Intellectual Property Alert
June.13.2017
On June 12, 2017, the U.S. Supreme Court in Oil States Energy Services v. Greene’s Energy Group, No. 16-712 (U.S. June 12, 2017) granted certiorari to decide next term if certain American Invents Act (AIA) review proceedings, including inter partes review (IPR), are an unconstitutional violation of Article III (separation of powers) and the Seventh Amendment by virtue of their ability to extinguish private property rights (i.e. patents) without the concomitant right to a trial by jury in an Article III court. Specifically, the Supreme Court granted certiorari to resolve the following question presented:
This is at least the fourth time in the past year that a certiorari petition was filed, contending that AIA reviews were unconstitutional. The first three were all denied. While it is difficult to discern what motivated the Court to grant this petition after these recent denials, it is possible that the addition of Justice Neil Gorsuch to the bench may have tipped the scales. The prior three petitions were all denied by an 8-member Court, after the death of Justice Antonin Scalia. It is also possible that the Court was moved by a recent dissent from a denial of en banc hearing at the Federal Circuit, authored by Judge Jimmie Reyna, who made a forceful argument that the question of Congressional authority to enact post-grant review of issued patents was unsettled and in need of judicial review. Cascades Projection LLC, v. Epson America, Inc., 2017 WL 1946963 (Fed. Cir. May 11, 2017). Finally, this case may be yet another effort by the Court to reign in administrative agencies that it sees as encroaching on the authority of the judiciary branch.
Patents: Public or Private Rights?
Based on the briefing by the parties, this case appears to hinge on two issues. First is the question of whether patent rights are private rights or public rights. The public rights doctrine is an exception to the rule that any matter which is the subject of a suit at the common law, or in equity, or admiralty, must be adjudicated by an Article III court. Cascades Proj., 2017 WL 1946963, *12. This doctrine has been explained as allowing Article I tribunals to adjudicate claims where the rights at issue are integrally related to particular federal government action. Id., citing Stern v. Marshall, 564 U.S. 462, 490-91 (2011). Unsurprisingly, the parties in this action differ sharply on this issue. The petitioner contends that patents are private rights, and the respondent contends that patents are public rights. The Federal Government filed a brief that supports the respondent and the constitutionality of AIA review.
Is McCormick a constitutional case or a statutory interpretation case?
The second question is what meaning to give to the Supreme Court’s pronouncement, in McCormick Harvesting Machine Co. v. Aultman, a case dating from 1898, that:
“The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.” McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606, 609 (1898) (finding one exception, for reissue requests by a patent owner).
The McCormick decision itself does not clearly state whether the above pronouncement is based on constitutional principles, or alternatively whether it is merely based on the scope of the statutes that existed at that time.
Various parties have previously attempted, unsuccessfully, to rely on McCormick to challenge the PTO’s authority to conduct various forms of post-grant review. In 1985, the Federal Circuit held that McCormick did not preclude Congress from enacting ex parte reexamination. Patlax Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985). In this decision, the Federal Circuit held that McCormick’s pronouncement was grounded in Article III and the Seventh amendment, but held that the public rights doctrine gave Congress the authority to enact the ex parte reexamination statute. Id. at 604.
In 2015, the Federal Circuit, relying on Patlax, held that McCormick also did not preclude Congress from enacting AIA reviews. MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015). In this decision, the Federal Circuit held that McCormick was actually not a constitutional decision, that McCormick made no mention of Article III, and that McCormick was instead a decision about the scope of the Patent Office’s statutory authority to invalidate issued patents, under the statutes in effect in 1898. Id. at 1289.
The Parties’ Positions
The parties’ briefing on certiorari focused on the public rights vs. private rights issue, and did not analyze whether McCormick was a constitutional case or a statutory interpretation case. However, the Government’s brief argues that McCormick is a statutory interpretation case, construing 19th century patent statutes that have since been updated.
There are solid arguments on both sides of the public vs. private rights question. Historically, patent enforcement was and is seen as a private right, which is why infringement suits are heard in Article III courts, and get jury trials. However, patents themselves did not exist in the common law, they were created by statute, and are procured by complying with the conditions for patentability spelled out in the patent statutes. So there is a good argument that the procurement of a patent, at least, involves the public and is a public right, even if patent enforcement is a private matter.
On the question of whether McCormick invoked constitutional or statutory principles, the Federal Circuit has issued two different opinions, one on each side of the issue. It remains to be seen how the Supreme Court will come down on this issue, if it even addresses it at all. The Court may decide to dispose of this case on the private vs. public rights issue, without reaching the question of how to interpret McCormick.
This case could have a major impact on patent law
Depending on what the Court does with this case, it could have far-reaching effects on patent law. If the Court concludes that patent rights, once granted by the USPTO, are private rights that can only be adjudicated by an Article III court, this would likely annul many if not all USPTO post-grant processes, including not only IPR/CBM, but also reexamination, and possibly reissue, derivation, interferences and even certificate of correction practice.
If the Court were to hold AIA reviews unconstitutional, that may also affect thousands of patent claims which were invalidated under now-concluded AIA reviews. The Court would have to decide whether to give its decision retroactive effect, thereby potentially resurrecting thousands of previously-invalidated patent claims.
The Court declined to grant certiorari on two other questions presented by the Petitioner related to whether the Federal Circuit had properly applied the Supreme Court’s Cuozzo precedent. Argument before the High Court on this petition should be set for sometime this fall.