This article was first published on Law360
On Nov. 27, 2017, the U.S. Supreme Court heard oral argument in Oil States Energy Services LLC v. Greene’s Energy Group LLC and a decision is expected soon on whether inter partes review procedures violate the constitutional guarantees of Article III and the Seventh Amendment. If the Supreme Court finds the IPR process constitutional, the patent litigation landscape should go back to “business as usual,” although the Oil States opinion may provide guidance for future constitutional challenges to IPRs. If the Supreme Court decides that the IPR process is unconstitutional, however, the immediate question will be: How does this ruling affect the thousands of concluded and pending IPRs and whether other post-grant challenge procedures are also unconstitutional?
While the Oil States opinion itself may provide guidance on its impact beyond the two parties before it, at a minimum, the Supreme Court will have to decide the dozens of “follow-on petitions” filed after the grant of certiorari. These follow-on petitions seek review of recent Federal Circuit decisions involving IPRs, covered business method review, and inter partes re-examinations. The “question presented” in each petition raises the same Article III and Seventh Amendment constitutional challenges made in Oil States. The follow-on petitions then request that if the Oil States decision finds IPR procedures unconstitutional, then each of their respective cert petitions should be granted, the judgment below be vacated, and the case remanded to the Federal Circuit for further consideration in light the Supreme Court’s decision.
These grant-vacate-remand requests, if granted by the Supreme Court, would result in the Federal Circuit getting the first crack at assessing the reach of the Oil States decision — so uncertainty will likely remain for a while. The briefing already filed in the follow-on petitions, however, provides a good preview of the legal issues that lay ahead for the continuing viability of post-grant challenges. Accordingly, this article provides a brief summary for the following arguments already being made about the broader impact of Oil States:
1. Should the Oil States decision be applied retroactively to other IPRs?
2. Are the procedures for inter partes re-examination and CBM review also unconstitutional?
3. Are constitutional challenges that were not previously raised below waived?
Retroactive Application of Oil States
If the IPR procedures used for the Oil States patent are declared unconstitutional, should other patents invalidated in other IPRs be brought back to life? The briefing so far on the possible retroactive application of Oil States invokes two competing lines of Supreme Court cases — one starting in the 1970s and the other starting in the 1990s.
Respondents argue that the Oil States decision should not be applied retroactively, citing the Supreme Court’s 1971 decision in Chevron Oil and 1982 decision in Northern Pipeline. In Chevron Oil, which involved the statute of limitations for injuries suffered on off shore oil wells, the Supreme Court adopted a three-part test to determine the retroactive effect of its decisions: (1) whether the holding “decid[ed] an issue of first impression whose resolution was not clearly foreshadowed” by earlier decisions; (2) “whether retrospective operation will further or retard [the] operation” of the holding; and (3) whether retroactive application “could provide substantial inequitable results” in individual cases.
In Northern Pipeline, the Supreme Court declined to give retroactive effect to its finding that bankruptcy courts created under the Bankruptcy Act of 1976 were unconstitutional under Article III. The Supreme Court’s rationale was that doing so “would surely visit substantial injustice and hardship upon those litigants who relied upon the Act’s vesting of jurisdiction in the bankruptcy courts.” Instead, the Supreme Court stayed its judgment for several months to allow Congress to “adopt other valid means of adjudication.”
Likewise, respondents argue that the Oil States decision should not be applied retroactively because doing so “would lead to substantial injustice and hardship, wasting years of time and millions in expense invested in these proceedings, before both the USPTO and the Federal Circuit” and would require cases which had been adjudicated and relied upon to be re-litigated in a different forum. Respondents also point out that the Supreme Court has not previously addressed whether IPR procedures are unconstitutional and has declined certiorari on that question. Additionally, retroactive application would not further the operation of the Oil States decision because it would be contrary to Congress’ expressed intent to improve patent quality and reduce litigation costs.
Petitioners assert Oil States should be applied retroactively and rely on Harper, a Supreme Court case from the early 1990s. Harper addressed whether an earlier Supreme Court decision holding unconstitutional Michigan’s taxing of federal retirement benefits also applied to a similar Virginia tax and held that when the court applies a rule of federal law to the case before it, “every court [must] give retroactive effect to that decision,” including to all cases that are “still open on direct review and as to all events, regardless of whether such events predate or postdate” the decision. The court in Harper prohibited the “selective application” of the principles of retroactivity to certain cases, noting that both the common law and the Supreme Court have “recognized a general rule of retrospective effect” for its decisions. Similarly, petitioners argue that since a petition for certiorari has been timely filed, the case is still “open on direct review” and Oil States should be applied retroactively.
Constitutionality of Inter Partes Re-Examination and CBM Review
Several Oil States follow-on cert petitions address whether inter partes re-examination and CBM review procedures should also be declared unconstitutional. The briefing so far largely focuses on the alleged similarities or differences of these other post-grant procedures to IPRs.
Petitioners argue that any distinctions between IPR, inter partes re-examination, and CBM procedures are immaterial as all invoke non-Article III proceedings without a jury to invalidate patents. Petitioners point out that Congress created all three procedures for “review of issued patent claims” by an administrative agency. Additionally, like IPR procedures, Congress intended inter partes re-examination and CBM procedures to provide a “quick and cost effective alternative” to district court litigation and to “conduct post-grant review proceedings concerning the validity” of issued patents. Petitioners argue that inter partes re-examination and CBM procedures violate Article III and the Seventh Amendment based on the rationales in the same Supreme Court precedent cited by petitioners in Oil States.
Predictably, respondents argue that all post-grant procedures are not alike. For example, respondents argue that inter partes re-examination is more similar to ex parte re-examination, which the Federal Circuit has consistently held to be constitutional, than to IPR procedures. Additionally, respondents argue that Congress abolished inter partes re-examination when it created IPRs and thus the question of whether inter partes re-examination is unconstitutional is not an important question of federal law. Similarly, CBM review is distinguishable from IPR review because it is limited to a narrow type of business method patent, can only be sought where the petitioner has sued for infringement or has standing to bring a declaratory judgment action, will sunset in 2020, and has different estoppel provisions.
Waiver of Constitutional Arguments
In several of the follow-on petitions, respondents point out the petitioner never challenged the constitutionality of IPR, inter partes re-examination or CBM procedures in any of the proceedings below, and thus has waived the constitutionality argument.
Respondents argue that the Supreme Court should deny the cert petitions rather than address the constitutional question because the Supreme Court is a “court of review, not of first view.” In other words, absent “exceptional circumstances,” the Supreme Court generally does not decide an issue in the first instance that was not raised below. For example, exceptional circumstances existed in Boumediene v. Bush, where the Supreme Court found detainees at Guantanamo Bay, who had been detained for years without meaningful access to a judicial forum, were entitled to habeas corpus review. The vast majority of cases, however, are not “exceptional.” Because petitioners did not present the constitutional challenges below and have not made a showing of “exceptional circumstances,” respondents argue the Supreme Court should adhere to its customary practice and not grant review of questions that were not raised or passed upon below.
In response, petitioners note that the Patent Trial and Appeal Board does not have jurisdiction to decide constitutional issues and, as a result, raising the issue before the board would have been futile. Further, the board is obligated to follow Federal Circuit precedent and the Federal Circuit has already addressed the constitutional issue in MCM Portfolio LLC v. Hewlett-Packard Company. As a result, raising the issue before the Federal Circuit again would have been futile. Petitioners also argue that challenges based on separation of power issues can be properly raised for the first time on direct review by the Supreme Court because the constitutional guarantee of separation of power is not subject to forfeiture. For example, in Freytag v. Commissioner, the Supreme Court considered a challenged based on the Appointments Clause even though the argument was not raised below. Similarly, in Glidden Company v. Zdanok, the Supreme Court considered a challenge to the adjudicative authority of judicial officers under Article III even though the challenge was not raised below. Because IPR procedures take power away from Article III courts and transfer them to an administrative tribunal, petitioners similarly contend that their constitutional challenges have not been forfeited even they though were not raised below.
If the Supreme Court holds that the IPR involved in Oil States is unconstitutional, the grant-vacate-remand requests made in the many pending follow-on petitions will likely mean that the Federal Circuit, not the Supreme Court, will have the first responsibility to decide the three issues discussed above. Of course, the Supreme Court will still have the last say on whether all prior IPRs and other post-grant proceedings will survive constitutional challenge.