IP Reports

The Federal Circuit again upheld the constitutionality of challenging patent validity in a post-grant proceeding by a non-Article III Court, despite the effect of denying the patent owner access to a jury. A post-grant proceeding, such as an ex parte reexamination or an inter partes review, allows a party to challenge the validity of a patent in front of the U.S. Patent and Trademark Office (“USPTO”) rather than in district court, even when that party has already been sued in district court for infringing the patent.

In 1985, the Federal Circuit held in Patlex Corp. v. Mossinghoff that ex parte reexamination proceedings are constitutional under Article III and the Seventh Amendment.1 After thePatlex decision, the Supreme Court addressed the issue of assigning a legal claim to a non-Article III court with no access to a jury in Granfinanciera v. Nordberg, determining that Congress “lacks the power to strip parties contesting matters of private right of their constitutional right to a trial by jury.”2 In light of Granfinanciera v. Nordberg, the Federal Circuit again considered the constitutionality of ex parte reexamination proceedings in Joy Technologies v. Manbeck and concluded that Patlex is still controlling authority.3 Most recently, in December 2015, the Federal Circuit held in MCM Portfolio LLC v. Hewlett-Packard Company that inter partes review proceedings do not violate Article III and the Seventh Amendment of the Constitution.4

In 2012, Technology Properties Limited, LLC (“TPL”), an exclusive licensee of MCM Portfolio Inc.’s U.S. Patent No. 7,162,549, sued Hewlett-Packard for patent infringement, demanding a jury trial.5 Within a year of TPL filing the lawsuit, Hewlett-Packard filed a petition with the USPTO to institute inter partes review of certain claims of the ‘549 patent, and in 2014 the USPTO determined that the challenged claims were obvious and therefore unpatentable.6MCM Portfolio Inc. appealed, arguing that patent validity must be tried in an Article III court with access to a jury.7 The Federal Circuit disagreed,8 reasoning that patent rights are public rights, and since Congress has the power to delegate disputes over public rights to non-Article III courts, the Seventh Amendment “poses no barrier” to the USPTO trying patent validity without a jury.9

The Federal Circuit explained that the Seventh Amendment generally is not applicable to administrative proceedings, finding that the Seventh Amendment does not require Congress to “choke the already crowded federal courts with new types of litigation.”10 The Federal Circuit further stated that a so-called public rights exception allows Congress to delegate disputes over public rights to non-Article III courts.11 The public rights exception applies to lawsuits between a private party and the government as well as lawsuits between private parties concerning public rights.12

MCM argued that patent rights are not public rights, and therefore patent validity cannot be tried in a non-Article III court with no right to a jury trial, citing to the Supreme Court’s 2011 decision in Stern v. Marshall.13 In Stern, the Supreme Court held that a bankruptcy court could not enter a final judgment on a counterclaim seeking damages for the tortious interference of an inheritance expectation, rejecting the argument that the counterclaim could be classified as a public right.14 The Supreme Court stated that while the public rights exception extends to cases where the government is involved in its sovereign capacity under a statute creating enforceable public rights, “[w]holly private tort, contract, and property cases, as well as a vast range of other cases . . . are not at all implicated.”15

Relying on Stern, MCM argued that the Patlex decision declaring ex parte reexamination proceedings constitutional should be overruled because the public rights exception does not extend to property cases, such as patent cases.16 The Federal Circuit, however, distinguishedStern from the present case, stating that state law counterclaims such as the one at issue inStern do not flow from a federal statutory scheme, whereas the USPTO’s sole authority is to decide issues of federal law.17 The Federal Circuit reiterated that while patent validity is often brought into question in disputes between private parties, the threshold question typically is whether the USPTO properly granted the patent under the authority assigned to it by Congress.18 The Federal Circuit further noted that it would be “odd indeed if Congress could not authorize the PTO to reconsider its own decisions.”19

Since its creation in 1982, the Federal Circuit has held that a party does not have a right to demand a jury trial for claim construction, inequitable conduct, the jurisdictional issue of standing, and the threshold determination of objective recklessness required for willful infringement.20 As demonstrated by the MCM v. Hewlett-Packard decision, the ability of a party to circumvent the jury process by challenging patent validity in a post-grant proceeding appears to hinge on the Federal Circuit’s classification of patent rights as public rights. Whether the Supreme Court would share the same classification remains to be seen.