U.S. Patent & Trademark Office in Washington, D.C. (NLJ/Diego M. Radzinschi)
The U.S. Supreme Court has continued its recent trend to enter the foray of patent litigation by granting certiorari in Oil States Energy Services v. Greene’s Energy Group. This time the court will decide whether inter partes reviews (IPRs), an adversarial process used by the U.S. Patent and Trademark Office (PTO) to analyze the validity of existing patents, violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury when the PTO invalidates patents using this process. Since the implementation of IPRs, the PTO’s newly formed Patent Trial and Appeals Board (PTAB), has scrutinized and invalidated thousands of patents making the IPR procedure a highly effective tool when attacking issued patents (whether as a part of a patent litigation or not). Indeed, IPRs are now considered by many to have led to the devaluation of patents, while others (albeit a minority) say IPRs have increased the value of certain categories of patents, particularly those that survive the IPR gauntlet. Now the Supreme Court will decide the fate of IPRs and the impact will be tremendous regardless of how it decides the issue—it will either upend the patent system and result in a roaring comeback of the value of patents, or continue the status quo for generations to come unless Congress intervenes.
IPR Enacted as Part of AIA
IPRs were enacted as part of the Leahy-Smith America Invents Act (AIA), passed in 2011, to “establish a more efficient and streamlined patent system that [would] improve patent quality and limit unnecessary and counterproductive litigation costs” and were intended “to create a timely, cost-effective alternative to litigation.” 77 F. Reg. 48680-01 (Aug. 14, 2012). The short history of these new procedures has proven the success of these stated goals. The PTO’s latest statistics indicate that, as of June 2017, 7,168 AIA petitions (which includes, in addition to IPRs, the other AIA PTAB procedures: covered-business method reviews and post-grant reviews) have been filed, of which, 6,577 of those petitions were IPRs. Patent and Trademark Office, “Patent Trial and Appeal Board Trial Statistics,” June 2017. Of those 7,168 petitions, 50 percent have been instituted. Id. Of instituted petitions, 65 percent have held all claims unpatentable, and another 17 percent held some of the claims were unpatentable—totaling a staggering 82 percent success rate of at least some patent claims that have been invalidated under the new AIA procedures. Id. In light of these statistics, it is unsurprising that patent holders have pursued all mechanisms, including constitutionality challenges to weaken or eliminate IPRs. Because of their effectiveness, collateral attacks on patent validity using IPRs have become standard operating procedure after patent infringement actions are brought.
‘Oil States Energy’
The circumstances relating to IPRs in Oil States Energy Services v. Greene’s Energy Group have become quite common and demonstrate the significant impact that IPRs have on patent litigation. In 2012, Oil States sued Greene’s Energy Group in the U.S. District Court for the Eastern District of Texas for allegedly infringing its fracking technology patent. Green Energy’s subsequently filed an IPR petition, arguing that the asserted patent was invalid because the purportedly inventive fracking technology was obvious in light of other similar technology invented earlier. The PTAB found the patent claims invalid and Oil States appealed that decision to the U.S. Court of Appeals for the Federal Circuit, arguing, inter alia, that the IPR process violates Article III of the U.S. Constitution and the Seventh Amendment because it takes away a private property right (a patent) by a non-Article III entity (the PTO) and without a jury trial.
During the Federal Circuit appeal briefing, the Federal Circuit issued its decision in MCM Portfolio v. Hewlett-Packard, 812 F.3d 1284, 1293 (Fed. Cir. 2015) cert. denied, 137 S. Ct. 292, which rejected a similar constitutionality argument and found that patents are “public rights” and therefore a finding of patent invalidity by a governmental agency does not violate Article III or the Seventh Amendment.1 The Federal Circuit then subsequently affirmed, without opinion, the PTAB’s decision in the IPR and denied Oil State’s request for a panel rehearing and rehearing en banc. Oil States petitioned for certiorari to the Supreme Court.
In its certiorari petition, Oil States, relying primarily on the Supreme Court’s 1898 precedent in McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 608-09 (1898), argued that “[t]he only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent [namely the PTAB within the USPTO].” Oil States Petition for a Writ of Certiorari, Docket No. 16-712, at 17; McCormick, 169 U.S. at 609. Oil States further explained that “patents are a property right” and that “once a patent is granted, it is not subject to be revoked or canceled by the president, or any other office of the Government’ because ‘[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.’” Oil States Petition for a Writ of Certiorari, Docket No. 16-712, at 14, 17. Thus, as “private property,” the “Constitution … provides patent owners with a right to a jury [under the Seventh Amendment] and an Article III forum,” both of which Oil States says are violated by the IPR procedures. Id. at 3.
In response, Greene’s Energy, joined by the U.S. government, argued that patents are “public rights,” and that precedent dictates that Congress may delegate their adjudication to an administrative agency, i.e., the PTO. See, e.g., Greene’s Energy Brief in Opposition to Writ of Certiorari, Docket No. 16-712, at 4. Greene’s Energy further explained that the IPR process “is not new,” but rather the Congressional grant of power to the PTO for “correcting PTO errors in issued patents” was first granted in 1980, with the establishment of ex parte reexaminations, and expanded in 1999 with inter partes reexaminations. Id. at 12. Greene’s Energy relies on Patlex v. Mossinghoff, 758 F.2d 594, 604 (Fed. Cir. 1985), where the Federal Circuit distinguished McCormick on the grounds that McCormick involved reissue, a procedure to resolve a mistake by the patentee, as opposed to reexamination, a procedure invoked to resolve a mistake by the government. Thus, in its view, the IPR process merely replaces inter partes reexaminations, and because “[n]o judicial decision casts any doubt on either form of reexamination,” the petition should have been denied. Greene’s Energy Brief in Opposition, supra, at 12.
Decision Will Have a Big Impact
If the Supreme Court declares IPRs unconstitutional, the PTAB’s current caseload would come to a screeching halt, and the decision would potentially have the cascading effect of calling into question the constitutionality of related AIA procedures and other historical procedures whereby the PTO can invalidate a patent after issuance. Removing these challenges against the validity of patents will immediately increase the value of patents as it would remove one of the primary weapons against patent validity and would be expected “to make patents great again” by increasing their value in the marketplace.
At the same time, an unconstitutionality finding would open up the proverbial Pandora’s box of what to do with the thousands of patents invalidated by an unconstitutional procedure: Is there a mechanism to reinstate all of the invalidated patents or individual patent claims or would individual patent holders be forced to pepper federal courts with actions to undo invalidity findings as a result of IPRs and other similar procedures? The potential procedural nightmare scenario may be a very realistic possibility. The implications of the Supreme Court ruling may also extend to the right to a jury trial under the Seventh Amendment in connection with validity determinations and could have a dramatic and immediate effect on patent infringement action involving disputes between branded and generic pharmaceutical makers.2 Historically, these cases have been resolved via bench trial, but that could change depending upon the scope of the Supreme Court’s decision.
In the end, it is worth keeping a close eye on this case due to its tremendous implications. Stayed tuned for our additional commentary on the subject.
1. The Federal Circuit also rejected similar arguments in Cooper v. Lee, 86 F. Supp. 3d 480, 488 (E.D. Va. 2015), aff’d summarily, No. 15-1483 (Fed. Cir. Jan. 14, 2016), cert. denied, No. 15-955 (Oct. 11 2016) Cooper v. Square, 654 F. App’x 1014 (Fed. Cir. 2016), cert. denied, No. 16-76 (Nov. 14, 2016)
2. In addition, the Supreme Court’s decision in TC Heartland will also play a role going forward with venue selection of Hatch-Waxman litigations.