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Supreme Court:  IPR Patent Challenges Survive, with Modification

On April 24, 2018, the Supreme Court decided two cases involving patent law: Oil States Energy Services, LLC v. Greene’s Energy Group, LLC and SAS Institute Inc. v. Iancu. 
May 1, 2018

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By Brendan McDermott

On April 24, 2018, the Supreme Court decided two cases involving patent law: Oil States Energy Services, LLC v. Greene’s Energy Group, LLC and SAS Institute Inc. v. Iancu. In Oil States, the Court had to resolve whether inter partes review (IPR) proceedings at the Patent Trial and Appeal Board under the America Invents Act violates the Constitution by adjudicating patent validity in a non-Article III forum without a jury. In a 7-2 decision, the Court held the IPR process is constitutional.

The Court then resolved the procedural question presented in SAS Institute of whether the Patent Trial and Appeal Board (PTAB) could properly institute an IPR trial over only some of the claims raised by the petitioner. In a 5-4 decision, the Court reversed the Federal Circuit and held that the PTAB must issue a final written decision with respect to all of the challenged claims even if the PTAB had instituted the IPR against less than all the claims.

Oil States Decision:

Justice Thomas wrote the opinion for the 7-member majority in Oil States holding that the IPR process is constitutional. In determining whether patent validity determinations could properly be delegated to the PTO, the Court first had to decide whether a patent was a public or private right. The Court held that the decision to grant a patent was a public right. Specifically, the Court held that a patent is “the grant of a public franchise.” By analogy, Justice Thomas noted the power of Congress to grant a qualified franchise permitting a company to build a bridge that reserves the authority to revoke or amend the franchise. The IPR process, therefore, is simply a qualified grant of a patent subject to revocation by Congress’s delegation to the PTO at a later date. The Court held that “[b]ecause inter partes review is a matter that Congress can properly assign to the PTO, a jury is not necessary in these proceedings.”

Justice Gorsuch, joined by Chief Justice Roberts, argued in dissent that the IPR process was unconstitutional. Justice Gorsuch focused on the historical facts, arguing that at the time of the Constitution, only courts could hear patent challenges in England. Further, he analogized patents to the grant of land patents, which can only be withdrawn through a court. He contended unavailingly that the decision to revoke a patent should similarly rest solely in the hands of the independent judiciary.

Notably, the majority’s holding is a narrow one, leaving the door open to potential future challenges to other aspects of the IPR. For instance, the majority noted that Oil States did not bring a due process challenge or contest the retroactive application of inter partes review to its patent that issued before the IPR process was in place. “Finally,” the Court stated, “our decision should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.”

SAS Institute Decision:

Although a member of the dissent in Oil States, Justice Gorsuch authored the majority opinion in SAS Institute. The case arose from a challenge to the PTO Director’s authority to institute partial review of claims in an IPR. A regulation established by the PTO stated that “[w]hen instituting inter partes review, the [Director] may authorize the review to proceed on all or some of the challenged claims and on all or some or the grounds of unpatentability asserted for each claim.” 37 C.F.R. § 42.108(a).

In a sharp turn from the Court’s decision in Cuozzo Speed Technologies v. Lee regarding the appealability of institution decision, the majority found that the plain language of §318(a) of the AIA provided a clear answer contrary to the PTO regulation allowing partial institution. The statute unambiguously directs that the PTO Director “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” Based on the plain language, the Court reasoned that ‘any’ claim challenged by the petitioner, meant ‘every’ claim. The Court therefore reversed the decision of the Federal Circuit permitting partial institution.

The ramifications of SAS are significant. For instance, a petitioner is estopped from arguing in a civil action any invalidity ground that was raised or reasonably could have been raised during inter partes review. That estoppel historically applied only to claims that went through the IPR trial and were subject to a final written decision. Presumably, the estoppel will now apply to all challenged claims. Further, Petitioners will now have to make more strategic decisions, such as: which claims to challenge, whether to file multiple petitions per patent challenging different claims, whether to challenge certain claims at all. Finally, a Patent Owner may have to decide whether an initial response is worth the expense if it is likely that even one claim will be instituted. Institution of one claim will now result in a full institution on all challenged claims, even those a Patent Owner believes it would defeat.

Since the SAS decision, the PTO has released a one-page Guidance document to comply with the Court’s opinion. For new petitions, the PTO has indicated that “if the PTAB institutes a trial, the PTAB will institute on all challenges raised in the petition.” For pending cases, the PTO has indicated that the PTAB may supplement the institution decision to institute on all challenges raised in the petition. Additionally, the Guidance indicates the PTAB may grant additional time, briefing, discovery, and/or oral argument depending on the circumstances of the case.

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