How USPTO Patent Reviews Became Imperiled

Initially, the lawsuit was widely viewed as a waste of time. The suit asserted a strained legal argument that already had been rejected twice by federal appellate panels, in 1985 and 1992. Yet this lawsuit, Oil States Energy Services v. Greene’s Energy Group, has now reached the US Supreme Court. So later this term, the high court will decide whether the US Constitution prevents the US Patent and Trademark Office from ever striking down issued patents.

US Patent and Trademark Office

It was thirty-six years ago, in 1981, that Congress first authorized the USPTO to review the validity of issued patents. Shortly thereafter, two disgruntled patentees challenged the constitutionality of those administrative proceedings.

The patentees alleged, among other things, that the agency’s “ex parte reexaminations” violated two provisions of the Constitution. They claimed that, under Article III, only a court (not an administrative agency) could strip a patentee of its duly issued patent rights. They also asserted that, under the Seventh Amendment, any decision to strike down a patent had to be made by a jury (not an administrative judge).

These arguments were rejected in 1985 by a three-judge panel of the Federal Circuit (sometimes called the nation’s “patent court”). Patlex Corp. v. Mossinghoff upheld the constitutionality of ex parte reexamination.

The same constitutional challenges were rejected by another Federal Circuit panel in a 1992 decision, Joy Technologies, Inc. v. Manbeck. That resolved the matter for a generation.

Higher Stakes

The situation changed when Congress replaced ex parte reexamination with new, more efficient administrative procedures. One of these procedures, inter partes review (IPR), was much faster and significantly more likely to strike down challenged patents than was ex parte reexamination. IPR became a popular means of attacking patents.

That gave patent owners a powerful incentive to attack IPR. “A lot of people are complaining the USPTO is invalidating patents at a very high rate – much higher than in the courts,” said Prof. Melissa F. Wasserman of University of Texas Law School.

And so, after one IPR proceeding killed a patent of Oil States Energy Services, the company appealed the decision to the Federal Circuit. The company’s argument was familiar, claiming that IPR violated Article III and the Seventh Amendment of the US Constitution. The Federal Circuit quickly rejected [pdf] these attacks.

Many expected that would the end the matter. But soon after Neil Gorsuch joined the Supreme Court, the high court granted certiorari. Justice Gorsuch provided the crucial fourth vote to hear the case, many experts believe.

The four Justices’ interest in the case appears to go far beyond patents. “This case is a tool for some Justices who are concerned with the growth of the administrative state, and this is a way to rein that in,” said Prof. Greg Reilly of Chicago-Kent College of Law. “In the past, Justices Clarence Thomas, Samuel Alito, and Chief Justice John Roberts have expressed concern about the growth of the administrative state. And Gorsuch provided the fourth vote for certiorari. That’s a theory one hears.”

Undermining the Courts

It is unclear what test the Supreme Court will use to determine the constitutionality of the USPTO’s power to strike down patents. Over the years, the Court has espoused two different standards for determining when administrative agencies run afoul of Article III.

“In the more expansive approach, championed most notably by Justice Sandra Day O’Connor, the test was whether Congress intended to cut back on Article III courts and whether Article III courts would have an opportunity to rule on the administrative proceedings,” said Prof. Arti Rai of Duke Law School. Under this test, “the more it looks like Congress is trying to strip the courts of their traditional powers, the more problematic it is,” said Reilly.

The USPTO could do well under that standard. “When broad jurisdiction is given to an administrative agency, that is more likely to be unconstitutional. But in IPR, the USPTO has only narrow jurisdiction – over patents – and the agency rules only on whether the patent is obvious or not novel based on prior written documents. So this is a fairly limited encroachment on judicial power,” said Reilly.

A recent Supreme Court decision seems to support this analysis. “Two years ago, in Cuozzo Speed Technologies v. Lee [pdf], the Supreme Court said that inter partes review is not a court proceeding, it is just another opportunity for the agency to correct its own prior decision. It recognized that IPR was more like an administrative examination than a court proceeding,” Reilly said.

Public Right or Private Right

Another line of Supreme Court cases uses a second test for determining the constitutional scope of administrative tribunals. This test distinguishes between public rights and private rights. Public rights can be adjudicated by administrative agencies, while private rights can be adjudicated only in Article III courts, the Court declared most recently in Stern v. Marshall [pdf]. However, the line between public and private rights isn’t always clear.

Private rights are basically rights that individuals can traditionally assert against one another – such as for negligence. (The Supreme Court has sometimes taken a more historically limited definition, stating in Stern that private rights are “the stuff of the traditional actions at common law tried by the courts at Westminster in 1789.”)

Public rights are basically rights granted to individuals by the government pursuant to some governmental plan – such as a right to receive disability payments.

Patent rights are created by federal statute, but Oil States argues that its patent is a private right, because patents were adjudicated by English courts in 1789. Moreover, Oil States claims patent rights are private because those rights are typically asserted by one private entity against another, and because the rights are not integrally related to any larger government plan. “The petitioner is strongly arguing that if something [such as a patent] is private property, it is a private right – regardless of whether the basis of that right is statutory or state common law,” said Rai.

Many experts, however, are unconvinced by this argument. They note that in Stern, the Supreme Court declared a right is public when “the claim at issue derives from a federal regulatory scheme, or in which resolution of the claim by an expert government agency is deemed essential to a limited regulatory objective within the agency’s authority.” Patents arise from a federal regulatory scheme, many experts say. And to do its job, the USPTO needs to determine whether asserted claims are patentable. “It is hard to imagine that is not essential to a limited regulatory scheme,” said Wasserman.

Other experts, however, can imagine it. The conservative Cato Institute, in its brief [pdf] supporting Oil States, asserts that although the federal government issues patents, the federal government has not created a regulatory scheme concerning patents: “Merely holding a patent does not mean that the owner is engaged in any sort of regulated activity the exact scope of which could be regulated by a federal agency. …There is no argument that patents, once granted, are themselves part of any regulatory scheme. Quite the contrary, ‘upon the issue of [a] patent, the patent office . . . los[es] jurisdiction over it.’ [quoting the 1989 Supreme Court decision in McCormick Harvesting Mach. Co. v. C. Aultman & Co.]”

A large block of the Supreme Court is expected to endorse Oil States’ argument. “Given the composition of the current Supreme Court, the willingness of four Justices to hear this case, and those Justices’ concern about the growth of the administration state, there will be four votes for the petitioner,” said Rai.

Getting the fifth and deciding vote could be difficult. “I think it will be a hard sell,” said Reilly. “Patent law is the wrong area for those concerned about administrative adjudication to get Justice Kennedy’s vote. He has expressed concern about patent trolls, and it is clear these USPTO procedures are useful way to deal with them.”

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