The U.S. Supreme Court ruled Tuesday on two closely monitored cases affecting how patents could be challenged. In the more high-profile case, the court upheld the constitutionality of the inter partes review (IPR) process enacted by Congress in the America Invents Act, enabling entities to continue to challenge the validity of issued patents in a forum other than federal court. And in a second case, in a narrow ruling, the court refined how the Patent Trial and Appeal Board (PTAB) rules on challenged claims, requiring an all-or-nothing approach to the analysis.

1. The Supreme Court Maintains the IPR Status Quo

In Oil States Energy Services v. Greene’s Energy Group, Oil States challenged the IPR process, alleging that it violated Oil States’ right to a jury trial under the Seventh Amendment and Article III of the U.S. Constitution.

The IPR process was established by Congress in 2011 as a streamlined alternative for any person other than the patent owner to challenge patents outside of federal district court by having the U.S. Patent and Trademark Office (PTO) reconsider an issued patent. (Find additional background on the IPR process in our previous blog on these cases.) Oil States’ contention was that the new process transferred a judicial power to the executive branch.

In a 7-2 ruling, the Supreme Court disagreed. Writing for the majority, Justice Clarence Thomas held that under the public rights doctrine, “Congress has significant latitude to assign adjudication of public rights to entities other than Article III courts.” Justice Thomas pointed out that no one disputes that the “the decision to grant a patent is a matter involving public rights,” and concluded that “[i]nter partes review is simply a reconsideration of that grant” that “need not be adjudicated in Article III court.” Justice Thomas wrote that the fact that the IPR “occurs after the patent issues does not make a difference here.”

Further rejecting Oil States’ and the dissenting justices’ argument that patent validity “from its nature” must be decided by an Article III court, Justice Thomas noted that even in 18th century English law, there was an alternative way to cancel a patent – through petition to the Privy Council, which “had exclusive authority to revoke patents until 1753,” after which it had “concurrent jurisdiction with the courts.” According to Justice Thomas, the nature of the Privy Council supported the legitimacy of adjudicating a patent’s validity through an executive proceeding.

Having established that Congress properly assigned the adjudication of IPRs to the PTAB, Justice Thomas then quoted a previous Supreme Court decision to dismiss Oil States’ contention that an IPR also violates the Seventh Amendment: “The Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.”

Implications of Oil States

The Oil States ruling preserves the now-standard option of challenging existing patents via an IPR but explicitly states that its holding is directed only to the constitutionality of the IPR on the grounds raised by Oil States. Thus, the court did not address other potential constitutional issues, such as due process or the Takings Clause.

Additionally, the court’s holding specifically applies to IPRs and leaves open challenges to two other PTAB mechanisms, namely the post-grant review (PGR) and the covered business method review (CMB). These are similar to IPRs but vary slightly as to the standard of review and the basis on which the proceedings can be brought.

Furthermore, the Supreme Court’s upholding of the constitutionality of IPRs does not mean the IPR process will continue exactly as it was before Tuesday. That’s because of the court’s second patent ruling, which substantially changes how the PTAB must issue its decisions on challenged claims.

2. The PTAB Must Now Decide All Claims in Its Final Written Decision, Even if Those Claims Were Not Instituted

The question in SAS Institute v. Iancu was whether the PTAB must issue a final written decision on every claim challenged by a petitioner, or just the claims on which the IPR was granted institution. In a 5-4 decision, a divided Supreme Court answered: The PTAB must decide on every claim the petitioner challenges in its petition.

Writing for the majority, Justice Neil Gorsuch parsed the language of 35 U.S.C. Section 314(a), which addresses whether to institute an IPR, and Section 318(a), which addresses the PTAB’s final resolution of the petitioner’s challenged claims. Justice Gorsuch wrote that the presence of the word “shall” in Section 318(a) “imposes a nondiscretionary duty” that must be interpreted to mean the PTAB “must address every claim the petitioner has challenged.” Rejecting the PTO Director’s argument that he has the discretion for “partial institution” of an IPR, Justice Gorsuch noted that “nothing in the statute says anything like that.” He further stated that “[n]othing suggests that the Director enjoys a license to depart from the petition and institute a different inter partes review of his own design.”

The court also rejected the PTO Director’s efficiency argument, stating that the issue is properly addressed by Congress, and it was unpersuaded by the dissent’s position that the PTAB is entitled to Chevron deference. Essentially admonishing the Director, Justice Gorsuch argued that the Director may “think his approach makes for better policy, but policy considerations cannot create an ambiguity when the words on the page are clear.”

Implications of SAS Institute

The SAS Institute ruling is important for several reasons. First, it will reduce uncertainty. We have heard from clients who are concerned about companies or individuals infringing on certain parts of their patent that were challenged but not ultimately decided. This type of uncertainty is contrary to the very purpose of the PTAB.

The ruling also underscores the need for careful advance planning by a challenging party. An estoppel arises from challenging a patent claim in an IPR, and if every challenged claim is now certain to be ruled upon, a challenging party must recognize that this estoppel will result as to each and every such claim.

In addition, the ruling will ensure that individual claims no longer become stranded in a place where they cannot be appealed. That’s because petitioners can only appeal claims subject to a final written decision. So when the PTAB has chosen not to decide certain claims, the petitioners have had no way to appeal their challenge to the U.S. Court of Appeals for the Federal Circuit.

Finally, because all challenged claims will be evaluated by the PTAB, both patent owners and petitioners will need to re-evaluate the advantages or disadvantages of staying any parallel district court case.

We will know more precisely in the next weeks and months how the PTAB will respond to this ruling. Although the IPR process post-institution has not been altered, this decision may fundamentally change how the PTAB operates. Will the PTAB respond by raising its fees now that it must provide a written decision and analysis on every challenged claim? Or will the PTAB use this ruling as a justification for being more stringent in instituting IPRs? In the past, the PTAB could avoid claims involving more intensive review, but not anymore.

3. Summary

The IPR process has been validated as a constitutional way for organizations and individuals to challenge the validity of an existing patent, cementing its status as an efficient, alternative approach to patent litigation – as well as a strategic tool in litigation strategies. In addition, petitioners can now expect a final written decision on every challenged claim, but it remains to be seen how this could affect institution rates, fees, and the PTAB’s general approach to future IPR petitions.

For more information, please contact us or your regular Parker Poe contact.

Karen Carroll
678.690.5704
karencarroll@parkerpoe.com

Sharad Bijanki
678.690.5713
sharadbijanki@parkerpoe.com

Tasneem Delphry
704.335.9091
tasneemdelphry@parkerpoe.com