The US Supreme Court will next week hear oral arguments in Oil States Energy Services v Greene’s Energy Group, which concerns the constitutionality of inter partes reviews (IPRs) – the controversial USPTO invalidity proceedings introduced by the America Invents Act.
Should the nine justices strike down IPRs it would send shockwaves through the American patent landscape, removing a process that has been condemned by many rights holders and celebrated by others. But, even if they don’t – and the majority opinion seems to be they won’t - the future of the inter partes review will not be guaranteed; it also faces several other political and administrative threats.
Created in 2012 and intended to provide a more effective, streamlined means of expunging dubious patent grants, particularly those owned by so-called “trolls”, IPR hearings have had a huge impact since their inception. At least 6,382 IPR petitions have been filed in the last five years, nearly 70% of which have been instituted. And in 82% of final decisions, at least one patent claim has been found invalid.
But Oil States will determine whether IPRs contravene the US constitution. The dispute hinges on the question of whether patents are private property rights, which are exempt from administrative nullification, or public rights, which have no such exemption. If the court finds in favour of Oil States Energy Group, the IPR process – at least in any recognisable form – will be brought to an end, with significant ramifications for patent disputes.
Among the keenest to see IPRs ruled unconstitutional are innovative life sciences companies, which are some of the fiercest critics of PTAB procedures as they are currently construed. Perhaps more than rights holders in almost any other sector, they have an acute commercial interest in strong and secure patent protections, depending heavily on relatively few rights to recoup their large R&D investments in new drugs. Many see federal court proceedings as the only proper test of patent invalidity; and it is no surprise that many pharma companies and their representatives have filed amicus briefs in support of the Oil States Energy Group position.
Many believe that in seeking to tackle the problem of “trolls”, the IPR process has created new forms of abuse aimed at patent holders. Allergan CEO Brent Saunders recently warned of the dangers posed by “reverse patent trolls”, such as hedge fund manager Kyle Bass; while the Biotechnology Innovation Organisation (BIO) recently denounced IPR gamesmanship “by an oddball assortment of generic drug makers, short-sellers and blackmailers” which has “exposed legitimate patent holders to the un-American threat of double, triple or unlimited jeopardy”.
However, it is unclear whether the outcome of Oil States will be favourable to innovative pharma. Many lawyers have told IAM off-the-record that they expect an overwhelming majority of the nine Supreme Court judges to uphold the constitutionality of IPRs; though not everyone sees it like that. Andrew Wasson, of Haug Partners in New York, for instance, says that Oil States is currently “too close to call”, with the 56 amicus briefs filed for the case being roughly equally divided between both sides of the argument. For him, it is Monday’s oral hearing that will give a clearer idea of which way the justices are leaning.
But innovative pharma companies need not pin their hopes for IPR reform solely on the Supreme Court; a number of other factors could lead to changes at the PTAB. For instance, Allergan’s recent controversial licensing deal with the Saint Regis Mohawk tribe might well lead to IPR reforms via Congress. The attempt to shield the patents from PTAB proceedings by claiming the tribe’s sovereign immunity has so far elicited hostile responses from legislators, with a bill introduced to close the perceived loop hole. But any legislative process also gives the pro-patent lobby an opportunity to press for changes.
Of course, if the St Regis Mohawk’s sovereign immunity is confirmed by the PTAB and legislation to override this does not get through Congress, then a ready-made out from the IPR process will exist for pharma companies, as well as anyone else. That, too, might provoke some kind of legislative action that will almost certainly lead to wider IPR reform.
The Pharmaceutical Research And Manufacturers of America (PhRMA) told IAM this week that it is optimistic about the prospect for favourable political reforms. It has been encouraged by the bipartisan STRONGER Patents Act, which seeks an alignment of IPR standards with federal court proceedings. It was also hopeful that Andrei Iancu, nominated by President Trump to be the next USPTO Director, will embark on pro-patent reforms should he be confirmed in his position by the Senate in a hearing that some suggest may take place as early as next week. Iancu will have broad scope to make administrative changes to the IPR process, following the Supreme Court’s 2016 Cuozzo decision.
So, even if they survive Oil States unscathed, IPRs will have to withstand a number of other challenges now looming on the horizon. Understandably, the Supreme Court action is currently the centre of attention, but interested parties should keep an eye on broader political and administrative developments that could end up having a much bigger part to play in shaping the future of the controversial regime.