United States: Part 1 Of 2: Supreme Court And Inter Partes Review

Oil States Energy Services LLC v. Greene's Energy Group LLC

On April 24, 2018, the Supreme Court issued decisions in two intellectual property appeals relating to inter partes review ("IPR") before the U.S. Patent and Trademark Office. In Oil States Energy Services LLC v. Greene's Energy Group LLC, No. 16-712, the Court decided 7–2 that the inter partes review process does not violate Article III of the Constitution or the Seventh Amendment. In SAS Institute Inc. v. IANCU, No. 16-969,  the Court decided that the Patent Trial and Appeal Board ("PTAB") must decide the patentability of all of the claims the petitioner has challenged rather than selectively picking and choosing which claims to review.  In response to the Court's decision in SAS, the PTAB has already issued new guidance regarding the institution of IPRs.

This blog addresses the Oil States decision.  A companion piece relating to SAS will follow later this week.

Background

In Oil States, patentee-petitioner Oil States Energy Services, LLC, brought an infringement action in the federal district courts against competitor Greene's Energy Group, LLC. In turn, Greene's Energy submitted a petition for inter partes review, which was granted. The two actions—before the district court and before the USPTO—resulted in conflicting decisions. In the district court litigation, the federal court issued a claim construction order favoring Oil States that thwarted the invalidity arguments raised by Greene's Energy. In the IPR, however, the PTAB applied the broadest reasonable claim construction and found the patent invalid. On appeal, Oil States challenged the results of the IPR as well as the constitutionality of the inter partes review under Article III and the Seventh amendment—i.e., that only an Article III court, with a jury, can invalidate a patent.

The Federal Circuit issued a summary affirmance of the decision from the PTAB. By the time that the Oil States matter was before the Federal Circuit, that court had already found the IPR process constitutional over challenges under Article III and the Seventh Amendment. The Supreme Court in fact had already rejected petitions arguing that the IPR process was unconstitutional based on Article III and/or the Seventh Amendment at the time it granted certiorari in the Oil States case. See, e.g., MCM Portfolio LLC v. Hewlett-Packard Co., et al., 137 S. Ct. 292 (2016) (denying certiorari of Federal Circuit Appeal No. 15-1330); Cooper v. Lee, 137 S. Ct. 291 (2016) (No. 15-955); Cooper v. Square, 137 S. Ct. 475 (No. 16-76). Commentators found the Oil States grant of certiorari peculiar in light of the previous denials, with several practitioners suggesting that the grant might signal the end for IPRs. See, e.g., IPWatchDog.com, Industry Reaction to SCOTUS Granting Cert. in Oil States,  (last visited April 29, 2018). Such predictions proved wrong (at least for now).

The Supreme Court's Decision

Writing for the Majority, Justice Thomas began the opinion by noting that for decades, Congress has created administrative processes that could cancel patent claims, starting with the ex parte reexamination procedure in 1980 and culminating in the creation of the IPR procedures at issue in the appeal as part of the America Invents Act. According to the majority, such administrative (rather than judicial) cancellation procedures are permissible, because (1) the decision to grant a patent is a "public right," i.e., a right between the Government and the public that does not require a judicial determination; (2) the decision to cancel a patent is merely a reconsideration of the decision to grant a patent and thus is a "public right" as well.

With respect to the first point, patents, according to the opinion, "are 'public franchises' that the Government grants 'to the inventors of new and useful improvements.'" Slip. Op. at 7 (internal citations omitted). The patent rights granted are a "creature of statute law," and "can be carried out by 'the executive or legislative departments.'" Slip. Op. at 7-8 (internal citations omitted). Congress has the constitutional power to grant patents and/or authorize the executive department to do so. See Article I of the Constitution. Because the judicial department is not involved in the patent determination process, the bestowment of a patent is a matter of public right.

With respect to the second point, the Oil States majority found that IPR "involves the same basic matter as the grant of a patent" and thus also "falls on the public-rights side of the line." Slip. Op. at 8. In particular, the PTAB considers the same statutory requirements during an IPR as the USPTO does in reviewing and granting a patent, and the goal of the IPR is similarly is focused on properly granting monopolies. The majority further relied on the fact that patent claims "are granted subject to the qualification" of reexamination and cancellation based on review procedures, such as IPRs. Accordingly, "[p] atents thus remain 'subject to [the Board's] authority' to cancel outside of an Article III court." Slip. Op. at 9. Analogizing the grant and revocation of patents to other public franchises, such as permitting private companies to erect toll bridges, build railroads, or lay telegraph lines, the Court concluded that the patent rights may also be rescinded in non-judiciary forums.

The majority then rejected arguments raised by Oil States that focused on the history of invalidity actions and the nature of the IPR process. First, the Court noted that earlier precedents suggesting that patents could only be annulled or corrected by the courts were decided under statutes that did not provide for review by an executive branch. Second, the Court dismissed the position that English common law precedent of the 18^th century required courts to decide patent invalidity, relying upon the patent annulment powers granted to the "Privy Counsel," a group of advisors to the Crown. Third, the Court rejected the "assumption that, because courts have traditionally adjudicated patent validity in this country, courts must forever continue to do so." Slip. Op. 14.

Finally, the majority refused to find that IPRs violate Article III because such a procedure "looks like" a trial, complete with motion practice, discovery, depositions, cross-examinations, and an adversarial hearing. "The fact that an agency uses court-like procedures does not necessarily mean it is exercising the judicial power." Slip. Op. at 15. The Court held that the focus, instead, is whether the rights at issue are public rights that thus do not require an Article III court to make a judicial determination.

Having found that IPRs did not violate Article III, the Court held that Seventh Amendment challenge was also resolved. "[T]he Seventh Amendment poses no independent bar to the adjudication" of a non-Article III matter, according to the majority. Slip Op. at 17 (citing Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53-54 (1989).

Future Challenges

The Supreme Court emphasized that its decision in Oil States was in face narrow. In particular, the Court noted it did not address (1) "whether other patent matters, such as infringement actions, can be heard in a non-Article III forum;" (2) whether IPRs or similar proceedings would be constitutional without judicial review of some sort; (3) whether there was a violation of the constitution because inter partes review was not available at the time that the patent at issue in Oil States was granted; (4) whether IPRs could constitute a due process violation; or (5) whether IPRs could be challenged under the Takings Clause. Slip Op. at 16-17. The Supreme Court thus appears to be inviting additional challenges to IPRs in the future.

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