United States: Oil States Moves Toward Resolution

In November the U.S. Supreme Court heard oral argument in Oil States Energy Services LLC v. Greene's Energy Group LLC, No. 16-712, oral argument held, 2017 WL 5680363 (U.S. Nov. 27, 2017). The patent community now awaits the high court's ruling on the constitutional fate of inter partes review proceedings. The Supreme Court is likely to release its opinion in the case soon.

Just so we're all on the same page: IPRs provide an administrative forum within the U.S. Patent and Trademark Office where third parties can square off with patent owners over the validity of an issued patent. The administrative tribunal, established in 2012, bears the moniker Patent Trial and Appeal Board. Because these USPTO patent trials, by definition, do not take place in Article III courts, Oil States has attacked IPRs as fundamentally unconstitutional.

Latest Developments

The oral argument took many turns, as the justices peppered party representatives with questions. For example, Justices Sonia Sotomayor and Elena Kagan pressed Oil States to distinguish IPRs from ex parte re-examinations, given that Oil States recognized the latter's constitutionality. Oil States argued that IPRs are adjudicatory, unlike ex parte re-examinations—prompting Justice Kagan to question where to draw the line.

In ex parte re-examinations, third parties ask the USPTO to consider patent claim validity, but bow out of the proceedings after filing the initial challenge. Justice Stephen Breyer's comments emphasized the limited expectation that patent owners have with respect to patent validity, and he questioned why IPRs should be held invalid, especially considering that they are subject to judicial review. Justice Neil Gorsuch's questions to Oil States cited cases finding patent rights to be private rights that would require an Article III adjudication.

Counsel for Greene's Energy stepped up next, advocating for the constitutionality of IPRs. Justice Breyer jumped in to focus the conversation on the reliance interests of patent owners who find themselves before the PTAB after large investments of money and time. Greene's Energy argued, as Chief Justice John Roberts later intimated, that patent owners must "take the bitter with the sweet" and develop realistic expectations of their patent rights.

Chief Justice Roberts and Justice Sotomayor joined Justice Anthony Kennedy in focusing on due process protections and expressed concern over the potential for executive branch abuses like "panel stacking." Greene's Energy responded that IPRs are subject to judicial review, providing a check on agency action, but Justice Gorsuch expressed concerns that judicial review arises only if a party appeals. Then, questions turned to the statutory versus common law sources of patent rights. Greene's Energy finished by arguing that IPRs are executive branch actions to re-examine patents, not adjudications.

The USPTO followed. Justice Gorsuch alluded to the issue of "taking the bitter with the sweet," and the USPTO affirmed its view that a patent stands as a qualified right, subject to re-examination by the agency in various forms, including IPRs. On the issue of "panel stacking," the USPTO characterized this as a rare beast that can be effectively managed on a case-by-case basis. Justice Breyer and the USPTO engaged in a back-and-forth on the distinction between invalidating a patent as a form of re-examination, and assigning damages as a form of dispute resolution—noting that IPRs do not involve damages. The USPTO framed Oil State's theory as a mere assertion that IPRs deserve an Article III court because they "look like a trial." Quite the contrary, argued the USPTO, which sees IPRs as simply a form of agency decision-making with input from private parties.

The Practical Guide

Arguments having been made, what would be the practical effect of a Supreme Court decision to cut IPRs? For much of the patent community, the answer to this question holds more bread-and-butter import than most cases dealing with questions of constitutional doctrine.

The reason for this is clear: IPRs have grown in popularity since their 2012 launch. New IPRs filed at the PTAB jumped from 702 in 2013 to an average around 1,600 per year between 2014 and 2017.

But this is not unique to IPRs. Overall, patent litigation in district courts has also risen recently. Congress enacted the America Invents Act, which instituted the IPRs, in 2011. From 2007 to 2010, between 2,500 and 2,800 new patent cases were filed in federal district courts, averaging 2,685 per year. By comparison, after the AIA and from 2013 through 2017, between 4,000 and 6,100 new patent cases were filed in district courts, averaging 5,127 per year—a 190 percent increase.

Consistently, around 90 percent of all PTAB cases have a federal court counterpart. That is, accused infringers raising a defense of patent invalidity in district court often file a motion to stay federal proceedings while pursuing a finding of claim invalidity at the PTAB.

It is quite likely that parties choose IPRs because PTAB proceedings move relatively swiftly and usually create correspondingly lower costs. Also, many PTAB judges prosecuted or examined patents before becoming administrative judges and possess far more technical expertise than juries—a fact many parties appreciate.

The median time from when a petition is submitted to when the PTAB decides to institute a proceeding is 185 days. The median time from petition to final decision is 585 days. In comparison, since 2009, median time to summary judgment under the federal judges with the busiest patent dockets ranges from 620 to 1,086 days. In a sample of all federal dockets from September 2015 through December 2017, trials that reached a jury verdict averaged 38.8 months, or roughly 1,180 days.

Another difference between IPRs and district court proceedings is that far fewer IPRs settle. While 71 percent of district court proceedings end with voluntarily dismissal, just 15.6 percent of IPRs filed between September 2015 and December 2017 settled pre-institution, and just 11.9 percent settled post-institution. This suggests that some accused infringers—unwilling or unable to settle or pay hefty trial fees—seek a less expensive alternative by filing an IPR.

Have filings already been affected?

It is possible that Oil States has already affected filing patterns across the nation. In particular, PTAB filings have dropped each quarter since the first quarter of 2017, when the Supreme Court added the Oil States case to its docket. This suggests fewer parties have wanted to risk footing the bill for PTAB proceedings while Oil States remains undecided.

Meanwhile, the number of new district court patent suits has continued a steady march upward; hence, patent invalidity disputes continue to accumulate before district judges nationwide. This may be a portent of things to come, should IPRs be found unconstitutional. On the other hand, should the Supreme Court cement the constitutionality of IPRs, we can expect an uptick in PTAB filings soon thereafter—and a very likely cheer from the many patent defendants who built PTAB challenges into their defensive strategies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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