On Nov. 27, 2017, the U.S. Supreme Court heard oral argument regarding whether administrative trials held by the U.S. Patent Office violate patent owners’ constitutional rights.
In Oil States v Greene’s Energy Group, the Supreme Court will decide whether “inter partes review” – an adversarial administrative process used by the U.S. Patent Office to decide the validity of issued patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
When the Supreme Court announced it would decide the case, the Patent Office initially predicted that inter partes review would be unanimously affirmed by the court. Based on oral argument, however, it appears the Patent Office overestimated the court’s support for inter partes review, at least with one justice – recent President Trump appointee Justice Neil Gorsuch. Justice Gorsuch’s questions and comments at oral argument raised concerns about the constitutionality of canceling an issued patent through an administrative proceeding.
The Constitutionality of Patent Office “Trials” to Be Decided by the Supreme Court
Created by the 2011 America Invents Act, inter partes review was supposed to give patent owners and challengers a quick and inexpensive alternative to district court litigation. The act established that the Patent Trial and Appeal Board (PTAB), a division of the Patent Office, would consider petitions by third parties challenging the validity of issued patents.
If the PTAB institutes review, it then conducts a “trial” regarding the validity of the challenged patent. Instead of a jury, validity is decided by a three-member panel of administrative patent judges, executive branch employees of the Patent Office who are typically patent lawyers with some litigation experience. Instead of live witnesses, testimony is received by written statements, subject to cross-examination by deposition. The trial is essentially an oral argument of about 90 minutes in length.
Following enactment, accused infringers flocked to inter partes review in order to overturn patents that federal district court judges and juries would likely find infringed and not invalid. By June 2015, the PTAB had invalidated at least some claims of 86 percent of the patents it reviewed. The PTAB received the nickname “patent death squads.” The efficacy in reducing litigation remains to be seen; the vast majority of inter partes review proceedings are in addition to, not a replacement for, district court litigation.
Oil States’ patent related to fracking technology was canceled by an inter partes review initiated by a competitor, Greene’s Energy. A Federal Circuit panel summarily affirmed.
In its petition to the Supreme Court, Oil States argued that the Seventh Amendment provides patent owners with a right to a jury in invalidation proceedings. Oil States further argued that suits to invalidate a patent must be tried in an Article III forum. According to Oil States, it was inappropriate for Congress to grant the power to invalidate a patent to an administrative agency, a non-Article III forum. Citing Supreme Court precedent from the 19th century, Oil States contended that patents create property rights that are protected by the Constitution and therefore may not be revoked or canceled by any officer of the government. See McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 608-09 (1898).
In response, Greene’s Energy contends that Congress may designate “public rights” for adjudication in non-Article III tribunals. The Supreme Court has said that public rights may be assigned to a non-Article III forum for decision without violating the Constitution, but that core private rights are only subject to adjudication in an Article III court. Stern v. Marshall, 564 U.S. 462, 484-86 (2011). According to Greene’s Energy, patents are a “public right.” Consequently, Greene’s energy argues that inter partes review proceedings do not violate Article III.
At oral argument, Justice Gorsuch suggested that the issue had been settled by the Court’s 1898 decision in McCormick Harvesting, which stated that the only authority that may set aside a patent is a U.S. court, not the department that issued the patent.
Justice Gorsuch’s questions also suggested that he thought Oil States could have taken an even more aggressive position, and should have argued that any cancellation of an issued patent by any non-Article III proceeding was unconstitutional. When Oil State’s attorney conceded under questioning from other justices that reexamination might be permissible but inter partes review was not, Justice Gorsuch interjected. He asked Oil State’s counsel, “If you really want to stake your ground and think McCormick’s right, why not just say anytime a private right is taken by anyone, it has to be through an Article III forum? … You can stake your ground and simply say this is a private right.”
Justice Gorsuch also asked counsel for Greene’s Energy why an issued patent was any less a private right than a government-issued land patent. He noted that land patents may not be revoked by the executive branch without judicial participation. “[O]nce [a patent is] granted, there’s an abundance of law going back 400 years … it’s a private right belonging to the inventor.”
It is difficult to predict the outcome of the Oil States. But based on the comments, it is hard not to think that, at least, Justice Gorsuch has concluded that an issued patent is a private right that cannot be canceled in a Patent Office “trial.” A decision is expected in 2018.