The U.S. Supreme Court is poised to rule soon on a case that could fundamentally change how patent litigation plays out in America, as well as a second case that is more of a tweak around the edges.
The potential game-changer is Oil States Energy Services v. Greene’s Energy Group. Its central question is whether Congress set up an unconstitutional method of analyzing the validity of existing patents: the inter partes review process.
Background on Inter Partes Review
Federal lawmakers created inter partes review (IPR) as part of the America Invents Act (AIA), which passed with bipartisan support in 2011. Then-President Barack Obama described the AIA as “much-needed reform” that “will speed up the patent process so that innovators and entrepreneurs can turn a new invention into a business as quickly as possible.”
Much of the AIA focused on helping inventors patent high-quality inventions quicker, for example, by reducing the U.S. Patent and Trademark Office (USPTO) backlog and harmonizing U.S. patent law with international patent laws, such as moving from a first-to-invent to a first-to-file system. The institution of post-grant review processes, including the IPR, was a key part of streamlining the patent process by providing an alternative administrative forum to reduce what was seen as unnecessary litigation in the courts.
Unlike in European Union countries and others that allow post-grant opposition proceedings, prior to the passing of the AIA, companies or individuals in the U.S. were left with one mechanism to challenge an existing patent without going to court: They could petition the Patent Office to re-examine it. However, requests for re-examination required a high legal burden be met and were readily denied. Furthermore, the resulting review process was expensive and often took more than three years. And once a re-examination was instituted, it was typically an ex parte procedure, leaving the challenging company or individual on the sidelines with no further opportunity to respond or make its case.
With the passing of the AIA and the availability of the IPR, the patent challenger can actively participate in a proceeding that is “trial-like,” as one of the attorneys put it in oral argument before the Supreme Court, without the expense and time of litigating its case in court.
Like the re-examination process, it also starts with a petition to the USPTO. It’s worth noting that the standing to file one is incredibly broad – essentially anyone can challenge a patent as long as the basis for that challenge is based on an argument that the patent was invalid for lack of novelty or obviousness. If the petitioner demonstrates a “reasonable likelihood” of prevailing with respect to at least one claim challenged, then the Patent Trial and Appeal Board (PTAB) assembles a tribunal of administrative judges to hear arguments from both the patent owner and the challenger and then rule on the patent’s validity. By law, the whole process can’t take more than a year and a half.
A Constitutional Violation or a Review Within Executive Authority?
More than 4,000 challenges have made it to the administrative tribunal (been “instituted” in USPTO jargon), according to federal statistics. One of those challenges was Greene’s Energy Group versus Oil States Energy Services. After Oil States lost, it filed a lawsuit challenging the PTAB’s ruling and arguing that inter partes review stripped it of its right to a jury trial under the Seventh Amendment and Article III of the U.S. Constitution.
At oral argument, the attorney representing Oil States contended the new process transfers a judicial power to the executive branch. Justice Ruth Bader Ginsburg quickly challenged Oil States’ attorney, saying “there must be some means by which the patent office can correct the errors that it’s made.” The attorney responded that the previous re-examination process is consistent with Article III, although several justices pressed her on the distinction. At one point, the debate turned to the power of the English king to revoke patents hundreds of years ago.
The attorney representing Greene’s Energy argued there is no constitutional violation because the USPTO is simply reviewing something that Congress gave it power over. But the length to which the Greene’s Energy attorney took the USPTO’s discretion led Chief Justice John Roberts to summarize his argument as: “If you want the sweet of having a patent, you’ve got to take the bitter that the government might re-evaluate it … haven’t our cases rejected that proposition?”
Justice Neil Gorsuch chimed in on that point, later pressing the attorney representing the federal government on how far the USPTO’s discretion could go. Both justices also criticized a handful of cases where the former director of the USPTO reportedly shuffled the judges on a panel that was in the middle of reviewing a challenge, although she has since denied stacking panels.
Ultimately, several justices made the point that other federal government agencies use similar processes to review claims under their jurisdiction, including the Federal Communications Commission and the National Labor Relations Board. As Justice Elena Kagan put it, “There are formal adjudications all over the place in agencies.”
The Tweak Around the Edges
The U.S. Supreme Court has also heard oral arguments on a second case involving inter partes review: SAS Institute v. Matal. Its importance depends on the ruling in Oil States: If the Supreme Court strikes down the IPR process, the SAS Institute case is moot. But if IPRs are upheld as constitutionally valid, SAS Institute will answer a question that further refines the IPR process.
The question before the court in SAS Institute is whether the Patent Trial and Appeal Board has to issue a final written decision on every claim challenged by a petitioner, or if it can pick and choose from within the petition. SAS Institute challenged all 16 claims of a patent issued to a company called ComplementSoft, but the board only adjudicated nine of them. SAS brought a lawsuit and eventually named the interim director of the USPTO, Joseph Matal, as a party.
Whether a final decision must be reached on all challenged claims is an important question for the IPR process because petitioners cannot appeal anything not subject to a final written decision. So if the PTAB does not rule on certain claims, then there’s no way to appeal those claims to the U.S. Court of Appeals for the Federal Circuit. This approach potentially leaves claims, such as dependent claims, sitting out there that companies or individuals may infringe on with no decision on their validity, which is contrary to the whole purpose of going to the PTAB in the first place in order to get certainty.
The Federal Circuit has upheld the practice of partial decisions, allowing the board to limit the scope of its review to the most serious or substantial allegations. The Supreme Court justices expressed a wide variety of views during oral argument in this case, without a clear coalition around any one solution.
In summary, Oil States could be a game changer by eliminating a streamlined and effective alternative for companies and individuals to challenge patents outside of federal district court. The impact of this decision will affect patent challenges across all industries, as evidenced by the recent petition for writ of certiorari filed in United Therapeutics Corp. v. Steadymed Ltd. on February 9, 2018, presenting the same question. Should the Supreme Court uphold the IPR process. SAS Institute v. Matal will provide important guidance in the fairly young case law over the IPR process.
Companies across industries, both patent holders and potential challengers alike, should keep an eye out for the final rulings, as even a limited ruling in either case will impact the way patents are challenged going forward. For more information, please contact us or your regular Parker Poe contact.