Is the U.S. Supreme Court Deciding The Future of Patent Invalidation Proceedings?

Oil States Energy Services, LLC v. Greene’s Energy Group, LLC

Is the U.S. Supreme Court Deciding The Future Of Patent Invalidation Proceedings?
Andrew Clarke

The Supreme Court of the United States (SCOTUS) is currently deliberating whether the United States Patent and Trade Mark Office (USPTO) Patent Trial and Appeals Board (PTAB) have the legal authority to assess and revoke the validity of issued U.S. patents, during a third party challenge proceedings.

Current strategies for invalidating U.S. granted patents

Currently in the United States there are several options available for third parties looking to challenge the validity of a granted patent. In brief, these options include:

  • Post Grant Review – that must be requested within 9 months of patent issuance;
  • Ex Partes Review – in which the requestor is not involved after initial written submissions; and
  • Inter Partes Review – in which the requestor becomes an active party to the proceeding.

Each of these options take place before the USPTO PTAB.

Inter partes review (IPR) is a relatively recent addition to the suite of validity challenge options, only being introduced in 2012 as part of the America Invents Act. The mechanism was a response to a growing consensus within the intellectual property industry that the USPTO was accepting far too many “bad” patents.  Prior to the conception of IPR, the only option available to third parties for challenging the validity of a granted patent (and be an active party in the proceedings) was though very expensive and time-consuming District Court litigation.

To date, IPRs have been considered by many as being very useful and effective. Allegedly, in over 80% of IPRs heard before the PTAB, at least some of the claims of the disputed patents are revoked. Of course, this has not made the IPR process particularly  popular with patent owners, who believe that the process is biased against them.

What’s happening at the SCOTUS?

The SCOTUS is currently examining the constitutionality of IPR. The platform for their investigations is the case currently before them: Oil States Energy Services, LLC v. Greene’s Energy Group, LLC

Oil States Energy Services (Oil States) is an oil-field services company, that manufactures products for deepwater production facilities and certain drilling equipment (fracking equipment), as well as being a provider of completion services and land drilling services to the oil and gas industry. Relevant to this case, Oil States is the owner of U.S. Patent No. 6,179,052, directed to apparatus and methods for protecting wellhead equipment and abrasion involved in the hydraulic fracturing of oil wells.

Back in 2012, Oil States filed an infringement suit against Greene’s Energy Group (Greene’s), in respect of the ‘052 patent. As is often the case, Greene’s response was to petition the PTAB to institute IPR on the allegedly infringed claims. To the dismay of Oil States, the PTAB instituted review and eventually found those claims to be anticipated by a prior patent application, Canadian Patent Application No. 2,195,118 (to Dallas).

Naturally, Oil States was not impressed. The SCOTUS accepted a certiorari filed by Oil States to assess the following issue: whether inter partes review violates the U.S. Constitution by extinguishing private property rights through a non-Article III forum without a jury.

Why are IPRs allegedly unconstitutional?

The arguments put forward by Oil States relate to Article III of the U.S. Constitution, which speaks to the separation of powers. Article III sets forth that for matters dealing with property and private rights you need a judiciary that is independent and accountable to no-one except the Rule of Law. This is important to avoid a concentration of power to any particular facet of Congress. The PTAB (being a creation of Congress) is very much part of The Executive Branch of government. PTAB judges are selected by the Director of the USPTO; a political appointee. Furthermore, the composition of judges at the PTAB can be adjusted to promote the political agenda of Congress (and this, in fact, has happened).

During the Hearing of Oral Arguments, the advocate for Oil States, Allyson Ho, argued:

  • The creation of IPRs improperly intrude on separation of powers by giving Article III to adjudicate patent validity to an administrative agency; and
  • IPR is a “litigation-like adversarial proceedings” between private parties and is, therefore, unconstitutional under Article III.

In making their arguments, Oil States rely upon the proposition that patents are private property, for centuries being adjudicated by the Courts, where juries decide questions of fact. On this basis, they asset that IPRs violate the Seventh Amendment right to a trial by jury.

The arguments in favour of IPR.

In its merits brief, Greene’s pointed out that the U.S. Constitution gives Congress the power to provide for patents.

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;
U.S. Constitution; Article I, § 8, cl. 8

Thus, because Congress has the constitutional authority to govern patent rights, a patent should be considered to be a public right, that isintegrally related to particular Federal Government action”. On this basis, because patents are public rights, IPR proceedings do not violate Article III.

Even should the SCOTUS find that patents are private rights, Greene’s also made the point that IPRs are, in fact, subject to review by an Article III tribunal (as patent owners have the right to appeal adverse decisions to the Federal Circuit). Furthermore, it is alleged that IPRs are not judicial in nature because, inter alia, they only consider patentability based on a narrow subset of issues; namely, anticipation and obviousness (the U.S. patent law equivalents to novelty and inventive step). IPRs simply allow the USPTO to reexamine those issues and make its own initial patentability determination. It’s basically a mechanism for the USPTO to correct its mistakes (which it has performed for decades by other avenues such as reissues, interference proceedings, and ex parte and inter partes reexaminations). Greene’s argued that IPRs are merely another means for the USPTO to have a “second look” at a patent and determine for itself whether its issuance in the first instance was a mistake.

So… What’s next?

It’s difficult to ascertain from the questions asked by the SCOTUS which way the decision will fall. Basically, the case will come down to what can only be done in Federal Court and what can an administrative agency do? If we were to have a stab at predicting the outcome, we would suggest that the arguments presented by Christopher Kise, Counsel for Greene’s, to be considered as being a more compelling case. Congress has afforded the power to grant patents to the USPTO (courtesy of Art. 1, § 8, cl 8 of the U.S. Constitution) and therefore, there would appear to be nothing untoward about having a security mechanism in place that allows for the USPTO to realise any mistakes and revoke patents should they discover that the patent was granted in error.

Furthermore, there are numerous distinctions between a litigious trial and an PTAB IPR. Not least, an IPR does not really involve one party being against the other, in a case where one party takes something from the other. One side does not itself stand to gain or lose anything. Perhaps they can just be viewed as a vehicle of presenting the most compelling case regarding the invalidity of the parent in suit – such that the PTAB are armed with all the facts before deciding for itself whether the patent had been validly granted.

One thing is clear: the case has caught the attention of the wider patent community. 21 amici curiae were filed supporting Oil States (IPR are not constitutional), 25 supporting Respondent Greene’s (in favour of IPR) and 12 were said to be in support of neither party (although some clearly leant one way or the other. A list of the amici cuiae is presented, below.

Amici CuriaeSupporting
Tomás Gómez-Arostegui
and Sean Bottomley (academics)
Neither party (historical perspective - appear in Oil States favour)
Alliacense Limited LLCOil States
US Inventor, IncOil States
Security People, IncOil States
Eagle Forum Education & Legal Defense FundOil States
Unisone Strategic IP, IncOil States
Thirty-Nine Affected Patent OwnersOil States
The Civil Jury Project at New York University School of LawNeither party
J. Kenneth Blackwell; Paul Caprio; James Edwards; Colin Hanna; Matthew Kandrach; Kevin L. Kearns; George Landrith; Curt Levey; Edward R. Martin, Jr.; James L. Martin; Jenny Beth Martin; C. Preston Noell IIIOil States
American Intellectual Property Law AssociationNeither party (but in favour of IPR)
LiquidPower Specialty Products Inc.Oil States
Boston Patent Law AssociationNeither party (in support of IPR)
AbbVie, Inc.; Allergan, Inc.; & Celgene Corp.Oil States
Pharmaceutical Research and Manufacturers of AmericaOil State
Evolutionary Intelligence LLCOil States
The Patent Trial and Appeal Board Bar AssociationNeither party (in favour of IPR)
The Association of Amicus CounselNeither party (against IPR)
InterDigital, Inc; Power Integrations, Inc; Xperi Corporation; Fallbrook Technologies, Inc; and Cummins-Allison Corp.Oil States
University of New MexicoOil States
CATO Institute and American Conservative Union FoundationOil States
Biotechnology Innovation Organization and Association of University Technology ManagersOil States
Professor James W Ely, Jr. & Mountain States Legal FoundationOil States
IEEE-USAOil States
Shire Pharmaceuticals LLCNeither party (against IPR)
Gary Lauder; Paul Morinville; Robert Schmidt; National Small Business Association; Small Business Technology Council; United Inventors Association; MCM Portfolio LLP; SumVentures Group, Ltd.; Accessis LLC; Flocel Inc.; Great Lakes NeuroTechnologies; Monashee Marketing; NeuroWave Systems; & PowerTool InnovationOil States
Intellectual Property Owners AssociationNeither party (asserting that patents are not public rights)
Professor Dmitry KarshtedtOil States
3M Company; Bristol-Myers Squibb Co.; Cargill Incorporated; Johnson & Johnson; Monsanto Company; The Procter & Gamble Company; Raytheon Company; &
Shell International
Neither party (assert that patents are private rights; IPR can be "fixed")
27 Law ProfessorsOil States
Pacific Legal Foundation; Southeastern Legal Foundation; & National Association of Reversionary Property OwnersOil State
Intellectual Property Law Association of ChicagoNeither party (identifying a difference between patents issued prior to AIA and those issued after)
Houston Intellectual Property Law AssociationNeither party
SAP America, Inc; Gilead Sciences, Inc; Nautilus, Inc; Electronic Transactions Association; Financial Services Roundtable; & Xilinx, Inc.Greene's
Public Knowledge; The Electronic Frontier Foundation; Engine Advocacy; & The R Street InstituteGreene's
Knowledge Ecology InternationalGreene's
U.S. Golf Manufacturers CouncilGreene's
Professor Lee A HollaarGreene's
Accessible MedicinesGreene's
Dell, Inc.; Facebook, Inc; Agilent Technologies, Inc.; Arista Networks, Inc.; CloudFare, Inc.; Edwards LifeSciences Corp.; Hewlett Packard Enterprise Co.; HTC Corporation; JCPenney Corporation, Inc.; LimeLight Networks, Inc.; Red Hat, Inc.; Smith & Nephew, Inc.; Twitter, Inc.; & Varian Medical Systems, Inc.Greene's
Apple, IncGreene's
Intel; Applied Materials; CISCO; Google; LG Electronics; On Semiconductor; Samsung; & XeroxGreene's
Askeladden LLCGreene's
General Electric CompanyGreene's
Alliance of Automobile ManufacturersGreene's
America's Health Insurance PlansGreene's
Internet Association, Software & Information Industry Association; National Association of Realtors, Association of Global Automakers, Inc.; Computer & Communications Industry Association; & SAS Institute Inc.Greene's
Retail Litigation Center, Inc.; & National Retail FederationGreene's
Arris Group, Inc.; Arm, Inc.; Charter Communications, Inc.; Cox Communications, Inc.; HP Inc.; & NetApp, IncGreene's
AARP; & AARP FoundationGreene's
Volkswagen Group of America, IncGreene's
Professors of Administrative Law, Federal Courts, and Intellectual Property LawGreene's
Unified Patents IncGreene's
The Initiative for Medicines, Access & Knowledge (I-MAK)Greene's
BSA | The Software AllianceGreene's
Taiwan Semi-Conductor Manufacturing Co., LtdGreene's
Act | The App AssociationGreene's
Mylan Pharmaceuticals Inc.Greene's
72 Professors of Intellectual Property LawGreene's

As can be noted from the above parties, the biotechnology community are particularly vocal in their disapproval of the IPR. This can be attributed, at least in part, to the long lead-time and significant expense associated with bringing a biotech product to market. Both these aspects are typically far greater in the biotechnology arena than other industries . Therefore, the impact of having an integral patent revoked is arguably of significantly greater concern for a biotechnology proprietor, especially with the commonplace notion that the significant expense required to bring a new pharmaceutical product to market is only worthwhile if the 20 year monopoly can be achieved to make profit on their investment.

Another  concern practitioners have raised is what will happen to all of the claims that have been invalidated in previously decided IPR proceedings if the Court should decide that IPRs are unconstitutional. The only practical solution to this would appear to be that all existing IPR decisions must remain standing. Otherwise the mountain of re-litigation that would follow suit would be unsurmountable. Interestingly, Oil States agreed with this recommendation; could this perhaps suggest that they concede that there is nothing improper in the way that IPRs have been functioning?

As described above, the SCOTUS decision is expected to turn on its determination that a patent is either a public or private right. If it is a private right, Oil States will likely prevail and IPRs should be considered unconstitutional. If a patent conveys a public right, the status quo is expected to be maintained.

The decision is expected to be handed down by June 2018. We would recommend delaying the filing of any further IPRs until clarity is obtained regarding their future. Of course, if you would like any specific advice regarding patent challenges in the United States, Australia, or any other jurisdiction, please contact us.

 

The official transcript of the Oil States Energy Services, LLC v. Greene’s Energy Group, LLC SCOTUS Hearing can be found here. Or if you prefer, a recording of the Hearing is also available here.

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