Why it matters: On December 2, 2015, the Federal Circuit in MCM Portfolio LLC v. Hewlett-Packard Co. unanimously rejected a constitutional challenge to the inter partes review (a.k.a. IPR) proceedings that are part of the "in-house" administrative tribunal of the United States Patent and Trademark Office (PTO). Basically, the argument was one of due process: the appellants contended that IPRs, via the revocation or cancellation of a patent, wrongfully deprive patent holders of a private property right sans access to an Article III federal court or a jury as required by the Seventh Amendment. The appellees and the government countered with arguments citing, among other things, Federal Circuit precedent and statutory exhaustion of administrative remedies theories. It was these latter arguments that proved persuasive to the Court. Read on for the details.
Detailed discussion: On December 2, 2015, the Federal Circuit issued an opinion in MCM Portfolio LLC v. Hewlett-Packard Co. that unanimously rejected a constitutional challenge to the administrative IPR proceedings established by the Leahy-Smith America Invents Act (AIA) in 2011 as part of the PTO's "in house" administrative tribunal, the Patent Trial and Appeal Board (PTAB). The appellants had based their constitutional challenge on due process grounds, arguing that IPRs deprive patent holders of access to both a federal court and a jury as required by Article III of the Constitution and the Seventh Amendment thereto. The Federal Circuit rejected these arguments "on the merits."
A brief recitation of the facts and background of the case: Patentee/appellant MCM Portfolio LLC (MCM) filed an appeal to the Federal Circuit in January 2015 after losing on the merits in a 2014 IPR brought by Hewlett-Packard Co. (HP) before the PTAB in connection with a patent for a controller chip that interfaces with a flash memory card (as to which the PTAB had found certain of MCM's claims "unpatentable"). In its principal brief filed with the Federal Circuit, in addition to challenging both the PTAB's initiation of the IPR as well as its adverse decision, MCM argued that IPRs in general are unconstitutional because "actions to cancel or revoke a patent must be tried in Article III Courts with access to a jury under the Seventh Amendment to the United States Constitution" (MCM had unsuccessfully raised this same argument before the PTAB in the IPR proceedings). MCM attacked as "wrongly decided" the precedential 1985 Federal Circuit case of Patlex Corp. v. Mossinghoff, where the Court upheld the constitutionality of the PTO's statutory power to revoke or cancel patents because, among other things, patents are "public rights" that can only be conferred—and taken away—by the government. MCM argued that the Court's Patlex decision was not in step with precedent (harkening as far back as the U.S. Supreme Court's 1803 decision in Marbury v. Madison) and had been overturned by later case law. Both HP's reply brief and the brief filed by the PTO as an intervener in the case pointed out that the Federal Circuit had actually affirmed Patlexin the 1992 case of Joy Technologies, Inc. v. Manbeck, and that the principals used by the Federal Circuit to justify the constitutionality of reexaminations in Patlex and Joy Technologies are equally applicable to IPRs. The Federal Circuit heard oral argument in MCM on October 2, 2015, and, based on a description of the proceedings by a reporter in attendance, "the court hardly sounded on the brink of sending some 100 PTAB judges packing," although the attorneys for both sides, as well as from the Department of Justice's civil division, were subjected to lively questioning by Chief Judge Sharon Prost and Judge Timothy Dyk.
In the unanimous opinion written by Judge Dyk, the Court held that "[o]n the merits, we reject MCM's argument that inter partes review violates Article III and the Seventh Amendment" of the Constitution. With respect to the Article III argument regarding the right to federal court access, the Court reviewed legislative history and noted that, in creating the PTO and the statutory scheme under which it issued and reviewed patents, "Congress sought to 'provid[e] a more efficient system for challenging patents that should not have issued' and to 'establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs.'" The Court pointed out that "[t]here is notably no suggestion that Congress lacked authority to delegate to the PTO the power to issue patents in the first instance. It would be odd indeed if Congress could not authorize the PTO to reconsider its own decisions." Furthermore, the Court stated that "[p]atent reexamination and inter partes review are indistinguishable from the agency adjudications held permissible" in U.S. Supreme Court case law precedent, which "compel[led] the conclusion that assigning review of patent validity to the PTO is consistent with Article III." The Court also pointed out that it was bound by its own precedential "on point" decisions in Patlex and Joy Technologies and concluded that "Supreme Court and Federal Circuit authority require rejection of MCM's argument that inter partes review violates Article III." With respect to MCM's Seventh Amendment argument that IPRs deprive parties of their constitutional right to a jury trial, the Court again looked to Supreme Court and Federal Circuit precedent to hold that "[b]ecause patent rights are public rights, and their validity susceptible to review by an administrative agency, the Seventh Amendment poses no barrier to agency adjudication without a jury."
The Court's decision in MCM will presumably control the disposition of another case currently before it that raises the same Article III and Seventh Amendment constitutional challenges, Cooper v. Lee. One of the appellants in that case—self-described "prolific inventor" J. Carl Cooper (Cooper)—had filed an amicus brief in January 2015 in the MCM case in support of MCM. Cooper's case was only recently transferred to the Federal Circuit on October 14, 2015, after following a rather circuitous route to get there: The facts show that Cooper at some point granted eCharge Licensing, LLC (eCharge), a patent-licensing agent, the exclusive license to a number of his patents, including the right to pursue infringers. In 2013, eCharge filed a patent infringement suit against Square Inc. (Square) in the U.S. District Court for the Northern District of Illinois alleging that Square had infringed several of Cooper's patents. Square responded by petitioning the PTAB to conduct an IPR of three of Cooper's patents, which was granted and as to which IPR proceedings commenced before the PTAB in May 2014. Square also successfully moved the Illinois district court to stay the infringement litigation pending resolution of the IPR. Cooper and eCharge then filed a separate suit against the PTO in the Eastern District of Virginia, seeking a declaratory judgment that IPR proceedings are unconstitutional (for the same reasons argued by MCM in its case) and an injunction barring the PTO from continuing to conduct the IPR proceeding. On February 18, 2015, the Eastern District of Virginia judge granted the PTO's motion to dismiss because Cooper and eCharge "have not exhausted administrative remedies before seeking judicial relief. Furthermore, the Federal Circuit's decisions in Patlex v. Mossinghoff … and Joy Techs., Inc. v. Manbeck … suggest that Plaintiffs' challenge will ultimately fail." On February 2, 2015, Cooper and eCharge appealed the case to the Fourth Circuit, which was then transferred to the Federal Circuit on October 14. We will be watching to see what comes next for the Cooper case in light of the MCM decision and report back.
See here to read the 12/2/2015 Federal Circuit decision in MCM Portfolio LLC v. Hewlett-Packard Co., No. 15-1091 (Fed. Cir.).
See here, here and here to read the following in the Federal Circuit case of MCM Portfolio LLC v. Hewlett-Packard Co., No. 15-1091 (Fed. Cir.): (1) Principal Brief filed by MCM on 1/20/15, (2) Appellee Brief filed by HP on 3/19/15 and (3) Corrected Brief for the Intervener filed by the PTO on 3/23/15.
See here to read the 10/7/15 article by Scott Graham of The Recorderentitled "Lawyer Who'd Put the PTAB Out of Business Gets Cool Reception."
See here to read the 2/18/15 Eastern District of Virginia opinion in Cooper v. Lee, No. 1:14-cv-00672 (E.D. Va.).