United States: Inter Partes Review Passes Constitutional Muster

Last week, the US Court of Appeals for the Federal Circuit (Federal Circuit) held that a final written decision from the Patent Trial and Appeal Board (Board) does not violate Article III or the Seventh Amendment of the US Constitution. Additionally, the Federal Circuit confirmed once again that it lacks jurisdiction to review inter partes review institution decisions. MCM Portfolio LLC v. Hewlett-Packard Company, Appeal No. 2015-1091 (Dec. 2, 2015). This decision affirms that companies may continue to challenge effectively patents using the post-grant proceedings under the America Invents Act (AIA), such as inter partes review (IPR), post-grant review (PGR) and transitional covered business method review (CBM).

MCM Portfolio represents the third time that the Federal Circuit has made clear "that there is 'no appeal' from the decision to institute inter partes review," regardless of whether the PTAB issues a final written decision. Slip Op. 7. This holding was not instrumental to its final opinion, however, as the Federal Circuit confirmed that it has jurisdiction to review final written decisions from the PTAB.

More important was the Federal Circuit's rejection of Appellant's argument that inter partes review unconstitutionally usurps patentees' Seventh Amendment rights to a jury trial in an Article III court before revoking a patent. The Appellant rested its argument on the US Supreme Court's holding in McCormick Harvesting Machine Col. v. Aultman (McCormick II), 169 U.S. 606 (1898) that only an Article III court may invalidate a patent. McCormick II came before the Supreme Court from a decision by the USPTO on a reissue application, where the USPTO found certain original claims unpatentable, but other original claims and new claims patentable. The patent owner then abandoned the reissue application, and the USPTO returned the original patent to the patent owner. The trial court held no infringement because the USPTO found claims invalid.

In McCormick II, the Supreme Court held the original patent claims were not invalid because the patent owner was entitled to the return of the original patent as it was prior to filing the reissue application, if the patent owner abandoned the reissue application. The patent owner would not surrender the original patent until the issuance of the reissue patent. Thus, the Supreme Court concluded that, since the patent owner did not surrender the original patent, the USPTO's rejection of the original claims was a nullity. In this context, the Court held, "[t]he only authority competent to set a patent aside, or to annul it, or to correct for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent," since there was no statutory authority vested in the USPTO to cancel a patent upon a patent owner filing a reissue application. McCormick II at 609. To have such an authority, "would be to deprive the applicant of his property without due process of law, and would be in fact an invasion of the judicial branch of the government by the executive." Id. at 612.

In its present decision in MCM Portfolio, however, the Federal Circuit distinguished McCormick II because it did not address Article III nor did it forbid Congress to direct the USPTO to either correct or cancel a patent. Indeed, Congress has exercised constitutionally its legislative authority by creating ex parte reexamination in 1980, inter partes reexamination in 1999 and now inter partes review in 2011. The Federal Circuit observed that Supreme Court precedent demonstrates that the statutes implementing these post-grant proceedings do not violate Article III.

The Federal Circuit further explained that the Supreme Court has recognized that although Article III courts can adjudicate public rights matters, Congress may also delegate certain public rights disputes to non-Article III courts. This is in contrast with private rights, which only Article III courts can hear. MCM Portfolio LLC, Slip Op., 16 (citing Granfinanciera v. Nordberg, 492 U.S. 33, 55–6 (1989)). What makes a right "public" versus private is that "the right is integrally related to a particular federal government action." Id., 11, quoting Stern v. Marshall, 131 S. Ct. 2594, 2613 (2011). For example, the Supreme Court has upheld the constitutionality of adversarial administrative proceedings concerning largely public rights in Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 593–4 (1985) ("Congress, acting for a valid legislative purpose to its constitutional powers under Article I, may create a seemingly 'private' right that is so closely integrated into a public regulatory scheme as to be a matter appropriate for agency resolution with limited involvement by the Article III judiciary"). Patent rights are likewise public rights because Congress has directed the USPTO to assess claim patentability to set administrative procedures that are less expensive than proceedings in Article III courts. The Federal Circuit further identified parallels between reexamination and inter partes review on the one hand, and the administrative procedures that the Supreme Court previously identified as constitutional in Thomas, Schor and Stern on the other hand. The Federal Circuit also found it odd that Congress supposedly could not authorize the USPTO to reconsider its decision, after Congress had already delegated the authority to issue patents to the USPTO in the first place. The Federal government has the power to correct its mistakes, and the Federal Circuit has determined that inter partes review is nothing more than a descendant of the administrative reexamination process that Congress started 30 years ago as a low-cost and efficient alternative to challenge patentability, and thereby correct a governmental mistake. The PTAB sits today as the expert embodiment of that effort to provide an inexpensive method to correct patentability mistakes under federal law. The power of the USPTO to cancel claims in reexamination proceedings thus supports the position that inter partes review provisions do not violate Article III.

The Federal Circuit also rejected the Appellant's Seventh Amendment argument that it had a right to decide patentability by a jury trial, which could not be satisfied by the inter partes review scheme. The Federal Circuit found that  the Supreme Court has already held that the Seventh Amendment does not apply to administrative proceedings, and Congress has the right to trust the enforcement of statutory rights to an administrative process "free from the structures of the Seventh Amendment." Curtis v. Loether, 415 U.S. 189, 195 (1974); see also Tull v. United States, 481 U.S. 412, 418 n. 4. "[W]hen Congress creates new statutory 'public rights,' it may assign their adjudication to an administrative agency with which a jury trial would be incompatible, without violating the Seventh Amendment's injunction that jury trial is to be 'preserved' in 'suits at common law.'" Atlas Roofing Co., Inc. v. Occupational Safety & Health Review Commission, 430 U.S. 442, 445 (1977). The Federal Circuit considered Congress's establishment of inter partes review as creating a new statutory public right, and thus did not violate the Seventh Amendment by having that right adjudicated by the USPTO instead of the courts. Thus, the Federal Circuit held that patent rights are public rights, and, as such, patent validity is susceptible to administrative review by the USPTO. Thus, the Seventh Amendment poses no barrier to adjudicating patentability without a jury.

Accordingly, IPR, CBM and PGR are here to stay as effective and efficient options for an accused infringer to challenge patentability. For advice on how this decision or any other decision from the Federal Circuit or PTAB may effect your position, the authors of this article (listed to the right), or your Dentons relationship partner, are ready to help you.

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