Supreme Court Upholds Constitutionality of IPRs But Ends PTAB's Partial Institution Practice

April 25, 2018

Introduction

On April 24, 2018, the Supreme Court issued decisions in two highly anticipated matters concerning IPRs: Oil States Energy Services v. Greene’s Energy Group and SAS Institute Inc. v. Iancu.

In Oil States, a 7-2 majority rejected the contention that actions to revoke a patent must be tried in an Article III court before a jury. The majority held that patents are a public right, not a private right, and that Congress has historically had “significant latitude to assign adjudication of public rights to entities other than Article III courts.” In view of such latitude, the IPR framework, the majority held, was constitutional. Justice Thomas authored the majority opinion, while Justice Breyer filed a concurring opinion, in which Justices Ginsburg and Sotomayor joined. Justice Gorsuch filed a dissenting opinion, in which Chief Justice Roberts joined.

In SAS Institute, a 5-4 majority held that the PTAB’s practice of issuing partial institution decisions—i.e., those in which a trial is instituted against some but not all challenged claims—violated the plain text of the American Invents Act (AIA). According to the majority, the AIA requires that when the Patent Office decides to institute an IPR trial against any challenged claim, it must decide the patentability of all of the claims the petitioner challenged in its petition. Justice Gorsuch authored the majority opinion. Justice Ginsburg filed a dissenting opinion, in which Justices Breyer, Sotomayor and Kagan joined, and Justice Breyer filed a separate dissenting opinion, in which Justice Ginsburg and Sotomayor joined, and in which Justice Kagan joined in part.

Oil States

The Oil States drama ended quickly with seven justices of the Supreme Court declaring in no uncertain terms that “[i]nter partes review falls squarely within the public rights doctrine.” With that declaration, any chance that IPRs would be declared unconstitutional was snuffed out.

As the majority opinion explained, Congress has historically been afforded freedom to dictate how and by whom public rights can be adjudicated. Thus, while private rights, such as real property or one’s personal liberty, can only be adjudicated in an Article III court, public rights can be adjudicated through executive agency procedures such as the IPR process.

According to the majority, a patent is a “public franchise” and thus a public right that can be revoked through a non-Article III court. For the majority, an IPR is “simply a reconsideration” of the Patent Office’s decision to grant a patent, a decision no party had disputed was a matter involving public rights—“specifically, the grant of a public franchise.”

While confirming that IPRs will continue to be a viable alternative to district court litigation, the majority opinion expressly “emphasize[d] the narrowness of our holding.” In particular, the majority noted that Oil States did not “challenge the retroactive application of inter partes review, even though that procedure was not in place when its patent issued,” thus leaving the door open for future litigation on this issue.

In his dissenting opinion, Justice Gorsuch joined by the Chief Justice argued that patents are not public rights, but rather personal rights, the adjudication of which can only occur in an Article III court. Walking through the historical treatment of patents both in the United States and England, Justice Gorsuch found that “judges alone resolved virtually all patents challenged by the time of the founding” and that there was no evidence “patent disputes were routinely permitted to proceed outside a court of law.” Viewed in the historical context, the dissenters could find no support for the majority’s contrary finding that patents are a public right.

SAS Institute

Whereas Oil States presented constitutional intrigue, SAS Institute dealt with a more nuanced issue of PTAB practice. As background, Patent Office regulations permit the director to institute IPR against some but not all claims challenged in an IPR petition. This practice, often referred to as a “partial institution,” was the focus of SAS Institute.

The majority opinion held that the PTAB’s partial institution practice was impermissible under the AIA. The majority found the text of the AIA clear and dispositive. Specifically, §318(a) provides that “if an inter partes review is instituted and not dismissed under this chapter, the Patent Trial and Appeal Board shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” According to the majority, the word “shall” imposed a nondiscretionary duty on the Patent Office to issue a final written decision and the phrase “any patent claim challenged by the petitioner” most naturally meant every claim that the petitioner challenged in its petition.

In addition to the clear language of the statute, the “new inter partes review regime,” the majority wrote, “looks a good deal [] like civil litigation” and the scope of civil litigation is defined by the plaintiff’s complaint, not by only those claims the district court wishes to hear. In other words, the petitioner and its petition, not the director, determine the scope of the IPR trial once the director exercises its discretion to institute such a trial. The majority drew a sharp contrast between IPRs, which are a “party-directed, adversarial process,” and ex parte reexamination, which is an “agency-led, inquisitorial process,” the scope of which the agency (i.e., the director) defines. According to the majority, nothing in the AIA requires the director to “evaluate every claim individually” and the director is even permitted to institute review against all claims so long as a single claim passes the reasonable likelihood threshold.

The Patent Office’s policy arguments that partial institutions are more efficient than a bright-line institute-on-all-or-none system were met with little sympathy from the majority. Because the text of the AIA was clear, such policy arguments were best reserved for Congress, not the Court.

In dissent, Justice Breyer argued that the text of the AIA was not unambiguous and thus the Court owed the Patent Office’s interpretation of that text deference under Chevron. In view of such deference, the dissent argued, the Patent Office’s interpretation should be upheld.

Takeaways

The primary takeaway from Oil States is clear: IPRs are here to stay. While the Court made clear that its holding was narrow and left open the door for some continued constitutional challenges for those patents that issued before IPRs were created, it also made clear that the current IPR framework was constitutional and will remain in place absent contrary Congressional action.

For SAS Institute, the takeaways are more nuanced but equally significant. With an all-or-nothing institution approach, petitioners face a greater risk of estoppel than they did under the previous partial institution approach. For example, a petitioner that previously received a partial institution decision would not have been estopped from re-raising in district court those validity arguments it raised unsuccessfully against certain claims at the PTAB. Now, however, the PTAB must issue a final written decision on the claims for which institution previously would have been denied, thereby potentially triggering the petitioner estoppel provision with respect to those claims. SAS Institute thus reinforces the need to ensure that petitions demonstrate a reasonable likelihood of unpatentability for each challenged claim.

Please feel free to contact us if you have any questions or would like to discuss how these decisions affect your IPR strategy. Wolf Greenfield continues to follow developments in the law around IPRs. For the latest updates, subscribe to our blog, The Post-Grant Strategist.