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Supreme Court Holds IPRs Are Constitutional

In a highly anticipated ruling, the Supreme Court upheld the constitutionality of inter partes review proceedings.  Justice Thomas, writing for the seven-member majority in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, held that the Patent Trial and Appeal Board could reconsider and cancel patent claims through inter partes review without violating Article III or the Seventh Amendment of the Constitution.

The America Invents Act established inter partes reviews (IPRs) to allow any person to challenge one or more claims of a patent on the grounds that the claim is not novel or nonobvious on the basis of prior art patents or printed publications. The PTAB then has the authority to cancel claims found to be unpatentable.

The petitioner, Oil States Energy Services, LLC, had sued Greene’s Energy Group, LLC in federal district court for infringement of Oil States’ patent relating to hydraulic fracturing equipment.  Greene’s asserted the affirmative defense of invalidity.  In parallel to the district court’s proceeding, Greene’s petitioned PTAB for an IPR, arguing that two claims were unpatentable based on prior art.  After the District Court construed the two claims in a way that foreclosed Greene’s argument regarding invalidity, the PTAB concluded, in contradiction to the District Court’s ruling, that the two claims were unpatentable.  Oil States appealed, arguing that claims to revoke patents must be tried in an Article III court before a jury.  The Federal Circuit rejected that argument and affirmed.

Justice Thomas, writing for the majority, affirmed, holding that IPRs are constitutional.  The majority discussed the distinction between “public rights,” which may be adjudicated by entities other than Article III courts, and “private rights.”  The parties did not dispute that the decision to grant a patent is a matter involving public rights.  The majority therefore held that IPRs are “simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.”

The Court rejected Oil States’ citation of precedent describing patent rights as the “private property of the patentee” as contradictory to its conclusion. The Court noted that those precedents recognized that patents convey a specific form of property right, a public franchise, that confers only the rights prescribed by statute.  In this case, the Patent Act qualifies the property rights a patent owner has in a patent as subject to the provisions of the Act, including IPRs.

The Court then reviewed the history of patent law from 18th century England to reject the dissent’s and Oil States’ argument that IPRs violate the general principle that Congress may not “withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.”  The Court noted that the English system had a procedure for revoking patents outside of a court, and that the Constitution was written against the backdrop of the English system.  As for historical practice in the United States, the majority “disagree[d] with the dissent’s assumption that, because courts have traditionally adjudicated patent validity in this country, courts must forever continue to do so.”

The Court further dismissed Oil States’ argument that IPRs violate Article III because they share characteristics and procedures of judicial process.  The majority rejected Oil States’ “look like” test, noting that the “fact that an agency uses court-like procedures does not necessarily mean it is exercising judicial power.”

Because the Seventh Amendment does not present an independent bar where Congress has properly assigned a matter to be decided in a non-Article III tribunal, the Court further concluded that a jury was not necessary in IPRs.

Finally, Justice Thomas noted the narrowness of the Court’s holding, stating that the opinion did not address the retroactive application of IPRs to patents issued prior to the AIA, or due process concerns.  The Court also reaffirmed that patents are property for purposes of the Due Process and Takings clauses.

Justice Gorsuch, writing in dissent and joined by Chief Justice Roberts, would have held IPRs unconstitutional.  Justice Gorsuch argued that the IPR scheme “represents a retreat from the promise of judicial independence,” and reviewed the historical record in support of that argument.  The dissent contended that, since the founding, invention patents protected by the Patent Clause of the Constitution have been treated differently than ordinary public franchises, like the exclusive right to operate a toll bridge.  In contrast to other public franchises, “patents alone required independent judges.”  The dissent further argued that simply because the Executive branch could issue patents, it did not follow that the revocation of those patents necessarily belongs to the Executive as well.

While the Oil States decision finds that the IPR process is constitutional under Article III and the Seventh Amendment, the majority opinion carefully leaves open further avenues of attack, including retroactivity and due process concerns.  For now, however, the Oil States decision solidifies IPRs as a major feature of U.S. patent practice.

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