On June 12, 2017, the Supreme Court granted certiorari in the case of Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC, with respect to the first question presented:
Whether inter partes review—an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article
In 2012, patent owner Oil States filed an infringement suit against Greene's Energy Group in the United States District Court for the Eastern District of Texas. During the Markman proceedings, the court construed the claims of the asserted patent in a manner so as to be distinct from one of the inventor's own prior art published applications. After Markman, the defendant filed an inter partes review ("IPR") petition arguing that the aforementioned published application anticipated the asserted claims. The Patent Trial and Appeal Board (the "PTAB") applied the "broadest reasonable interpretation" claim construction standard, granted the petition, and instituted the IPR. Oil States attempted to amend the claims both to align their scope with the disclosure of the patent specification and to more clearly distinguish the prior art application. But the PTAB denied the motion, stating that Oil States had not "demonstrated" or sufficiently "explained" where and how each new claim element was disclosed in the specification. The PTAB then, in a final written decision, found the patent claims unpatentable.
Oil States appealed the PTAB's decision to the United States Court of Appeals for the Federal Circuit (the "CAFC") on various bases, including arguing that the IPR process is violative of Article III of the U.S. Constitution and the Seventh Amendment, especially as they protect the right to trial by jury. During briefing and before oral argument, the CAFC issued its decision in MCM Portfolio LLC v. Hewlett-Packard Co.,1 which rejected a similar constitutionality argument. The CAFC affirmed the result in the Oil States IPR, and denied requests for panel rehearing and rehearing en banc.
In its successful petition for certiorari, Oil States argued that the Supreme Court and predecessor English courts have always required jury trials for infringement suits, and that invalidity is a defense made in such suits that also must be the province of the jury. Congress's attempt to "streamline" patent litigation by permitting the PTAB to resolve invalidity defenses, according to Oil States, supplants the jury trial and renders "Markman a dead letter." Oil States further argued that patent rights are more than "public" property rights that may arise out of, and be taken away by, agency hearings. Rather, patent rights are "complete with the most important characteristic of private ownership—the right of exclusion"—and exist wholly apart from the government once granted. In this regard, Oil States pointed out in its briefing that patents are not closely tied to a regulatory scheme, as the PTO is not responsible for violations of a patent.
Oil States also asserted that it had a right to an Article III forum for invalidation proceedings, citing Supreme Court precedent for the proposition that—once a patent is granted—it "is not subject to be revoked or canceled by the president, or any other officer of the Government" because "it has become the property of the patentee, and as such is entitled to the same legal protection as other property."2
Greene's Energy Group responded to the petition by disputing Oil States' characterization of historical English practice, and asserting that invalidation proceedings were traditionally reserved for chancery courts. Greene's Energy Group also argued that patents are public property rights, deriving from an extensive federal regulatory scheme, and that Oil States therefore has no right to have invalidation proceedings heard in an Article III court. Needless to say, this case has the potential to completely upend the current balance of power in patent litigation. IPR petitions are on pace to exceed 2,000 in number this year (compared to 4,500 new patent lawsuits),3 and have become the knee-jerk first response to most patent suits. They have been so successful that those bringing infringement suits have reduced the expected value of their cases, that patent-holders have marked down the value of their portfolios, that patent auctions have resulted in less money changing hands, and that clients are paying their patent prosecutors and litigators less. A Supreme Court reversal in Oil States might even affect other post-grant proceedings, including the long-standing ex parte reexamination proceedings and the relatively new derivation proceedings—although, until TC Heartland, one might have thought that the three-decade-plus history of ex parte reexaminations would itself foreclose the possibility of reversal here. A reversal would mean that, for at least a period of time, patent litigation practice would be in a state of chaos as the PTAB and Federal Circuit would be forced to terminate all existing proceedings, litigation defendants would have to scramble for new defense strategies, and Congress would be confronted with the prospect of sorting out alternative, Constitutional ways to achieve the results sought in the AIA.
Footnotes
1 812 F.3d 1284 (Fed. Cir. 2015).
2 Citing McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 608–09 (1898).
3 Statistics from Docket Navigator.
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