The Court recently heard arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC on whether inter partes review—an adversarial process used by the US Patent and Trademark Office to determine the unpatentability of existing patents—violates the US Constitution.
Six years ago, with the passing of the Leahy-Smith America Invents Act, Congress established a number of patent review proceedings, including inter partes reviews (IPRs), to allow private third parties to challenge the patentability of issued patent claims at the US Patent and Trademark Office’s (PTO’s) Patent Trial and Appeal Board (PTAB) on the ground that the claims are either anticipated by, or rendered obvious in view of, identified prior art. Congress created this proceeding to “provid[e] a more efficient system for challenging patents,” noting the high cost of doing so in traditional district court litigation.
If the PTAB determines that there is a “reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition,” it institutes IPR, and the petitioner and patent owner then participate in an adversarial proceeding before the PTAB. The parties take discovery, engage in motion practice, and take depositions. The PTAB holds a hearing, and—in view of the evidence of record—issues a “final written decision” on the validity of the challenged claims within 12 months of the institution date. The judgment may be appealed as of right to the US Court of Appeals for the Federal Circuit.
IPR proceedings are so popular that they now account for more challenges to patents than any other forum. Since the first final written decision issued in late 2013, the PTAB has received thousands of petitions and reviewed thousands of issued patent claims. Typically, IPR petitions are filed by parties that have been accused of infringement in district court—an estimated 80% of IPR filings are for patents in co-pending district court litigation. If cases are filed early enough, courts tend to stay any parallel proceedings until an IPR has concluded. As such, petitioners who prevail in front of the PTAB can often negate the infringement claims in the co-pending district court proceedings.
Procedural History of the Oil States Case
Oil States Energy Services, LLC owns a patent—US Pat. No. 6,179,053 (the ’053 Patent)—that covers apparatuses and methods of protecting wellhead equipment from the pressures and abrasion involved in the hydraulic fracturing of oil wells.
In 2012, Oil States filed an infringement suit against Greene’s Energy Group, LLC; Greene’s filed an answer, asserting the affirmative defense and counterclaim of invalidity. Greene’s then petitioned the PTAB to institute IPR on the asserted claims and, over Oil States’ objection, the PTAB instituted review and eventually found those claims to be anticipated by a prior patent application.
Oil States appealed the PTAB’s final judgment to the Federal Circuit, challenging both the merits of the PTAB’s decision and the constitutionality of IPR under Article III and the Seventh Amendment. The government intervened on appeal to defend the constitutional challenge to IPR.
Before briefing closed, the Federal Circuit issued its decision in MCM Portfolio LLC v. Hewlett-Packard Co., which rejected the same challenges to the constitutionality of IPR, and thereby foreclosed Oil States’ Article III and Seventh Amendment arguments. MCM’s petition for a writ of certiorari to the US Supreme Court was subsequently denied.
After oral argument in Oil States, the Federal Circuit summarily affirmed the PTAB without issuing an opinion. Oil States filed a petition for writ of certiorari, presenting constitutional challenges similar to those that the Supreme Court considered in MCM’s petition. The Supreme Court granted Oil States’ petition and agreed to review the case. The parties completed briefing on November 17, 2017, and the Supreme Court heard oral argument on November 27, 2017.
Summary of Each Party’s Arguments to the Supreme Court
The Supreme Court granted certiorari to review two questions: first, whether IPR violates Article III of the US Constitution, which reserves the exercise of the judicial power to Article III courts; and second, whether IPR violates the Seventh Amendment of the US Constitution, which requires trials by juries in certain cases.
Oil States’ Article III Challenge
Oil States argued that IPRs violate Article III as an impermissible exercise of the “judicial [p]ower of the United States” by an Article I executive agency. Since patent validity disputes over the issue of novelty—the issue in this case—were traditionally tried in English (and then American) courts, Oil States argued Congress could not now allow the PTAB to review them instead.
Oil States next argued that the PTAB exercises judicial power because it adjudicates the competing interests of private parties without both parties’ consent and without adequate Article III court supervision.
Precedent dictates, however, that a non–Article III tribunal may only adjudicate a dispute if the case involves a public, and not a private, right. A case involves a public right when the claims (i) are by or against the government, (ii) have been historically resolved exclusively outside the judicial branch, or (iii) are resolved in a non–Article III tribunal because their location there is “essential to a limited regulatory objective . . . integrally related to particular federal government action.” Oil States noted that (i) the government is not a party in IPRs and (ii) patent validity disputes have not historically been exclusively resolved by another branch, and Oil States argued that (iii) patents have traditionally been treated as private property and are not new statutory obligations, and IPR proceedings are not essential to a limited regulatory objective. As such, these patent disputes are over private rights and, according to Oil States, must be decided in Article III courts.
Greene’s and the government (Respondents) both defended IPRs from this Article III challenge. Respondents argued that because patents arise by a statute—the Patent Act— Congress may implement any scheme it desires for reviewing patents after they have been granted. Since Congress may attach conditions to patents, such as novelty or nonobviousness, Respondents contended that Congress may likewise attach a “subject to review by the PTAB” condition as well. This “conditions theory,” according to Respondents, was bolstered by the constitutional provision giving power over patents to Congress and the language of the Patent Act that says patents are granted “subject to the provisions of this title.” All that the PTAB does, Respondents argued, is correct agency errors, which is its prerogative since the PTO issues the patents in the first place.
Respondents further argued that disputes over the validity of patents are paradigmatic cases of public rights. Greene’s claimed the government serves as a party to IPR proceedings, and the government argued that the historical “authority of the Crown and Privy Council to cancel patents” in England makes patents public rights. Both Respondents also argued that IPRs are integrally related to a particular federal government action, i.e., the PTO’s issuing of patents. Thus, according to Respondents, patents are public rights and need not be adjudicated in courts.
Oil States’ Seventh Amendment Challenge
The Seventh Amendment requires that “the right of trial by jury shall be preserved” for most “suits at common law.” The Supreme Court has explained that “statutory rights that are analogous to common-law causes of action ordinarily decided in English law courts in the late 18th century”—at the time of the ratification of the US Constitution—still must be decided by juries. Relying on English history, Oil States argued that patent validity and infringement disputes were almost always decided by courts of law with questions of fact resolved by juries in the late 18th century. Respondents countered by arguing that IPRs are not analogous to common-law suits but rather are equitable in nature and more similar to declaratory judgment actions, which need not be tried to juries.
This case was notable for the sheer volume of amicus curiae briefs filed in support of both parties. More than 55 such briefs were filed, with dozens supporting each side. Many from industry argued that holding IPRs to be unconstitutional would have devastating effects on patents and the economy. Others argued the opposite—that IPRs are making patents weak and damaging the economy. Law professors also weighed in on whether patent validity cases were actually decided in courts by juries in the 18th century.
Ultimately, the Supreme Court will have to decide these complex legal and historical questions. No matter the outcome, this case will have a massive impact on the US patent system, the economy, separation of powers, and constitutional law. A decision is expected no later than June 2018.