Inter Partes Review Proceedings (IPRs) Survive First Constitutional Challenge, But Court Opinion Opens Door to Further ChallengesJuly 2, 2018

On April 24, 2018, I had posted regarding the U.S. Supreme Court being held in a 7-2 decision (Justice Gorsuch and Chief Justice Roberts dissenting),Oil States Energy Servs. v. Greene’s Energy Group, LLC, that the Inter Partes Review proceedings, commonly referred to as IPRs, do not violate Article III or the Seventh Amendment of the U.S. Constitution. The Court was deciding two primary constitutional challenges: (1) whether IPRs violate Article III of the constitution by assigning a task intended for U.S. District Courts to an administrative agency (i.e., the Patent Office); and (2) whether IPRs violate the Seventh Amendment by having a controversy decided without the opportunity for a jury trial. The Court emphasized the narrowness of the Constitutional issues before it and was explicit that its decision did not address other potential Constitutional challenges.

The case arose when Oil States Energy Services sued Greene’s Energy Group for infringement of U.S. Patent Number 6,179,053 (“the ‘053 Patent”) directed to an apparatus and method for protecting well-head equipment used in hydraulic fracturing. Greene’s Energy responded by challenging the validity of the ‘053 patent. Near the end of discovery in the patent infringement lawsuit, Greene’s Energy petitioned the USPTO’s Patent Trial and Appeal Board (“PTAB”) to institute an IPR proceeding. The PTAB instituted the proceeding with respect to two of the claims in the ‘053 Patent. The civil litigation continued in parallel with the IPR proceeding. The district court issued a claim construction order that precluded Greene’s Energy’s arguments regarding invalidity of the claims in the civil litigation. The PTAB, however, found that the claims lacked novelty in view of the prior art cited by Greene’s Energy in the IPR proceeding and held the ‘053 patent’s claims were invalid for lack of novelty.

Oil States appealed the PTAB’s decision to the Federal Circuit and ultimately the U.S. Supreme Court.  One of the grounds raised by Oil States was whether the IPR proceedings violate the Constitution under Article III by assigning a task intended for U.S. District Courts to an administrative agency (i.e., the Patent Office) and the Seventh Amendment by having a controversy decided without the opportunity for a jury trial. The Supreme Court granted certiorari on these Constitutional challenges to the IPR proceedings.

The arguments before the Court and the differing opinions reflected by the Court’s majority and dissent demonstrate a philosophical disagreement as to the nature of a patent right. Oil States argued, and the dissent agreed, that an issued patent is a personal right, i.e., personal property. Specifically, the dissent stated, “an issued patent [is] a personal right – no less than a home or farm – that the federal government could revoke only with the concurrence of independent judges”. Oil States’ arguments before the Court were consistent with this – arguing that a patent is the “private property of the patentee”. The majority agreed that a patent is a property right, but with the caveat that “Patents convey only a specific form of property right – a public franchise”. The majority relied on the legal distinction between public and private rights walking through cases distinguishing private and public rights.

Supporting its conclusion that a patent right is a public right, the majority noted that the decision to grant a patent is necessarily a matter involving public rights as it is a public franchise and provides the patentee the right to exclude the public from making, using, selling, and offering for sale the patented invention. The Court also noted that granting patents is one of the constitutional rights carried out by the executive and legislative branches. This too is indicative of the public-rights doctrine as the granting of patents is a matter that occurs between the government and others. Quoting the Court’s earlier decision,In re Cuozzo, the majority reiterated that IPRs are “a second look at an earlier administrative” action, i.e., grant of a patent. The only difference between IPR and examination is that the former occurs after issuance. The Court held this is a distinction without a difference. Ultimately, the majority held that patents and IPRs fall “squarely within the public-rights doctrine”.

The public rights doctrine provides Congress with “wide latitude to assign adjudication of public rights to entities other than Article III courts.” Thus, by holding that patents and the IPR proceedings fall within the public rights doctrine, Congress has the authority to assign review, amendment, and cancellation of patents to the USPTO without violating Article III of the Constitution. Moreover, the Court held that Congress can properly assign adjudication of patent validity to the USPTO, and thus the Seventh Amendment is also not violated.

The dissent, authored by Justice Gorsuch, countered the majority’s holding that issued patents can be invalidated through non-judicial proceedings. They emphasized the importance of an independent judiciary to hear cases and controversies between parties, and particularly disputes regarding personal rights. Supporting this argument, the dissent provides a detailed discussion of the history of pre-Revolution colonial judges and English Privy Council to emphasize the importance of judicial independence. The dissent contends that IPRs are a retreat from independent judiciary, which is provided for in Article III of the Constitution. It also cautions the judiciary from “intrusions by the other branches” concluding that that “enforcing Article III isn’t about protecting judicial authority”, but rather “about ensuring the people today and tomorrow enjoy no fewer rights against governmental intrusion than those who came before”.

The majority responded to the dissent noting that historically the English Privy Council had the authority to cancel patents. It was against this backdrop that the Patent Clause and Article III of the Constitution were written. The Court noted that neither the parties nor the dissent cited any authority indicating the framers were unaware of this practice or that they made an effort to exclude this practice. The majority was clear though that this decision was specific only to the Constitutional issues raised by Oil States, i.e., Article III and the Seventh Amendment. The Court was explicit that Oil States did not challenge (1) the retroactive application of IPRs to patents issued prior to its enactment, (2) IPRs under the Due Process Clause, or (3) Takings Clause. Thus, these issues remain open for other parties to challenge and for the Court to take up at a later date.

The previous post I wrote can be found here. Jonathan L. Kennedy, is a Patent Attorney in the Biotechnology & Chemical Practice Group at McKee, Voorhees & Sease, PLC. For additional information, please visit www.ipmvs.com or contact Jonathan directly via email at jonathan.kennedy@ipmvs.com.