On June 12, 2017, the U.S. Supreme Court granted certiorari in Oil States Energy Services, LLC v. Greene's Energy Group, LLC, 16-712, to consider "[w]hether 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." Petition at i. The Supreme Court's decision to hear this issue comes on the heels of the Federal Circuit's recent denial of en banc review in Cascades Projection LLC v. Epson America, Inc., Nos. 2017-1517, 2017-1518, 2017 WL 1946963 (Fed. Cir. May 11, 2017), which raised the same constitutional challenge. Both Judge O'Malley and Judge Reyna dissented from that denial.
The constitutionality of post-grant PTO proceedings has been raised to the Federal Circuit several times since the inception of such proceedings. In 1981, Congress authorized the PTO to conduct ex parte reexaminations, providing an alternative to district courts for challenging the validity of patents previously issued by the agency. See Bayh-Dole Act, Pub. L. No. 96-517, 94 Stat. 3015 (1980) (amending Title 35 to include reexamination proceedings). A few years later in Patlex Corp. v. Mossinghoff, 758 F.2d 594, modified on rehearing, 771 F.2d 480 (Fed. Cir. 1985), the Federal Circuit held that PTO ex-parte reexamination proceedings do not violate the Seventh Amendment or Article III of the Constitution. The constitutionality of ex parte reexamination was again challenged in Joy Technologies, Inc. v. Manbeck, 959 F.2d 226 (Fed. Cir. 1992), cert. denied, 506 U.S. 829 (1992), other grounds superseded by statute, 35 U.S.C. § 145, as recognized in In re Teles AG Informationstechnologien, 747 F.3d 1357 (Fed. Cir. 2014). There, patentee Joy Technologies argued that the Supreme Court's decision in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), "raise[d] serious doubt about the present vitality of Patlex." Joy Techs., 959 F.2d at 228. But the Federal Circuit disagreed, holding that Granfinanciera affirmed rather than undermined "the basic underpinning of Patlex, viz., that cases involving 'public rights' may constitutionally be adjudicated by legislative courts and administrative agencies without implicating the Seventh Amendment right to jury trial." Id.
For nearly three decades, Patlex and Joy Technologies settled the question of whether the PTO can adjudicate the validity of issued patents. Similar arguments, however, have resurfaced in recent constitutional challenges to post-grant proceedings under the AIA. For example, in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284, 1292 (Fed. Cir. 2015), the Federal Circuit held that inter partes review does not violate constitutional protections, holding that "patent rights are public rights," thereby subject to cancellation at the Board without a jury. Id. at 1293. The opinion reasoned that inter partes review does not run afoul of Article III because "[t]he patent right 'derives from an extensive federal regulatory scheme' and is created by federal law." Id. at 1290 (quoting Stern v. Marshall, 564 U.S. 462, 490 (2011)). The MCM decision was never reviewed en banc, and certiorari was denied. MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015), cert. denied 137 S. Ct. 292, 196 L. Ed. 2d 212 (2016).
Oil States represents another of these challenges to the constitutionality of post-grant proceedings. Oil States arrives at the Supreme Court after the patent owner, Oil States Energy Services, argued before the Federal Circuit that IPR proceedings violate Article III or the Seventh Amendment of the Constitution. A Federal Circuit panel rejected the constitutional argument, summarily affirming Oil States using its Rule 36 procedure. See Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC, 639 F. App'x 639 (Fed. Cir. 2016). Oil States Energy Services petitioned for panel rehearing and en banc rehearing, which were both denied.
In seeking certiorari before the Supreme Court, Oil States Energy Services (now Petitioner) argued, inter alia, that patents create constitutionally protected property rights. Pet. at 11-19. Oil States noted that previous Supreme Court decisions looking at AIA-related issues, such as the use of the broadest reasonable interpretation standard in Board claim constructions, see Cuozzo, 136 S. Ct. at 2136, had not directly addressed the constitutionality of the proceedings themselves. Id. at 3.
The petition relies on the Supreme Court's decision in McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606 (1898), which held that:
[i]t has been settled by repeated decisions of this court that when a patent has received the signature of the Secretary of the Interior, countersigned by the Commissioner of Patents, and has had affixed to it the seal of the Patent Office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property.
The 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.
Id. at 608-09 (citations omitted). The petition further argued that, since historically "suits to invalidate patents would have been tried before a jury in a court of law," then the Constitution "provides patent owners with the right to a jury and an Article III forum. Inter partes review violates these rights." Pet. Br. at 3, 12-19. Oil States addressed the Stern precedent relied on in MCM, stating that "patents do not fall into that category" of rights that may be decided by an agency, because "[t]he power sought to be exercised by the board in inter partes review is a 'prototypical exercise of judicial power.'" Pet. Br. at 18 (quoting Stern, 564 U.S. at 494).
In opposing certiorari, Respondent, Greene's Energy Group argued that "only where Article III compels Congress to assign adjudication of particular claims to federal courts, or where Congress chooses to do so, does the Seventh Amendment guarantee the parties 'a right to a jury trial whenever the cause of action is legal in nature." Respt's Br. in Opp'n at 3 (citing Granfinanciera, 492 U.S. at 53). Greene's Energy Group further stated that "Patents are quintessential public rights," and "confer rights that 'exist only by virtue of statute.'" Respt's Br. in Opp'n at 7 (citing Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229 n.5 (1964)). According to Greene's Energy Group, "The inter partes review procedure is the sort of mechanism that Congress may permissibly create to administer a public-right scheme," noting that the "PTO is responsible in the first instance for allocating patent rights." Id. at 7-8. Greene's Energy Group continued, "post-grant proceedings, such as inter partes review, are essential to the limited regulatory objective within the PTO's authority: to ensure that only proper patents are issued and to correct mistakes made in wrongly issuing patents." Id. at 10-11.
Greene's Energy Group further noted that there is no dispute among the lower courts about the constitutionality of inter partes review. Id. at 12. "Petitioner's argument—taken to its logical conclusion—would deprive the PTO of any power to reexamine an issued patent without the patentee's consent, not even on the PTO's own initiative in a proceeding to which only the government and the patentee are parties." Id. at 14. Therefore, according to Greene's Energy Group, "the PTO can review patent validity without violating Article III or the Seventh Amendment once Congress confers the necessary statutory authority, as it has here." Id. The United States also submitted a brief recommending that the Court deny certiorari, similarly arguing that patents are public rights that Congress can appropriately designate for adjudication in non-Article III tribunals.
Oil States's opening brief is due in late July 2017.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
