United States: A Practical Guide To The Supreme Court's Oil States Decision

Yesterday, the U.S. Supreme Court held that inter partes reviews (IPRs) do not violate Article III or the Seventh Amendment to the United States Constitution. In Oil States Energy Services v. Greene's Energy Group, Oil States contended that IPRs violate the separation of powers required by the Constitution because IPRs are decided by Administrative Patent Judges who are not Article III judges. It also contended that IPRs violate the Seventh Amendment's right to a jury trial because IPRs are decided by judges, not juries.

In a 7-2 decision authored by Justice Thomas, the Supreme Court rejected these views. The Court held that "[i]nter partes review falls squarely within the public-rights doctrine," and as public rights, Congress has "significant latitude to assign adjudication . . . to entities other than Article III courts."1 Congress did so here in the America Invents Act (AIA), so the Court upheld the practice of Administrative Law Judges within the Patent Office adjudicating patentability in IPRs.

Refuting a contingent who felt that earlier Supreme Court decisions had already resolved this issue in favor of Article III review, the Court distinguished its precedent as simply interpreting the statutory scheme that existed at the time of those decisions.2 The Court analyzed the 1870 Patent Act, for example, and concluded that it "did not include any provision for post-issuance administrative review."3  The AIA, in contrast, provides for administrative review. And because a patent is a "public franchise" that "can confer only the rights that [a] statute prescribes," the patent right must be taken subject to the administrative review requirements.4

After rejecting the Article III challenge, the Court summarily found that "our rejection of Oil States' Article III challenge also resolves its Seventh Amendment challenge" because, "when Congress properly assigns a matter to adjudication in a non-Article III tribunal, the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder."5

The Court underscored the narrowness of its holding, stating that "we address only the precise constitutional challenges that Oil States raised here." Oil States had not raised a challenge to "the retroactive application of inter partes review," nor had it challenged due process.7

Justice Breyer provided a single-paragraph concurrence agreeing that public rights can be decided by non-Article III tribunals. But he wrote separately to clarify his view that the majority decision does not also mean that "private rights may never be adjudicated other than by Article III courts, say, sometimes by agencies."[8]

Justice Gorsuch, joined by Chief Justice Roberts, dissented. They raised concerns about a lack of judicial independence in administrative agencies and contended that history and precedent required Article III adjudication to revoke patent rights.

In light of the Court's decision, practitioners are left wondering what happens now and what they need to do to protect themselves or to take advantage of the decision.

Now that IPRs have been upheld as constitutional, is it business as usual at the PTAB?

In many ways, yes. There is a 25-day window for seeking rehearing of the Court's decision.9  Until that window closes without a rehearing request, or until the Court rules on any filed rehearing requests, Oil States is subject to revision. But the Supreme Court rarely grants rehearing requests, and when they do, they rarely change the result. It is unlikely that the Court will change its finding of constitutionality under Article III and the Seventh Amendment, so pending PTAB cases are likely to continue as usual. Additionally, the PTAB has declined to stay IPR trials pending release of the Oil States decision;10 therefore, it is also unlikely that they would grant any requests for stay pending rehearing of this decision.

Any adjustments to PTAB practice are more likely to flow from SAS Institute v. Iancu, which is a decision the Supreme Court issued on the same day as Oil States. That case held that the PTAB's Final Written Decision must address every claim challenged by a petitioner, reversing the PTAB's practice of issuing partial institution decisions and corresponding partial Final Written Decisions. But from an Article III/Seventh Amendment standpoint, the PTAB is likely to continue operating with little change.

While the Supreme Court upheld IPRs under Article III and the Seventh Amendment, did the Court leave open the possibility for other constitutional challenges?

Yes, it expressly left open several future challenges. The first is the retroactive application of inter partes review proceedings to patents that came before the AIA. Some have argued that, when an inventor or others have relied on the pre-AIA patent system to invest in a technology that is later patented, the patent should not be subject to the AIA and its inter partes review process.

During oral argument, Justice Breyer voiced a related concern for patented technologies that have received significant investments in reliance on the patent. He posed the hypothetical that a "patent has been in existence without anybody reexamining it for 10 years and, moreover, the company's invested $40 billion in developing it. And then suddenly somebody comes in and says:  Oh, oh, we – we want it reexamined, not in court but by the Patent Office. Now, that seems perhaps that it would be a problem or not?"11  He later stated that he might leave open the constitutionality question "if there has been a huge investment."12  We now know that he has signed on to the majority opinion in Oil States, but his sentiment may be viewed as being consistent with not applying inter partes review retroactively to patents that came before the AIA. Along these lines, the Court distinguished precedent decided under a version of the Patent Act that did not include any provision for post-grant administrative review.13

The Court also left open due process and takings challenges. Although the final opinion says little about these issues, some of the Justices expressed concerns about these issues at oral argument. Chief Justice Roberts, for example, asked whether it was wrong for the government to require a patentee to "take the bitter with the sweet," and to require 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."14  Rhetorically, however, he then asked, "haven't our cases rejected that proposition?  . . . We've said you – you cannot put someone in that position."15

Justice Gorsuch made similar comments about the executive conditioning patents on not having takings rights or receiving the patent "subject to whatever conditions in terms of its withdrawal that we wish to impose."16  But he went one step further, criticizing the PTAB's limited practice of expanding its panels to overturn some of its original institution decisions. He referred to this as "the condition that we will stack the deck with judges whom we like – administrative judges we like."17

Chief Justice Roberts was even more direct on this issue:

Chief Justice Roberts:  "Does it comport with due process to change the composition of the adjudicatory body halfway through the proceeding?"

Mr. Stewart:  "This has been done on three occasions. It's been done at the institution stage."

Chief Justice Roberts:  "So I'll rephrase the question. Was it illegal under those three occasions?"18

We now know that Chief Justice Roberts and Justice Gorsuch are in the minority in Oil States, but it remains to be seen whether a different type of constitutional challenge that more directly implicates their concerns could meet with a different outcome.

How will these other constitutional concerns affect IPRs?

Oil States addressed constitutionality under Article III and the Seventh Amendment, but it did not directly address the other takings and due process issues raised by the Justices. Those issues will need to be addressed in future cases. However, many PTAB judges attended the oral arguments in November, and many more have listened to the argument or read the transcript. The sense in the profession is that the PTAB judges are acutely aware of the concerns raised by the Justices and they are working to quell those concerns. For example, it appears that the PTAB is now more willing to grant parties additional briefing, especially where denying that briefing might raise a due process issue. And since Chief Judge Ruschke has been at the helm, he has not expanded a panel to overturn an earlier institution decision. New Patent Office Director Iancu could also clarify that he will not use stacking as a way to "make sure [his] policies, [his] preferred policies are enforced," which is what Oil States' counsel argued predecessors had done.19

Will Oil States affect other types of PTAB trials, like Covered Business Method Reviews (CBM) and Post-Grant Reviews (PGR)?

There are some differences between IPRs, CBMs, and PGRs, but they are all decided by the same administrative body—the PTAB within the Patent Office—and all consider "the same statutory requirements that the PTO considered when granting the patent."20  They also all provide the same relief to the petitioner, which is cancelation of patent claims if the petitioner meets its burden. These were two of the operative facts that led to the Oil States constitutionality finding for IPRs, and it appears that those similarities would also support Article III and Seventh Amendment constitutionality for CBMs and PGRs.

Will Oil States have any effects on other administrative agencies?

By holding that non-Article III venues may resolve patentability issues, the Court's holding may support the International Trade Commission's (ITC) ability to also resolve patentability issues—a power it has exercised for decades. Similar to the Patent Office, the ITC employs Administrative Law Judges who rule on trade issues that implicate patent infringement and patent validity. A primary distinction between the venues is that patent owners affirmatively petition the ITC for relief, which some may argue is a voluntary consent to the ITC's jurisdiction, including its ability to find patent claims invalid. A patent owner before the PTAB at the Patent Office, however, has not similarly requested relief. These and other distinctions may lead some to disagree about what effect Oil States has on the ITC, but it appears that if the PTAB's processes comport with Article III and the Seventh Amendment, there is an increased likelihood that the ITC's do as well.

Are there any changes you foresee based on Oil States?

We believe there will be an uptick in IPR filings in the near term. A petitioner must file its IPR petition within one year of being served with an infringement complaint, otherwise the PTAB is barred from instituting the IPR.21  After the Supreme Court granted certiorari in Oil States last June, parties continued to file IPR petitions because failing to do so would have barred them from later filing their petitions. The Oil States decision date was far enough in the future that parties could not wait to file their petitions. But over the past few months, parties have been anticipating the imminent arrival of Oil States. At least some would-be petitioners who are not up against their one-year bar may have held off on filing to avoid revealing their invalidity arguments in a proceeding that ultimately could have been held unconstitutional. We expect to see those petitions work their way into the system over the next few months.

Footnotes

1 Slip op. at 6.

2 See id. at 10-11.

3 Id. at 11.

4 Id. at 10.

5 Id. at 17.

6 Id. at 16-17.

7 Id. at 17.

8 Slip op. at 1 (Breyer, J., concurring).

9 Rules of the Supreme Court of the United States, Rule 44 ("Any petition for the rehearing of any judgment or decision of the Court on the merits shall be filed within 25 days after entry of the judgment or decision, unless the Court or a Justice shortens or extends the time.").

10 See, e.g., Apotex Inc. v. Novartis AG, IPR2017-00854, 2017 WL 3835955, at *3 (PTAB Aug. 30, 2017).

11 Oil States Energy Services, LLC v. Greene's Energy Group, LLC, No. 16-712, Oral Hearing Tr. at 29:10-18 (Nov. 27, 2017).

12 Id. at 55:5-9.

13 Slip op. at 11.

14 Oil States Energy Services, LLC v. Greene's Energy Group, LLC, No. 16-712, Oral Hearing Tr. at 32:1-16 (Nov. 27, 2017).

15 Id.

16 Id. at 41:20-42:6.

17 Id.

18 Id. at 45:15-24.

19 Id. at 65:9-11; see Yissum Research Development Co. v. Sony Corp., No. 15-1342, Oral Arg. Recording at 47:20 – 48:20 (Fed. Cir. Dec. 7, 2015), available at http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2015-1342.mp3 (USPTO asserting that reconfiguring panels was a practice to ensure that the Director's policy position is being enforced by the panels).

20 Slip op. at 8.

21 35 U.S.C. § 315(b).

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