Supreme Court Decides Two Adminstative Patent Review Cases

On April 24, the Supreme Court decided two patent cases relating to the Inter Partes Review (IPR) system, which was established as a key part of the patent reforms in the 2011 the America Invents Act (AIA). In a 7-2 ruling, the Court, in Oil States Energy Services, LLC v. Greene's Energy Group, (No. 16-712) held that IPRs violate neither Article III of the U.S. Constitution nor the 7th Amendment. At the same time, the Court complicated the administrative procedures for the Patent Trial and Appeal Board in the 5-4 decision in SAS Institute Inc. v. Ianucu, (No. 16-969), holding that the Patent Trial and Appeal Board must address every patent claim challenged in an IPR in its opinions rather than the more selective review of only certain claims the Boards practice until now.

IPR proceedings have interesting and conflicting support from big industry. Tech companies view them as a way to fight patent trolls and pharmaceutical companies were looking to overturn the IPR practice to protect their patents, once granted, from generic attack.

Silicon Valley is celebrating the decisions as a win since IPRs are the tools they use to fight "patent trolls" by administratively challenging those patents held by the trolling companies and used by trolls to demand money settlement to avoid the pre-AIA very expensive patent trial procedures. Fighting Trolls can be viewed as one of the barriers to entry for a tech startup or cost of doing business for the tech company and the precesly limited IPR proceedings are nowhere near the crushing costs of prolonged patent litigation in Court.

Brand name Big Pharma compnaies hold the opposite view of IPR procedures, as they have allowed generic drug companies to add a cheaper, faster way to hammer away at the original drug patents that have protected those new drugs for 20 years from the date of the application. Unlike tech startups, the drug companies have spent a considerable amount of money to invent potential drugs and then lose even more patent protection time (and revenue) while waiting up to eight years for FDA approval before they can even start to sell the drug. Costly pre-AIA patent trials were not as attractive to generic challengers.

The AIA established the IPR challenge as an adversarial, trial-like proceeding before the Patent Trial and Appeal Board, in which the private party petitioner challenges the patentability of claims on a previously granted patent. However, the review is limited to challenges based on "obviousness" that could be raised under §§ 102 or 103. Essentially, the petitioner argues that the patented claim should not have been patented because it would be obvious to a person similarly skilled in the field. Non-obviousness is one requirement for winning a patent in the first place, so the petitioner's argument is that there was a mistake in the original issuance. The Director of the Patent Office reviews if "there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition," §314(a), or if he decides "whether to institute . . . review . . . pursuant to [the] petition," §314(b). "If . . . review is instituted and not dismissed," at the end of the litigation the Patent Trial and Appeal Board "shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner." §318(a).

The Court, in Oil States Energy Services, LLC v. Greene's Energy Group, in reviewing the constitutionality of the IPR proceedings, had to decide if a patent was a public right (similar to a public franchise right granted by government and subject to subsequent revision by the executive branch) or a private right (property rights are protected by the Constitution and the 7th Amendment and must be tried before an Article III court and jury). With some interesting historical discussion, they found a specifically narrow holding that for this one issue, the patent issuance is a public right. The court stated that its holding should not be misconstrued as suggesting patents are not property in the contexts of Due Process or Takings Clauses. Having decided in this case that a patent is a public right, the Court continued to find Congress had the latitude to allow entities other than federal courts to determine public rights - like determining the validity of patents through the IPR process. They found that the IPR falls squarely within the Public-Rights doctrine and, further, that the IPR proceeding is simply a reconsideration procedure for the original patent grant procedures. The fact that patents are the private property of patentees does not change the conclusion or impact post-issuance administrative reviews authorized by Congress and thus the IPR proceedings are constitutional.

Having settled that debate, the Court did put some restrictions on the streamlined IPR processes in the second 5-4 ruling in ,a href="">SAS Institute Inc. v. Ianucu, which overturns the current practice, now requiring the Patent Trial and Appeal Board to include in its opinions every patent claim challenged in an IPR.

In SAS, 16 claims of the patent were challenged but the PTO had reviewed only some claims when it issued its decision without discussing those other, denied claims. During the original appeal, the Federal Circuit found that 35 U.S.C. § 318 did not require the Board to decide every challenged claim. The Supreme Court rejected the "partial institution" power argument and held that the plain text of § 318(a) was mandatory and comprehensive, imposing a duty on the Board to address every claim the petitioner challenged. Essentially, the decision to review the claim is a "yes-or-no" decision so that § 314(a)'s requirement to find "a reasonable likelihood" that the petition would prevail on "at least 1 of the claims" because a standard by which to decide to institute review of all claims. The court stated that the power to concede any challenged claim rests with the petitioner, not the Board.

These decisions were specifically constrained and do provide some clarity to the IPR review process. The IPR fight may shift to Congress for revision, but its opponents should not be expected to give up seeking ways to eliminate it in court. Neither case addressed whether IPRs can be retroactively applied to pre-AIA patents nor if there are any due-process violations in the PTAB's rulings.

Tagged: Appellate Practice, Litigation