Locke Lord QuickStudy: The Supreme Court Affirms the Constitutionality of IPR and Clarifies Its Scope

By way of brief background, the America Invents Act (“AIA”) provides that “a person who is not the owner of a patent may file with the [PTO] a petition to institute an inter partes review of the patent.” 35 U.S.C. § 311(a). If “the Director [of the PTO] determines that the information presented . . . shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition,” 35 U.S.C. § 314(a), the Director may institute the IPR, 35 U.S.C. § 314(b). If the PTAB institutes the IPR and it is not dismissed, the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” 35 U.S.C. § 318(a). Either party can appeal the PTAB’s final written decision to the Federal Circuit, which then reviews the PTAB’s “compliance with governing legal standards de novo and its underlying factual determinations for substantial evidence.” Oil States, slip op. at 4 (citation omitted).

A few months after the district court issued a claim construction order unfavorable to Greene’s Energy, “the [PTAB] issued a final written decision concluding that the claims were unpatentable.” Id. Oil States appealed that decision to the Federal Circuit. “In addition to its arguments about patentability, Oil States challenged the constitutionality of [IPRs]. Specifically, it argued that actions to revoke a patent must be tried in an Article III court before a jury.” Id. 

The Federal Circuit affirmed the PTAB’s decision, without opinion, under Federal Circuit Rule 36 and subsequently denied Oil States’s petition for rehearing en banc. Order on Petition for Panel Rehearing and Rehearing En Banc, Oil States Energy Servs., LLC, v. Greene’s Energy Grp., LLC, No. 15-1855 (July 26, 2016).

Oil States filed a petition for a writ of certiorari in which it asked the Supreme Court to decide “[w]hether inter partes review—an adversarial process used by the [PTO] to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.” Petition for Writ of Certiorari at i, Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, No. 16-712 (Nov. 23, 2016), 2016 WL 6995217, at *i.

The Court begins its analysis by noting that Congress is prohibited from “confer[ring] the Government’s ‘judicial Power’ on entities outside Article III.” Oil States, slip op. at 6 (citation omitted). “[W]hether a proceeding involves an exercise of Article III judicial power,” the Court went on, hinges on the distinction between “public rights” and “private rights.” Id. (citation omitted). This distinction is important because Supreme Court precedent has afforded “Congress significant latitude to assign adjudication of public rights to entities other than Article III courts.” Id.

With that distinction in mind, the Court concluded that  that “the decision to grant a patent is a matter involving public rights—specifically, the grant of a public franchise,” id. at 7 (emphasis in original), and that IPR “is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.” Id. “Congress has authorized the Executive Branch to grant patents that meet the statutory requirements for patentability” via the PTO. Id. at 8. Thus, “the determination to grant a patent is a ‘matte[r] involving public rights’” and “need not be adjudicated in Article III court[s].” Id.

Like the initial grant of a patent, “[IPR] involves the same basic matter as the grant of a patent. So, it too falls on the public-rights side of the line.” Id. Because the PTAB “considers the same statutory requirements that the PTO considered when granting the patent,” an IPR merely “protects ‘the public’s paramount interest in seeing that patent monopolies are kept within their legitimate scope.’” Id. at 8-9 (citations omitted). The fact that IPR proceedings occur subsequent to the initial grant of the patent makes no difference. Id. at 9. Public franchises, such as patents, can be granted with the caveat that the government “reserve[es] its authority to revoke or amend the franchise.” Id.  “Thus, the public-rights doctrine covers the matter resolved in [IPRs]” and “[t]he Constitution does not prohibit the [PTAB] from resolving it outside of an Article III court.” Id. at 9-10.

35 U.S.C. § 261 provides that “[s]ubject to the provisions of this title, patents shall have the attributes of personal property.” Any property rights conferred by a patent are subject to “the express provisions of the Patent Act.” Id. at 11. The Court concluded that IPRs are clearly included in the provisions of the Patent Act.

Importantly, the Court “emphasize[d] the narrowness of [its Oil States] holding.” As the Court noted, it was addressing only IPRs: it did not “address whether other patent matters, such as infringement actions, can be heard in a non-Article III forum.” Id. at 16. That is, the Court “address[ed] only the precise constitutional challenges that Oil States raised here,” id. at 16-17, which did not include the “retroactive application of [IPRs], even though that procedure was not in place when its patent issued,” id. at 17, or violations of due process, id. To that end, the Court emphasized that patents shall remain “property for purposes of the Due Process Clause [and] the Takings Clause.” Id.

In SAS, which served effectively as a coda to Oil States, the Court cited its Oil States decision and went on to hold that, based on the plain text of § 318(a), after initiating an IPR, the Board must “decide the patentability of every claim” challenged in a petition because when the statute uses the word any, it must be read to mean every. SAS Institute, slip op. at 4-5 (emphasis in original). The Court held that if Congress had intended another meaning, it has demonstrated its ability to do so, and the Court rejected the Director’s arguments, including that he retains discretion to decide which claims are included in an IPR. Id. at 5-7. Instead, the Court held that the Director’s discretion was limited to the binary decision of whether to institute an IPR, but that the claims to be reviewed were clearly not left to discretion. Id. at 7-8. Further, the Court held that the Director’s policy arguments were best directed to Congress, id. at 10-11, and that they were not unable to discern Congress’s meaning, and so the Chevron doctrine was inapplicable, id. at 11-12. On these bases, the Court remanded the case for further proceedings. Id. at 14.

These cases presented the Supreme Court with the potential to bring about the biggest change to the United States patent system since the passage and implementation of the AIA.  For the foregoing reasons, however, the Supreme Court ruled that IPR is constitutional, but rejected the PTO’s practice of permitting review of some but not all challenged claims.