Supreme Court case could undo years of patent litigation

OCTOBER 2017 TERM

The U.S. Supreme Court heard arguments on Monday to consider the constitutionality of administrative proceedings that revoke issued patents through a non-Article III forum without a jury. The high court could rule in this case, Oil States Energy Services, LLC v. Greene's Energy Group, LLC (16-712), that inter partes review proceedings at the U.S. Patent and Trademark Office are unconstitutional, undoing a major component of 2011's America Invents Act patent reform legislation.

Inter partes review allows any party, frequently the defendant in a patent infringement lawsuit, to argue to the Patent Office that a patent is invalid. Inter partes review has become a staple companion of patent infringement suits in court, and is relied on heavily by defendants. Oil States calls into question the availability of this alternative forum.

Patent Office post-issuance proceedings include inter partes review, post-grant review, covered business method review, and reexamination. Oil States directly challenges only inter partes review. But after the Supreme Court agreed to hear the case, other parties have filed "me too" certiorari petitions challenging covered business method review and reexaminations. For example, Affinity Labs of Texas filed a challenge to both ex parte and inter partes reexamination in August (17-232). Also, Audatex North America filed a petition challenging covered business method review in October (17-656). And dozens of others have filed certiorari petitions on identical grounds. The Oil States decision could thus have a far-reaching impact.

Oil States primarily argues that Article III of the U.S. Constitution precludes adjudication of private rights by an administrative agency, and that the Seventh Amendment further guarantees a right to jury trial on such issues (there is no jury in an inter partes review). This argument turns largely on whether patents are "private rights" as opposed to "public rights." Article III is one foundation of the separation of powers enshrined in the Constitution: the legislative branch (created by Article I) creates laws, the executive branch (created by Article II) enforces and executes laws, and the judicial branch (created by Article III) adjudicates legal disputes between parties. But an inter partes review proceeding arguably blurs the lines. The Patent Office is an administrative agency, not a court, and is thus an Article I forum. Yet an inter partes review is typically filed by a private entity (often after being accused of patent infringement) that would benefit from invalidating another private entity's patent. Oil States says this case is a quintessential dispute about private rights that may only be resolved in an Article III forum -- that is, in court.

Green Energy and the federal government disagree with Oil States; they argue patents are public rights. The Supreme Court has previously addressed public versus private rights: If the right at issue derives from a "federal regulatory scheme," then the court may treat it as a public right amendable to resolution in a non-Article III forum. The respondents argue that a patent only exists because there are federal statutes and codes that create the patent right. Patents exist solely "subject to the conditions and requirements of this title." 35 U.S.C. Section 101. There is no common law or other legal doctrine that creates patent rights, except legislative statues. They argue patent rights are exactly what the Supreme Court has always considered public rights: a creation solely due to a federal regulatory scheme. As public rights, neither Article III nor the Seventh Amendment precludes adjudication at the Patent Office.

The wider patent community has actively weighed in on the Oil States case. Each side is supported by many amici, which submitted nearly 50 amicus briefs. Oil State's position is supported by libertarian and conservative groups, such as the Cato Institute and the Conservative Union Foundation, industry groups and companies in the pharmaceutical space, as well as patent owner groups, such as the Intellectual Property Owners Association, and others. In addition to Oil States' primary arguments, these amici argue that inter partes review proceedings have substantially and unfairly impacted the rights and reliance interests of patent owners.

Green Energy and the government are supported by intellectual property bar associations, such as the American Intellectual Property Law Association and PTAB Bar Association, industry groups and companies in the computing and software industries, and groups, such as Unified Patents, which are frequent inter partes review petitioners. These amici argue that inter partes review proceedings have been effective in weeding out bad patents and reducing the cost and complexity of patent litigation.

The justices were active in their questioning at oral argument earlier this week. Justice Neil Gorsuch asked repeatedly why a patent is not a private right, akin to a land patent. He also asked about prior Supreme Court decisions that arguably suggest that only an Article III court can adjudicate patent rights.

Justice Ruth Bader Ginsberg noted that each party "wisely recognized" that reexamination proceedings before the Patent Office are acceptable. Justices Elena Kagan, Sonia Sotomayor and Ginsberg then asked the parties to explain why reexamination is constitutional, but inter partes review crosses a line. What is the line?

Justice Stephen Breyer asked whether the taking of a patent "subject to this title" indicated that the executive branch could place conditions on the patent grant, and how this ties to the public rights doctrine. He also raised questions about extra-judicially wiping out reliance and investment in issued patents.

Chief Justice John Roberts asked the parties to explain the issue in terms of due process and the takings clause of the Constitution. He also brought up the Patent Office's practice of "packing" judging panels to achieve a desired outcome based on the director of the Patent Office's preferred policy. Roberts framed this as a potential due process violation. Justice Ginsberg and others appeared to agree.

This case could have a substantial impact on patent litigation. At one extreme, the ruling could do away with all Patent Office post-issuance validity challenges as impermissible violations of the Constitution. Currently, about 80 percent of all inter partes reviews have co-pending associated litigation. Inter partes reviews have already drastically changed the litigation landscape, with upwards of 80 percent of challenged claims being cancelled. If inter partes review were no longer available, years of litigation would be undone.

The way the Supreme Court addresses the issue is also important. If an Article I forum invalidating an issued patent is always a violation of Article III, then all post-issuance proceedings at the Patent Office would arguably be off the table. But if there is merely some infirmity in the America Invents Act statutes, that could theoretically be remedied by further legislation. For example, the statutes could be amended to ensure a greater degree of control is given to courts to oversee fact-finding in Patent Office proceedings.

Nearly the entire patent community has weighed in with impassioned arguments each side of the issue. Regardless of the outcome, going forward it will be incumbent upon the Patent Office and Congress to address and ameliorate these concerns. Either, or both, could push for further patent reform legislation or rulemaking. After all, the patent system exists to "promote the progress of science and the useful arts." This laudable goal is best served by ensuring that the U.S. Constitution is faithfully followed, and that all of the stakeholders in the patent community are heard.

The views expressed in this article are those of the author only, and do not reflect the views of Irell & Manella LLP, or any of its clients.

Disclosure: The author of this article is counsel for Audatex on its petition for certiorari.