Oil States: SCOTUS Preserves IPR Status Quo

On April 24, 2018, the Supreme Court of the United States, in a 7-2 majority, decided Oil States Energy Services v. Greene’s Energy Group, holding that Inter Partes Review (IPR) proceedings do not violate Article III or the Seventh Amendment.

Article III vests the “judicial power of the United States” in the Article III courts. In holding that IPR does not violate Article III, the Court construed the grant of a patent as granting a public right. Under the public-rights doctrine, Congress can assign the adjudication of public rights to non-Article III entities such as the Patent Trials and Appeals Board (PTAB). The public-rights doctrine applies to matters “arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it.” The Court stated that IPR “falls squarely within the public-rights doctrine” because it involves the grant of a patent, which is a matter “arising between the government and others.” Specifically, patents are “public franchises” which gives the patent owner the right to exclude others from the market, and IPR is merely a regulation that Congress imposed as a condition of granting the public franchise. In holding that a patent right is public, the Court set aside earlier cases which recognized patent rights as private property of the owner. The Court reasoned that those cases were decided under the Patent Act of 1870, and only describe the statutory scheme at that point in time.

Oil States also challenged IPR under the Seventh Amendment, which preserves the right to a jury trial. Following precedent, the Court stated that when Congress properly assigns a matter for adjudication in non-Article III courts, “the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.”

This decision is favorable to alleged patent infringers because it preserved a cost-effective method for them to challenge patents. Compared to Article III proceedings, IPR proceedings are faster and cheaper. Also, ruling IPR unconstitutional would have created major disruption by invalidating several-years’ worth of adjudication. Patents that were ruled invalid by the PTAB could be resurrected and a major overhaul of the entire system would have to take place.

On the other hand, the Court’s ruling was a major blow to the confidence of patent owners, who feel that IPRs created too much uncertainty in the validity and value of patents. For one, there is no limit on how late during a patent’s life that a petitioner may file an IPR. Even years after the issuance of a patent, when the patent owner has invested vast resources to develop and market a technology, an IPR can nullify the patent and render the previous efforts worthless. Also, IPR judges serve the Director, who is a political appointee and will have his or her own views and agenda. Thus, there are fairness and impartiality concerns regarding IPR judges that do not apply to Article III judges, who have life tenure. Lastly, there may be better ways to achieve what IPR aims to accomplish. IPR is a means of getting rid of bad patents that should have never received a grant in the first place. Therefore, reform to tighten the patent approval process on the front-end would solve the problem at its root and also avoid the issues present in IPR.

As a silver lining, the Court emphasized the narrowness of its holding, stating that it is only addressing the constitutionality of IPR and not whether other patent matters can be heard in a non-Article III forum. It also did not address whether the retroactive application of IPR to patents issued before the America Invents Act (AIA) is valid. Many of the patents undergoing IPR were approved before the AIA. It is conceivable that many of the patent owners may have elected to protect their invention via trade secret rather than a patent if they had known that it could later be taken away via IPR. Finally, the decision also left room open to other constitutional challenges, stating that it should not be “misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.”

David Jiang is a J.D. candidate, 2020, at NYU School of Law.