Supreme Court Upholds Constitutionality of Inter Partes Review of Issued Patents

4/25/2018 Articles

On April 24, 2018, the Supreme Court issued a decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC rejecting a Constitutional challenge to the inter partes review (IPR) procedure for challenging an issued patent that was created in 2012 by the America Invents Act.  The IPR procedure has been heavily used by parties accused of patent infringement, and the Oil States case threatened to stop or at least upend this popular (for some) proceeding.  The challenge by Oil States, which owned the particular patent invalidated through an IPR proceeding, asserted that its patent rights had been extinguished in violation of Article III and the Seventh Amendment to the U.S. Constitution.  The Court, in a 7-2 decision authored by Justice Thomas, rejected the Constitutional challenge but expressly left open other Constitutional arguments ensuring that this is not the final word on this issue.

The Oil States Decision

Patents Are a “Public” Right:  In arriving at its decision, the majority noted that the separation of powers question under Article III is commonly resolved based on a distinction between “private” rights, which are adjudicated by an Article III court, and “public” rights, which can be adjudicated by an agency or other non-Article III court.  The Court recognized that its precedent addressing “public” vs. “private” rights has not drawn a clear line between the two, but concluded that “inter partes review falls squarely within the public rights doctrine.”  While a patent is certainly property, the Court stated that “[p]atents convey only a specific form of property right—a public franchise.”  The Court reasoned that the decision of the U.S. Patent and Trademark Office to grant a patent certainly implicates a “public” right because it takes an invention of potentially “immense value” to the public and grants it exclusively to the patentee.  “Inter partes review involves the same basic matter as the grant of a patent.  So it, too, falls on the public-rights side of the line.”

While the majority had no trouble finding patents to represent “public” rights, the dissent—authored by Justice Gorsuch and joined by Chief Justice Roberts—concluded just as easily that patents are “private” rights, more akin to real property rights, that have historically required adjudication by an Article III court.

IPRs Do Not Violate Article III or the Seventh Amendment:  Having resolved that patents are a “public” right, the Court had little trouble concluding that inter partes reviews do not violate the separation of powers doctrine.  According to the majority, the “primary distinction between inter partes review and the initial grant of a patent is that inter partes review occurs after the patent has issued[, b]ut that distinction does not make a difference here” because patents are granted with the understanding that the Patent Office can reexamine and potentially cancel issued patents.  Again, the dissent took issue with the Court’s reasoning stating that “[j]ust because you give a gift doesn’t mean you forever enjoy the right to reclaim it.”

Having resolved that inter partes review were adjudications properly before a non-Article III court, the majority addressed a number of quotations for prior Supreme Court decisions dating from the 1800s stating that once the Patent Office issues a patent any questions of the existing patent’s validity must be resolved by an Article III court.  The Court reasoned that those statements do not apply today because those cases had been decided under the Patent Act of 1870, which—unlike current law—did not provide any procedures for the Patent Office to reexamine issued patents.

The Court also waded into a fairly arcane historic dispute about eighteenth century legal practices in England in the late 1700s.  While the dissent (and various amicus briefs) asserted that by 1789, when the U.S. Constitution was ratified, patent validity was an issue adjudicated exclusively by English courts, the majority concluded that the English Privy Council (essentially an advisory board to the King) also had the power to invalidate patents.  Because the Privy Council held that power when the Constitution was adopted, the power to adjudicate patent validity was not an issue dedicated exclusively to Article III courts.  The majority also concluded that simply because patent validity has historically been determined in the courts of law, that does not mean the courts are the exclusive forum today.

Interestingly, the majority included a section in the opinion expressly limiting the decision to the specific Constitutional arguments raised in the Oil States case based on Article III and the Seventh Amendment.  For instance, the majority stated that it was not addressing any issues that might result from the fact that the IPR procedure did not exist when the Oil States patent was originally issued.  The decision also does not address issues under the Due Process Clause or the Taking Clause.

Having rejected the Article III separation of power argument, the Court quickly rejected the Seventh Amendment argument as well.  The Court explained that because the Seventh Amendment right to a jury trial only applies to Article III proceedings, IPR proceedings—which do not require an Article III court—do not require a jury.

Impact of the Oil States Decision

Upholding the Status Quo:  Patent practitioners and their clients have wondered for months about the impact of a Supreme Court decision striking down the IPR process in whole or in part.  What would happen to the patents that have already been held invalid?  Would the Patent Office simply use other existing procedures, such as ex parte reexamination, to reach the same results?  And what would happen in pending district court cases involving a patent invalidated in an IPR?  Would the IPR decision be evidence?  Would the jury be told?  All of these questions are rendered moot (for now) because the Supreme Court rejected the challenge in its entirety.

The Oil States decision effectively upholds the status quo permitting the IPR process to continue as it currently exists.  There may be some uptick in filings now that the uncertainty about the continuing existence of the system has been resolved, but otherwise the decision will have little impact on the day-to-day workings of IPRs.

This Is Not the Last Word:  The majority went out of its way to explain that the Oil States decision addresses only the specific Article III and Seventh Amendment raised by Oil States.  It was unnecessary for the Court to identify potential constitutional issues that are not addressed by the Oil States decision, which gives the impression that the majority (or at least some of the justices) are inviting further challenges under different theories.  Whether that is true or not, we are sure to see additional constitutional challenges to the IPR process in the Federal Circuit almost immediately, and the issue may well be back before the Supreme Court before long.