The Supreme Court this week granted certiorari in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712, to consider “whether inter partes review – an adversarial process used by the 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.” If the Supreme Court ultimately agrees that inter partes review (“IPR”) proceedings are unconstitutional, the decision could have far-reaching consequences. In particular, the Court’s decision could effectively eliminate not only IPR proceedings, but also the other post-grant administrative proceedings that the PTO conducts, such as ex parte reexaminations, post-grant review proceedings, and covered business method review proceedings.
Petitioner, Oil States, owns U.S. Patent No. 6,179,053 (the ’053 patent), which is directed to protecting wellheads during hydraulic fracturing, commonly known as “fracking.” In 2012, Oil States sued Respondent, Greene’s Energy, for patent infringement in the Eastern District of Texas. Greene’s Energy subsequently filed a petition for inter partes review. Ultimately, the PTO’s Patent Trial and Appeal Board (the Board) held that that the ’053 patent was invalid based on prior art. Oil States then appealed the Board’s decision to the Federal Circuit, arguing, in part, that IPR proceedings are unconstitutional. Oil States, however, conceded that the Federal Circuit had already rejected the same constitutionality argument in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015). Without addressing the constitutional argument, the Federal Circuit affirmed the Board’s decision in an unpublished per curiam order.
In November 2016, Oil States filed a petition for a writ of certiorari, arguing that IPR proceedings violate the Seventh Amendment. The Seventh Amendment provides that “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.” Citing prior Supreme Court cases, Oil States noted that the “thrust of the Amendment was to preserve the right to jury trial as it existed in 1791.”1 Oil States argued that, in 1791, patent infringement cases “would have been heard in law courts of old England.”2 As a result, Oil States concluded that “patent infringement cases – including invalidity defenses where damages are sought – are the province of the jury.”
Oil States also argued that IPR proceedings violate Article III, section 1, of the United States Constitution, which provides that “[t]he judicial power of the United States, shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish.” Under this provision, the Supreme Court has recognized that “Congress may not withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.”3 Oil States argued that suits concerning the validity of patents arise either at common law or in equity. Oil States also relied on the Supreme Court’s decision in McCormick Harvesting Machine Co. v. Aultman & Co., which stated 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 the department which issued the patent.”4
Greene Energy and the U.S. Government both opposed the petition for certiorari. The Respondents first noted that the Seventh Amendment is a red herring because it only guarantees the right to a jury trial on claims that are adjudicated in Article III courts. As such, if Congress properly delegated the IPR proceedings to the PTO, the Seventh Amendment has no application.5
Respondents next argued that the proposition that a claim must be heard in an Article III court is “general” rule subject to an important qualification: Congress may delegate authority to an administrative agency to adjudicate “public rights,” including rights that are “so closely integrated into a public regulatory scheme as to be a matter appropriate for agency resolution.”6 Respondents argued that patents are quintessential “public rights” because they are granted pursuant to the constitutional authority to “promote the Progress of Science and the useful Arts” and exist only by virtue of statute. Respondents noted that “what makes a right ‘public’ rather than private is that the right is integrally related to particular Federal Government action,” such as the regime for granting patents.7
In reply to Respondents, Oil States argued that patent rights are private rights that must be adjudicated in Article III courts. In support of its argument, Oil States relied on a simple syllogism: patent rights are property rights; property rights are private rights; and, therefore, patent rights must be private rights, not public rights.
On June 12, 2017, the Supreme Court granted the petition for a writ of certiorari to consider the constitutionality of IPR proceedings. The Supreme Court’s decision caught many observers by surprise, given that the Court had already denied three similar petitions.8 The grant of certiorari is significant given the possible ramifications of finding IPR proceedings to be unconstitutional. Since the proceedings were established in 2012, filing an IPR petition has become a routine consideration for companies defending infringement allegations in the district courts. Indeed, since 2012, more than 6,000 petitions have been filed and more than 16,500 patent claims have been cancelled as a result of IPR proceedings. As evidenced by the popularity of these proceedings, many practitioners believe that inter partes review provides a speedy and efficient way for determining the validity of a patent.
The Oil States case is also significant because the Supreme Court could more broadly prohibit the PTO from conducting any type of post-issuance review proceeding, including ex parte reexaminations, which have been in place since 1980. While Oil States made a cursory argument that ex parte reexaminations are “qualitatively” different from inter partes review, there does not appear to be any distinction between the proceedings with respect to Oil States’ constitutional arguments. In particular, if Article III courts have exclusive jurisdiction over the validity of a patent once it issues, there would be no room for the PTO to revisit validity, whether via an IPR proceeding or an ex parte reexamination proceeding.
The Supreme Court will hear the Oil States case as part of the October Term 2017. The argument date for the case has not yet been set.