Could court bring dead patents back to life?

OCTOBER 2017 TERM

Could the U.S. Supreme Court bring dead patents back to life? That is a question that stakeholders may have to address after the court considers during the October 2017 term whether inter partes review — an adversarial process used by the Patent and Trademark Office to analyze the validity of existing patent rights — violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.

The ability to challenge the validity of a patent using an inter partes review began in 2012 under the America Invents Act. Under the act, challengers may file with the Patent Trial and Appeal Board — an administrative tribunal — a petition to declare unpatentable claims in a patent. Inter partes review proceedings have proven to be a popular and effective manner in which accused infringers challenge the validity of patents asserted against them. Statistics through the second quarter of 2017 show that over the five years inter partes reviews have been available to litigants, over 5,000 petitions have been filed. More than two-thirds of those have been instituted. Once instituted, statistics suggest that invariably some or all of the challenged claims are found invalid. In more than 80 percent of the cases in which final written decisions are issued, some or all claims are found invalid, and almost two-thirds of the time all of the challenged claims are found invalid.

After denying three prior certiorari petitions raising the issue of whether inter partes reviews are constitutional, the Supreme Court in June of this year granted certiorari in Oil States v. Greene’s Energy Group. Oil States involves a challenge to U.S. Patent No. 6,179,053, which relates to technology used to protect oil well equipment during hydraulic fracking. Oil States sued Greene’s Energy Group for patent infringement, and Greene’s filed an inter partes review petition. After trial, the PTAB issued a final written decision holding that challenged claims are unpatentable. Oil States appealed to the U.S. Court of Appeals for the Federal Circuit, which decided by a vote of 10-2 not to hear the case. Oil States then filed its petition for certiorari.

The case raises two primary questions: whether there is a Seventh Amendment right to a jury trial for patentability post-grant, and whether patents are public rights that may be revoked by an administrative tribunal, or instead private rights that may only be revoked by an Article III court. Oil States contends that these patent reviews are unconstitutional because, once granted, a patent bestows its owner with property rights, which cannot be revoked or canceled by a government official but instead only by an Article III federal judge. Thus, as to patent validity the Constitution guarantees patent owners the right to a jury trial before an Article III court — a right that is violated by administrative inter partes review proceedings conducted by the administrative judges of the PTAB.

In opposing certiorari, Greene’s Energy Group argued that patents are “quintessential public rights” that exist only by statute and for which Congress may establish adjudicative proceedings before administrative tribunals. Thus, according to Greene’s Energy, the PTO can review patent validity without violating Article III or the Seventh Amendment once Congress confers the necessary statutory authority, as it has through the America Invents Act.

So, with this background, stakeholders must consider what happens if the court rules that inter partes reviews, as currently conducted, are unconstitutional.

In the first instance, one could argue that there is an easy, practical answer — Oil States would effectively overrule all prior PTAB decisions and remove any preclusive impact of claim cancellation through an inter partes review. However, that approach becomes unworkable when considering that many inter partes reviews have a related district court action where a court has relied upon the PTAB’s decision to cancel the patent claims to issue a final judgment.

Another possibility is that there will be minimal change. Why? Because even if the Supreme Court agrees that inter partes review proceedings as currently conducted are unconstitutional, there are several options available to Congress to address constitutional concerns. For example, one could envision a system where the PTAB decision in an inter partes review would result in a district court proceeding where the interested party seeks approval from an Article III judge of the determination by the PTAB. This type of procedure, in which the PTAB effectively serves as an “adjunct” to the district court, could model itself off the successful use of magistrate judges in federal courts. While this type of procedure may increase the time and expense associated with an inter partes review, it would still be speedier and less expensive than a jury trial. Moreover, district court judges already use a similar process in patent cases when, for example, the parties consent to having a magistrate judge undertake a claim construction hearing, or even an entire case. In those situations, the magistrate serves as an adjunct to the district court and issues a recommendation that is reviewed de novo by the district court judge.

Of course, there is the possibility that chaos and turmoil will reign if the Supreme Court finds inter partes reviews unconstitutional. Patent owners would argue that their patents should be brought back from the dead and the entire America Invents Act could be declared unconstitutional, requiring congressional involvement in an already divisive political environment. To be sure, successful litigants would argue that any patent owner that did not raise the constitutional issue had waived the ability to do so, or effectively consented adjudication of validity by the PTAB, leading to only further litigation and uncertainty.

Many more possible outcomes will certainly be discussed and debated in the coming months as the parties, and likely many additional amici, file briefs with the Supreme Court in advance of the hearing. After that, stakeholders will undoubtedly debate the merits of the various possible outcomes as we look forward to the decision sometime before June 2018.