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The Future of IPRs – The US Supreme Court’s Decisions in Oil States and SAS

Yesterday, the U.S. Supreme Court issued two important decisions relating to inter partes review (IPR) proceedings before the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office (PTO).

Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, U.S., No. 16-712, 4/24/2018

In Oil States, the Supreme Court ruled that IPR proceedings are not unconstitutional and that the PTAB has the authority to invalidate issued patents.  Specifically, the Court characterized IPRs as a “reconsideration of the Government’s decision to grant a public franchise,” and as such, a question pertaining to “public rights.”  And, because “the decision to grant a patent is a matter involving public rights – specifically, the grant of a public franchise,” reconsideration of that grant is permissibly assigned to the PTO by Congress without violation of Article III.   The distinction that IPR “occurs after the patent has issued” was deemed to “not make a difference here,” as patents remain subject to the PTO’s authority to “cancel outside of an Article III court.”

In upholding the IPR process and the PTAB’s authority, the Court rejected the argument that prior decisions recognizing patent rights as the “private property of the patentee” rendered the IPR process unconstitutional, and disagreed with the broader proposition that patent validity, by nature, “must be decided by a court.”  The Court disagreed with “the dissent’s assumption that, because courts have traditionally adjudicated patent validity in this country, courts must forever continue to do so.”  The Court also disagreed with the argument by Oil States that because the PTO “uses court-like procedures,” it is improperly exercising judicial power.

Additionally, because the court determined that Congress has properly assigned inter partes review to the PTO, there is no violation of the Seventh Amendment by such proceedings.

Finally, the court emphasized “the narrowness of [the] holding,” explaining that: (1) it did “ not address whether other patent matters, such as infringement actions, can be heard in a non-Article III forum,” (2) it did not need to consider whether IPR would be constitutional “without any sort of intervention by a court at any stage of the proceedings,” and (3) this decision “should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.”  The Court specifically noted that “Oil States [did] not challenge the retroactive application of inter partes review” to patents issued before the AIA, and did not raise “a due process challenge.”

The bottom line from the Supreme Court’s decision in Oil States is that IPRs and the PTAB’s authority to invalidate patents remain unchanged, at least for now.  We will surely see newly filed petitions for certiorari seeking review by the Supreme Court challenging the IPR process and the PTAB’s authority based on the Due Process Clause and/or Takings Clause, as well as the constitutionality of subjecting patents issued prior to the AIA to inter partes review.

SAS Institute Inc. v. Iancu, U.S., No. 16–969, 4/24/2018

In SAS, the Supreme Court held that when the PTAB institutes IPR of a patent, it is required to decide the patentability of all of the claims challenged by the petitioner.  The Court specifically rejected the PTAB’s “partial institution” power, indicating that the decision as to whether to institute is “a binary choice—either institute review or don’t.”

The Court’s decision is based on the plain text of 35 U.S.C. § 318(a), which provides that the PTO “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.”  The court explained that “[t]his directive is both mandatory and comprehensive,” and “[i]n this context, as in so many others, ‘any’ means ‘every.’” As such, the PTO “cannot curate the claims at issue but must decide them all.”  In doing so, the Court disagreed with the Director’s view that “he retains discretion to decide which claims make it into an inter partes review and which don’t.”

Referring to 35 U. S. C. § 314(a), the Court further explained that, before instituting review, the Director must determine, based on the parties’ papers, “that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”  The court reasoned that this section “does not require the Director to evaluate every claim individually,” but rather, “it simply requires him to decide whether the petitioner is likely to succeed on ‘at least 1’ claim.” Thus, once the “single claim threshold” is met, “it doesn’t matter whether the petitioner is likely to prevail on any additional claims; the Director need not even consider any other claim before instituting review.”  The Court concluded that the statute anticipates a process “where a reasonable prospect of success on a single claim justifies review of all.”  Section 314 only allows the Director to decide “whether” to institute, not “whether and to what extent.”  To this end, the Court contrasted the IPR statute with the ex parte reexamination statute, which allows the Director to institute (or not) on a claim-by-claim basis.

Importantly, the Court rejected the Director’s argument that the Court “lack[ed] the power” to forbid the partial institution practice based on § 314(d) and the Cuozzo decision.  In doing so, the Court rejected the argument that these authorities broadly “foreclos[e] judicial review of any legal question bearing on the institution of inter partes review.”  The court reiterated the “strong presumption” in favor of judicial review, and stated that “[i]f a party believes the Patent Office has engaged in ‘shenanigans’ … judicial review remains available consistent with the Administrative Procedure Act.”

Lastly, and consistent with the Court’s prior discussion of the PTAB’s duty to decide the patentability of all challenged claims, the Court held that if an IPR is instituted and not dismissed, at the end of the proceeding the final written decision issued by the PTAB must address the patentability of every patent claim challenged by the petitioner.

For the most part, the SAS decision appears to be a win for patent challengers.  To gain institution of an IPR for all challenged claims, a petitioner need only establish a reasonable likelihood of prevailing on a single claim.  For example, if the petitioner challenges ten other claims in the petition, the PTAB, even if it never considered those additional ten claims in deciding to institute, must determine the patentability of those ten claims along with the one it considered in instituting the IPR.   One possible upside for patent owners is that this should make clear that any estoppel will apply to all challenged claims, and may cause petitioners to be more careful in determining which claims to challenge.  Moreover, the decision appears to suggest more rigorous judicial review of any PTO “shenanigans” with respect to the IPR process.

Another interesting—and likely complicating—issue is how this decision will affect currently pending IPRs involving partial institutions.  Right now it is anybody’s guess.