had previously implemented security measures before the AIA and has not shown that the AIA necessitated upgrades to defend against new types of attacks. Claims of increased hacker activity due to the AIA are based on speculative assumptions about hackers' behavior rather than concrete evidence. Additionally, MadStad's pre-existing incentives to adopt security measures dilute its standing claim, as it would likely pursue state-of-the-art protection irrespective of the AIA. The assertion that the AIA fosters an environment conducive to corporate espionage relies solely on unsubstantiated assumptions regarding the actions of independent hackers. Furthermore, MadStad lacks knowledge of government surveillance practices, relying instead on speculation about the acquisition of their communications. Even if cyber-attacks were to increase due to the AIA, significant hurdles remain before a hacker could successfully steal and patent MadStad’s intellectual property. Overall, the alleged injuries are not concrete or imminent, lacking the necessary specificity to establish standing.

Filing for a patent is highlighted as a complex and costly endeavor, with minimal patent applications averaging around $10,000. The concept of imminence in legal claims is discussed, emphasizing that injuries must not be overly speculative for Article III standing. The district court concluded that MadStad did not establish standing regarding increased hacking risks due to the America Invents Act (AIA) or related cybersecurity expenditures.

MadStad argues that the AIA compels it to allocate more resources toward filing patent applications sooner to remain competitive, as larger companies can absorb these costs more easily than smaller firms. However, the record shows MadStad has not filed any patent applications since the AIA's effective date and lacks a specific invention ready for patenting. To establish standing, MadStad must demonstrate it has a patent-ready invention, has filed an application, and faced a rejection linked to an earlier application.

Mr. Stadnyk, an inventor associated with MadStad, expresses belief in the patentability of his inventions and their readiness for further development. He asserts that the AIA has increased the costs and burdens of operating under the first-inventor-to-file system, forcing small inventors to rush applications, potentially leading to inadequate descriptions and lower chances of securing enforceable patents. MadStad claims it is currently injured by the necessity to acquire additional equipment to expedite the development process.

MadStad claims it has demonstrated sufficient economic injury to satisfy Article III's injury-in-fact requirement for standing but has not met this burden. The court disagrees with the Government's assertion that a failed derivative action is necessary for standing to challenge the AIA's first-inventor-to-file provision. However, MadStad's fears about needing to file a patent application sooner than desired are speculative. Mr. Stadnyk acknowledges he still needs to conduct further research and has not specified a timeframe for filing a new patent application. His vague intentions do not fulfill the requirement for a "concrete, particularized, and actual or imminent" injury.

MadStad argues the AIA imposes competitive disadvantages on small entities compared to larger companies, forcing them to develop in-house due to fears of IP theft if they engage outside vendors. They cite investor testimonies and congressional statements supporting their claim. In response, the Government argues that the patent system has always encouraged prompt filing to protect rights and mitigate risks. The court finds MadStad's arguments about competitive disadvantages unpersuasive, as it has not demonstrated the establishment of new in-house research facilities or ongoing projects that would necessitate such facilities. Overall, MadStad's concerns are deemed too speculative and generalized to satisfy the injury requirement.

MadStad's claim of competitive disadvantage due to the AIA is deemed speculative and insufficient for establishing standing. The court highlights that MadStad's assertion lacks concrete evidence of larger competitors with the ability to file numerous patent applications, and the potential risk of hacking leading to injury is too attenuated and reliant on the actions of third parties. Furthermore, MadStad's allegations of lost business and investment opportunities stemming from the AIA are similarly unsubstantiated, relying on subjective fears rather than imminent threats. The court agrees with the government that these claims do not meet the standards for Article III standing as outlined in Clapper. Consequently, MadStad has not sufficiently demonstrated actual or imminent injury related to competitive disadvantage or lost opportunities.

The district court appropriately relied on the Supreme Court's decision in Clapper regarding standing, despite MadStad's objections that the court did not consider other precedents. MadStad argued that the government's required assumptions were less speculative than those in Clapper, where plaintiffs were not directly impacted by the Act. While acknowledging this distinction, the court found Clapper's standing principles applicable and illuminating, noting that MadStad's claims still fell into the realm of speculation. Unlike in Monsanto, where evidence demonstrated a concrete threat to farmers' crops, MadStad failed to provide concrete evidence supporting its fears of increased IP theft due to the AIA, relying instead on conjecture similar to that in Clapper. The court further pointed out that, unlike the ongoing pollution case in Friends of the Earth, MadStad did not demonstrate any active attempts to steal its intellectual property. The court also referenced the distinction made in Clapper regarding Meese, emphasizing that MadStad’s alleged injury was speculative and based on potential future actions of third parties. Finally, MadStad argued that the trial court overlooked an alternative standing test involving a “substantial risk” of injury, suggesting that Clapper did not intend to displace this traditional standard for Article III standing.

MadStad asserts it meets Article III standing requirements due to a substantial risk of injury, despite the harm not being "certainly impending." The Supreme Court's decision in Susan B. Anthony List supports this by allowing a pro-life organization to challenge a statute criminalizing false election statements based on prior probable cause findings. The Court emphasized that standing does not require absolute certainty of harm; rather, a substantial risk may suffice, which could justify incurring costs to mitigate potential harm. Several precedents illustrate that a credible threat of arrest or prosecution can establish standing without the need for the plaintiff to face actual prosecution. However, the Court ultimately determined that MadStad's claims do not constitute a "certainly impending" injury, nor do they demonstrate a substantial risk of injury, which undermines its standing argument.

MadStad Engineering, Inc. failed to demonstrate standing in its claims against the USPTO, as it did not provide evidence of a "history of past enforcement" or indicate that it had previously sought a patent unsuccessfully. Additionally, MadStad did not present a definitive plan for future patent applications nor assert that any future actions would expose it to criminal prosecution. Unlike the case of Susan B. Anthony List, which faced a credible threat of action, MadStad’s claims relied on speculative scenarios involving third parties' choices, lacking sufficient substantiation. The court emphasized that plaintiffs must plead concrete facts establishing a substantial risk of harm caused by the defendant's actions, rather than speculative assertions about independent actors. Consequently, the district court’s dismissal of MadStad’s constitutional claims due to lack of standing was affirmed.