The Supreme Court heard oral arguments on November 27, 2017, in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, where the petitioner challenged the constitutionality of inter partes review (IPR) proceedings. The Court’s comments suggested that its decision will be closely divided but IPR’s constitutionality will likely be upheld.
Oil States addressed two separate constitutional challenges to IPR: (1) whether IPR violates Article III of the Constitution because it allows administrative judges rather than Article III judges to resolve controversies about the validity of issued patents, and (2) whether the Seventh Amendment requires the validity of issued patents to be resolved by a jury rather than an administrative agency. The Federal Circuit held that IPR complies with Article III because patent rights are “public rights,” and further held that when, as here, there is no right to an Article III court, then the Seventh Amendment does not apply.
Much of the Supreme Court argument centered on the Article III issue, exploring both the nature of patent rights and the details of IPR proceedings themselves. Shortly after the argument began, Justice Ginsburg asked Oil States whether there was any way for the Patent and Trademark Office to correct mistakes after patent issuance. Somewhat surprisingly, Oil States conceded that ex parte reexamination is consistent with Article III because it is “fundamentally examinational and not adjudicational in nature.” Oil States also suggested that inter partes reexamination, although a closer issue, would also be acceptable.
This led to a discussion about how the Court might draw the line between “examinational” and “adjudicational” proceedings. Oil States said that examinational proceedings are those that are fundamentally between the PTO and the patent owner. But Justices Sotomayor and Kagan pointed out that the same could be said of IPR, where the petition is merely informing the PTO of new prior art and the PTO has discretion to continue the proceedings even if the challenger settles. Justice Kagan pressed Oil States further on where the line was—e.g., whether it turned on the challenger’s right to discovery or to participate at the oral hearing. Justice Breyer then noted that agencies adjudicate many other types of disputes. And Justice Kagan observed that it was “odd” to suggest that the PTO could revoke a patent on its own but would no longer be able to do so because a third-party challenger provided information to help the PTO make a better decision.
Justices Sotomayor and Gorsuch both questioned whether the difference between examination and adjudication even matters under Article III. Both noted that if patent rights are “private rights,” then only an Article III court could decide them. Justice Gorsuch later challenged Greene’s counsel extensively on this point, noting that 400 years of authority suggested that patent rights are private rights.
There was extended discussion of historical practice and whether executive officers could revoke patent rights in England at the time of the founding. Justice Sotomayor noted that although the ability of the King’s Privy Council to revoke patents had “waned” by 1789, this implied it had not been eliminated entirely.
When Greene began, Chief Justice Roberts quickly challenged them with cases from the public employment and welfare benefits context that hold the government cannot deprive a person of a right without due process. This led to a discussion of Patent Trial and Appeal Board practice, with Chief Justice Roberts asking about the PTAB’s practice of “panel packing” to change the results in some cases. When Greene noted that this had not happened often, Justice Kennedy asked whether there could be problems if it were more frequent. The Chief Justice and Justice Gorsuch asked similar questions of the government, noting that IPR proceedings were relatively new and that most patents had been issued before IPR. The government responded that those patents were subject to ex parte reexamination and court review, suggesting that patent owners acquired them knowing they might be invalidated. The government also defended the IPR process but noted that if there were process challenges, those could be raised separately in later cases and did not create an Article III problem. This led to an awkward exchange in which the Chief Justice noted that PTAB administrative judges are not “judges” in the sense that “we” normally use the word.
Justices Sotomayor and Kagan inquired whether judicial review was an important part of what made IPR constitutional. Greene’s suggested that judicial review was helpful but not necessary, provoking a skeptical reaction from several justices. Justice Gorsuch also noted that there might not be judicial review if no one appealed. Justice Kagan later asked a similar question of the government, which said that it thought judicial review was not necessary to make the process comply with Article III but that it did help ensure there was due process.
Chief Justice Roberts asked the government about the five-factor test that the Court has sometimes used to determine whether something is a public right. The Chief Justice noted that this test was amorphous and asked whether it was sufficiently predictable, especially given Justice Breyer’s point that companies invest money based on patents and have reliance interests in their validity. The government noted that the PTO was not deciding infringement or damages, only validity.
The justices’ comments made it seem that many of the votes will break down along the typical “liberal”/“conservative” divide. Justices Ginsburg, Sotomayor, and Kagan all seem to be strong votes to uphold IPR, as is Justice Breyer. Justice Gorsuch is a strong vote to invalidate it, and the Chief Justice also seemed skeptical of it. Justice Thomas was silent during the argument but has previously opined that the agency cannot revoke trademark rights after they are issued, so he would presumably also find IPR unconstitutional.
This suggests an almost certain 4-3 breakdown, with Justices Kennedy and Alito being the swing votes. Both of them said relatively little, but their comments seemed to suggest they favored upholding IPR’s constitutionality.
Justice Kennedy asked Oil States whether Congress could explicitly condition its grant of a patent on having the inventor agree that the patent would be subject to IPR procedure. Oil States said it could not, but Justice Kennedy did not appear to believe that the cited cases supported this position. He then asked whether Congress could reduce the patent term to 10 years, and Oil States agreed that it could, prompting Justice Kennedy to ask whether this shows that “the patent owner has limited expectations as to the scope and the validity of the property right that he holds.”
Justice Alito later asked a related question, inquiring whether Congress was under a constitutional obligation to give patent rights at all, and, when Oil States said it was not, he asked whether it could then condition the right on agreeing to IPR. Oil States answered that it could not because that would be an unconstitutional condition.
An additional point on the “swing” justices is worth noting. Justice Alito wrote the Court’s opinion in B&B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015), which held that PTO decisions resolving a dispute between two private parties resolving whether to revoke a trademark might have later preclusive effect in Article III courts. The main dispute involved preclusive principles and statutory interpretation, but Justice Thomas had dissented, arguing that the Court’s decision created a constitutional concern because trademark rights are private rather than public rights. The Court did not comment on this issue, but the fact that Justices Alito and Kennedy (along with Chief Justice Roberts) did not have a similar concern suggests that they may be similarly open to permitting IPR proceedings. On the other hand, B&B Hardware dealt with disputes between parties over potential trademarks that had not yet been registered, so it might be distinguished on the ground that IPR involves issued patents.
The Court will issue its decision in Oil States by the end of its term in June 2018. Although the Supreme Court resolves most patent cases quickly in unanimous decisions, is the justices here are likely to be more divided, and the Court may be slower to issue, as it carries implications for many other types of agency decision-making in unrelated fields.