'; Inter Partes review concept wins first round, but others to follow

Inter Partes review concept wins first round, but others to follow

July 9, 2018 Chicago Daily Law Bulletin

This April, the United States Supreme Court held that inter partes review (“IPR”), a post-issuance administrative patent review procedure, is constitutional under both Article III and the Seventh Amendment of the Constitution. In Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, a seven-justice majority concluded that the decision to cancel a granted patent is within the purview of the United States Patent and Trademark Office (“USPTO”). The high court ultimately agreed with the Federal Circuit’s decision to affirm the Patent Trial and Appeal Board (“PTAB”) on its invalidation of Oil States’ patent.

The judgment ended eighteen months of speculation within the patent community. A total of 58 amicus briefs were filed from industry leaders such as Dell, Mylan, AbbVie, Google, and Apple, as well as from law professors, lobbyists, and professional organizations. IPRs were originally created to improve the quality of patents in all sectors, a product of patent overhaul from the America Invents Act of 2012. Tech giants favored this rationale, and see IPRs as a cost-effective means of neutralizing non-practicing entities trying to assert weak patents. But major pharmaceutical companies that invest billions in research and development view IPRs as a hindrance to vital patent protection. The intrigue of this case was not lost on the justices either, and they provided substantial commentary during oral arguments last fall.

In the opinion, authored by Justice Thomas, the Court establishes that “the public rights doctrine” gives Congress the authority to assign the adjudication of public rights to a non-Article III tribunal, like the PTAB. This doctrine applies to IPRs, as it is a request that the government, not a private entity, reconsider its decision to grant a patent or a “public franchise” and therefore does not implicate an Article III court. In issuing patents, the USPTO takes rights from the public and bestows them on the patentee. The Court held that these rights are rooted solely in statute, not common law. Based on Article I, Congress can grant patents itself by statute but has instead authorized the Executive Branch to do so via the USPTO. Oil States argued that based on common law, IPRs are also a violation of the Seventh Amendment right to a jury trial. But Justice Thomas tethers this analysis to Article III, stating that when Congress properly assigns a matter to adjudication in a non-Article III tribunal, a nonjury factfinder is acceptable.

Oil States contended that a patent confers private rights onto the patentee but the Court reiterates that a patent is granted and bound by statutory regulations. Justice Thomas cites the Patent Act to support the notion that IPRs are a type of valid regulation. He distinguishes a Supreme Court case from 1898 cited by Oil States, McCormick Harvesting Machine Co. v. Aultman, which held that patents can only be annulled by an Article III court, by pointing out that the Patent Act at the time the case was decided did not include any post-issuance administrative review nor did it foreclose the ability of Congress to establish such a scheme in the future.

Justice Thomas views the use of IPRs for a granted patent similarly because the USPTO and PTAB consider the same patentability requirements. The ultimate goal is also the same: to protect the public’s interest in confining patent monopolies to the proper scope. He notes that IPRs are a second look at an earlier administrative grant of a patent and minimizes the view promulgated by Oil States that government action should be curtailed based on the change of status from pending application to granted patent. According to Justice Thomas, patents exist only subject to the PTAB’s decision to cancel, such that review outside the confines of an Article III court is permissible. These confines are based primarily on the nature of the right at issue, not on whether an agency proceeding “looks like” an adversarial trial.

The dissent was drafted by Justice Gorsuch and joined by Chief Justice Roberts. Justice Gorsuch focuses on the financial burden that must be overcome in order to obtain a patent, the fruit of arduous labor. He takes issue with the fact that a challenger can just “emerge from the woodwork” to dispute a hard-earned patent at a later date. He also points out that the arbiter of such a dispute would be a “political appointee” who serves at the pleasure of the President, rather than an independent judge. He explains that during an IPR, the PTAB Director selects which administrative law judges, and how many of them, will hear a patent challenge. Justice Gorsuch seems unsettled by the assertion from Oil States that the Director admitted to manipulating the Board to secure a particular “policy judgment” of interest.

While the Article III and Seventh Amendment challenges appear settled, much remains unclear. In an effort to “emphasize the narrowness” of this decision, Justice Thomas essentially prepares a roadmap of open issues for future petitioners: whether infringement matters can be heard in a non-Article III forum, if IPR challenges can retroactively apply to patents that issued before the PTAB’s creation, and whether IPRs violate due process. Given the amount of unexplored subject matter in this field, and the funds big tech and big pharma could utilize to protect their divergent interests, it seems unlikely this is the final chapter in the story on post-issuance patent review.