On Tuesday, April 24, the U.S. Supreme Court handed down two highly anticipated decisions that significantly impact inter partes review (IPR) proceedings before the Patent Trial and Appeal Board (PTAB). The Supreme Court's decisions confirmed the constitutionality of inter partes review proceedings and added yet another layer of complexity to the already uncertain world of patent law.

In a nutshell, these decisions mean that what the U.S. Patent and Trademark Office gives, it may also take away, without the procedural protections and independence of review in the Article III courts. And as long as prior art exists, patent prosecution never really ends. Assuming an applicant successfully obtains a patent, he must live with the uncertainty of further review under the USPTO's "broadest reasonable interpretation" and "preponderance of the evidence" standards should he ever decide to enforce his so-called "public rights franchise" (the patent).

What remains to be seen is whether Congress (with versions of the STRONGER Patents Act now pending in both the House and the Senate) will take up the policy questions implicated in these decisions. For now, if the PTAB decides to institute proceedings on one claim in an IPR petition, it must consider the invalidity of every challenged claim no matter the basis. Unless the PTAB is significantly expanded to accept a substantial increase in its workload, today's decisions may have the unexpected result of reducing the percentage of petitions that are actually granted, shifting more validity disputes back into Article III courts.

Background

Congress established IPR proceedings in the Leahy-Smith America Invents Act (AIA) of 2011. IPRs are trial proceedings conducted by the PTAB to consider whether issued patent claims are invalid based on novelty or obviousness grounds in view of prior art in the form of patents and printed publications. The Supreme Court decided today that IPR proceedings are constitutional and the AIA does not permit partial institution decisions by the PTAB in IPR proceedings.

In today's first decision, Oil States Energy Services, LLC v. Greene's Energy Group, LLC, the Court held that the structure Congress created for IPR proceedings is consistent with the U.S. Constitution, rejecting constitutional challenges under Article III and the Seventh Amendment. The second decision, SAS Institute, Inc. v. Iancu, held that once the Director of the Patent Office decides to institute IPR proceedings, it must decide the patentability of all claims challenged in an IPR petition, rejecting the agency's "partial institution" practice. When combined, these two decisions substantially raise the stakes (and likely the expense) of patent litigation in general and IPR proceedings.

Oil States Energy Services, LLC v. Greene's Energy Group, LLC, No. 16-712, 584 U.S. ___ (2018)

In Oil States, the Court upheld the constitutionality of IPR proceedings by a 7-2 vote. Justice Thomas wrote the majority opinion, finding that "[i]nter partes review falls squarely within the public-rights doctrine." Under that doctrine, Congress has "significant latitude to assign adjudication of public rights to entities other than Article III courts." Justice Thomas supports his conclusion pointing out the apparently "undisputed" premise that the initial grant of a patent is a matter involving public rights. He then reasons that "[i]nter partes review is 'a second look at an earlier administrative grant of a patent,'" and therefore, "it, too, falls on the public-rights side of the line."

Justice Thomas distinguishes earlier authority referring to issued patents as "private property" by explaining that the property conveyed in a patent is in the form of a "public franchise," which can confer only the rights permitted by statute. The current version of the Patent Act states that "[s]ubject to the provisions of this title, patents shall have the attributes of personal property." 35 U.S.C. § 261. Justice Thomas explains that the introductory qualifier is significant, as IPR proceedings are part of the express provisions of the Patent Act. The majority opinion also draws support from historical administrative patent cancellation proceedings in England, which were part of the background against which the U.S. Constitution was presumed to have been written. He further rejects the argument that IPR proceedings use court-like proceedings, stating that the "looks like" test is not the appropriate measure of whether an administrative proceeding violates the judicial powers in Article III. Finally, the majority opinion quickly disposes of the Seventh Amendment challenge, finding that "when Congress properly assigns a matter to adjudication in a non-Article III tribunal, 'the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.'"

The majority took care, however, to "emphasize the narrowness of [its] holding," noting that retroactive application of the IPR statute, due process concerns, and takings clause issues were not presented in the case. This, of course, might leave additional constitutional challenges to the IPR statute open for future cases.

Justice Breyer, joined by Justices Ginsburg and Sotomayor, concurred fully in the majority opinion, but wrote separately to emphasize that "the Court's opinion should not be read to say that matters involving private rights may never be adjudicated other than by Article III courts, say, sometimes by agencies."

Justice Gorsuch dissented and Chief Justice Roberts joined the dissent. Justice Gorsuch suggested that it is manifestly unfair to expect patent owners to expend significant funds to obtain patent rights, only to have those rights stripped away in a non-judicial forum subject to the political influence of the executive branch. The dissent suggests that the majority improperly favors administrative efficiency over constitutional protections, arguing that once a patent is issued, it becomes a right that can only be withdrawn through the judgment of a court.

SAS Institute, Inc. v. Iancu, No. 16-969, 584 U.S. ___ (2018)

In SAS Institute, by a 5-4 vote, the Court narrowly rejected the USPTO's practice of issuing "partial institution" decisions in IPR proceedings. Although Justice Gorsuch did not agree with the Oil States decision on the constitutionality of IPR proceedings, he wrote the majority opinion in SAS Institute, joined by Chief Justice Roberts and Justices Kennedy, Thomas and Alito. Justice Gorsuch took a strict textual approach to the statute, focusing on Congress's direction that "[i]f an inter partes review is instituted and not dismissed," the Board "shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner." 35 U.S.C. § 318(a). While the statute gives the Director discretion on whether to institute an IPR proceeding, the majority held that the Director has no discretion regarding what claims the review will encompass. The institution decision must be made on an all-or-nothing basis.

Justice Gorsuch also rejected the Director's argument that the USPTO's partial institution regulation was subject to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). He reasoned that Chevron deference applies only where Congress's intention is unclear from the text of the statute, and emphasized there is no uncertainty to warrant deference in the IPR institution statute. The majority also rejected the Director's argument that the Court was not permitted to rule on the case because the statute dictates that institution decisions are "final and nonappealable." 35 U.S.C. 314(d); see also Cuozzo Speed Techs., LLC v. Lee, 579 U.S. ___ (2016). The Court explained that the statutory limitation on appellate review of institution decisions "does 'not enable the agency to act outside its statutory limits,'" and "judicial review remains available consistent with the Administrative Procedure Act, which directs courts to set aside agency action 'not in accordance with law' or 'in excess of statutory jurisdiction, authority, or limitations.'" The majority concludes that "everything in the statute before us confirms that SAS is entitled to a final written decision addressing all of the claims it has challenged and nothing suggests we lack the power to say so."

Justice Ginsburg wrote one dissent, joined by Justices Breyer, Sotomayor and Kagan. Justice Ginsburg succinctly pointed to the gamesmanship that petitioners and the Director might use to circumvent the majority's holding. Finding that a petition contains both meritorious and unmeritorious contentions, the PTAB might decline institution, but suggest to the petitioner that certain claims might warrant review. The petitioner would then refile the petition, limited to those claims suggested by the PTAB, and the PTAB would then institute IPR proceedings on the refiled petition. Justice Ginsburg then rhetorically asks, "[w]hy should the statute be read to preclude the Board's more rational way to weed out insubstantial challenges?"

Justice Breyer wrote a separate dissent, joined by Justices Ginsberg and Sotomayor, and joined in part by Justice Kagan. Justice Breyer's opinion explains in greater detail his view that the statute leaves a gap, and the USPTO's interpretation of the statutory ambiguity is reasonable, and therefore, he would hold the USPTO's partial institution regulation lawful.

The SAS Institute decision raises significant policy concerns regarding efficiency and burden in IPR proceedings. The two dissents raise some unappealing implications. Justice Breyer uses a hypothetical example of an IPR petition challenging every claim in a patent with 16 claims. If the PTAB finds a reasonable likelihood that the petitioner would prevail on only one of the 16 claims challenged in the petition, what will it do? Under Justice Breyer's hypothetical, the PTAB might institute the proceedings, leading to highly inefficient proceedings and unnecessary cost related to the 15 claims that the PTAB views as frivolous. Under Justice Ginsburg's hypothetical, the PTAB might decline institution, but suggest that the petitioner refile a new petition focused on the single claim on which the PTAB believes there is a reasonable likelihood the petitioner will prevail. This, too, is potentially inefficient and unduly costly, as the case might be whittled down more efficiently through a partial institution decision.

Of course, the hypothetical outcomes suggested by Justices Breyer and Ginsburg are not the only possible outcomes. For example, the PTAB might be more selective with institution decisions, shifting more validity disputes back to the Article III courts and thereby reducing the significance of the Oil States decision. Or perhaps practitioners will take greater effort to more narrowly tailor IPR petitions to the claims most likely to be invalidated, although narrowly tailored petitions carry some risk in view of the IPR estoppel statute.

Only time will tell which prediction (or combination of predictions) will come to fruition in the wake of the Oil States and SAS Institute decisions. If stakeholders find the result unpalatable, Justice Gorsuch outlined his view on who should hear those complaints: "[p]olicy arguments are properly addressed to Congress, not this Court."