SCOTUS Holds Inter Partes Review Proceedings Valid In “Narrow” Decision

By Aparna Nemlekar
This week the Supreme Court of the United States (“Supreme Court”), in a 7-2 decision, held that inter partes review (“IPR”) proceedings conducted by the Patent Trial and Appeal Board (PTAB) do not violate Article III or implicate the Seventh Amendment. This decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 584 U.S. ___ (2018) validates an administrative proceeding that was put into place by Congress in the Leahy-Smith American Invents Act (“AIA”) of 2011.  However, the Court made sure to emphasize the “narrowness of [the] ruling,” stating that it was not ruling on the constitutionality of the PTAB in general but just that the IPR process was constitutional.

As a background, Oil States Energy Services, LLC (“Oil States”) sued Greene’s Energy Group, LLC (“Greene’s Energy”) for infringement of a patent directed to equipment used in hydraulic fracturing (“fracking”). Greene’s Energy subsequently challenged the patent’s validity in District Court and in an inter-partes review (“IPR”), both of which proceeded in parallel. The District Court found in favor of patent validity for Oil States whereas the PTAB found in favor of Greene’s Energy, thereby invalidating the asserted claims.  When Oil States appealed to the Federal Circuit, the Federal Circuit affirmed the PTAB’s decision.  Oil States then appealed to the Supreme Court, arguing in part, that patents were private rights that required adjudication in an Article III court and trial by jury under the Seventh Amendment.

In Oil States, the majority opinion, authored by Justice Clarence Thomas and joined by Justices Kennedy, Ginsburg, Breyer, Alito, Sotomayor, and Kagan, found that “inter-partes review falls squarely within the public rights doctrine.” The Court pointed to several previous decisions to support its finding that the grant of a patent is a matter involving public rights, including United States v. Duell, 172 U.S. 576, 582-583 (1899) (“the grant of a patent involves a matter ‘arising between the government and others’”), Seymour v. Osborne, 11 Wall. 516, 533 (1871) (patents are “public franchises” granted by the government), and Crowell v. Benson, 285 U.S. 22 (“granting patents is one of ‘the constitutional functions” that can be carried out by “the executive or legislative departments’ with-out ‘judicial determination.’ ” and “patents remain ‘subject to [the Board’s] authority’ to cancel outside of an Article III court”).  The Supreme Court further stated that IPR proceedings involve the same matter as the grant of a patent and was just “a second look at an earlier…grant.” Cuozzo Speed Technologies, LLC v. Lee, 579 U.S. ____.  Thus, the Supreme Court found that the U.S. Patent and Trademark Office (“PTO”) has the authority to take a second look at the patent grant without violating Article III.

Oil States argued that patent validity had, in the past, always been decided by the courts. The Supreme Court recognized that “[w]ithin the scope established by the Constitution, Congress may set out conditions and tests for patentability.” Graham v. John Deere Co. of Kansas City, 383 U. S. 1, 6 (1966). The Court thereby concluded that inter partes review is one of those conditions and thus Congress had authority under the Constitution to change the venue to determine patent validity from the courts to the PTO, as it did under the AIA.  Since the decision rejected the Article III challenge, the Court held that the Seventh Amendment also did not apply and a jury was not necessary in IPR proceedings.

In their dissent, Justice Gorsuch, joined by Chief Justice Roberts, argued that patents should not be seen as anti-competitive monopolies, but as procompetitive properties “that are the product of hard work and insight and ‘add to the sum of useful knowledge.’ ” Id., 5-6. The dissent further argues that just because job of issuing invention patents traditionally belonged to the Executive branch, the job of revoking them does not also have to be undertaken only by the Executive. The dissent also pointed out that “the law traditionally treated patents issued under the Patent Clause very differently than monopoly franchises when it came to governmental invasions.” See dissent at page 12. Accordingly, Justice Gorsuch stated that the Court’s decision was a retreat from Article III guarantees.

Interestingly, Justice Gorsuch also addresses the role of the Director of the Patent Office as a political appointee who serves at the pleasure of the President, stating that the Director selects the PTAB members, including how many, who will hear any particular PTAB challenge and can add more members, including himself onto the panel to influence an outcome. Justice Gorsuch therefore implied that there has been a disturbing stacking of the judges in the PTAB to influence the outcome of a case in order to secure the “policy judgments” the Director seeks.

As stated above, the Supreme Court explicitly stated that this ruling was limited to the “precise constitutional challenges that Oil States raised here.” For example, the Court stated that it was not deciding whether it is permissible for the PTAB to review patents issued before the AIA was passed, or whether the board’s processes violate due process. Further, the Court stated that the decision should not be “misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or Takings Clause.”  See opinion at p. 17.  This decision therefore has left room for more challenges to the PTAB’s proceedings.