IP Law Daily High Court hears arguments in case that could decide fate of AIA patent review process
Monday, November 27, 2017

High Court hears arguments in case that could decide fate of AIA patent review process

By Thomas Long, J.D.

In a case that could upend the 2011 America Invents Act’s new process for administratively reviewing the validity of issued patents, the Supreme Court today heard oral arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC. Petitioner Oil States is asking the Court to invalidate the USPTO’s inter partes review procedure, contending that the scheme violates Article III and the Seventh Amendment to the U.S. Constitution. The Justices grappled with questions about the government’s ability to reconsider its grants of patents, and whether the creation of an adversarial scheme outside the Article III court system deprived patent holders of their private property rights.

Oil States requests that the Court overturn a decision of the U.S. Court of Appeals for the Federal Circuit, which summarily affirmed the Patent Trial and Appeal Board’s decision to cancel challenged claims of an Oil States patent relating to an apparatus and method for protecting wellheads during hydraulic fracturing, or fracking. After Oil States sued respondent Greene’s Energy Group LLC, for allegedly infringing the patent, Greene’s successfully petitioned the USPTO to institute an inter partes review of it. The USPTO’s Patent Trial and Appeal Board ultimately determined that the patent was invalid as anticipated by prior art.

Oil States’ petition presented the following question: "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."

Petitioner’s argument. Allyson N. Ho argued on behalf of petitioner Oil States. According to Ho, the inter partes review process was contrary to hundreds of years of legal tradition under which disputes between private parties about the validity of patents were adjudicated by courts.

Justice Ginsburg, opining that "there must be some means by which the Patent Office can correct the errors that it's made, like missing prior art that would be preclusive," asked Ho whether she recognized the existence of any error correction mechanism within Article III. Ho replied, "Certainly," but clarified the petitioner’s positions as being that while the USPTO is not precluded from correcting errors, "it simply can’t do it through this adjudication." Ho asserted that ex parte reexaminations are consistent with Article III because they are purely examinational and not adjudicational in nature.

Justice Kagan then asked Ho what her position was on inter partes reexaminations. Ho said, "I think inter partes reexamination presents a closer case, but it is still fundamentally examinational." In response to Chief Justice Roberts’ request to explain what she meant by "examinational," Ho explained that an examinational proceeding is one that is between the USPTO and the patent owner. According to Ho, even in inter partes reexaminations, the third party requesting the reexamination bears no burden of production or persuasion. Justice Sotomayor took issue with this characterization, pointing out that there is always an inherent burden of production. "You can't write the PTO and say: I think this patent's invalid, period," Justice Sotomayor said. "You have to supply them with a reason for doing what they're doing."

Ho argued that the fundamental difference between reexamination proceedings and inter partes reviews is that, in the latter, the third party entity actually prosecutes the proceeding. Justice Sotomayor pointed out, however, that the statute and regulations permit the USPTO to go forward with a review even if the third party reaches a settlement with the patent owner.

With respect to the petitioner’s position that a patent, as a property right, cannot be constitutionally taken away without an adjudication in court, Justice Kennedy asked whether Congress could condition the grant of a patent on the patentee’s agreement to the inter partes review procedure. Ho answered in the negative, stating that Congress cannot condition the exercise of a right or a property to the extent that doing so would conflict with another article of the Constitution. After expressing doubt as to whether Ho had cited precedent that supported this view, Justice Kennedy suggested that Congress’s power to, hypothetically, reduce patent terms indicated that patent owners had limited expectations as to the scope of the property right involved. Ho argued that the limited times requirement in Article I, Section 8 did not go to the question of whether Congress could, by statute, withdraw disputes over patents’ validity and put them in non-Article III tribunals.

Asking Ho to clarify the petitioner’s position regarding the Takings Clause, Chief Justice Roberts noted that the government had considerable leeway in placing restrictions on land use rights and queried why the government could not similarly restrict patent rights. Ho stated that there was a distinction between considerations regarding takings and due process—which implicated individual rights—and Article III—which she argued was focused on the exercise of the judicial power. In Ho’s view, the fact that inter partes review was limited in scope to challenges under 35 U.S.C. §§102 and 103 did not make it less unconstitutional to remove the disputes from court and place them into a non-Article III forum.

Respondent’s argument. Christopher M. Kise, on behalf of respondent Greene’s Energy Group, argued that inter partes review comported with both Article III and the Seventh Amendment. "First," Kise asserted, "inter partes review simply reexamines the propriety of the original grant of a patent, engaging in the same type of patentability analysis entrusted by Congress to the executive since 1790." The process itself, according to Kise, does not involve the exercise of judicial power, since patents are issued by the Executive Branch, according to patentability standards set by Congress. "Next," Kise continued, "inter partes review does not extinguish, in the language of the question presented, private property rights." According to Kise, if the patent did not meet the standards of patentability, it should not have been issued in the first place. Answering a question by Justice Kagan, Kise opined that the inter partes review process would be constitutional even if the USPTO’s final decisions were not subject to appeal in court.

Justice Breyer asked Kise whether it made a difference if a patent holder had invested large sums of money in an invention, and the patent had been issued and in force for 10 or 15 years before a third party brought a challenge before the USPTO. Kise responded that it did not make a difference, because patents were all subject to certain statutory requirements to be valid.

Chief Justice Roberts suggested, "[Y]our position, it strikes me, is simply that you've got to take the bitter with the sweet. If you want the sweet of having a patent, you've got to take the bitter that the government might reevaluate it at some subsequent point." When Kise agreed that this was so, the Chief Justice asked whether that proposition was consistent with case law. "You cannot say, if you take public employment, we can terminate you in a way that's inconsistent with due process," Chief Justice Roberts said. Kise responded that, in his opinion, inter partes review was not inconsistent with due process, considering that patent rights were granted subject to the power of Congress to determine patentability.

Government’s argument. Malcolm L. Stewart, appearing for the federal government, asserted that the petitioner’s argument was that inter partes review was unconstitutional because the Patent Trial and Appeal Board used adversarial procedures. Addressing the Chief Justice’s question regarding "taking the bitter with the sweet," Stewart said, "It has always been part of the scheme that the patent could be reexamined … to determine whether the patentee was qualified for a patent in the first place." Therefore, Stewart explained, the patentee never had an expectation that a patent’s validity was guaranteed once the patent was granted. Stewart also pointed out that, before the inter partes review process was created, issued patents were subject to inter partes reexaminations, as well as challenges in court.

The case is No. 16-712.

Attorneys: Allyson N. Ho (Morgan Lewis & Bockius) for Oil States Energy Services, LLC. Christopher M. Kise (Foley & Lardner LLP) for Greene’s Energy Group, LLC. Malcolm L. Stewart, Deputy Solicitor General, for the United States.

Companies: Oil States Energy Services, LLC; Greene’s Energy Group, LLC

MainStory: TopStory Patent

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