Summary

In a 7-2 decision, the US Supreme Court held that inter partes review (IPR) proceedings —a congressionally created administrative processes in which the Patent and Trademark Office may reconsider and cancel patent claims that were wrongly issued—are constitutional.

In Depth

In a 7-2 decision authored by Justice Thomas, the US Supreme Court held that inter partes review (IPR) proceedings—a congressionally created administrative processes in which the Patent and Trademark Office may reconsider and cancel patent claims that were wrongly issued—are constitutional. In doing so, the Supreme Court affirmed several Federal Circuit decisions. Oil States Energy Srvs., LLC v. Greene’s Energy Group, LLC, Case No. 16-712 (Supr. Ct., April 24, 2018) (Thomas, Justice) (Breyer, Justice, concurring) (Gorsuch, Justice, dissenting).

Background

The America Invents Act (AIA) created inter partes review (IPR) as a procedure by which “any person other than the patent owner” may challenge the validity of a patent on the basis of prior art. IPR proceedings are discretionally instituted by the Patent Trial and Appeal Board (PTAB or Board) and include many similar features to those found in Article III courts, including motion practice, discovery, depositions, cross-examination, evidence and an adversarial hearing before the Board. At issue for the Supreme Court was whether the revocation of a patent must be tried in an Article III court before a jury—thus rendering IPR proceedings unconstitutional. Prior to appeal and certiorari, the challenged claims of the patent at issue were found valid in the district court, but invalid by the Board in a parallel IPR.

In the Federal Circuit decision from which certiorari was granted, and in two others—MCM Portfolio LLC v. Hewlett-Packard Co. (IP Update, Vol. 19, No. 1) and Cascades Projection LLC v. Epson America, Inc. (IP Update, Vol. 20, No. 6)—the appellate court held that IPR proceedings are constitutional. In MCM , the Federal Circuit concluded that patents were a “public right” in that they flow entirely from a legislative regime, and therefore Congress could grant their review. In Cascades, the Federal Circuit rejected en banc an appeal citing MCM, with the dissent arguing that a more comprehensive analysis as to whether patent rights were public rights or private rights was warranted.

The Supreme Court’s Decision

In upholding Congress’s authority to create IPR, Justice Thomas agreed with the appellate court that patents were indeed a public right, and that IPR “falls squarely within the public rights doctrine” and thus does not encroach on the judicial powers. Reasoning, in part, that the grant of a patent by the government (the PTO) “gives the patent owner the ‘right to exclude others from making, using, offering for sale, or selling the invention throughout the United States,’” the Court found that a grant of a patent akin to the grant of a “public franchise.” Moreover, the grant of a patent “is a matter between ‘the public,’ who are the grantors, and the patentee.”

Because an IPR is essentially “a second look” at this grant—made considering the same statutory requirements —it falls into this very same category. The Supreme Court further reasoned that Congress has long been able to grant a public franchise (such as a toll bridge) while reserving its authority to revoke or amend the franchise in an administrative proceeding. Likewise, Congress has authorized the PTO (as part of the Executive Branch) to grant patents, and the PTO grants patents subject to its authority (through the Board) to cancel them outside of an Article III court. The Court distinguished early cases, which declared patents could only be cancelled by courts, as describing a statutory scheme that existed prior to the current version of the Patent Act, and noted that the Patent Act specifically qualifies that any property rights an owner of a patent enjoys are “subject to the provisions of the [Patent Act].”

The Supreme Court rejected the argument that IPR violated Article III because of its extraordinary similarity to judicial proceedings, indicating that a “looks alike” test has never been adopted to determine whether an administrative procedure was improper outside of an Article III court. The Court also quickly dismissed an argument that IPR proceedings violate the Seventh Amendment’s right to a trial by jury, noting that it has long been established that the Seventh Amendment is no longer a bar to non-Article III adjudication of a matter once the matter has been properly assigned to the non-Article III adjudication.

The Dissent

The minority and majority opinions primarily wrestled with whether history and tradition established that patent validity must be decided by a court. Justice Gorsuch, writing for the minority, made an impassioned dissent that patents have always been considered personal rights that could only be revoked with the concurrence of independent judges, and that judicial independence from the acts of political appointees—no matter how well intended—was a fundamental promise provided by the framers. Concerned with the witling away of individual rights by the political branches, Gorsuch focused on the time of the founding, wherein judges alone resolved virtually all patent challenges, and the conditioned grant of public franchises was disfavored as anticompetitive monopolies. While the majority countered that early English patents included a revocation clause, and a cited cases in which patents were revoked outside the courts by a Privy Council, the minority pointed out that these cases only applied to the revocation of patents on munitions during wartime.

The Court’s Limitations

The Court specifically noted that its decision addresses “only the precise constitutional challenges . . . raised,” and does not apply to whether infringement actions could be heard in a non-Article III forum, future due process challenges to IPR, or whether IPR would be constitutional “without any sort of intervention by a court at any stage of the proceedings”—surely setting the stage for further IPR related appeals. Perhaps alluding to a deficiency in the appellant’s position or a prediction of future direction, the Court also vociferously pointed out that the retroactive application of IPR (to patents granted before the AIA was enacted) was not formally challenged by the appellant, despite IPR not existing when the patent at issue was granted, and despite questioning as to whether IPR should be available retroactively for pre-AIA patents during oral arguments. With this statement, we are left with little doubt that there will be further constitutional challenges to IPR.

Practice Note

While this decision is surely not the curtain call on constitutional challenges to IPR, it certainly appears that IPR will be here for a while longer. It is notable that many, if not most, patents were granted before the AIA and IPR proceedings came into existence. The Court’s statements, including those regarding retroactive application, will likely be seen by many potential challengers as setting up the iconic ‘Bullet through the Apple’ for IPRs. We predict it won’t be long before we see how these challenges take shape.