MCM Portfolio LLC v. Hewlett-Packard Co.

In a case of first impression, the U.S. Court of Appeals for the Federal Circuit upheld the constitutionality of inter partes review (IPR) proceedings. The Federal Circuit ruled that because patents were a public right, Congress could delegate adjudicatory authority to an Article I court such as the Patent Trial and Appeal Board (PTAB or “Board) at the U.S. Patent and Trademark Office (PTO) without violating Article III or the Seventh Amendment. MCM Portfolio LLC v. Hewlett-Packard Co., Case No. 15-1091 (Fed. Cir., Dec. 2, 2015) (Dyk, J.).

The case arose from an IPR involving a flash memory patent. MCM Portfolio (MCM) sued Hewlett-Packard (HP) on a patent covering error correction technology in flash drive readers. HP responded by petitioning the PTAB for an IPR, asserting that the involved patent was invalid for obviousness. The PTAB instituted an IPR proceeding, eventually invalidating the claims. MCM appealed.

The Federal Circuit first discussed a threshold issue of whether, under the statute, it had jurisdiction to review institution decisions. MCM argued that it could and that the IPR should have been time-barred since MCM had already sued one of HP’s suppliers on the same patent. However, the Court, citing 35 U.S.C. § 314(d), concluded that it lacked jurisdiction to review institution decisions.

The Federal Circuit then moved on to the constitutionality challenges under Article III and the Seventh Amendment. MCM argued that only an Article III court has the right to invalidate a patent and that assigning that authority to the executive interfered with separation of powers and violated Article III. MCM also argued that the Seventh Amendment precludes IPR proceedings as they deprive patent owners of a trial by jury. The Court rejected both arguments.

With respect to the Article III argument, the Federal Circuit concluded that Congress could grant the PTO the authority to review patents since they are a “public right.” Public rights are those that either exist between a person and the government or that are “so closely integrated to a public regulatory scheme” that agencies may resolve them. The Court explained that because patents flow entirely from a federal legislative regime, Congress may authorize the PTO to resolve questions of validity, particularly since the Court had already approved a similar process, ex parte reexamination, when Congress introduced that proceeding.

Turning to the Seventh Amendment argument, the Federal Circuit concluded that the IPR process was constitutional, again noting that a patent is a public right. Citing Supreme Court precedent, the Court explained that when Congress authorizes agencies to adjudicate a public right, the Seventh Amendment does not apply, since such a circumstance would defeat the very purpose of having an expert agency rule on those issues.