IP Law Daily USPTO’s post-issuance patent review process does not violate Article III, Seventh Amendment
Tuesday, April 24, 2018

USPTO’s post-issuance patent review process does not violate Article III, Seventh Amendment

By Thomas Long, J.D.

The inter partes review process created by the America Invents Act does not violate Article III or the Seventh Amendment to the Constitution, the U.S. Supreme Court has held in a 7-2 decision. The High Court affirmed 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 a patent owned by Oil States Energy Services, LLC, relating to an apparatus and method for protecting wellheads during hydraulic fracturing, or fracking. After the USPTO determined that the patent was invalid as anticipated by prior art, Oil States challenged the constitutionality of the inter partes review process. According to the Court, inter partes review—which authorizes the USPTO to reconsider and cancel an already-issued patent claim in limited circumstances—fell squarely within the public-rights doctrine and was merely a reconsideration of the decision to grant a patent. The grant of a patent involved a matter between the government and others, and patents were "public franchises." Additionally, granting patents was a constitutional function to be carried out by the executive or legislative branch without judicial determination. Inter partes review was a second look at an earlier grant. Patents remained subject to the USPTO’s authority to cancel outside of an Article III court, the Court said. The similarities between the various procedures used in inter partes review and procedures typically used in courts did not require the conclusion that inter partes review violated Article III. Inter partes review did not violate the Seventh Amendment right to a jury trial because that right was not implicated when Congress had properly assigned a matter to adjudication in a non-Article III tribunal. The majority decision was written by Justice Thomas and joined by Justices Kennedy, Ginsburg, Breyer, Alito, Sotomayor, and Kagan. Justice Breyer wrote a concurring opinion that was joined by Justices Ginsburg and Sotomayor. Justice Gorsuch filed a dissenting opinion, joined by Chief Justice Roberts (Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, April 24, 2018, Thomas, C.).

Oil States owned U.S. Patent No. 6,179,053, which related to an apparatus and method for protecting wellheads during hydraulic fracturing, or fracking. Oil States sued Greene’s Energy Group LLC, for infringement of two claims of the ’053 patent. Greene’s, in turn, petitioned the USPTO to institute an inter partes review (IPR) of the’053 patent. The Patent Trial and Appeal Board granted the petition and, after a hearing, determined that the challenged claims were unpatentable under 35 U.S.C. §102 as anticipated by the prior art. Oil States Energy appealed the PTAB’s final decision and on May 4, 2016, the Federal Circuit summarily affirmed the Board’s decision, without opinion.

Petition for certiorari. Oil States filed a petition for review with the U.S. Supreme Court. The petition presented three questions, but the Supreme Court agreed to hear only the first one, raising a constitutional challenge. The other two questions dealt with claim construction and amendment during the IPR process. The question the Court agreed to consider was, "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."

IPR process. The America Invents Act (AIA) established the IPR process, which authorizes the USPTO, on a petition from anyone other than the patent owner, to reconsider whether a challenged patent’s claims should be canceled on the grounds of lack of novelty (anticipation) or obviousness, in light of prior art consisting of patents or printed publications. The AIA took effect in 2012, and its IPR process replaced a procedure added by Congress in 1999, called "inter partes reexamination." IPR differed from the earlier procedure in that it was similar to a trial, and was adjudicated by the USPTO’s Patent Trial and Appeal Board, rather than a reexamination, which followed similar procedures to the USPTO’s initial examination in granting the patent, except that the third-party requester and the patent owner could file limited responses and replies. The decision whether to institute IPR was left to the USPTO Director’s discretion; pursuant to Section 314(a) of the Patent Act, IPR must only be instituted if the Director determines there is "a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged." The Board, sitting in three-member panels of administrative law judges, then examines the patent’s validity. The petitioner and owner can conduct limited discovery; can file affidavits, declarations, and memoranda; and can receive an oral hearing. The Board is required to issue a final written decision no later than a year after IPR is instituted, with the possibility of a six-month extension for good cause. The Board’s decisions can be appealed to the Federal Circuit.

Article III. Article III vests the judicial power of the United States "in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." Consequently, the Court noted, Congress cannot confer the government’s judicial power on entities outside Article III. The Supreme Court, in determining which the Article III judicial power was implicated, distinguished between "public rights" and "private rights." Although the distinction had never been "definitively explained," the Court stated that the public-rights doctrine applied to matters arising between the government and others, which, though susceptible to judicial determination, do not by their nature require it. In the Court’s view, IPR involved this type of matter: reconsideration of the government’s decision to grant a public franchise.

The Court had previously recognized that the decision to grant a patent was a matter involving public rights. Furthermore, Article I gave Congress the power to grant patents, and Congress had authorized the Executive Branch to grant patents that met the statutory requirements for patentability. When the USPTO determined the patentability of inventions, it was exercising the executive power, and this function did not require judicial determination. IPR was simply a reconsideration of that grant, the Court said, and Congress permissibly reserved the USPTO’s authority to conduct that reconsideration. Patent claims were granted subject to the qualification that the USPTO has the authority to later review—and perhaps cancel—the claims, the Court noted. Patents thus remain subject to the Board’s authority to cancel outside of an Article III court. Other public franchises were permissibly qualified in this manner, the Court said, such as a government grant of permission to a company to build railroads or telegraph lines. Therefore, IPR did not violate Article III, the Court held.

Private property rights. Oil States argued that three Court decisions issued in the 1800s stood for the proposition that patent rights were "private property." Those cases did not contradict its conclusion, the Court said, explaining that patents convey only a specific form of property right—a public franchise. As a public franchise, a patent can confer only the rights prescribed by the Patent Act, and Congress can set forth the conditions on which patent rights shall be enjoyed. One such condition was IPR. The opinions cited by Oil States did not foreclose the post-issuance administrative review authorized by Congress in the IPR provisions. Rather, those cases were best read as a description of the statutory scheme that existed at the time, which did not contain provisions for post-grant review. They did not affect the authority of Congress to establish a different scheme. Even if courts had traditionally adjudicated patent validity, that did not mean that "courts must forever continue to do so," the Court said. Finally, the court rejected Oil States’ argument that IPR violated Article III because it shared "every salient characteristic associated with the exercise of the judicial power." The Court explained that it had never adopted a "looks like" test to determine if an adjudication had improperly occurred outside of an Article III court. The fact that an agency used court-like procedures to reach a final and binding decision did not mean it was exercising the judicial power.

Seventh Amendment. Oil States also contended that IPR deprived it of its Seventh Amendment right to a trial by jury. The Court rejected this argument because when Congress properly assigned a matter to adjudication in a non-Article III tribunal, the Seventh Amendment posed no bar to the adjudication of that action by a nonjury factfinder. Therefore, the Court’s rejection of the Article III challenge also resolved the Seventh Amendment challenge.

Concurring opinion. Justice Breyer, writing separately, stated that he joined the majority’s opinion in full. He expressed the view, however, that "the Court’s opinion should not be read to say that matters involving private rights may never be adjudicated other than by Article III courts, say, sometimes by agencies." According to Justice Breyer, there was precedent to the contrary, and the presence of "private rights" did not, by itself, decide the outcome of the question.

Dissenting opinion. In his dissenting opinion, Justice Gorsuch argued that the majority’s holding jeopardized the hard work and investment by inventors into obtaining patent rights. In Justice Gorsuch’s view, disputes regarding the grants of patent rights must be adjudicated by an independent judge.

Commentary.Trenton Ward, Partner at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, issued a statement on the decision, which is reproduced here.

The Oil States saga came to a close today, as Justice Thomas authored a decision on behalf of a seven-member majority finding that inter partes review does not violate Article III or the Seventh Amendment. The Court determined that "within the scope established by the Constitution, Congress may set out conditions and tests for patentability," and "inter partes review is one of those conditions." In response to the arguments that McCormick and other Supreme Court precedent foreclosed post-issuance administrative review of patents, the Court determined that those cases addressed a version of the Patent Act that did not include any provision for post-issuance administrative review. Further, the Court determined that the precedent did not limit Congress’s authority to establish another scheme.

Justices Gorsuch and Roberts dissented and cautioned that the majority’s decision "may not represent a rout but it at least signals a retreat from Article III’s guarantees." The dissent suggests that enforcing Article III isn’t about protecting judicial authority for its own sake but, instead, ensuring the people enjoy no fewer rights against governmental intrusion than those who came before. In response, the majority commented that they "disagree with the dissent’s assumption that, because courts have traditionally adjudicated patent validity in this country, courts must forever continue to do so." The majority held that Congress can reserve for itself the power to reconsider patentability, delegate that power to executive officers, or commit it to judicial tribunals.

Importantly Justice Thomas concludes the decision by emphasizing the narrowness of the holding. Specifically, Justice Thomas identifies that Oil States did not raise a due process challenge and did not challenge the retroactive application of inter partes review.

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.

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

MainStory: TopStory Patent

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