On November 27, the Supreme Court will hear arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC. The issue is:
Whether inter partes review, an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents, violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
Briefing on the merits is nearly complete; petitioner’s reply is the last scheduled brief; it is due November 20, 2017. Fifty –eight amicus briefs have been filed. All of the briefs are available here: http://www.scotusblog.com/case-files/cases/oil-states-energy-services-llc-v-greenes-energy-group-llc/?wpmp_switcher=desktop. This memorandum does not address the merits.
No decision is likely to be reached until some months after the oral argument. Although it seems (to me) unlikely that the Court will answer the issue in the affirmative, what happens if it does?
Prospective Effect on Future IPRs
Going forward, it would be clear that IPR proceedings in their current form would no longer be possible; CBM proceedings would appear to be in the same constitutional posture as IPRs. PGRs, which are possible only for AIA patents and thus necessarily issued after the enactment of and subject to the AIA, may not be. It may be possible for Congress to fix any constitutional informalities found in IPRs and CBMs, but this is difficult to imagine, given the statement of the issue to be decided. It is difficult to imagine any sort of post-grant review (other than PGR) to survive, at least without the addition of an additional layer of review, likely de novo and likely to a jury, in the (Article III) district courts. Such a result would largely defeat the purpose of at least IPRs and CBMs.
Retroactive Effect on Pending IPRs: Two Possibilities—Harper and Northern Pipeline
More complicated are the potential retroactive effects on pending IPRs. A holding that IPRs are unconstitutional would most likely not invalidate the work already done by the PTAB, or at least not all of it. Under the current state of the Supreme Court’s retroactivity jurisprudence, as set forth over twenty years ago in Harper v. Virginia Dept. of Taxation, 509 U.S. 86, 97 (1993), a holding that IPRs are unconstitutional would impact only those cases that are still open, and maybe not all of those. It is also possible, however, that the Court could decide that a ruling that IPRs are unconstitutional would operate only prospectively—as it did in Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 87-88 (1982)—although it is not completely clear what this would mean as a practical matter.
The Normal Course: Harper
In civil cases,
[w]hen [the Supreme Court] applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule.
Harper v. Virginia Dept. of Taxation, 509 U.S. 86, 97 (1993).
Thus, in the normal course, a decision in Oil States that IPRs are unconstitutional would apply to pending and (any) future IPRs, as well as the constitutionally indistinguishable CBMs. This statement includes at least two important qualifiers.
A Supreme Court holding of unconstitutionality would have no effect on cases that are closed – final, including the exhaustion of all appeals, regardless of whether unconstitutionality of IPRs was raised or argued.
Any attempt to re-open such a case by collateral attack on the judgment, or to file a new case raising the same or similar claims would be barred by res judicata under Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 292 (1940). In that case, Chicot County Drainage District had taken advantage of a federal statute that permitted readjustment of municipal debt, amounting to a reduction of that debt under certain conditions. The Bank—holder of bond issued by the Drainage District—had been a party to the original action, did not challenge the constitutionality of the federal statute, and did not appeal the decision against it. Later, in unrelated litigation, the statute was declared unconstitutional. The Bank then brought suit on the original (now cancelled) bonds issued by the Drainage District; ultimately, the Supreme Court held that the new suit was barred. See U.S. v. Donnelly’s Estate, 397 U.S. 286, 295 (1970); and id. at 296 (Harlan, J., concurring):
The critical factor in determining when a new decisional rule should be applied to a transaction consummated prior to the decision’s announcement is, in my view, the point at which the transaction has acquired such a degree of finality that the rights of the parties should be considered frozen. . . . . [t]hat moment should be when the transaction is beyond challenge either because the statute of limitations has run or the rights of the parties have been fixed by litigation and have become res judicata. Any uncertainty engendered by this approach should, I think, be deemed part of the risks of life.
Subsequent cases regarding retroactivity, such as Harper, have been careful to limit their holdings to future cases and cases not yet final. See also James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 535, 541 (1991) (“[o]f course, retroactivity in civil cases must be limited by the need for finality; once suit is barred by res judicata or by statutes of limitation or repose, a new rule cannot reopen the door already closed.” (citation omitted)).
As a result, any decision in Oil States that IPRs are unconstitutional will have no effect on the results of IPRs (and any appeals) that are final, although additional litigation may be required before this conclusion is finally reached. Unless the Supreme Court decides its decision is “purely prospective” as described below, decisions in IPRs that are not final as of the date of the Oil States decision may be subject to collateral attack, even if unconstitutionality was not previously raised.
Practice Pointer for Patentees: Preserve the Constitutional Objection to Avoid Implied Consent
As a cautionary note, however, in Wellness Intern. Network, Ltd. v. Sharif, 135 S.Ct. 1932 (2015) the Supreme Court held (in the Bankruptcy context) that it was possible for the parties to consent to an Article I court determination of issues constitutionally reserved to an Article III court. While the court noted that it would be preferable practice to obtain consent explicitly (id. at 1948, n. 15), it held that the required consent could also be implied. Id. at 1947-49. The court did not, and did not need to elaborate on what would be required to show implied consent, but patentees should avoid consenting to PTAB adjudication by implication and preserve a constitutional objection on the PTAB record and any Federal Circuit appeal.
Election of “Purely Prospective” Effect: Northern Pipeline
The second possibility is that, although it was not raised in the briefing either by the parties or amici, the Court could elect to make its decision “purely prospective,” and it would have only future effect—including no effect on either the Oil States parties or to other conduct or events occurring prior to the decision. See James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 536 (1991).
Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 87-88 (1982) (plurality opinion), was one case in which the decision was made purely prospective; the decision was also stayed to allow Congress to act. See id. 91-92 (Rehnquist, J., and O’Connor, concurring in the judgment and agreeing with the plurality opinion respecting retroactivity and the staying of the judgment). This case has a number of parallels to Oil States. In Northern Pipeline, the Court decided that the Bankruptcy Act of 1978 was unconstitutional. The 1978 Act created new Bankruptcy Courts that were adjuncts to each District Court, with judges (unlike Article III judges) appointed for 14 years and removable on various grounds; these new courts were granted jurisdiction over all “civil proceedings arising under title 11 [the Bankruptcy title] or arising in or related to cases under title 11.” This jurisdiction included some (at least arguably) public rights, but also (and more importantly for the Supreme Court decision) private rights such as the breach of contract issues that prompted the decision, which were solely within the Article III judicial powers. Since Article III powers had been assigned to non-Article III courts, the 1978 Act was unconstitutional.
The Court’s determination that its decision should not be retroactive was cursory, and relied on Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). Chevron purported to deal generally with the “non-retroactivity” problem – i.e., when should new decisions not be made retroactive – and ruled that an intervening decision applying the local state statute of limitations rather than the more generous Federal doctrine of laches (applicable in admiralty cases) would not be made retroactive. As a result, the underlying case was not time barred. A three factor test for retroactivity was announced: (1) whether the decision “establish[es] a new principle of law” either by overruling clear past precedent (on which litigants may have relied or by deciding an issue of first impression whose resolution was not clearly foreshadowed); (2) “whether retrospective operation will further or retard [the rule’s] operation” in light of its history, purpose, and effect; and (3) whether our decision “could produce substantial inequitable results if applied retroactively.” Id. at 106-07.
It is likely that the Chevron test would have produced results that were contrary to those of more recent retroactivity decisions, such as Harper. While Chevron has never been overruled, its applicability now appears to be limited to determining whether a new decision should be “purely prospective.” See Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 753 (1995) (suggesting Harper overruled Chevron insofar as Harper “(selectively) permitted the prospective-only application of a new rule of law.”) Later cases appear to have carefully avoided ruling on the “pure prospectivity” aspect of Chevron that was implemented in Northern Pipeline. See James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 544 (1991) (“[w]e do not speculate as to the bounds or propriety of pure prospectivity.”). Fairly recently, the Ninth Circuit held that Chevron is still good law and applied it to make its ruling in a deportation case purely prospective, as the Supreme Court did in Northern Pipeline. Nunez-Reyes v. Holder, 646 F.3d 684, 692-93 (9th Cir. 2011) (en banc).
If the Supreme Court’s Oil States decision does not decide whether it is retroactive or purely prospective, petitioners may therefore wish to consider raising this issue in pending cases, even if this may necessitate another trip to the Supreme Court. In the meantime, patent owners should ensure that the unconstitutionality issue is raised in all pending and future petitions. Petitioners may also want to consider possible changes that could be made by Congress to avoid the effects of an adverse Oil States decision. But both petitioners and patent owners will likely have to live with the results of IPRs proceedings that have concluded.