US Supreme Court Rules Inter Partes Review Legal

United States Patent and Trademark Office inter partes reviews are legal and do not violate Article III of the Constitution or the 7^th Amendment, the US Supreme Court said today. While the decision was expected, practitioners before the USPTO’s Patent Trial and Appeal Board can now rest easy, as one patent lawyer put it.

The opinion in Oil States Energy Services LLC v. Greene’s Energy Group LLC is available here [pdf].  The case raised the question of whether inter partes reviews (IPRs) violate the US Constitution by extinguishing private rights without a jury trial. The USPTO defines IPRs as trial challenges brought by third parties at the PTAB, after a patent is granted, on the basis of prior art in the form of patents or printed publications. The PTAB is an administrative body which differs from Article III courts in not having jury trials, among other things.

The main argument before the high court for the petitioning patent owner was that patents are private rights entitled to the same legal protection as other property. The respondent, the challenger, claimed that Article III doesn’t apply to IPR, which is merely a mechanism that allows the USPTO to correct errors in patents.

The Supreme Court sided with the respondent, saying that Congress has “significant latitude to assign adjudication of public rights to entities other than Article III courts” and that IPR “falls squarely within the public-rights doctrine.” The decision to grant a patent is a matter involving public rights, and granting patents in one of the “constitutional functions” that can be carried out by the executive or legislative departments of government without judicial determination.

Moreover, the opinion said, IPR involves the same basic matter as the grant of a patent, and is a “second look at an earlier … grant.” The fact that IPRs happen after the grant makes no difference, it said. While earlier decisions recognize patent rights as the “private property of the patentee,” they don’t contradict the court’s decision or foreclose the sort of post-grant administrative review Congress authorised, it said.

The similarities between the various procedures used in IPRs and those used in courts does not lead to the conclusion that IPRs violate Article III, the court said. It noted that the “holding is narrow,” addressing only the constitutionality of IPR and the precise constitutional challenges raised by Oil States. “The decision should not be mis-construed as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.” Seven justices approved the decision, two dissented.

Positive Reactions

“This is truly great news for American business and industry,” said Foley & Lardner litigation attorney Christopher Kise, who argued the case before the Supreme Court. Real innovators and productive businesses such as Greene’s Energy “can now rest assured this important facet of our system will be retained, and the burden imposed by non-practicing entities will be minimized.” The decision also shows the court’s evolving view as to the proper role of administrative agencies in adjudicating disputes, he added.

“The decision, its rationale, and the alignment of the Justices are unsurprising based on the questions asked at oral argument and the applicable precedent,” said Michael Best LLC intellectual property lawyer Marshall Schmitt. “The PTAB bar will breathe a sigh of relief although few were holding their breath given how the case unfolded.”

“This went pretty much as most people had expected, for the reasons that were expected,” said DLA Piper patent attorney James Heintz. He called it “interesting” that Justice Thomas’ majority opinion “cabined in the extent of the opinion and left open the possibility of other challenges, including due process and retroactive application,” leaving the possibility of other constitutional challenges.

Much of the commentary and argument in the case focused on the idea that because patents have the attributes of private property they must be “private rights” protected by the Constitution, said Dykema IP attorney Van Lindberg. The majority opinion, however, says patents are public rights that only arise out of government action. “This firmly entrenches the idea” that IPRs are just “a second look at an earlier patent.”

“The PTAB is still in business. By upholding the constitutionality of inter partes review procedures, the Court has left intact this powerful tool that can be used to challenge patents,” Morrison & Foerster patent litigator Matthew Kreeger said in a statement. “The Court rejected the argument that patent validity disputes have to be adjudicated by a federal court. Instead, the Court ruled that these disputes can be heard by administrative patent judges who work for the patent office.”

He added: PTAB challenges have become a crucial part of patent litigation. Frequently, after a patent infringement lawsuit is filed the case is stayed while a PTAB challenge is resolved.  This has resulted in a lower cost way for those accused of infringing a patent to win the case or drive it to an early settlement. By rejecting the constitutional challenge in Oil States, the Supreme Court kept this important option open for accused infringers.” The use of PTAB and IPRs declined in 2017 due to uncertainty about this case, Kreeger said.

Ronald Abramson, partner at Lewis Baach Kaufmann Middlemiss, said: “One collateral effect of the decision is that it further strengthens the “public law” aspect of patents, which could make a difference in cases that require consideration of the public interest, such as forum disputes and injunctions. Oil States would have been monumental had it gone the other way, but it was not expected to, and did not. There is also potentially a retroactivity question on Oil States. Most patents in current IPRs were issued prior to the law establishing IPRs. Today’s Oil States ruling leaves that issue open – though one might doubt it would come out any differently.”

‘Victory for Consumers’

The ruling “marks a victory to ensure the American patent system works responsibly and reasonably to get true inventions into the hands of consumers, patients and families,” said Initiative for Medicines, Access & Knowledge Executive Director Tahir Amin. The PTAB plays a critical quality control function in deciding which patents are merited and which aren’t, he said. The decision enables the removal of unmerited patents that drive up drug prices and block people from getting the treatment they need, he said. I-MAK last fall filed “an unprecedented set of patent challenges” with the PTAB against eight patents used to create Gilead’s hepatitis C treatment, sofosbuvir, it said. If those core patents are ruled invalid, US taxpayers will save $10 billion and generics will get to market 16 year earlier, the organisation said.

Justice Gorsuch, joined by Chief Justice Roberts, wrote the lone dissent, noted Knowledge Ecology International Policy and Legal Affairs Counsel Andrew Goldman.  His opinion delved into the history of courts and patents but failed “to at all consider the high rates of mistakes made by the USPTO, or the burden that a finding of unconstitutionality might foist onto an already overwhelmed court system,” he said. Retention of the IPR system “is a major victory for the ability to efficiently knock out bad patents without exhausting the judiciary.”

Had this case gone the other way, “not only would the courts be clogged up with disputes that can be resolved more reasonably by the patent office itself, the holders of invalid patents would be able to more easily collect windfall payments for ‘inventions’ that don’t really exist – with consumers ultimately paying the costs,” emailed Public Knowledge Senior Counsel John Bergmayer. In the future, parties concerned with the IPR process “should encourage the patent office to grant fewer erroneous patents to begin with.”