As we recently discussed with respect to the proposed STRONGER Patents Act of 2017, legal debate continues to swirl around inter partes reviews. The US Supreme Court has entered the ring recently by accepting certiorari on two cases: SAS Institute Inc. v. Matal and Oil States Energy Services LLC v. Greene’s Energy Group, LLC.
What is an Inter Partes Review?
An inter partes review (“IPR”) is a method of challenging the patentability of a patent granted by the USPTO. An IPR can be filed by any third-party after certain time period following the issuance of patent (in general, nine months). An IPR can challenge one, several, or all of the various claims made in the patent. The IPR/PGR challenge must be based on the criteria set forth in 35 U.S.C. §§ 102 (lack of novelty) or 103 (obviousness).
IPR proceedings are heard by the Patent and Trademark Appeal Board (“PTAB”). In practice, an IPR is a trial conducted via paper filings — that is, no direct oral witness testimony. The PTAB has two administrative divisions: an Appeals Division and a Trial Division. The former handles appeals when patents are rejected by patent examiners. The Trial Division handles IPRs and similar proceedings. There are over a 100 Administrative Patent Judges in both divisions. None of these judges are nominated by the President or confirmed by the US Senate. Administrative Patent Judges are appointed by the Secretary of Commerce.
Further, IPRs are handled by these administrative judges only; no juries contemplated or allowed. This is part of the issue raised by Oil States Energy.
To start an IPR, the challenger files a petition identifying the patent and all the claims in that patent that are being challenged. The PTAB reviews the petition and makes a decision on whether the IPR will be instituted. The PTAB says “yes” if the Board finds that there is a reasonable likelihood that at least one of the challenged claims is unpatentable. Currently, the PTAB says “yes” if at least one claim is likely unpatentable. This is a so-called “partial” or “selective” institution of an IPR. The issue in SAS Institute is whether such “partial” institutions” are acceptable.
The PTAB’s decision to say “yes” is not appealable. As we discussed recently, the proposed STRONGER Patent Act of 2017 would change this, allowing immediate appeal of the PTAB’s decision to institute an IPR.
After completion of the IPR trial, the PTAB produces a final determination within one year of start of the IPR.
SAS Institute v. Matal.
As noted, SAS Institute Inc. v. Matal raises questions about whether the PTAB can partially institute IPR proceedings. In the underlying proceeding, SAS Institute, Inc. was the third party who filed an IPR challenging the patentability of a US patent held by a company called ComplementSoft (the ‘936 patent). The PTAB Board instituted an IPR proceeding on some, but not all, of the claims challenged. The patent at issue involved processes for generating, maintaining and editing computer source code. SAS Institute challenged 16 claims in the ‘936 patent. The PTAB instituted a partial IPR for nine of the challenged claims (claims 1, 3-10) based on obviousness. Ultimately, the PTAB rejected the challenge to claim 4, but found the other eight claims to be unpatentable. SAS Institute appealed to the Federal Circuit which upheld the PTAB on its decision to institute a partial IPR, but reversed the PTAB on claim 4 on a procedural ground.
In its writ of certiorari, SAS Institute directly challenges whether the PTAB can institute “partial” IPRs. SAS Institute cites language from the AIA that states: the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” 35 U.S.C. § 318(a). According to SAS Institute, that language requires the PTAB to say “yes” or “no” to whole petition for IPR. The Federal Circuit rejected that argument in an earlier case: Synopsys Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016) (“In summary, we find no statutory requirement that the Board’s final decision address every claim raised in a petition for inter partes review. Section 318(a) only requires the Board to address claims as to which review was granted.”)
In both SAS Institute and Synopsis, Circuit Judge Pauline Newman filed dissents on the issue of “partial” institution of IPRs by the PTAB. The main thrust of her argument is that the America Invents Act of 2011 was intended to streamline and speed up the process of challenging patents and to eliminate uncertainty once the process is completed. The Board’s final determination creates estoppel effects preventing further challenges to the patent claims. However, partial IPRs defeat the goal of certainty since the unselected claims remain dangling, as Judge Newman said, “… lacking both finality and estoppel …”
It will be interesting to see how the Supreme Court resolves these issues. The solution may be simple, actually: hold that the PTAB’s decision to not select certain claims for IPR is, in effect, a “final determination” that those claims are valid. In theory, the PTAB decided not to select a given claim because the PTAB determined that there was no reasonable likelihood that the given claim was unpatentable. As such, that could be considered a “final determination.”
Oil States Energy Services LLC v. Greene’s Energy Group, LLC.
In Oil States Energy, the Supreme Court granted certiorari on this question:
Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents – violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.
This issue goes back to McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898) where the Supreme Court held that a patent “is not subject to be revoked or canceled by the president, or any other officer of the Government” because “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” The argument being made is that the PTAB is an “other officer of the Government” and that it is revoking patents with constitutional due process and the right to a jury.
The precise question taken by the Supreme Court in Oil States Energy was answered in the negative by the Federal Circuit in MCM Portfolio LLC, v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015). In MCM Portfolio, the Federal Circuit discussed at length Supreme Court and Federal Circuit precedent. With respect to McCormick, the MCM Portfolio court said that McCormick “… did not address Article III and certainly did not forbid Congress from granting the PTO the authority to correct or cancel an issued patent.” The MCM Portfolio court likened patent validity challenges to other examples of disputes by private parties over public rights. The courts have long held that Congress has the power to designate resolution of such “public rights” disputes to non-Article III decision-making bodies. Examples mentioned in MCM Portfolio include:
- Agency resolution of fair rents in under Washington, D.C. statute
- Mandatory arbitration of customer-broker disputes under the Commodity Exchange Act
- Non-Article III court resolution of import disputes between competing businesses
- Binding arbitration of proper monetary compensation for use of data related to pesticides
Moreover, according to the MCM Portfolio court, agency resolution of disputes is even more appropriate where Congress creates a seemingly “private” right and closely integrates that right into a “public regulatory scheme.” Given the close integration, it is expected that the agency will have a high level of expertise and can efficiently resolve disputes with limited involvement by the Article III judiciary. The MCM Portfolio court felt that its review of Supreme Court and Federal Circuit precedents “… compel the conclusion that assigning review of patent validity to the PTO is consistent with Article III.”
It will be interesting to see how the Supreme Court addresses the question of whether patents are more like disputes by private parties over public rights or whether patents are deeper private rights more akin to property. Seven or eight of the current Justices have expressed or signed onto various opinions that have described a patent as an “exclusive property right” or “valuable property right.” Thus, it is not clear that the Supreme Court will follow the reasoning of the MCM Portfolio court.
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