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Divided Supreme Court Hears Oral Argument On Constitutionality of Patent Review in IPRs


The Supreme Court on November 27, 2017, heard oral argument on whether inter partes review (IPR) violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury. Oil States Energy Services, LLC v. Greene's En​ergy Group, LLC, U.S., No. 16-712, oral argument 11/27/2017.


Petitioner's Argument

Appearing for the Petitioner and patent owner Oil States, Allyson N. Ho of Morgan Lewis contended that the IPR procedure created by the America Invents Act exceeded the authority of Congress by permitting an executive branch agency to adjudicate and deprive private property rights.  Justice Ginsburg pointed out that the IPR procedure was created to allow the PTO to correct its errors in granting patents, and asked if the PTO has any means to make such corrections.  Ho said ex parte reexamination is one means because it is more “examinational” than “adjudicatory”; in answer to a question from Justice Kagen, she said inter partes examination is a closer call. 
 

Justice S​otomayor probed for the f​eature of IPRs that violates Article III, and Ho explained that it is the ability of third parties to initiate the procedure. While third parties may request the initiation of an ex parte reexam, she pointed out that they do not participate in the proceeding itself, which is a matter between the government and the patent owner.  In that respect, the ex parte proceeding (like the proceedings in other agencies) is a “pure executive action.”

 

Justice Kennedy asked if Congress could condition the award of a patent on the applicant’s consent to an administrative review of patentability. Ho answered no because that would be an unconstitutional condition for awarding the government right. Justice Kennedy, however, pointed out that the case law on unconstitutional conditions did not involve rights created by Congress. Chief Justice Roberts expressed due process concerns about the procedure, observing that the discretion provided the PTO could permit “panel packing.” Justice Breyer had similar concerns for unconstitutional takings where the patent challenge is brought years after issuance and after millions of dollars of investment into the technology. 


Justice Gorsuch suggested that the issue in this case seems to have been settled in McCormick Harvesting Mach. CO. v. C. Aultman & Co., 169 U.S. 606 (1898), which stated that the only authority that may set aside a patent is a U.S. court, not the department that issued the patent. Ho agreed in part, conceding however that the decision also turned on a statutory issue.

Respondent's Argument

Appearing for Respondent Green Energy, Christopher Rise of Foley & Lardner contended that no private property right is extinguished IPRs because the unpatentability decision is that the patent should not have issued in the first place. He also pointed out that patent owners well understand that novelty and nonobviousness conditions can later turn out not to have been satisfied.

Responding to the due process concerns of Chief Justice Roberts and Justice Breyer, Rise noted the judicial review that is part of the IPR process provides the appropriate role for Article III courts. If there are abuses that threaten due process, the recent decision in Cuozzo makes clear that the judiciary has an opportunity to police such "shenanigans."

Justice Gorsuch pointed out that the judiciary participates only if there is an appeal, and that the court is not called on to adopt a PTAB decision before issuance in the way a magistrate decision must be adopted by a court before issuance. He also noted that land patents may not be revoked by the executive branch without judicial participation. Rise answered that both examples involve different legal structures that are inapplicable here. He argued that patents are granted for inventions primarily to serve the public interest in promoting the useful arts, and as such the executive retains the right to ensure that interest is being served with post-issuance patent review.

United States Argument

Deputy Solicitor General Malcolm Stewart also pointed out that patents are issued subject to conditions which are legitimately enforced by the PTO after issuance. The ability of the agency to do so has a long history, and the judiciary has always had a role in ensuring that the procedures used are fair.

Chief Justice Roberts questioned whether the review procedures are "sufficiently stable and predictive" for property rights, and Justice Breyer again expressed his concern for a patent owner's reliance.  While he pointed out that the judicial review is substantial, he also noted that the statute is designed to give deference to what the expert agency actually thinks about the issuance of the patent. At the same time, Stewart pointed to the limited scope of review in IPRs and added that expanding adjudication to infringement actions would take the PTO well beyond its expertise.

AIPLA Amicus Brief

AIPLA's amicus brief in this case contends that IPRs do not violate the Constitution's separation of powers because Article I permits Congress to adjudicate rights it has created, and because the role of Article III courts is preserved by provisions on judicial review of IPR decisions. While case law has referred to a private-public right distinction in separation of powers cases, the brief explains that the controlling question is whether the right on review was created by Congress with specific limitations. 

To read the transcript of the oral argument in this case, click here.