Supreme Court Holds Oral Arguments on Two Cases Related to Inter Partes Review
On November 27, 2017, the Supreme Court Justices posed many interesting questions to attorneys representing the parties involved in two underlying Inter Partes Reviews (IPRs) and the federal respondents in these two cases, which will impact the future of IPRs significantly. Of the two cases, Oil States Energy Services v. Greene’s Energy Group (16-612) has received the most commentary by far. This is not surprising since Oil States will answer the question of whether IPRs violate the Seventh Amendment right to jury by allowing the Patent Trial and Appeal Board (PTAB), a non-Article III tribunal, to extinguish patent claims. In other words, must questions of unpatentability be reserved for an Article III court? The second case, SAS Institute v. Matal (16-969) focuses on a narrower issue of whether the PTAB must issue final written decisions for every claim challenged by Petitioner, or whether the PTAB may properly issue final written decisions only for claims instituted for an IPR proceeding, a question of the proper interpretation of IPR statute 35 U.S.C. 318(a).
In both cases, Justice Ginsburg’s questioning highlighted a common and fundamental issue: Is an IPR a means to give the USPTO a second look at a patent to correct agency error? In Oil States, the patent owner’s early acknowledgment of the USPTO’s reexamination power seemed to undercut the general notion that allowing the PTAB to decide unpatentability of issued patent claims is unconstitutional. In SAS, the power for the USPTO to reexamine a patent also gives it the ability to shape the contours of which claims that it will reconsider.
The issues involved in Oil States and SAS take on several complex dimensions. A brief observation on the hearings will follow.
In the Oil States hearing, the question of whether the USPTO has reexamination authority, to consider prior art overlooked during the original patent examination arose early, and was quickly answered in the affirmative — even when the reexamination involved third parties. From there, many questions, originating from Justices Kagan, Sotomayor and Ginsburg, related to aspects of the IPR process itself. In particular, what sets an IPR apart from an examinational process that unpatentability must be decided by an Article III court? On this point, the Justices touched upon the “private right” vs. “public right” distinction that has been highlighted as a pivotal factor in the case. Justice Sotomayor noted that even when both parties agreed to settle the IPR, the USPTO may still continue with the IPR action, decide the question of patentability and participate in appeals, suggesting the nature of a government, or public interest, in the rights in question. Justice Kennedy posed questions in terms of hypotheticals, including one by which Congress conditioned the grant of a patent subject to the IPR constraints, and one by which Congress truncated the life of patents by ten years and whether those would be permissible. On the latter question, patent owner agreed that truncating the life of the patent would be permissible, but that Congress could not create a right that conflicted with Article III. Justice Kennedy responded that if patent owners take a patent subject to Congress’ ability to truncate the patent term, or scope, then doesn’t that effectively limit patent owners’ expectation on the patent right? Justice Kennedy further queried patent owner on the best case law to limit Congress’ power to establish the IPR proceeding, noting that the rights in Crowell v. Benson and Stern v. Marshall were each distinguishable from the patent right, which is created by statute. Patent owner responded that the Northern Pipeline case would best support its position.
Chief Justice Roberts asked how due process and the takings clause related to patent owner’s Constitutional position, noting that if the government can restrict use of real property, then why can it not place a restriction on patents? Patent owner cited to the centuries-old history of adjudicating patent rights in courts, and that withdrawal of those cases to a non-Article III tribunal impacts the individual rights guarantee, such as a guarantee of litigants to impartial decision makers. Whereupon, Justice Ginsburg again noted that the role of the non-Article III PTAB was for limited purposes as a form of reexamination. Justice Gorsuch questioned whether McCormick, an 1898 Supreme Court case that indicated that patent validity must be decided by the courts, was decided as a statutory matter or a Constitutional one. On this point, patent owner stated that the McCormick case was decided as a Constitutional matter, but seemed to suggest that the Court need not adopt a position as strongly stated in McCormick to decide the Oil States case in patent owner’s favor. Justice Sotomayor suggested that McCormick was decided as a statutory construction case, and patent owner conceded that McCormick did not mention Article III.
Justice Breyer posed a broader question relating to agency adjudication between private parties that occur commonly and widely, and why IPR’s are different from such agency adjudications. The determinations made in other executive agencies were also raised during questioning of the patent owner on rebuttal, where Justice Breyer discussed the license revocation by the Federal Communications Commission and Justice Kagan discussed adjudications of the National Labor Relations Board. It is not clear that patent owner was able to provide a complete answer to Judge Breyer’s question. It is possible that in order to provide a full response, patent owner would call into question a wider array of non-Article III tribunals that commonly decide disputes between private parties. This perhaps also explains the patent owner’s equivocal response to Justice Gorsuch’s question on why the patent owner would not simply firmly plant its position in the broader notion that all patent claims, as a private right, must be decided by an Article III court. To this observer, this suggests that the deliberations on the IPR processes are not relevant, if the power is not even there for a non-Article III court to decide invalidity. The latter determination would implicate patent validity made by other non-Article III tribunals, such as the International Trade Commission.
Justice Alito raised a historical view of patents, inquiring whether back in 1789, could Congress grant patent monopolies subject to limitations of an IPR system. Patent owner responded that a grant of the patent could be conditioned, but that condition could not violate the Constitution whether under Article III or the takings clause. Delving further into the historical aspects of patent revoking authority, Justice Sotomayor questioned whether patent revocations by the English Privy Council provided basis for a non-common law court to decide patent revocations. Patent owner noted that the then existing statute of monopolies (1624) indicated that validity would be determined by juries. Justice Ginsburg closed initial questioning of patent owner by asking about the mechanism of patent correction in the event the crown made an error, to which the patent owner did acknowledge that the Privy Council, as opposed to the courts of common law, were known to revoke patents pursuant to certain proceedings.
Justices Breyer and Gorsuch and Chief Justice Roberts led the questioning of the IPR petitioner. The opening questions related to 1) possible vested interests that a patent owner accrues after significant financial investment in its patents over a long period of time, e.g. ten years, and 2) the possibility of shifting PTAB panel members so that the PTAB decisions can be viewed as politically motivated, so-called panel-packing, such that the USPTO is able to obtain the outcome it desires. On the latter point, the IPR petitioner cited to the protections of the Administrative Procedure Act, which would protect the patent owner’s right to due process. On the former point, the IPR petitioner responded that patentees take patents subject to statutory requirements of patentability, and those rights do not necessarily vest into private rights over time or due to financial investment. Whereupon, Chief Justice Roberts indicated that the IPR petitioner was advancing the position that the patentee must take the “bitter with the sweet,” which he questioned as being inconsistent with the Court’s precedent, citing to public employment cases. The IPR petitioner responded that the PTAB did not act with unfettered discretion and that the process was subject to review by the federal appeals court. Justice Gorsuch stated that the judicial review did not materialize unless a party actually appealed the PTAB decision, but that otherwise the decision of the PTAB was self-executing. IPR petitioner noted that this was a similar situation as the original examination, a power not in question.
IPR petitioner noted that the Court’s older precedents determining that validity was to be decided by the courts were matters of statutory construction, not Constitutional decisions.
Justice Ginsburg noted that the line of questions posed by Justices Gorsuch and suggested by Justice Breyer’s hypothetical of vested rights by lapse of time and financial investment, cast the patent right as a private right, not subject to even reexamination. Justice Ginsburg restated that patent owner had already conceded that the USPTO has the power of reexamination, and thus the main question posed was whether the IPR process was judicial in nature. The IPR petitioner cited to the Court’s more recent decision on an IPR proceeding in Cuozzo, that IPR’s are not adjudicative but rather are a form of reexamination.
The Justices next questioned the Deputy Solicitor General, representing the federal respondent. This questioning started with similar concerns about the vesting of a property interest over time, and the dangers of panel-packing that Justice Gorsuch and Chief Justice Roberts raised when questioning the IPR petitioner. The federal respondent also noted the availability of reexamination and district court to invalidate a patent, suggesting a limitation on a patentee’s right in holding the patent. Chief Justice Roberts queried about the change to a new (IPR) process, which was not available at the time that the patent in dispute issued. In a roundabout way, the federal respondent fully analogized the IPR process to the process for termination of a federal employee for cause, the example of a property right (the bitter with the sweet) raised by Chief Justice Roberts in the questioning of the IPR petitioner. The federal respondent noted that agencies terminate federal employees for cause and may due so as long as they comply with due process. Such firings, which are terminations of a property right, are done by non-Article III agencies regularly. If the federal government found a more efficient way to monitor employee performance and better ways to detect whether an employee should be terminated for cause, then it would seem unlikely that the agency would not be able to use those new mechanisms on employees who obtained employment tenure prior to the time those new mechanisms were devised. The federal respondent relied on fairness of the processes, and that if an individual were not treated with due process, then that would be another matter. Judge Breyer commented that his hypothetical regarding the large investment did not arise in the current case, indicating that such a situation would best be addressed under the due process or the takings clause.
With regard to the Justices’ concerns on panel-packing, the federal respondent noted three instances of variations occurring in a PTAB panel. Each occurred during the institution phase of a proceeding, not the decision phase, where unpatentability was actually determined.
Chief Justice Roberts requested comment on the Schor test, used to assess whether something qualifies as a public right. The federal respondent distinguished cases such as Schor, Northern Pipeline and Stern v. Marshall as being inapplicable to the IPR process in that all those cases concerned a situation where the adjudicator had to determine whether one party was liable to another party for a violation of law. Each case also involved money damages. These cases involved more classic judicial functions. Of those cases, sometimes the adjudication could be made by a non-Article III tribunal, and sometimes not. It is noted, that an IPR process does not determine liabilities and in that sense is even further afield from Northern Pipeline, the case that patent owner had cited as its best support of its Article III position.
Justice Ginsburg questioned the federal respondent on limitations on the timing of an IPR, with or without, the patent owner filing an infringement suit. The Justices also had additional questions regarding the PTAB’s ability to hear an infringement suit. The federal respondent replied that infringement determinations were outside the traditional role of the USPTO.
To this observer, the patent owner adhered, as it must, to its private right position for Article III adjudication. Based on the hearing transcript, it appears that patent owner faced some difficulties in firmly planting this stake. The old precedents discussed appear to be distinguishable, or rely on statutory rather than Constitutional foundations. U.S. patents stem from statute rather than a common law right and have long been subject to reexamination, a view that patent owner readily concedes. IPR’s have been characterized as a form of reexamination, and regardless of whether the IPR is labeled as an adjudication or not, the questioning seemed more concerned with processes associated with the IPR rather than authority of the USPTO to conduct the proceeding.
A subsequent post will discuss the SAS hearing.
Susan P. Pan
Email: email@example.comMs. Pan specializes in patent portfolio building for large and small companies, including patent preparation, prosecution and appeals. Ms. Pan’s legal expertise also extends to multi-party complex patent litigation before several U.S. federal district courts, the U.S. International Trade Commission, and the U.S. Federal Trade Commission. Ms. Pan counsels clients in patent licensing and valuation, taking into account probabilities of infringement and invalidity.