Supreme Court Upholds Constitutionality of IPRs and Ends PTAB Practice of Instituting IPR Decisions on Fewer than All Challenged Claims

25
Apr

Supreme Court Upholds Constitutionality of IPRs and Ends PTAB Practice of Instituting IPR Decisions on Fewer than All Challenged Claims

On April 24, 2018, the Supreme Court issued two landmark decisions significantly impacting Inter Partes Review (IPR) proceedings before the U.S. Patent and Trademark Office’s (USPTO’s) Patent Trial and Appeal Board (PTAB). IPR proceedings are instituted to reconsider the patentability of claims issued by the USPTO. The highly anticipated decisions, Oil States Energy Group, LLC v. Greene’s Energy Group LLC 1 and SAS Institute Inc. v. Iancu, Director, United States Patent and Trademark Office 2 , are directed to the constitutionality of and institution requirements of IPR proceedings, respectively. In Oil States, the Court applied the public-rights doctrine to the USPTO’s granting of patents and held IPR proceedings are constitutional withstanding Article III and the Seventh Amendment. In SAS, the Court held that partial institution of IPR proceedings on fewer than all challenged claims by the PTAB is impermissible in view of the plain text of 35 U.S.C. § 318(a).

Oil States: IPRs Are Constitutional In View Of Article III and the 7th Amendment
Oil States initiated a patent infringement suit against Greene’s Energy in Federal District Court asserting its patent related to equipment for servicing oil and gas wells (U.S. Patent No. 6,179,053). Greene’s Energy challenged the patent’s validity in District Court and petitioned the USPTO for IPR of the patent. The District Court issued a claim-construction order favoring Oil States, whereas the PTAB issued a decision that the patent claims were invalid. Oil States appealed to the Federal Circuit arguing in part that IPR proceedings violate the Constitution both under Article III and the Seventh Amendment. The Federal Circuit summarily affirmed the PTAB’s decision and issued a decision in a separate case, MCM Portfolio LLC v. Hewlett-Packard Company 3 , rejecting the same constitutional arguments raised by Oil States. Oil States’ petition for certiorari was granted on June 12, 2017, with respect to the constitutional question and the oral arguments were held on November 27, 2017.

Justice Thomas in delivering the majority opinion initially provided Congress has created several administrative processes authorizing the USPTO to reconsider and cancel wrongly-issued patent claims, including IPRs.4  Article III vests judicial power of the United States in the Supreme Court and inferior courts as established by Congress. The Court asserted that the classification of “public rights” and “private rights” has been used in its precedents to determine whether a proceeding involves an exercise of Article III judicial power.5 The Court determined that IPRs involve a matter under the public-rights doctrine, namely, “the Government’s decision to grant a public franchise.” 6 The Court asserted that IPRs are “simply a reconsideration of that grant and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.”7 The Court compared IPRs and the granting of patents in that they involve the same basic matter with the only primary and irrelevant distinction being that IPRs occur after the patent has issued.8 Regarding the Seventh Amendment right to a jury trial, the Court noted when Congress properly assigns a matter to adjudication in a non-Article III tribunal such as IPR proceedings to the PTAB, “the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.”9 The Court cautioned that its holding is narrow and solely applicable to the precise questions of constitutionality raised by Oil States, noting that it did not consider questions relating to the Due Process or Takings Clauses.10

In response to Oil States’ arguments, the Court rejected three decisions11 which recognized patent rights as private property of the patentee as contradicting its holding.12 The Court also noted the history of deciding patent validity in 18th-Century English courts of law does not result in IPRs violating the general principle that “Congress may not withdraw from judicial cognizance any mater which, from its nature, is a subject of a suit at the common law.”13 Finally, the Court noted the similarities between various procedures used in IPRs and the courts does not lead to a conclusion that IPRs violate Article III as argued by Oil States.

Justice Breyer, joined by Justice Ginsburg, and Justice Sotomayor, concurring and agreeing in the judgment in full, advised that the Court’s opinion should not be read to provide that matters involving private rights may never be adjudicated other than by Article III courts.14 Justice Gorsuch filed a dissenting opinion, in which Chief Justice Roberts joined, arguing that patent rights should be adjudicated by Article III courts.15

SAS: Partial Institution of IPR Petitions Is Not Permitted
SAS Institute petitioned for IPR of all claims of ComplementSoft’s software patent (U.S. Patent No. 7,110,936). The Director concluded SAS was likely to succeed with respect to at least one claim, however, the Director instituted IPR on only a subset of the claims and denied review of others. The PTAB issued a final written decision on the claims selected by the Director for the IPR and did not address the remaining claims. SAS appealed to the Federal Circuit arguing that 35 U.S.C. § 318(a) required the PTAB to decide patentability of every challenged claim. The Federal Circuit rejected SAS’s argument. SAS’ petition for certiorari posing the same issue to the Supreme Court was granted on May 22, 2017, and oral arguments were heard on November 27, 2017.

Justice Gorsuch, in delivering the majority opinion, found that the plain text of 35 U.S.C. § 318(a) clearly provided the answer to question posed in SAS’ petition, as it states that the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner….”.16 The Court held that “shall” imposes a nondiscretionary duty17 and that “any” in this context means “every”.18 Thus, according to the Court, “the Board must address every claim the petitioner has challenged.” Further, the Court noted that when the statute’s language has a plain meaning, such as in the case of 35 U.S.C. § 318(a), an administrative agency must follow accordingly.20

The Court did not find the Director’s arguments regarding “partial discretion” under interpretations of 35 U.S.C. § 314(a) and (b) to be persuasive.21 The Court noted “the petitioner’s petition, not the Director’s discretion, is supposed to guide the life of the litigation.”22 The Court also rejected the Director’s policy argument that partial institution is efficient because it permits the PTAB to focus on the most promising challenges in again referring to the plain text of the statue.23

Justice Ginsburg filed a dissenting opinion, in which Justice Breyer, Justice Sotomayor, and Justice Kagan joined. Justice Ginsburg argues that under the majority’s holding, the Director could exercise his right, outlined in Cuozzo Speed Technologies, LLC v Lee,24  to deny institution of IPR petitions that are considered overly broad.25 At that point, petitioners could file new or amended petitions.26 Thus, Justice Ginsburg argues that the existing strategy of partial institutions is a more efficient solution.27 Justice Breyer also filed a dissenting opinion, in which Justice Ginsburg, Justice Sotomayor, and Justice Kagan (in part) joined. Justice Breyer argues that, contrary to the majority’s opinion, the statute is ambiguous and that the Patent Office appropriately filled the gap created by that ambiguity “through the exercise of rulemaking authority explicitly given to it by Congress…”28

1 No. 16-712, 584 U.S. ___ (2018).
2 No. 16-969, 584 U.S.___ (2018).
3 812 F. 3d 1284, 1288-1293 (2015).
4 Slip. op. at 2.
5 Slip. op. at 6.
6 Id.
7 Slip. op. at 7.
8 Slip. op. at 8-9.
9 Slip. op. at 17 (citing Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53-54 (1989)).
10 Slip. op. at 16-17.
11 United States v. American Bell Telephone Co., 128 U.S. 315 (1888); McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606 (1898); and Brown v. Duchesne, 19 How. 183 (1857).
12 Slip. op. at 10-11.
13 Slip. op. at 12-15 (citing Stern v. Marshall, 564 U.S. 462 (2011)).
14 Id. at 1 (Breyer, J., concurring)
15 Id. at 12 (Gorsuch, J., dissenting).
16 Slip. op. at 4 (citing 35 U.S.C. § 318(a)).
17 Id. (citing Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26, 35 (1998)).
18 Slip. op. at 5.
19 Id.
20 Id.
21 Slip. op. at 5-10.
22 Slip. op. at 8.
23 Slip. op. at 10-12.
24 579 U.S. __, (2016) (slip op. at 9)
25 Slip. op. at 1 (Ginsburg, J., dissenting).
26 Id.
27 Id.
28 Id. at 10 (Breyer, J., dissenting).

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