In Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, Docket No. 16-712, 137 S. Ct. 2239 (June 12, 2017), the Supreme Court will rule on whether the recently-established administrative review process for challenging and invalidating issued patents, known as “inter partes review” (“IPR”), is an unconstitutional exercise of Article III judicial power by a federal agency. The arguments for unconstitutionality in Oil States appear so weak, however, as to suggest that the Court took the case to issue a decision that removes any doubt as to constitutionality of the IPR administrative procedure under Article III, which, since it was implemented in 2012, has had a significant effect in revoking improperly-issued patents.
The United States Patent and Trademark Office (“PTO”) has been criticized in recent decades for issuing dubious patents. In theory, a patent is allowed only after careful and rigorous review by the PTO. The PTO examines applications for patents for formal requirements and, substantively, for novelty and “non-obviousness” (35 U.S.C. Sec. 102 and 103) in comparison to the prior state of the technological subject matter of the application. The PTO “allows” the patent only after it determines that the invention claimed in the patent is new and not obvious.
That determination is entitled to weight in subsequent litigation, although it is not conclusive. If sued for patent infringement, the defendant can claim the patent is invalid, i.e., the PTO made a mistake in issuing it. In deference to the examination process, though, patents that are allowed by the PTO are cloaked with a statutory presumption of validity (under 35 U.S.C. Sec. 282) in patent infringement litigation. That presumption can be overcome only by the accused infringer presenting clear and convincing evidence of invalidity. Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 95 (2011).
As part of the America Invents Act of 2011, Congress created the inter partes review (IPR) process as an alternative way to invalidate an issued patent, outside of litigation. As Petitioner’s Brief (p. 47) in Oil States concedes, “Congress created inter partes review primarily out of a concern that the federal district courts provided insufficient protection against the assertion of meritless patents.”
The initial examination of a patent application by the PTO is ex parte — only the applicant and the PTO are involved. In contrast, an IPR allows a third party — any third party — to petition the PTO to cancel the claims of an issued patent on the ground that the “prior art” in existence (which the PTO may have missed during the examination process) shows that the alleged invention was for unpatentable subject matter, meaning it was already in the public domain or was disclosed by earlier patents. The PTO, specifically, the Patent and Trademark Appeal Board (PTAB), can accept or reject the petition. If the petition is accepted, the IPR then proceeds “inter partes,” which, as the name implies, involves an adversarial proceeding, with discovery and briefing between the patent owner and the petitioner, culminating in a “trial” (more like an oral argument; there are no live witnesses) before a panel of administrative patent “judges” appointed by the Director of the PTO. After the trial, the panel issues a decision, a “judgment,” which can be appealed to the Court of Appeals for the Federal Circuit.
The process in theory, and in practice, is more streamlined, faster, and less expensive than patent infringement litigation. Also, in contrast to patent litigation, there is no statutory presumption of validity in the IPR proceeding. IPR has been frequently used and has succeeded, from the standpoint of revoking many patents. According to PTO statistics, there were over 4,000 petitions for IPR filed, from 2015 to March 2017, with over 1,500 of the trials conducted during that period resulting in a written decision. (Chart located at https://www.uspto.gov/sites/default/files/documents/AIA%20Statistics_March2017.pdf). Over 1,000 of those over 1,500 written decisions issued from 2015 to 2017 (65%) determined that all claims of the patent in question were unpatentable.
Is that popular, streamlined administrative process for revoking a patent unconstitutional? In Oil States, Plaintiff’s argument to Court starts with the premise that it is unconstitutional for a federal agency rather than an Article III-appointed federal judge to exercise the “judicial power” and to adjudicate an issue (patent validity) traditionally tried by common-law courts. From the premise, Plaintiff then argues: 1) inter partes review is an exercise of the judicial power, 2) that was the subject of suits at common law, and 3) that extinguishes a private property right. As a second basis for reversal, Plaintiff argues that IPR violates the right to trial by jury, which under the Seventh Amendment is preserved as to suits traditionally tried in common law courts.
Defendant’s main rebuttal is to argue that IPR is merely a mechanism for the PTO to correct its mistakes in issuing patents that should never have been issued in the first place. Defendant points out that IPR is not the first administrative practice set up to cancel patents that were improperly granted. In 1980, Congress created ex parte re-examination, which allow any third party to request that the PTO re-examine a patent on pieces of prior art cited by the third party, although that third party does not participate in the review. In 1989, Congress provided for inter partes re-examination (now superseded by IPR), which allowed the third party some role in the proceedings.
During oral argument, Plaintiff conceded that “reexamination,” whether ex parte or inter partes, is constitutional (Transcript, pp. 4-5), but maintained that the IPR process is constitutionally flawed because it is “adjudicational.” Does that distinction make a difference? I doubt it. If, as Plaintiff concedes, the PTO can re-examine — and cancel — issued patents, then the degree to which third parties are allowed to participate in that process, in order to assist the PTAB in reaching a decision, seems immaterial. Regardless of how the record is being created, the process involves a federal agency determining whether to overturn an earlier decision of that same agency. The Court has already noted, in its first decision addressing aspects of the IPR process, Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), that in some respects IPR is adjudicatory, but in others it “is less like a judicial proceeding and more like a specialized agency proceeding,” Id. at 2143, and “that the purpose of the proceeding is not quite the same as the purpose of district court litigation,” id. at 2144. It also referred to ex parte reexamination — conceded in Oil States to be constitutional — as a “cousin” of IPR, and that in either proceeding the “basic purpose[ ]” is “to reexamine an earlier agency decision.” Id. at 2144. Whether the IPR process is “adjudicatory” rather than “examinational” thus does not seem like a question that will cause the court much concern from a constitutional standpoint.
Instead, the key issue in Oil States for the Supreme Court may be whether an IPR decision deprives the patent owner of “public” versus “private” rights. The question on which the Court granted certiorari was phrased as whether IPR violates the constitution “by extinguishing private property rights through a non-Article III forum without a jury.” Defendant’s briefing points out that patent rights are not private property recognized at common law; they are created solely by a public agency; Congress could constitutionally take away federal court jurisdiction over patent lawsuits or repeal the patent statutes and their patent-granting process entirely. Yet, in oral argument (Transcript, p. 32), Chief Justice Roberts pointed out that even a property right that originates with the government cannot be taken away without due process.
Although predicting the Supreme Court is problematic, in this instance I expect the Court to reject the argument that the Constitution mandates that only an Article III judge (or a jury) can cancel a patent claim. It may reserve for another day the issue of whether specific aspects of the IPR proceeding are consistent with due process (the Due Process Clause was not invoked by the Petitioner in Oil States).