Supreme Court Justices’ Questions in Oil States Suggest Inter Partes Review Will Be Upheld as Constitutional

On Monday, November 27, 2017, the U.S. Supreme Court heard argument in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712. The case presents a direct challenge to the U.S. Patent and Trademark Office’s (“USPTO’s”) “inter partes review” (“IPR”) process, under which third parties can petition the USPTO’s Patent Trial and Appeal Board (the “PTAB”) to cancel one or more claims of an already-issued patent.

Photo Credit: Fox

ScotusBlog recently offered a brief introduction to Oil States’s “remarkably pedestrian” backstory:

Petitioner Oil States sued respondent Greene’s Energy, contending that Greene’s Energy was infringing a patent that Oil States holds on technology useful for preserving wellhead equipment in the oil and gas industry. Predictably, Greene’s responded by seeking inter partes review, hoping that the PTO would invalidate the Oil States patent. When the PTO concluded that the patent in fact was invalid, Oil States raised the stakes, arguing that Congress violated Article III and the Seventh Amendment when it authorized an administrative agency to invalidate the patent without affording Oil States an opportunity for a jury trial.

If the Supreme Court decides that IPR is unconstitutional, the holding will have major consequences. As an initial matter, many would-be litigants have chosen to pursue IPR petitions instead of patent defenses or claims in court because the IPR process is faster and more cost-effective than federal litigation. For example, a typical medium-sized patent dispute costs around $3M to litigate in federal court, but IPR proceedings are one-tenth the cost. The average time to trial is around 2 years, 3 months, whereas IPR proceedings take just over half as long to conclude. In addition to offering advantages to litigants, IPR proceedings have played a significant role in lightening the federal patent docket, addressing more than 1,000 patent cases with dispositive effect. Usually, patent cases are stayed pending an IPR proceeding. Thus, the IPR process in many cases eliminated the need for protracted federal litigation.  

As Oil States neared oral argument, several commentators offered their take on how the case might turn out. But the Justices’ questions at oral argument provide better hints at whether affirmance or reversal will result:

Right out of the gate, Chief Justice Roberts asked the petitioner, Oil States, to explain its distinction between the USPTO’s post-grant procedures that are “examinational” in nature, versus those which are adjudicative. The distinction relates to the federal government’s separation of powers between its three branches, with the judiciary serving the role of adjudicating disputes–as provided by Article III, which vests the “judicial power” in the federal courts. Getting to the heart of the matter, Justice Sotomayor asked, “What is so fundamentally Article III that changes [the IPR] process into an Article III violation?” Suggesting an answer to her own question, the Justice stated, “Both [IPR processes and other post-grant processes] are just informing the PTO of the nature of its error and giving it an opportunity to correct its error.” Justice Ginsburg later chimed in: “[IPR] is geared to be an error correction mechanism and not a substitute for litigation.” Justice Breyer appeared to agree, stating, “I thought it’s the most common thing in the world that agencies decide all kinds of matters through adjudicatory-type procedures often involving private parties. So what’s so special about this one…?” Justice Kagan remarked, “it seems a little bit odd to say, sure, the government can reexamine this…but there’s some line that falls short of what” is constitutional.

Justice Gorsuch suggested that the distinctions between permissible examination and impermissible adjudication could be avoided by focusing on whether there is a private or public right involved, the idea being that public rights (e.g., licenses) need not be adjudicated by an Article III court. Justice Kennedy asked, “[C]ould Congress say…we will grant you a patent on the condition that you agree to this procedure; otherwise, we don’t give you the patent?” Justice Alito later asked a similar question. Justice Kennedy followed up, “Could Congress say that we are reducing the life of all patents by 10 years?” When counsel for Oil States answered yes, he responded, “Well, then that–doesn’t that show that the patent owner has limited expectations as to the scope and the validity of the property right that he holds?” Justice Gorsuch begged to differ, however, stating “we have a number of cases that have arguably addressed this issue…in which this Court said the only authority competent to set a patent aside or to annul it or to correct it for any reason whatever is vested in the courts of the United States.” But Justice Sotomayor, seemingly rejecting that argument, stated that at least one of the cases cited by Justice Gorsuch (McCormick v. Aultman) did not involve determinations of constitutional law, nor did it involve statutory analysis of post-grant procedures because none were applicable or available at the time that case was decided.

Turning to the respondent, Greene’s Energy, Justice Breyer fired off the first question, asking whether it was a “problem” that a company could invest $40B in developing a patent and could have it for 10 years before an IPR proceeding cancelled the patent. He asked, “Is there something in the Constitution that protects a person after a long period of time and much reliance from a reexamination at a time where much of the evidence will have disappeared,” suggesting a due process-flavored argument. Chief Justice Roberts followed up, asking whether Greene’s Energy’s position is that “If you want the sweet of having a patent, you’ve got to take the bitter that the government might reevaluate it at some subsequent point.” Finding agreement, he said, “Well, haven’t our cases rejected that…proposition? I’m thinking of the public employment cases, the welfare benefits cases. We’ve said you…cannot put someone in that position.”

The discussion shifted to discussions of whether the availability for subsequent judicial review of the PTAB’s IPR decisions bears on IPR’s constitutionality. Justice Sotomayor remarked, “That..was what troubled me deeply about you telling Justice Kagan that, without judicial review, that this would be adequate. I mean, for me, this–what saves this, even a patent invalidity finding, [is that it] can be appealed to a court….[H]ow can you argue that the…PTO…has unfettered discretion to take away that which it’s granted?”

Justice Gorsuch again brought up the public-private rights distinction, noting that “there’s an abundance of law going back 400 years. Justice Story says it. I mean, you know, this is not a new idea, that once [a patent is] granted, it’s a private right belonging to the inventor.”

Finally, the Court turned its attention to the Government’s argument. Justices Gorsuch and Roberts asked about the “bitter with the sweet” argument. The Government responded that employment and welfare decisions are often made by executive officials and must always comport with due process, but need not be adjudicated by courts in the first instance.

Justices Breyer and Roberts then steered the conversation toward factors that might help distinguish private rights from public rights. Justice Breyer expressed the view that the large investment underlying a patent might justify a due process or takings clause argument, but the Government responded that there is no as-applied challenge in this case.

The Government also brought up the adjudication versus examination point, arguing that IPR is distinct from typical judicial functions, which involve determining liability between private litigants and assessing monetary damages. For example, an infringement action involves determining liability for use of a patented idea and the reasonable royalty damages that should be paid for that use. IPRs, on the other hand, merely address patentability and do not involve liability or damages. The Government also noted that the executive frequently employs adjudicative proceedings to take appropriate executive action. IPR is no different.

In the end, as always, divining the eventual decision from the Justices’ questioning is more art than science–no puns intended. Justices Sotomayor, Ginsburg, Breyer, and Kagan all appear to endorse the view that IPR proceedings do not violate the separation of powers. Justices Kennedy and Alito also seem to fall in the same camp. On the other hand, Justices Breyer, Roberts, and Sotomayor’s questions suggest that these Justices think there may be serious due process concerns. Only Justices Gorsuch, Breyer, and Roberts were interested in the public rights versus private rights distinction, but two of those Justices expressed doubts about the distinction’s defining features. If I had to call it, I would guess that the Court will find that IPRs, as currently structured, do not violate separation of powers or due process and are therefore constitutional. Stay tuned for updates on this important case.

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