In Re Stepan Co.

United States Court of Appeals
for the Federal Circuit
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(Reexamination Nos. 90/006,824 and 90/007,619)
IN RE STEPAN COMPANY
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2010-1261
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Appeal from the United States Patent and Trademark
Office, Board of Patent Appeals and Interferences.
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Decided: October 5, 2011
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THOMAS J. WIMBISCUS, McAndrews, Held & Malloy,
Ltd. of Chicago, Illinois, argued for appellant. With him
on the brief were GEORGE WHEELER, and DENNIS H.
JASKOVIAK, JR.

MARY L. KELLY, Associate Solicitor, United States
Patent and Trademark Office, of Alexandria, Virginia,
argued for appellee. With her on the brief were, RAYMOND
T. CHEN, Solicitor, and JANET A. GONGOLA, Associate
Solicitor.
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Before DYK, FRIEDMAN, ∗ and PROST, Circuit Judges.

∗
Circuit Judge Friedman heard oral argument in
this appeal and participated in the consideration of the
IN RE STEPAN CO 2

PROST, Circuit Judge.
The principal issue here is whether the Board of Pat-
ent Appeals and Interferences (“Board”), in affirming an
examiner’s ruling on reexamination that a patent was
invalid as obvious, relied on a new ground of rejection,
i.e., a rejection that the examiner had not explicitly made.
If the Board did so, the appellant was entitled either to
pursue the reexamination proceeding further before the
examiner, or to seek reconsideration from the Board. We
hold that the Board relied on a new ground of rejection
and remand for further proceedings consistent with this
opinion.
I. BACKGROUND
The appellant Stepan Company (“Stepan”) is the as-
signee of U.S. Patent No. 6,359,022 (“’022 patent”). The
patent covers polyol-based resin blends and the methods
of using them to create closed-cell polyurethane and
polyisocyanurate-based foam. Such foams are used, for
example, to make thermal insulation boards for the walls
of homes and buildings.
On reexamination, the examiner ruled that all the
claims of the ’022 patent were invalid as anticipated
under 35 U.S.C. § 102(b) or, in the alternative, obvious
under 35 U.S.C. § 103(a). On appeal, the Board affirmed
the examiner’s obviousness rejection. In so ruling, the
Board relied upon the identical prior art references that
the examiner had cited. Both entities held that most of
the claims in the ’022 patent were obvious in light of the
“Singh” reference, WO 97/21764 (“Singh”), and the re-
maining claims were obvious under Singh in combination
with various other references. The difference between the

case, but died on July 6, 2011, and did not participate in
the final decision.
3 IN RE STEPAN CO

two rejections, however, was that the examiner found the
’022 patent obvious in light of Singh as § 102(b) prior art,
which includes publications or inventions patented “more
than one year prior to the date of the application” of the
patent in question, while the Board treated Singh as prior
art under § 102(a), which includes publications or inven-
tions patented “before the invention thereof by the appli-
cant.”
In relying on Singh as § 102(a) prior art to support the
obviousness rejection, the Board determined that Stepan’s
Rule 1.131 Declaration (“Declaration”) was “ineffective to
remove Singh as a reference qualifying under 35 U.S.C. §
102(a)” against claims 33–51, 53, and 54. J.A. 15–16. It
identified three reasons why the Declaration failed to
remove Singh as § 102(a) prior art: (1) it failed to show
that “the water content of the catalyst supplied and used
prior to March 24, 1997 was unchanged through 2003”; (2)
it “failed to address water that might have been present
in other reactive components of the claimed resin blend or
water that might have been generated by the reaction
forming the polyol”; and (3) it appeared “inconsistent with
the description of added water vis-à-vis the Dabco K-15
catalyst in the 022 patent.” J.A. 15. Notably, the exam-
iner never raised the question whether Singh was § 102(a)
prior art, never addressed that argument, never ex-
pressed any concerns as to any alleged deficiencies with
the Declaration, and never issued a rejection using Singh
as § 102(a) prior art.
Stepan timely appealed the Board’s decision to this
court. We have jurisdiction pursuant to 28 U.S.C. §
1295(a)(4)(A).
IN RE STEPAN CO 4

II. LEGAL STANDARD
Whether the Board relied on a new ground of rejection
is a legal question that we review de novo. See In re Pacer
Tech., 338 F.3d 1348, 1349 (Fed. Cir. 2003).
In a series of opinions, both this court and our prede-
cessor court, the United States Court of Customs & Pat-
ent Appeals (“Patent Court”), have recognized that if the
appellant has not had a full and fair opportunity to liti-
gate the Board’s actual basis of rejection, the administra-
tive validity proceedings before the United States Patent
and Trademark Office (“PTO”) should be allowed to
continue. See In re Kumar, 418 F.3d 1361, 1367–68 (Fed.
Cir. 2005) (citing numerous Patent Court cases). As this
court explained, “the agency must assure that an appli-
cant’s petition is fully and fairly treated at the adminis-
trative level.” Id. at 1367.
The rationale of those decisions is that unless the ap-
pellant was able to address the merits of the various
bases of the Board’s decision, the administrative proceed-
ings before the PTO should be allowed to continue. As the
governing regulation states, “[s]hould the Board have
knowledge of any grounds not involved in the appeal for
rejecting any pending claim, it may . . . [issue] a new
ground of rejection.” 37 C.F.R. § 41.50(b). Because the
Board is limited to review of the examiner’s decisions
during prosecution, the authority to issue a new ground of
rejection, and the rights of the applicant that flow there-
from, ensure that the Board can fulfill its notice obligation
to the applicant during prosecution. 35 U.S.C. § 6(b)
(“The Board of Patent Appeals and Interferences shall, on
written appeal of an applicant, review adverse decisions of
examiners upon applications for patents . . . .” (emphasis
added)); see also 5 U.S.C. § 554(b)(3) (“Persons entitled to
5 IN RE STEPAN CO

notice of an agency hearing shall be timely informed of
the matters of fact and law asserted.”).
III. DISCUSSION
On appeal, Stepan argues that the Board sustained
the examiner’s obviousness rejection under a wholly
different basis than that relied upon by the examiner,
which constitutes a new ground of rejection. It contends
that the Board’s determination that Singh is § 102(a)
prior art against claim 33 and its dependents and that its
Declaration is deficient in various respects constitutes a
new ground of rejection. Stepan asserts that the exam-
iner never raised the question of the sufficiency of the
Declaration and that Stepan accordingly had no opportu-
nity to respond to the alleged deficiencies in its Declara-
tion that were identified by the Board for the first time in
its opinion. Thus, the Board’s failure to identify the new
rejection and new rationale as a new ground of rejection,
Stepan contends, violates its administrative due process
rights.
The PTO responds that the Board’s decision is not a
new ground of rejection because the thrust of the rejection
was the same, i.e., obviousness. It argues that Stepan
had a fair opportunity to be heard because it did in fact
present argument and evidence, which was considered by
the Board, to antedate Singh as a § 102(a) reference.
Alternatively, it argues that to the extent the obviousness
rejection based on Singh as § 102(a) prior art may be
viewed as “new,” Stepan was required—by regulation—to
seek rehearing to request that the Board designate the §
102(a) rejection as a new ground. See 37 C.F.R. §
41.50(b)(2). Because Stepan failed to request a rehearing,
the PTO asserts that Stepan cannot now allege that it
was deprived of its administrative due process rights.
IN RE STEPAN CO 6

Stepan is correct. By making and relying on new fact
findings regarding an issue the examiner did not raise,
i.e., the sufficiency of Stepan’s Declaration to swear
behind the Singh reference as § 102(a) prior art, the
Board relied on a new ground of rejection. Kumar, 418
F.3d at 1367–68 (finding that a new ground of rejection
exists when the Board relies on new fact findings which
had not been previously advanced by the examiner about
an existing prior art reference); see also In re Kronig, 539
F.2d 1300, 1302–03 (CCPA 1976) (noting there was no
new ground of rejection when the Board used the same
basis and the same reasoning advanced by the examiner).
It is crucial that the examiner issue a rejection (even if
that rejection is subsequently withdrawn) so the applicant
is on notice that it is obligated to respond. Mere reliance
by the Board on the same type of rejection or the same
prior art references relied upon by the examiner, alone, is
insufficient to avoid a new ground of rejection where it
propounds new facts and rationales to advance a rejec-
tion—none of which were previously raised by the exam-
iner. 35 U.S.C. § 6(b); Kumar, 418 F.3d at 1367–68.
Here, the mere fortuity that Stepan addressed the valid-
ity of the Declaration on its own, without the issue being
raised by the examiner, does not permit the Board to
reject the Declaration as ineffective without designating
its decision as a new ground of rejection.
The PTO’s alternative rationale is that Stepan waived
its administrative due process rights by failing to exhaust
all administrative remedies—namely—by failing request
a rehearing. 1 The PTO reasons that 37 C.F.R. § 41.50(b)

1 We note that at oral argument, the PTO’s counsel
represented that Stepan was not required to seek rehear-
ing to request that the Board designate the § 102(a)
rejection as a new ground. Oral Argument at 28:01–
28:16, available at http://www.cafc.uscourts.gov/oral-
7 IN RE STEPAN CO

does not obligate the Board to expressly designate a
rejection as a new ground because the regulation uses the
word “may.” Oral Argument at 21:15–22:30; see also 37
C.F.R. § 41.50(b) (“Should the Board have knowledge of
any grounds not involved in the appeal for rejecting any
pending claim, it may include in its opinion a statement to
that effect . . . , which statement constitutes a new ground
of rejection of the claim.” (emphasis added)). Implicit in
this argument is that the Board’s burden to designate a
new ground of rejection as a new ground is discretionary.
Thus, it argues that an applicant must request rehearing
pursuant to § 41.50(b)(2) if the applicant believes the
Board has relied on a new ground but has failed to desig-
nate that ground as such.
We disagree for two reasons. First, the PTO’s regula-
tory interpretation is due no deference in view of the
agency’s statutory obligation under the Administrative
Procedure Act (“APA”) to provide prior notice to the
applicant of all “matters of fact and law asserted” prior to
an appeal hearing before the Board. 5 U.S.C. § 554(b)(3).
Allowing the Board unfettered discretion to designate a
new ground of rejection—when it relies upon facts or legal
argument not advanced by the examiner—would frustrate

argument-recordings/all/stepan.htm (“Had he thought
that there was [a new ground of rejection] but not ex-
pressly stated [by the Board], he could have requested
rehearing. We’re not saying that that is a requirement.
We acknowledge in our brief to this court that it is not a
requirement that one request rehearing.”). PTO counsel’s
position during oral argument, however, is contradicted
by its brief. Appellee’s Br. 24 (“If, however, the Board
does not designate the rejection as a new ground of rejec-
tion—as Stepan argues the Board did—the correct action
is to request rehearing by the Board to have the rejection
designated as such. 37 C.F.R. § 41.50(b)(2).”).
IN RE STEPAN CO 8

the notice requirements of the APA. See Dickinson v.
Zurko, 527 U.S. 150, 154 (1999) (stating that the PTO is
an agency subject to the APA).
Second, the PTO’s argument that Stepan was obli-
gated to request rehearing under § 41.50(b)(2) is contra-
dicted by the plain text of the regulation, which states,
“[w]hen the Board makes a new ground of rejection, the
appellant, within two months from the date of the deci-
sion, must exercise one of the following two options . . . .”
37 C.F.R. § 41.50(b) (emphasis added). The first option is
to reopen prosecution. Id. § 41.50(b)(1). The second
option is to request rehearing. Id. § 41.50(b)(2). The
appellant’s obligation to pursue either of these two op-
tions, however, triggers only after “the Board makes a
new ground of rejection.” Id. Here, the Board did not
designate the new §§ 102(a)/103(a) rejection as a new
ground of rejection. 2 Thus, Stepan had no affirmative
obligation to request a rehearing to ask that the Board
designate its rejection as a new ground. Indeed, the
PTO’s alternative argument is rebutted by the plain text
of its own regulation. 3

2 Section 41.50(b)(2) indicates that “[a] new ground
of rejection pursuant to this paragraph shall not be con-
sidered final for judicial review.” This suggests that when
the Board does not indicate a new ground of rejection, as
it did here, the Board’s decision is considered final for
judicial review. Because the Board did not designate its
rejection as a new ground, the Board’s decision was final
for the purpose of judicial review and Stepan complied
with its administrative process obligations pursuant to
agency regulation.
3 Counsel for PTO admitted at oral argument that §
41.50 is vague as to the applicant’s burden to request
rehearing when the applicant believes that the Board has
relied on a new ground of rejection without designating it
9 IN RE STEPAN CO

IV. CONCLUSION
Notice does not focus on the applicant’s arguments di-
vorced from the examiner’s rejections of record that are
actually appealed to the Board. Instead, it focuses on the
“adverse decisions of examiners” during prosecution
which form the basis of the Board’s scope of review. 35
U.S.C. § 6(b). Because Stepan did not have prior notice of
the Board’s intent to craft and rely on new findings of fact
to support a §§ 102(a)/103(a) rejection and because it
failed to identify this rejection as a new ground, Stepan’s
notice rights were violated. 5 U.S.C. § 554(b)(3); 35
U.S.C. § 6(b). Had the Board labeled its rejection as a
new ground of rejection, Stepan could have reopened
prosecution to address the newly-alleged deficiencies in
its Declaration with the examiner. We vacate the Board’s
decision and remand with instructions to designate its
rejection as a new ground of rejection. 4 Accordingly,
Stepan is free to further pursue its patent application
according to the requirements of 37 C.F.R. § 41.50(b).
VACATED AND REMANDED

as such. Oral Argument at 26:00–26:23 (“We do admit,
however, that the regulation could be more clear about
what happens when the Board doesn’t expressly state
that something is a new ground of rejection.”).
4 Because we remand to the Board, we express no
opinion regarding the parties’ arguments as to whether
Stepan’s showing of commercial success lacks a nexus
with the claimed invention. Nor do we express an opinion
regarding the sufficiency of Stepan’s Declaration in ante-
dating Singh as § 102(a) prior art.