Christopher E. Loh December 18 2017 Supreme Court hears oral argument on constitutionality of inter partes review in oil states Venable LLP | Intellectual Property - USA Christopher E. Loh Intellectual Property BackgroundOil States' oral argumentGreene's oral argumentUnited States' oral argumentCommentOn November 27 2017 the Supreme Court heard oral argument in Oil States Energy Services, LLC v Greene's Energy Group, LLC (16-712). The Supreme Court's decision in this case will either spare or strike down inter partes review (IPR) as a means for challenging the validity of issued patents in the United States.BackgroundThe America Invents Act 2011 established IPRs, a procedure through which parties may challenge the validity of issued patents before the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (PTO). IPRs are conducted before a panel of three PTAB administrative law judges. There is no Article III standing requirement for initiating IPR proceedings; any person may challenge the validity of a patent through the IPR process. Challenges to validity in IPRs are limited to anticipation or obviousness challenges based on prior art patents and publications. If the PTAB finds a patent invalid in an IPR, the patent owner may appeal the finding to the United States Court of Appeals for the Federal Circuit.In 2014 Greene's initiated IPR proceedings against Oil States' US Patent 6,179,053, which covered apparatuses and methods for securing wellhead machinery. On May 1 2015 the PTAB found the '053 patent invalid for anticipation. Oil States appealed the PTAB's invalidity finding to the Federal Circuit; the Federal Circuit affirmed the PTAB's finding on May 4 2016.On November 23 2016 Oil States petitioned for certiorari. On June 17 2017 the Supreme Court granted certiorari on one question: whether the IPR process violates the Constitution.Oil States' Supreme Court briefs advanced three main arguments:IPRs violate Article III of the Constitution, which grants federal courts – rather than administrative agencies such as the PTAB – the power to adjudicate issues of patent validity;although non-federal court tribunals may exercise the power to adjudicate disputes involving public rights, patents constitute private rights, not public rights; andin addition to violating Article III, IPRs violate the Seventh Amendment right to have factual disputes resolved by a jury.Greene's Supreme Court brief countered that:IPRs do not usurp Article III judicial power, but instead provide a limited, specialised procedure through which the PTO may review and correct its own patent validity determinations;patent rights emanate from federal statute, and thus constitute public rights amenable to adjudication by a federal agency; andthere is no Seventh Amendment jury right in cases involving public rights.The government also filed a Supreme Court brief defending the constitutionality of IPRs.The oral arguments took place on November 27 2017.Oil States' oral argumentDuring Oil States' portion of the oral argument, Justice Ginsburg initiated questioning by noting that "there must be some means by which the Patent Office can correct the errors that it's made, like missing prior art that would be preclusive". Justices Ginsburg, Kagan, Roberts and Sotomayor proceeded to ask Oil States to defend the distinction in its reply brief that the PTO's ex parte and inter partes re-examination procedures are constitutionally permissible, whereas IPRs are not. Oil States explained that re-examination procedures are "fundamentally" between the PTO and the patent owner, whereas an IPR involves a dispute between private parties. Sotomayor pushed back, noting that the PTO in an IPR could proceed to a final written decision even if the challenger dropped out of the proceedings.Kennedy asked questions directed toward the principle that patent owners' expectations as to their patent rights are limited or conditional. Roberts further noted that, under the takings clause of the Constitution, government regulations can diminish the value of real property: "So, if the government can restrict your property right in real property to that extent, why can't it do so with respect to patent rights?"Gorsuch asserted that prior decisions, including McCormick Harvesting Machine Co v Aultman (169 US 606 (1898)), "arguably" have indicated that the only authority competent to annul or correct a patent is a federal court. However, Sotomayor countered that McCormick involved a matter of statutory interpretation concerning a then-extant patent reissue statute, and did not provide a constitutional holding concerning the limits of the PTO's power.Breyer asked Oil States the following:"I thought it's the most common thing in the world that agencies decide all kinds of matters through adjudicatory-type procedures often involving private parties. So what's special about this one, or do you want to say it isn't special and all the agency proceedings are unlawful?"Oil State answered that those non-IPR agency proceedings are permissible because the government is acting as "enforcer" in that case. However, Kagan observed that in IPRs, the government too is the enforcer:"It's the government trying to figure out whether it made a mistake by granting the patent, which the government sometimes does and knows it sometimes does, but the government wants to put in place a set of procedures that will actually increase the government's accuracy in figuring out whether it made a mistake."Gorsuch noted that Oil State had "struggled" with the question of "how much of an adjudication does an inquisitorial process have to have before it becomes an adjudication", and indicated that Oil States could circumvent that struggle by "simply say[ing] that this is a private right".Sotomayor and Ginsburg both noted that there was historical precedent for procedures like IPR: in 17th and 18th century England, the Privy Council, an advisory body to the crown, had annulled patents without involving the courts.Greene's oral argumentDuring Greene's portion of the argument, Breyer initiated questioning by asking whether patent owners "gain a kind of vested interest or right after enough time goes by and they rely on it sufficiently". Greene's answered no, but Kagan then proceeded to ask whether its defence of the IPR process would change if there was no judicial review of IPR decisions by the Federal Circuit: "Then you would have to say yes, right?" Sotomayor agreed, noting that "for me… what saves this, even a patent invalidity finding, can be appealed to a court" However, Gorsuch observed that "there's only judicial review if somebody appeals", and that an IPR decision, "if not appealed, has all the force of law of an Article III court".Roberts commented as follows:"your position, it strikes me, is simply that you've got to take the bitter with the sweet. If you want the sweet of having a patent, you've got to take the bitter that the government might reevaluate it at some subsequent point… Well, haven't our cases rejected… that proposition?"Roberts further raised the concern that the PTO has the ability in IPRs to alter the composition of PTAB panels to influence the outcome of IPRs. Greene's responded that it did not believe such instances of so-called 'panel stacking' had occurred on more than a few occasions.Gorsuch engaged in an extended colloquy with Greene's attorney about whether patent rights were private rights. Gorsuch analogised patents to land grants, asking:"Do you think it would work if – if we had land patents subject to the same circumstances, that they could be re-examined at any time over hundreds of years, even after the farmer had sold the land to the developer who built the houses and that the land patent could be revoked by the government by bureaucracy, I suppose, in the Department of Interior?"Gorsuch further asserted that "there's an abundance of law going back 400 years" that once a patent is granted, "it's a private right belonging to the inventor". Ginsburg countered by noting that even Oil States had acknowledged that patent rights were not absolute: "Ms. Ho, I think, wisely, recognized that the reexamination procedure between the government is okay. But – but the problem [with an IPR] is it looks too much like a court proceeding." Greene's agreed with Ginsburg on this point: "The Petitioner has conceded that the power exists, the power of revocation." United States' oral argumentGorsuch initiated questioning during the United States' portion of the oral argument by asking the state's attorney to address the extent to which the executive grants a patent subject to "whatever conditions in terms of its withdrawal that we wish to impose". The state answered that there is no expectation on the part of a patent owner that the validity of its patent is immune from challenge in, for example, ex parte review or judicial proceedings.Roberts asked about panel stacking: "Does it comport to due process to change the composition of the adjudicatory body halfway through the proceeding?" The state answered that such changes had occurred three times in situations where the chief judge of the PTAB:"was concerned that the panel as initially composed was likely to diverge from general PTAB precedent with respect to a matter that bore on the institution decision, and so the chief judge expanded the panel. It's not clear whether the chief judge picked judges that he had a particular reason to think would be sympathetic to a particular view."Breyer attempted to distil the government's arguments down to three theories:"is there a problem of it's unfair to hold these people to the new statute because… they got their patent before the statute was enacted";"the public versus private right theory"; and"a vested right theory, which had great popularity in the 19th century and might have moved Justice Story but in fact has happily sunk from sight".Leaving aside the doctrinal differences among those theories, Gorsuch, Roberts and Breyer proceeded to express concerns over the potential consequences of depriving patent owners of their rights after having committed significant investments or resources to developing those rights. But Breyer noted that those concerns might be better addressed in a case arising under the takings clause or the due process clause.Kagan, Ginsburg, Gorsuch and Sotomayor asked questions concerning the limits of the PTAB's authority, including whether constitutional concerns would arise if the IPR process did not include judicial review, or if the IPR process was expanded to permit the PTO to adjudicate infringement issues. The state conceded that those hypotheticals could raise constitutional issues, but answered that the IPR process was "not something the agency came up with on its own. This is an act of Congress. It's entitled to judicial respect".CommentBased on their comments at oral argument, Roberts and Gorsuch appear to favour Oil States' position, whereas Ginsburg and Breyer appear to favour Greene's. While Kagan and Sotomayor expressed concerns about the constitutionality of the IPR process itself, those concerns appear to be assuaged by the availability of judicial review for IPR decisions. The views of the other Supreme Court justices are less clear.The Seventh Amendment right to trial by jury did not arise at oral argument. Thus, the two key issues on which the Supreme Court's decision in this case likely will turn are:the extent to which the justices view the IPR process either as an Article III adjudication or as an administrative error-correcting mechanism; andthe extent to which the justices view patent rights as public or private rights.For further information on this topic please contact Christopher Loh at Fitzpatrick, Cella, Harper & Scinto by telephone (+1 212 218 2100) or email ([email protected]). The Fitzpatrick, Cella, Harper & Scinto website can be accessed at www.fitzpatrickcella.com.