Two weeks ago, the Supreme Court issued two important decisions involving Inter Partes Reviews (IPRs). On April 24, 2018, the Supreme Court first issued a seven to two decision in Oil State Energy Services, LLC v. Greene’s Energy Group, LLC (Oil States), where it upheld the constitutionality of the IPR practice. That same day, the Supreme Court issued a five to four decision in SAS Institute Inc. v. Iancu (SAS), holding that when the Patent Trial and Appeal Board (PTAB) institutes an IPR, it must decide the patentability of all challenged claims, not just some of them. Here we discuss some of the implications that the Supreme Court rulings may have on biosimilar manufacturers.
The Supreme Court decision in Oil States was a welcome decision for biosimilar manufacturers. At a minimum, the decision affirmed the constitutionality of IPRs and held that, for the time being, IPRs are here to stay. That is not to say that IPR procedures will not change in the future or that there will not be further constitutional challenges to them. In fact, this decision opens the door for Congress to revisit the America Invents Act and address the many unresolved issues relating to IPR proceedings. However, IPRs and the general concept of challenging patents at the U.S. Patent and Trademark Office (USPTO), will continue to be an effective means by which biosimilar manufacturers can challenge issued patents outside of the traditional district court litigation route.
In contrast to the Oil States decision, the Supreme Court’s decision in SAS may have increased some of the hurdles faced by petitioners in challenging patents at the U.S. Patent Trial and Appeal Board (PTAB). According to the Court, the PTAB was improperly issuing “partial-institution” decisions and holding trials on only a subset of challenged claims. Thus, from now on when the PTAB decides to institute an IPR, the PTAB must decide the patentability of all challenged claims as opposed to only granting institution on and/or fully considering only some of the challenged claims.
This all-or-nothing approach to the new IPR treatment by the PTAB will require petitioners to be more careful and strategic in selecting the claims to be challenged due to estoppel considerations. Previously, if the PTAB decided not to institute an IPR on an invalidity argument, the petitioner could raise those arguments again in district court because IPR estoppel did not attach to grounds that were denied at institution. However, estoppel does attach to final decision. Therefore, if the PTAB now has to fully grant a petition in an “all-or-nothing” fashion, challenges that previously would have been denied at institution will be part of the final decision and petitioners will be estopped from raising those issues again in future district court challenges. To prevent being estopped from raising arguments in future litigations, biosimilar manufactures will, as a result, have to be more strategic in deciding which arguments to raise in an IPR proceeding.
Biosimilar manufactures, and petitioners in general, will likewise need to be more selective in the claims they decide to challenge. The dissent, written by Justice Breyer, notes that the PTAB has discretion not to institute review. Previously, if the petitioner challenged 16 claims, and the PTAB decided that the challenges to 15 of those claims were frivolous, the PTAB could institute review on only one claim. Now the PTAB could chose to simply deny the petitioner entirely if it feels the overall case is not strong. To prevent a denial of all of its challenges, biosimilar manufactures will need to put forth their best arguments against a carefully selected set of claims and not just throw everything at the wall and hope something sticks.
The SAS decision may also impact whether or not patent owners submit a preliminary response, which occurs before an institution decision is made by the PTAB. As of May 2016, preliminary responses have also been permitted to include expert testimony. Historically, patent owners could submit a preliminary response to avoid institution on certain claims. Now, if the patent owner feels that institution is likely, there is little incentive to submit a preliminary response since it may be strategically advantageous to withhold the best arguments and evidence until the proceeding is further advanced. Moreover, patent owners may wish to fight the claims before the PTAB and chose to forgo submitting a preliminary response thereby increasing the chance that the PTAB institutes review of all of the challenged claims. This will create estoppel with respect to the challenged claims and preclude future district court challenges on those claims. On the other hand, with the number of preliminary responses expected to decline, biosimilar manufactures will not have the benefit of knowing which arguments and evidence they may be up against in an IPR proceeding.
While the Supreme Court decisions in Oil States and SAS will have immediate implications on biosimilar manufacturers, there remain many unanswered questions especially with regard to how institution decisions at the PTAB will play out. If the PTAB considers only 2 of 10 claims to be worth review, will the PTAB simply deny the overall petition? Will the PTAB require that all claims be ripe for review before instituting an IPR proceeding? Will the petitioner even be told how the PTAB made its decision, or based on which evidence the decision was made, if the petition is denied? Bioimilar manufacturers should continue to stay tuned to how the PTAB behaves in the coming year as more developments concerning IPR processes are expected to follow.
Last week was a busy week in American intellectual property with the Supreme Court issuing two decisions involving Inter Partes Reviews (IPRs). On April 24, 2018, the Supreme Court first issued a much-anticipated decision in Oil State Energy Services, LLC v. Greene’s Energy Group, LLC (Oil States), where it upheld the constitutionality of the IPR practice. That same day, the Supreme Court issued a five to four decision in SAS Institute Inc. v. Iancu (SAS), holding that when the Patent Trial and Appeal Board (PTAB) institutes an IPR, it must decide the patentability of all challenged claims, not just some of them. The first opinion concerning Oil State is addressed in a separate blog post. In this post, some interesting, and perhaps unaddressed, issues are discussed concerning the SAS decision.
In the SAS decision, Justice Gorsuch, writing for the Court, held that the U.S. Patent and Trademark Office (USPTO) has been improperly issuing “partial-institution” decisions and holding trials on only a subset of challenged claims. According to the Court, the plain text of 35 U.S.C. §318(a) requires that the PTAB address all challenged claims in a final written decision. As a result, when the PTAB institutes an IPR, it must decide the patentability of all challenged claims as opposed to only granting institution on and/or fully considering only some of the challenged claims.
Following the SAS decision, on Thursday, April 26, 2018, the USPTO issued a one-page guidance memorandum for moving forward after SAS. According to the guidance memo:
While the guidance appears to address some immediate concerns about how IPRs before the PTAB will proceed in light of the Supreme Court’s SAS decision, there are still some unanswered questions. Most notably, the USPTO guidance document fails to address how “partially-instituted” cases currently pending before the PTAB will continue, only saying that the “panel may issue an order” and “may take further action.” It appears, at least from the wording of the guidance, that perhaps only cases that have not yet received a decision on whether they will be instituted will be subject to the new guidance. This raises the question of how currently pending cases, such as those for which an IPR trial has been instituted, but appeals are not yet finalized, will be handled.
It is important to further note that the guidance does not appear to address what effect, if any, the SAS decision will have on previously decided cases that were the result of “partial-institution” decisions. More particularly, patent owners and patent practitioners will need to know whether the previously decided IPR decisions are subject to the new decision, or if will there be opportunities for either party to reopen to the proceeding.
While last week was definitely interesting in terms of IPR decisions, it seems to further compound uncertainties in the US patent system by raising many additional questions that the USPTO, PTAB, and the US courts will have to sort out in the near future. Stakeholders should stay tuned because more developments concerning IPR processes are sure to follow, perhaps raising even more questions and even more uncertainty. It will be interesting to see what effect, if any, these cases will have on how the USPTO and/or Congress revisit the America Invents Act and address the many issues relating to IPR proceedings.
On April 24, 2018, the U.S. Supreme Court issued a much-anticipated decision in Oil State Energy Services, LLC v. Greene’s Energy Group, LLC (Oil States), where it upheld the constitutionality of the post-grant Inter Partes Review (IPR) process. The Court held, in a 7-2 decision, that IPR proceedings do not violate Article III or the Seventh Amendment of the United States Constitution. Justice Thomas wrote for the majority while Justice Gorsuch dissented, and was joined by Chief Justice Roberts.
In reviewing the Supreme Court’s decision, below are five key take-ways from the decision:
1. Patents are public rights – As previously discussed, the main focus in this case is how the Court views the nature of the rights granted by a patent. Are the rights conferred by granting of a patent purely private property rights, in which case their taking must be adjudicated by a jury, or are they public rights that may be altered or extinguished by an administrative agency such as the U.S. Patent Trial and Appeal Board (PTAB)? According to the Court, the rights granted by a patent fall within the public-rights doctrine, and since IPRs involve the same interests, they also fall within the public-rights doctrine. In supporting its decision, the Court goes as far as to equate patents with “public franchises” such as when Congress grants a franchise that permits a company to erect a toll bridge but qualifies that grant of rights by reserving its authority to revoke or amend the franchise.
2. Previous cases are bound to the patent laws in place during that time – One of the more interesting aspects of the case was to see how the Court reconciliated its decision with previous opinions that explicitly held that patents are private rights. In particular, in its 1898 decision in McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898), the Supreme Court held 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 “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” To differentiate itself from the prior decisions, the Court in Oil States held that those cases, including McCormick, are not in conflict with its current holding because those cases were decided under the Patent Act of 1870 that did not include any provision for post-issuance administrative review. Specifically, under the Patent Act of 1890, the Patent Office Commissioner “had no power to revoke, cancel, or annul” the patent at issue. In contrast, the current patent laws allow for the U.S. Patent and Trademark Office (USPTO) to review and revoke issued patents under certain circumstances.
3. Historical use of courts does not preclude today’s use of the PTAB to adjudicate patents – The Court further dismissed the relevance of traditionally using American Article III courts to adjudicate patent validity, saying that even though these American courts were historically used to do so, this past use of such courts did not preclude use of other forums today. In particular, the Court held that since patents are governed by the public-rights doctrine (see 1 above), their oversight can be assigned to the Legislature, the Executive, or the Judiciary branch for adjudication. While Congress chose the courts to adjudicate patent matters in the past, it is free to choose the USPTO to do so now. The Court further went on to support this practice by analyzing the treatment of patents in England in the 18th century, noting that patents could be vacated on a petition to the Privy Council, which was composed of the Crown’s advisors, a Council that closely resembled IPR procedures handled by the PTAB today. For similar reasons, the Court further held that even though the IPR procedure may look like a trial in that it has “motion practice before the PTAB; discovery, depositions, and cross-examination of witnesses; introduction of evidence and objections based on the Federal Rules of Evidence; and an adversarial hearing before the [PTAB],” this does not mean that the PTAB is improperly exercising its power. In other words, even though there are similarities between IPRs and district court proceedings, it does not necessarily lead to the conclusions that IPRs adjudicated by an administrative governing body (i.e., the PTAB) violate Article III of the US Constitution.
4. Congress can change it – One of the most important holdings, I believe, from the Oil States decision is that Congress can control which branch of government adjudicates patents. In its decision, the Court held while “Congress chose the courts in the past does not foreclose its choice of the PTO today.” According to the Court, matters governed by the public-rights doctrine (i.e., patents) can be resolved in three ways: first, Congress can “reserve to itself the power to decide,” second, Congress can “delegate that power to executive officers,” and third, Congress can “commit it to judicial tribunals.” Thus, the power rests within Congress to determine the manner in which government adjudicates patents. If Congress wants patents to only be decided by the courts, then Congress can change the patent laws to achieve that rule. For those unhappy with the Supreme Court’s decision in Oil States, this gives a glimmer of hope that IPR proceedings may yet change in the future.
5. Very limited holding – Finally, the Court cautioned that its decision is a narrow holding that was limited to the precise issues before it and should not be construed to suggest that patents are not property under either the Due Process Clause or the Takings Clause of the U.S. Constitution. Thus, the Court’s holding in Oil States did not foreclose the possibility of future Constitutional challenges to the IPR process.
While the Oil States decision suggests that IPRs are here to stay, it also raises additional questions that will have to be resolved in the near future, particularly with regards to further constitutional challenges to IPR proceedings. It will also be interesting to see whether this decision sparks an interest in Congress revisiting the America Invents Act and addressing the many issues related to IPR proceedings.
BioPharma Law Blog posts updates and analyses on IP topics, FDA regulatory issues, emerging legal developments, and other news in the constantly evolving world of biotech, pharma, and medical devices.