The Supreme Court this week issued two much-anticipated decisions on inter partes review proceedings. In back-to-back decisions issued Tuesday, April 24, the Court held that IPR proceedings are not unconstitutional and that the Patent Trial and Appeal Board can no longer implement its practice of “partial institution” — a long-standing PTAB practice allowing review of some of the challenged patent claims without any review of others. Following these rulings, if the PTAB institutes an IPR, it must decide the validity of every patent claim challenged in the review petition.

IPRs Survive Constitutional Challenge

The Court’s seven-to-two decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC settled the score as to whether patents are private rights subject to adjudication only in the federal courts or are public rights derived from — and subject to — statutory regulation, including administrative processes that authorize the Patent and Trademark Office to reconsider and cancel claims that were wrongly issued.

In previous proceedings, petitioner Oil States Energy Services LLC challenged the constitutionality of IPR proceedings, arguing that they violate Article III of the Constitution and its establishment of judicial power in the federal courts. Similarly, Oil States protested that the lack of a jury in IPR proceedings violated the Seventh Amendment.

Addressing the Article III issue first, the Court recognized that while the Constitution vested judicial power in the federal courts, it also gave Congress “significant latitude to assign adjudication of public rights to entities other than Article III [federal] courts.” With this understanding, the Court focused on whether IPR proceedings involve public rights, namely rights that “arise between the Government and persons subject to its authority in connection with the performance of the constitutional functional of the executive or legislative [branches].”

Describing IPR proceedings as the reconsideration of a government decision to grant a patent, the Court explained that (1) the initial PTO decision to grant a patent has always been one that involved a “tak[ing] from the public rights of immense value and bestowing them upon the patentee”; (2) the bestowed rights are statutory exclusionary rights set out as a public franchise; and (3) the decision by Congress (via the PTO) to issue (or not issue) a patent is one that can be carried out without judicial determination. In other words, the “grant of a patent is a matter involving public rights.” And by extension, taking “a second look at an early administrative grant of a patent” in an IPR proceeding involves “the same interests as the determination to grant a patent in the first instance” and therefore remains on the “public-rights side of the line.”

Turning to Oil States’ arguments, the Court rejected the suggestion that patents are private property rights not amenable to adjudication outside of the federal courts. While the Court acknowledged that the Patent Act, as amended by the American Invents Act, may have conferred upon patents attributes of personal property, it did not do so absolutely. Rather, these qualities were and remain “subject to the provisions of this title,” which establish procedures for IPR proceedings.

Similarly, the Court rejected the notion that IPR proceedings are unconstitutional because Congress may not remove from the purview of the judiciary those matters that, by their nature, are the subject of a suit at common law, in equity or admiralty. While the Court pointed to specific administrative bodies that addressed patent validity alongside English courts during the 18th century as evidence that patent disputes have not historically been reserved for the courts, it nonetheless concluded that “[h]istorical practice is not decisive here,” because although Congress may have “chose[n] the courts in the past [that] does not foreclose its choice of the PTO today.”

Finally, the Court rejected Oil States’ so-called “looks like” argument that IPR proceedings necessarily violate Article III because they share all the salient characteristics of the exercise of judicial power. Not only did the Court stress that it had never adopted such a test, but it also noted that there are differences between district court litigation and IPR proceedings. For example, IPR proceedings do not involve binding determinations of liability regarding infringement.

After deciding the Article III question, the majority readily dispensed with Oil States’ Seventh Amendment argument, noting that once a matter is properly assigned to a non-Article III tribunal, the right to a trial by jury under the Seventh Amendment is no longer an independent bar to adjudication.

In conclusion, the Court was careful to characterize its decision as a narrow one that addressed only “the precise constitutional challenges that Oil States raised.” Importantly, the decision expressly did not address whether (1) other patent matters can be heard in a non-Article III forum, (2) it is constitutional to subject patents issued prior to the AIA to IPR proceedings or (3) IPR proceedings violate due process. In a final caveat, the Court also clarified that its decision should not be misconstrued as holding that patents are not property for purposes of the Due Process Clause or the Taking Clause.

PTAB May Not Institute Partial IPRs

The Supreme Court in SAS Institute Inc. v. Iancu ruled that the PTAB can no longer implement its practice of “partial institution” in the IPR process. Rather, following a decision to institute an IPR, the PTAB must decide the validity of every patent claim challenged in the IPR petition.

When a party seeks an IPR, it must first file a petition setting forth the specific patent claims it is challenging and the grounds of unpatentability it asserts for each patent claim. The patent owner then has the opportunity to file a preliminary response to the petition asserting the reasons why an IPR should not be instituted. The PTAB may then institute an IPR if, after considering both the petition and preliminary response, it concludes that “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.” 35 U.S.C. § 314.

In addition to this statutory institution requirement, the PTAB promulgated a “partial institution” regulation: “When instituting inter partes review, the Board may authorize the review to proceed on all or some of the challenged claims and on all or some of the grounds of unpatentability asserted for each claim.” 37 CFR § 42.108. At the conclusion of the IPR proceeding, the PTAB must “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” 35 U.S.C. § 318(a). Under the partial institution regulation, where the PTAB instituted review of only a subset of patent claims contained in a petition, the PTAB’s final decision would apply only to that subset of patent claims.

The Supreme Court found that the PTAB’s partial institution practice was at odds with the plain language of the IPR statute:

The statute, we find, supplies a clear answer: the Patent Office must “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” 35 U. S. C. §318(a) (emphasis added). In this context, as in so many others, “any” means “every.” The agency cannot curate the claims at issue but must decide them all.

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[W]hatever its virtues or vices, Congress’s prescribed policy here is clear: the petitioner in an inter partes review is entitled to a decision on all the claims it has challenged.

Accordingly, the PTAB may no longer continue its partial institution practice as to patent claims challenged in an inter partes review petition. If the PTAB institutes an IPR, it must review all patent claims challenged in the petition. Of course, the PTAB may still deny institution of all challenged patent claims.