Supreme Court: Inter Partes Reviews Do Not Violate Article III or the Seventh Amendment

Practical Law Legal Update w-014-4153 (Approx. 5 pages)

Supreme Court: Inter Partes Reviews Do Not Violate Article III or the Seventh Amendment

by Practical Law Intellectual Property & Technology

Background

Oil States owns US Patent No. 6,179,053 (the '053 patent), which covers methods and devices for protecting wellhead equipment during the hydraulic fracturing of oil wells. In 2012, Oil States brought a patent infringement lawsuit against Greene's Energy Group, LLC in federal district court. About a year into the litigation, Greene's filed an IPR petition with the USPTO's Patent Trial and Appeal Board (PTAB) seeking to invalidate the '053 patent because it was allegedly anticipated by a prior patent application of the named inventor. For more information on IPRs, see PTAB Proceedings Toolkit.

Although the district court found that the '053 patent was distinct from the prior patent application, the PTAB found that the challenged claims of the '053 patent were invalid as anticipated by the prior art.

Oil States appealed the PTAB's decision to the US Court of Appeals for the Federal Circuit, arguing that IPR proceedings violate Article III of the Constitution because they extinguish private property rights in an administrative adjudication without a jury. While the appeal was pending, the Federal Circuit issued a decision in MCM Portfolio LLC v. Hewlett-Packard Co., where it rejected similar challenges to the constitutionality of IPR proceedings (812 F.3d 1284, 1290-92 (Fed. Cir. 2015)). Accordingly, the Federal Circuit summarily affirmed the PTAB's decision, ruling against Oil States without issuing an opinion.

Oil States filed a petition for certiorari with the Supreme Court in which it again challenged the constitutionality of IPR proceedings. The Supreme Court granted certiorari and held oral arguments on November 27, 2017.

For more information on the case's background and Supreme Court oral arguments, see Expert Q&A on the Oil States Oral Arguments Before the US Supreme Court.

Article III Judicial Power

Writing for a 7-2 majority, Justice Thomas summarized Article III and the judicial power of Article III courts, explaining that:

Article III vests the judicial power of the US in:
- one Supreme Court; and
- such inferior courts that Congress may establish, such as federal appeals and district courts.
Article III precludes Congress from delegating the judicial power to non-Article III entities, such as administrative tribunals.
The Court distinguishes between public and private rights when evaluating whether a violation of Article III exists. Congress has significant discretion to permit non-Article III tribunals to adjudicate cases involving public rights. Private rights, by contrast, are more likely to require adjudication by an Article III court.

The Court found that IPRs involve a public right, and therefore Congress may delegate the adjudication of IPRs to the PTAB, a non-Article III tribunal. The Court reasoned that:

The public rights doctrine covers matters that arise between the US government and persons subject to its authority under the government's performance of its executive and legislative functions.
The decision to grant a patent is a legislative and executive function that involves a public right—specifically, the grant of a public franchise to the inventor in exchange for disclosing the invention for eventual public use after the patent's term expires.
The reconsideration of a patent grant in IPR proceedings similarly involves a public right because the PTAB reevaluates the grant of the public franchise to the inventor.
Similar statutory requirements govern the initial prosecution of a patent and IPRs, such as that the claimed invention must be new (novel) and not obvious. For more information on these requirements, see Practice Notes, Patent Litigation: Anticipation Defense and Patent Litigation: Obviousness Defense.
The fact that IPRs occur after a patent's issuance is not determinative because patents are granted subject to the Patent Act's requirements (35 U.S.C. § 261), and the Court has approved the grant of qualified public franchises.

The Court also distinguished the points raised by the petitioner and dissenting opinion concerning patents and public rights, noting that:

Older Supreme Court precedents that broadly describe patents as private rights were made at a time when the Patent Act did not include any provisions for post-issuance administrative reviews, as it does now.
Although patent validity was decided by English law courts in the 18th century, an executive body (the English Privy Council) could also revoke issued patents during this time.
The fact that an administrative proceeding uses court-like procedures and calls itself a court is not determinative because the dispute in IPR proceedings is between the government and patent owner.

The Court then:

Emphasized the narrowness of its holding, explaining that the Court was not deciding if:
- it is proper to retroactively apply the Leahy-Smith America Invents Act (AIA) and subject older patents to IPRs;
- infringement and other patent matters can be decided by non-Article III bodies;
- IPRs satisfy the due process clause; and
- patents are not property for purposes of a takings clause or due process challenge.
Held that the Seventh Amendment right to a jury trial is not violated because Congress properly assigned the adjudication of IPRs to a non-Article III tribunal (the PTAB).

Justice Gorsuch authored a dissent joined by the Chief Justice, which emphasized:

The potential risks of allowing political appointees at the USPTO to resolve IPRs instead of an independent judiciary.
In the 18th century, only English courts could resolve patent validity challenges if the facts were disputed.

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