Supreme Court Hears Oral Arguments in Case Challenging Constitutionality of IPRs

On Monday, November 27, 2017, the Supreme Court heard arguments in Oil States vs. Greene’s Energy Group, et al. (No. 16-172 S.Ct., Supreme Court 2017), a case challenging the constitutionality of the U.S. Patent and Trademark Office’s (USPTO) post-grant patent review proceeding, known as inter partes review (IPR). A decision in this case by the Supreme Court will have important ramifications for both patent holders and third-party petitioners alike and could change how patent disputes are litigated in the United States.

IPR challenges have become a popular and effective way by which third parties can challenge issued patents. The IPR proceeding was enacted on September 16, 2012 as part of the America Invents Act (AIA) and allows a third party to challenge the patentability of an issued patent based on prior art under 35 U.S.C. §§ 102 and 103. The proceeding takes place in front of the USPTO Patent Trial and Appeals Board (PTAB) and a final decision can generally be obtained within eighteen months. The popularity of IPR challenges stems from the PTAB’s record of invalidating numerous patent claims. In about 1,733 final decisions from January 2017 through August 2017, the PTAB cancelled all or part of a patent around 80 percent of the time, earning the PTAB the moniker patent “death squad”, a term first coined by Randall Rader, the former chief judge of the U.S. Court of Appeals for the Federal Circuit. Further enhancing their popularity, third party petitioners have quickly realized the various benefits to IPR challenges over protracted litigation in District Court, namely that IPRs are cheaper, quicker, and more effective at invalidating patents than challenging the patents of competitors in district court.
 
Despite their popularity, IPRs are not without controversy. Not surprisingly, some patent holders call the IPR proceedings a threat to innovation.  Larger patent stakeholders, such as Allergan PLC, have even resorted to creative and unusual lengths to avoid having their patents subject to an IPR. Thus, the desire to find constitutional fault within the IPR framework is just as high as the popularity of IPR proceedings with third party petitioners.
 
At the center of this dichotomy of opposing interests is the Oil States dispute, where the question of the constitutionality of IPR proceedings takes center stage. Specifically, Oil States asks whether IPRs violate the U.S. Constitution by extinguishing private property rights through a non-Article III forum without a jury. In challenging the constitutionality of IPRs, Oil States argued that patents are private property and therefore can be revoked only by a federal court, where the standard for overturning a patent is higher than in the IPR proceeding. From this viewpoint, Oil States contends that the administrative procedures controlling IPR proceedings violate the U.S. Constitution’s right to be heard by a federal court and jury. This argument finds basis in the 1898 Supreme Court decision in McCormick Harvesting Mach. Co. V. Aultman & Co., 169 U.S. 606 (1898), wherein 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.”
 
During oral arguments held on November 27, 2017, three of the court’s liberal justices including Ruth Bader Ginsburg, Elena Kagan, and Sonia Sotomayor appeared sympathetic toward the review process, noting that the USPTO must have the power to invalidate wrongly issued patents after they have granted.
 
Conservative justices including John Roberts and Neil Gorsuch raised concerns that the government might be able to revoke patents too easily. Justice Gorsuch, in particular, noted that judicial review is available only if someone appeals the PTAB’s decision, which does not always happen.

The ultimate decision in the case will have important ramifications for both patent holders and third-party petitioners alike and could also change how patent disputes are litigated in the U.S. If the Court rules that IPRs are unconstitutional, striking down laws and regulations implementing the IPR practice, then there will be many questions about the status of the patent claims that have already been challenged, whether they were cancelled or amended, through an IPR. If the Court upholds IPRs as being constitutional, on the other hand, patent holders may face even more challenges to their patents as third parties will continue to view the IPR process as an effective and efficient means of challenging patents without going down the more time and cost consuming litigation route. Moreover, upholding the constitutionality of IPRs will undoubtedly bring into question the overall value of US patents with respect to the patent rights issued by other countries since there exists no other similarly robust and effective means of invalidating issued patents abroad. Ultimately the constitutionality of IPR proceedings could have important ramifications to the US economy in general, which has become heavily dependent on innovation and protection of innovation rights.

We will continue to monitor this lawsuit. A decision will likely be issued in June 2018.