IP Cases & Articles

Oil States Energy v Greene's Energy: Are IPRs unconstitutional?

​The year is 1789. In New York, the First United States Congress meets, and declares the new United States Constitution to be in force. Article I of the Constitution grants the legislative branch its powers, including the power to grant patents. Article III sets up the judicial branch and gives it its powers. A few years later, the Seventh Amendment codifies the right to a jury trial in cases involving private property. This First Congress does not specify whether patents are private property, and does not explicitly empower the legislative branch to revoke patents.

Nevertheless, the US Patent and Trademark Office (USPTO) gets along quite well, granting patents and – since 2012 – occasionally revoking them under a mechanism called “inter partes review” (IPR).

This is until 2015, when the USPTO’s Patent Trial and Appeal Board (PTAB) carries out an IPR on a fracking-related patent, finds it invalid and revokes it. The patent belongs to Oil States Energy Services. The institutor of the IPR is its rival, Greene’s Energy Group. Rather than appeal the decision only on the grounds that its patent is valid, Oil States Energy goes one step further and argues that the very process by which it was revoked – IPR – is unconstitutional.

The appeal finds its way, in late November 2017, to oral argument before the US Supreme Court in Oil States Energy Services, LLC v Greene’s Energy Group, et al. In this case, Oil States questions whether Congress violated Article III and the Seventh Amendment when it authorised the USPTO (an agency of the executive branch) to invalidate patents through IPR, without giving patent holders the opportunity for a jury trial in a federal (Article III) court.

Criticism and support of IPRs

This question is of wider interest. The unusually high number of amicus curiae briefs (57 in total) reflects this. 

Arguing that IPR is not constitutional are organisations that suffer disproportionately from the consequences of IPR. 

Pharmaceutical and biotech organisations experience infringers successfully invalidating their patents under IPR. They criticise the expense and uncertainty this introduces. These organisations are joined by groups of patent owners and law professors concerned with property rights. 

On the other side, supporting the IPR system, are a diverse range of industry coalitions and individual companies that benefit from being able to use IPR against competitors. Apple, Intel and Google are among those who have put their name to amicus briefs in support of Greene’s. These high-tech companies are often targets of patent infringement suits and use IPR to attempt to invalidate the patents asserted against them. 

Themes

The arguments made in the briefs of the parties and their amici and in the oral arguments heard before the court in November 2017 can be divided into those focusing purely on the question of whether Congress had the power to enact the IPR regime, and those taking into account policy considerations relating to IPR.

In Stern v Marshall (2011), the Supreme Court expressed “skepticism about [– firstly –] Congressional efforts to withdraw from Article III courts ‘any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty’ or [– secondly –] ‘is made of the stuff of the traditional actions at common law tried by the courts at Westminster in 1789.’”  Thus, the court in Oil States will need to consider: firstly, whether patents are private rights (that is, “the subject of a suit at the common law”); and, secondly, the details of practice in British courts of the mid-18th century.
Regarding policy relating to the value of IPR, both sides recognise that the introduction of the IPR regime was motivated by a perception that the existing patent litigation process had ended up working against, rather than for, innovation. The sides do not agree, however, on whether IPR resolves this problem.

Arguments: Do IPRs favour infringers?

In the arguments of those who consider IPR to be unconstitutional, these private rights, historical and policy considerations play out as follows:

Patent rights, they argue, are analogous to rights in land. They are private rights. This argument has precedent in McCormick Harvesting Machine Co. v. Aultman & Co. (1898). In this case, the Court found that once a patent is granted it “is not subject to be revoked or canceled by the president, or any other officer of the Government” because “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.”  

Further, they say, British courts traditionally used judges and juries to determine the rights of patent owners. Thus, patents are “the stuff of the traditional actions at common law tried by the courts at Westminster in 1789”.

On a policy level, Oil States and its amici level a number of criticisms at the IPR regime. Its flaws, they say, lead to dramatically different outcomes than those before the federal district courts. The likelihood of a patent being invalidated through IPR is put at two to three times the likelihood of its being invalidated in the federal courts. This, they say, skews the system in favour of infringers. 

Arguments: IPRs are constitutional 

Those who argue that IPR is constitutional have a different twist on these private rights, historical and policy themes.

On the question of whether or not patents are private rights, and whether their validity must only be considered before a jury in a federal court, Greene’s and its amici note that Congress created the regime for granting patents; it should also be able to create a regime for revoking them. Further, individual patents are granted by the executive branch and have never been a matter of common-law. The other side’s analogy between patent rights and property rights is “inapt”; patents are more analogous to leases in public lands (subject to revocation by the executive branch) than simple grants in land. Thus, the scepticism expressed in Stern v. Marshall concerning the withdrawal from federal courts of matter which is the subject of common law need not arise here. Finally, the existence of IPR does not take considerations of validity away from federal courts because there is a right to an appeal to the Federal Circuit.

On the question of whether patent revocation was “the stuff of the traditional actions at common law tried by the courts at Westminster in 1789,” the pro-IPR voices point out although the courts of that time may have tried patent cases, executive bodies such as the Privy Council also had this power. Further, although the courts of that time considered infringement, it is not clear that they considered validity or had the power to invalidate patents. 

As for the policy question of whether IPR resolves the problems that it was intended to, those on Greene’s side argue that is an efficient tool for invalidating patents that should never have been granted by the USPTO. 

The answer?

Having heard oral arguments on the case, the Supreme Court is now considering its ruling. Commentators consider that the justices’ questioning in oral argument suggests that they will be split. What makes the outcome particularly hard to predict is the fact that the questions concerned are unusually politically-charged for a patents case. Consideration of the extent and limits of the power of the administrative state over property rights, and the strengths and weaknesses of a system in which alleged infringers often triumph may divide the justices along partisan lines. Indeed, some have seen this trend in the justices’ questioning during oral argument. 

Possible consequences – the return of patent trolls?
Pro-IPR commentators have suggested that a ruling that abolishes the IPR regime may lead to such dramatic consequences as the “return of the patent trolls”. IPR has proved an effective tool for invalidating asserted patents more cheaply and quickly than through bringing a revocation case in a federal court. This reduces the pressure on a company against which a patent is asserted to settle to avoid court proceedings. 

Advocates of IPR argue that getting rid of the IPR regime will remove this check on patent-assertion entities’ activity, leading to a resurgence in threats of infringement proceedings.

The threat of the patent zombie apocalypse?

Even more dramatic-sounding is the “patent zombie apocalypse” foreshadowed by some commentators. 

If it is ruled that the IPR regime is unconstitutional and has always been so, IPR decisions from its inception in 2012 could be overturned, reviving patents that had been revoked under the IPR system.

A less spectacular (and perhaps more likely) result would be the imposition of limits on the IPR regime. It has been suggested that the court might introduce a time limit to challenges via IPR (which can currently be made until the patent lapses). This would provide increased certainty for patent-holders after the time-limited IPR period had elapsed. Alternatively, application of the IPR regime could be restricted to patents granted after enactment of the America Invents Act (AIA), which introduced the IPR regime. The reasoning for such a limit would be that owners of post-AIA patents would understand that IPR would be applicable to their patents.

Although the eventual ruling cannot be predicted, it is clear that if the Supreme Court justices decide on anything other than to uphold the status quo, the results will be far-reaching. The court is due to rule by the end of June 2018. We will update readers on the decision in future updates.

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