By: Kayla A. Odom
Are inter partes reviews (“IPR”) constitutional? This question has been on the minds of inventors, patent owners, practitioners, scholars and others since Congress enacted the America Invents Act in 2012. This past summer, the Supreme Court granted a petition for certiorari in Oil States Energy Services v. Greene’s Energy Group, 137 S. Ct. 2239 (2017). Oil States presents the question of whether patent rights are “public rights” that may be extinguished through an administrative proceeding, or private property rights that may only be revoked in an Article III court to which the Seventh Amendment right to a jury trial applies.
IPRs are conducted before the U.S. Patent and Trademark Office’s (“USPTO”) Patent Trial and Appeal Board (“PTAB”). Petitioners can challenge the validity of a patent under 35 U.S.C. §§ 102 or 103, and only on the basis of prior art consisting of patents or printed publications. The patent’s owner may respond to the petition, and if IPR is instituted, a proceeding is conducted before administrative judges of the PTAB, ultimately resulting in a decision on the patentability of the subject patent.
In the Oil States IPR, the PTAB cancelled Oil States’ patent as anticipated by the prior art. Greene’s Energy Group, LLC v. Oil States Energy Services, LLC, 2015 Pat. App. LEXIS 5328 (PTAB May 1, 2015). The Federal Circuit summarily affirmed, without opinion. Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 639 Fed. Appx. 639 (Fed. Cir. 2016). On June 12, 2017, the Supreme Court granted Oil States’ petition for certiorari on the question of whether a patent is a “private right” whereby a patent may only be revoked or cancelled in courts of the United States pursuant to Article III of the Constitution, or a “public right” that may be revoked by the agency that issued the patent, the USPTO. Oil States, 137 S. Ct. at 2339. Relatedly, the Court will decide whether IPR proceedings violate the Seventh Amendment, which provides the right to a jury trial in certain civil cases. Petitioner’s brief on the merits was filed August 24, 2017, and numerous briefs by amici curiae have since been submitted. Respondent’s brief on the merits is expected later this month.
Oil States is not the first case where the constitutionality of IPRs has been challenged. In MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015), the patent owner appealed the PTAB’s decision that its patent was invalid. The patent owner had argued that IPR proceedings conducted before the PTAB are unconstitutional, specifically that “any action revoking a patent must be tried in an Article III court with the protections of the Seventh Amendment.” 812 F.3d at 1288. The Federal Circuit held that Supreme Court precedent demonstrated that Congress’ grant of authority to the USPTO to cancel an issued patent did not violate Article III. Id. at 1289. The Federal Circuit reaffirmed the principle that Congress has the power to delegate disputes over “public rights” to non-Article III agencies. Id. Reasoning that “the issuance of a valid patent is primarily a public concern, ” the Federal Circuit held that the patent right “derives from a federal regulatory scheme” and that Congress “saw powerful reasons to utilize the expertise of the PTO for an important public purpose—to correct the agency’s own errors in issuing patents in the first place.” Id. at 1290-91. Since patents are “public rights,” the Federal Circuit concluded, IPR proceedings were constitutional. Id. The Supreme Court denied MCM’s petition for certiorari.
In Cascades Projection LLC v. Epson Am., Inc., 864 F.3d 1309 (Fed. Cir. 2017), the PTAB held the patent owner’s patent unpatentable in two separate IPR proceedings. The patent owner challenged the constitutionality of IPRs, but since a three-judge panel could not overrule the MCM Portfolio precedential decision, the patent owner asked the full Federal Circuit to rehear the case en banc. Cascades’ petition for rehearing en banc was denied per curiam. 864 F.3d at 1310. Judge Newman, in a concurring opinion, stated that the constitutionality question should be resolved after “full opportunity for panel consideration” and that that the issue to ultimately be decided would be “whether the statutory scheme created by the America Invents Act, in which the Office is given an enlarged opportunity to correct its errors in granting a patent, with its decision subject to review by the Federal Circuit, meets the constitutional requirements of due process in disposition of property.” Id. at 1311. Judge Dyk, also concurring, wrote that MCM Portfolio was correctly decided and that the Supreme Court has “repeatedly made clear that such public rights may be adjudicated in the first instance by an administrative agency.” Id. at 1312.
Judges O’Malley and Reyna each separately dissented, expressing that serious questions remained about MCM Portfolio, and that the full court should have heard the case. Judge O’Malley stated that “it is far from certain that MCM’s underlying premise—that patent rights are public rights—is correct.” Id. at 1313. Without opining on the merits, Judge O’Malley said that the case “raises exceptionally important questions of constitutional law and separation of powers principles that warrant our careful consideration.” Id. at 1314. Citing Stern v. Marshall, 564 U.S. 462, 503 (2011), Judge O’Malley continued that “the Supreme Court has warned that allowing Congress to confer judicial authority outside Article III ‘compromise[s] the integrity of the system of separated powers and the role of the Judiciary in that system.’”
Judge Reyna, in a lengthy dissent discussing the history surrounding the Patent Clause in the Constitution and the case law leading up to the current question, stated that McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606, 609 (1898) “is the law of the land.” Cascades Projection, 864 F.3d at 1319. McCormick established that “[t]he only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.” Cascades Projection, 864 F.3d at 1314. Judge Reyna would have granted Cascades’ petition given the Federal Circuit decisions since McCormick, and the enactment of the America Invents Act which “gave birth to inter partes review,” and that the “core of this dispute involves substantial questions of property rights, Article III, and the Seventh Amendment.” Cascades Projection, 864 F.3d at 1314. “We should not ignore these important questions that lie at our doorstep.” Id. Judge Reyna concluded that “inter partes review may be the type of agency activity that saps the judicial power as it exists under the federal Constitution and establishes a government of a bureaucratic character alien to our system.” Id. at 1326 (citation omitted).
Oil States will be a much anticipated decision for all involved in the patent ecosystem. If upheld as constitutional, IPR proceedings will continue but there will remain unanswered questions about various aspects of the PTAB’s procedures. Some existing issues such as decisions to institute, the estoppel effect of PTAB decisions, and the propriety of so-called “serial petitioning” will likely remain at the forefront. On the other hand, if IPRs are found to be unconstitutional, myriad new questions will arise, including, for example, the retroactive effect of such a decision, the existence or non-existence of any remedy or relief for patent owners who lost their patents in IPR proceedings, and the fate of other existing post-issuance review procedures. Oral argument in Oil States has been set for November 27, 2017. Until then, the future of IPR proceedings remains uncertain.