Oil States v. Greene's Energy

Monday was supposed to be the big Patent Trial and Appeal Board showdown at the U.S. Supreme Court.

After two hours of questioning, it seemed more like a big bust. There was no clear majority signaling the death of inter partes review—the administrative procedure for reviewing patent validity created by the 2011 America Invents Act—in Oil States Energy Services v. Greene's Energy. And only a couple of justices seemed to object in SAS Institute v. Matal to PTAB's practice of adjudicating IPRs on a claim-by-claim basis.

The big winner of the day appeared to be the U.S. Court of Appeals for the Federal Circuit and Judge Timothy Dyk, whose opinions upholding the constitutionality of the IPR process and claim-by-claim adjudication appear likely to stand.

Chief Justice John Roberts and Justice Neil Gorsuch took dead aim at IPRs but they received virtually no support — at least on the surface — from Justices Samuel Alito and Anthony Kennedy, or any members of the court's more liberal wing.

“Could Congress say, 'We are reducing the life of all patents by 10 years,'” Kennedy asked Morgan, Lewis & Bockius partner Allyson Ho, representing patent owner Oil States Energy Services LLC.

Ho conceded that Congress could, though she said that's a different question from setting up adversarial trials before an administrative agency. But Kennedy said it shows patent owners have to live with limited expectations about the longevity of their patents.

Kennedy and Justice Stephen Breyer did hint at possible compromises in which IPRs could face some sort of time limit, or in which only patents issued post-AIA might be subject to IPR. Is it “unfair to hold these people to the new statute because they got their patent before the statute was enacted?” Breyer asked at one point.

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But Roberts pushed back hard on that approach, taking more of an all-or-nothing posture. He even bristled at the notion of calling the head of the PTAB the chief judge. “You're talking about the executive employee?” he said, as PTAB Chief Judge David Ruschke watched from the audience.

“The chief judge of the PTAB,” Deputy Solicitor General Malcolm Stewart clarified.

“When we say 'judge,' we usually mean something else,” Roberts replied.

Monday's argument was the culmination of a constitutional challenge that's been years in the making. Patent owners argue that, once issued by the PTO, patents become private property rights that can only be nullified by jury trial in Article III courts. Congress overreached with the 2011 America Invents Act by delegating that judicial power to the Patent Trial and Appeal Board, which is an arm of the Patent and Trademark Office.

The IPR procedure bears all of the hallmarks of litigation, but without its constitutional safeguards, Oil States argues. It's a dispute between private parties, who produce discovery, submit testimony, appear at a “trial” and then receive a decision from a panel of administrative judges.

But instead of life-tenured judges presiding over a panel of impartial jurors, IPRs are decided by administrative judges beholden to the expediences of the executive branch, they argue. That's led to unfairnesses such as the PTAB's chief judge stacking panels with extra judges for particular cases — an issue Roberts and Gorsuch repeatedly hammered on — and allowing petitioners to harass patent owners with serial petitions.

Greene's Energy Group LLC and the PTO say the constitutional argument is off base and the unfairness claims are overblown. Patents are public rights created by statute, enacted pursuant to Congress' constitutional authority to secure patents “for limited times” to “promote the progress of science and useful arts.” Congress declared in the Patent Act that patents shall have the attributes of personal property “subject to the provisions in this title.”

Breyer trumpeted that language Monday. “You have a statute that says you only get the private property if, in fact, you survive the provisions of the title, of which [IPR] is one,” he said.

He called it “the most common thing in the world” for administrative agencies to adjudicate disputes involving private parties. With a seeming barb at the conservative justices who've criticized expansion of these procedures, he asked, “So what's special about this one? Or do you want to say it isn't special and all the agency proceedings are unlawful?”

Ho said IPRs stand apart because the government is adjudicating a dispute between two private parties. But Gorsuch encouraged her to aim higher. He quoted from an 1898 Supreme Court decision, McCormick Harvesting v. Aultman, which he suggested controls the outcome. The court wrote in that case that “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.”

“If you really want to stake your ground and think McCormick's right,” Gorsuch said, “why not just say any time a private right is taken by anyone, it has to be through an Article III forum?”

But it didn't appear on the surface at least that Gorsuch had reinforcements for that position beyond Roberts and possibly Justice Clarence Thomas, who as his custom, did not ask any questions. Alito said very little, asking Ho a few questions about Congress' power to grant patents subject to limitations.

Nor did Gorsuch appear to have support from the liberal wing of the court. Ginsburg pointed out that Ho had already conceded that the PTO has the authority to re-examine patents to see if they've been mistakenly issued.

Justice Sonia Sotomayor, who had criticized IPRs in the Cuozzo case, said the ability to appeal PTAB judgments to the Federal Circuit “saves” them from constitutional infirmity.

Foley & Lardner partner Christopher Kise argued that there's nothing “inherently judicial” about inter partes review, “and it does not involve the exercise of judicial power.” Those assertions went unchallenged.

But Breyer did question if there's an outer limit—such as an owner who's built a $40 billion business on a patent over 10 years. “And then suddenly somebody comes in and says: Oh, oh, we — we want it re-examined, not in court but by the Patent Office,” he said. But that type of scenario might be better addressed as a takings claim under the Fifth Amendment or a due process claim under the Fourteenth, he suggested.

Deputy Solicitor General Malcolm Stewart said the executive branch takes input from private parties all the time before rendering decisions—even the solicitor general's office has parties present oral argument before filing amicus briefs with the high court, he pointed out. Confronted by Gorsuch and Roberts about stacking panels, Stewart avoided the question for awhile, then said it happened only a few times to secure uniformity of decision. He said the process has “functional similarities” to an appellate court ordering en banc review of a panel opinion.

In the companion case, SAS Institute isn't challenging IPRs, but claims PTAB is doing them wrong. SAS challenged 16 claims in a patent for software development tools. The PTAB elected to review only nine, eventually canceling eight. SAS argues that the AIA requires the PTAB to adjudicate all of the challenged claims in an IPR petition, rather than picking and choosing which it will decide.

Jones Day partner Gregory Castanias argued partial decisions mean the remainder of the patent claims often have to be hashed out in district court, making IPRs just the first stage of an expensive and drawn-out proceeding, rather than the quick, inexpensive alternative to litigation Congress envisioned.

Alito was more vocal this time. He pointed out that the AIA directs that once proceedings are instituted, the PTAB must issue “a final written decision with respect to the patentability of any patent claim challenged by the petitioner.”

“What is ambiguous about that?” he asked Assistant Solicitor General Jonathan Bond.

Bond said that language refers to the claims already chosen by the PTAB in its decision to institute proceedings.

Breyer argued the word “any” is often “filled with ambiguity, so that the agency can decide which way it wants to go.” Several justices appeared to agree.

Unless the justices were just playing devil's advocate, the protesters who gathered outside the court Monday morning are likely to be disappointed.

One of them, Josh Malone, just won a $12 million jury verdict for infringement of his patent on a water balloon toy in Texas district court last week. But he faces a PTAB trial next week that could cast doubt on the validity of his patents. “We're all acquiescing” to big tech companies that don't like patents, he complained. “We've said, 'Google, Amazon, Facebook and Elon Musk have provided all the innovation we need. We don't need any more from garage inventors.'”