SCOTUS Upholds IPRs as Constitutional, May Leave Opening for Challenges to Certain IPRs

Is inter partes review of a patent grant compatible with Article III and the Seventh Amendment? That was the question presented in Oil States Energy Services v. Greene’s Energy Group, and the U.S. Supreme Court this week answered in the affirmative. In a 7–2 decision authored by Justice Clarence Thomas, the Court held a patent grant is a “public right” and therefore may be modified or revoked by the executive branch without going through full-dress judicial proceedings in the federal courts. As a result, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board can continue to reassess and nix mistakenly granted patents at relatively low cost to challengers.

IPRs as Key Tool for Weeding Out Bad Patents

In response to a perceived proliferation of low-quality patents wielded primarily by non-practicing entities or “patent trolls,” Congress introduced IPRs in the 2011 America Invents Act as a way to improve patent quality by permitting the USPTO to correct its own errors. An IPR begins when a challenger files a petition for review with the PTAB. If the petitioner shows a “reasonable likelihood ” that at least one challenged claim is anticipated or obvious, the PTAB may institute review to determine whether the challenged claims are invalid. The IPR process offers challengers a number of advantages over litigating in district court:

• It is faster, with an average time of 18 months from filing a petition with the PTAB to a final written decision;
• It is significantly cheaper — the median cost of an IPR is only $350,000, compared to $5 million in district court;
• It requires a lower standard of proof — a preponderance standard rather than the “clear and convincing evidence” required in district court;
• And a challenger need not have Article III standing: any interested party, whether accused of infringement or not, can file a petition for IPR.

The Patent Office had tools like IPR at its disposal before the AIA, but IPR is the strongest iteration yet, in part because it is an adversarial proceeding: If the Patent Office decides to review the challenged patent, the challenger may take discovery, file papers and memoranda and request an oral hearing in which they may participate. The Patent Office even calls these hearings “trials, ” and their administrators “judges.” Perhaps predictably, then, all this led patent owners to ask whether they were entitled to an Article III judge and a Seventh Amendment jury.

Patents Are a “Public Franchise”

In his opinion for the Court, Justice Thomas explained that regardless what an IPR might superficially resemble, the Court “has never adopted a ‘looks like’ test to determine if an adjudication has improperly occurred outside of an Article III court.” Instead, the relevant question is whether the grant of a patent is a “private right or a “public right.” This is a doctrinal thicket, and Justice Thomas candidly admitted that the Court’s precedents in the area “have not been entirely consistent.” But in effect, the question is whether the right is a purely private one, like owning land, or a right created by and subject to the government’s constitutional powers.

In this respect, Justice Thomas wrote, “the grant of a patent is a matter between the public, who are the grantors, and the patentee” — and IPR protects “the public’s paramount interest in seeing that patent monopolies are kept within their legitimate scope.” Thus, “patents convey only a specific form of property right — a public franchise.” In other words, granting a patent is less like conveying land than it is like granting a right to erect a toll bridge or to build a railroad. The Court has long held that such grants may be subject to qualifications and reservations by Congress of the power to modify or revoke them. So too with patents. Because a patentee takes a patent only “subject to the provisions of ” the Patent Act, the patent right is a public right, and its revocation need not be adjudicated under the provisions of Article III.

Uncertainty for Older Patents

Justice Thomas emphasized that the holding of Oil States is narrowly drawn. In particular, he noted, the Court did not pass on “the retroactive application of inter partes review,” because Oil States failed to raise that issue. That may be important because on one reading, the Court reasoned that a patent is a public right because patentees know when they receive a patent that it may later be subjected to IPR. If that reading is correct, the decision in Oil States may leave open the door for a challenge to IPR as applied to a patent issued before the AIA was enacted. But the better reading of the decision — and the one that will almost certainly be adopted by the Federal Circuit, whose decision the Court affirmed — is that within the bounds of due process, the government may adopt what procedures it likes to ensure the healthy administration of the patent system.

Takeaway: IPRs Are Safe for Now — From Courts, At Least

Justice Thomas’s opinion for the Court got seven votes. Justice Neil Gorsuch dissented, joined by Justice John Roberts, but his views may more reflect his skepticism of the administrative state than any special affinity for patent owners. Meanwhile, Justice Stephen Breyer, joined by Justices Ruth Bader Ginsburg and Sonia Sotomayor, authored a short concurring opinion that endorsed an even broader view of administrative agencies’ adjudicatory powers. With seven-member majority that crosses ideological lines, the Court is unlikely to change course on IPRs anytime soon.

But the tech sector, which generally supported the IPR process,¹might not want to rest on its laurels just yet. The new director of the USPTO, Andrei Iancu, has announced that he will propose sweeping changes to IPR proceedings this year. And in other areas, he has already made it more difficult to cull weak patents. The Supreme Court’s decision in Oil States may simply herald a change in where the battle over the shape of the patent system takes place, from the courts back to Congress and the USPTO. But for now, IPRs remain a valuable weapon in the fight against weak patents and patent trolls.