Inter Partes Reviews, Constitutionality & Scope
This April the US Supreme Court decided two cases pertaining to inter partes reviews (or IPRs). The combined decisions affirm the constitutionality of IPRs and define the scope of final written decisions for instituted IPRs.
IPRs are post-grant proceedings that allow for the US Patent Office to revisit its prior opinion as to patentability when so petitioned by a party other than the patent owner. IPRs are a useful complement to traditional infringement defense litigation, when timely petitioned. Doing so allows for an administrative, three-judge panel to decide patentability applying a broadest reasonable interpretation claim construction standard, with no presumption of validity to overcome. IPRs evolved from inter partes reexams (through the America Invents Act) which were the result of 1999 amendments to the Patent Act. Prior to that, ex parte reexams – between the Patent Office and patent owner only – began with a 1980 amendment to the Code.
This history is relevant to the Court’s analysis of the constitutionality of IPRs in Oil States Energy Services v. Greene’s Energy Group, Case No.: 16-712 (April 24, 2018). In Oil States Energy, the Court affirmed the constitutionality of inter partes reviews against Article III and the 7th Amendment. The question in Oil States Energy is whether the IPR process, vesting post-grant patentability determinations in the Patent Office’s Patent Trial and Appeal Board, violates a patentee’s right(s) to have substantial controversies heard by an Article III court and a jury under the Seventh Amendment.
Oil States Energy obtained a patent for drilling equipment. After being sued for infringement, Greene’s Energy filed a parallel proceeding in the Patent Office petitioning for an IPR. While the District Court adopted a narrower claim construction, rendering Greene’s Energy’s invalidity arguments futile, the Patent Trial and Appeal Board panel – implementing the broadest reasonable interpretation standard – found the challenged claims unpatentable. Greene’s Energy brought constitutional challenges to the IPR, which were unsuccessful at the Federal Circuit and ultimately failed at the US Supreme Court.
Justice Thomas wrote for the 7:2 majority, reasoning that the grant of a US patent is a public right, bestowed upon persons by the government, arising from Congress’ authority to issue the same under Art 1, §8:8. Congress exercised its power to delegate or assign its patent-issuing authority to other branches of the federal government. In this case, the authority to issue patents has been assigned to the Department of Commerce under 35 USC §2(a)(1).
Since a post-grant proceeding is a reconsideration of the grant issued by the Department of Commerce’s Patent Office in the first instance, amending that grant “involves the same basic matter as the grant of a patent.” The majority distinguished precedent, like McCormick v. Aultman, based upon recent revisions to the Patent Act. The Court termed patent rights a “public franchise” of exclusionary rights (enumerated in §271) by looking to the language in §261 which “subject[s]” the personal property right of a patent to “the provisions of” the Code, including §§311-19 on IPRs. Earlier precedent, like McCormick on a patent’s private-property-like nature, did not consider recently, congressionally codified post-grant proceedings.
The majority also pointed to the historical origins of the US patent system in English governance. Particularly, though patent rights were primarily decided at common law in England, they also could have been vacated by the Privy Council composed of the Crown’s advisors, which the US Constitution Framers would have known and considered. Justice Thomas reasoned that simply because post-grant proceedings at the Office are a relatively newer congressional initiative – only 38 years old – does not mean that such proceedings were not a part of the initial purview of the Framers.
Justice Gorsuch and Chief Justice Roberts took a more cynical view of the Office’s authority to revisit patentability and would have post-issuance matters left solely within the discretion of Article III judiciaries. Specifically, the dissenting duo praised the necessity of judicial independence to the integrity of our government. The Dissent sees IPR’s avoidance of Article III courts as a convenience whose benefits do not outweigh the costs of “undue” process, citing McCormick. The Dissent, however, failed to neatly address the public-rights premise of the Majority Opinion, so it is unclear what their disposition is as to the same.
The second opinion issued by the Court this April addressed the proper scope of final written decisions in IPRs. SAS Institute v. Iancu, USPTO, Case No.: 16-969 (April 24, 2018). Since the inception of IPRs the Patent Office has exercised discretion in instituting proceedings to include all, none or a subset of the claims petitioned for review. 37 CFR §42.108(a). In a 5:4 opinion, Justice Gorsuch reasoned that doing so was not in accordance with the plain meaning of the Code on IPRs. Specifically, §318, governing final written decisions in IPRs, indicates that the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner…” Interpreting the word “shall” the Court found a mandate to review “any” challenged claim; the Court then interpreted “any” to mean every claim petitioned, relying on dictionary definitions.
The Court reasoned that the petitioner is the ultimate author of which claims will be included in the final written decision, not the Director/PTAB by interpreting neighboring sections of the Code. Specifically, §314 gives the Director the authority to decide whether to institute a proceeding but that choice was interpreted to be a “binary choice” of either a yes or no, not a choice as to the scope of claims to be included. Moreover, §314’s language as to the standard the Director will use to decide whether to institute IPRs was relevant: a “reasonable likelihood” of prevailing on “at least 1 of the claims challenged in the petition.” (emphasis given). Justice Gorsuch wrote that “[r]ather than contemplate claim-by-claim institution, then, the language anticipates a regime where a reasonable prospect of success on a single claim justifies review of all.” Even though it might be more efficient to preliminarily weed out claims by not instituting review, the plain language of the Code and Congress’ instruction did not support this shortcut. The Court concluded by reminding us that Cuozzo and its hold as to the typical non-appealability of an institution decision excludes instances where the Director has exceeded his statutory bounds on institution as was the case here. On April 26, 2018, the PTAB issued a press release on SAS Institute advising that pending partially instituted IPRs panels “may issue an order supplementing the institution decision to institute on all challenges raised in the petition.”
One bright result from SAS Institute v. Iancu is that petitioners will now have an appellate right for all claims petitioned if institution is granted with respect to one. The September 2016 PTAB Trial Statistics – the Office’s latest publication of the following stat – showed that IPRs were instituted in less than half the claims originally challenged. It remains to be seen whether patent owners will be more likely to settle disputes considering that more claims will necessarily be at risk on an instituted IPR.
Justice Breyer et al. dissented, finding the Code on IPRs ambiguous as to the Director’s authority on partial institution. With such “ambiguity,” under Chevron, the Dissent would have relied upon what it felt was the Office’s reasonable interpretation of §318. The Dissent would have required more explicit language, referring perhaps to an “original petition” or the IPR “proceeding [as instituted]” in §318 to find no ambiguity in the statute. Based upon the statute’s context, §§311-19 progressing from institution to instituted proceedings, the Dissent reasoned that the latter provision, §318, was reasonably referring only to those claims for which an IPR had been instituted.
