From Fish & Richardson Legal Alert
May 10, 2018:
In short, this Ruling results in changes for IPRs at the PTAB. If the PTAB is to institute an IPR on any Ground in a Petition, it must institute on all grounds.
Supreme Court Ruling Regarding Inter Partes Review (IPR)
Implications of Oil States Energy Services and SAS Institute
As the most-active firm practicing at the Patent Trial and Appeal Board (PTAB), we are proud to have shared in our clients’ successes over the years. Fish was one of the first firms to file a post-grant petition in 2012, and since then we have enjoyed being a part of the growth of this important area of legal practice. As a Diamond Seed Funder of the PTAB Bar Association, and through our events and webinars, we have met and spoken with many of you, and we would like to take this moment to express our thanks for your continued support. The past two weeks have been exciting as we learn about the implications of Oil States Energy Services, LLC v. Greene’s Energy Group, LLC and SAS Institute Inc. v. Iancu. Below are our analyses of these opinions, as well as links to resources you may find helpful as you, too, plan for the future.
As for future proceedings, the PTAB has issued guidance on the impact of SAS indicating that “the PTAB will institute as to all claims or none” and “if the PTAB institutes a trial, the PTAB will institute on all challenges raised in the petition.” The guidance further indicates that for pending trials where partial institution has occurred “the panel may issue an order supplementing the institution decision to institute on all challenges raised in the petition.” And, if a supplemental institution decision is issued, “the panel may take further action to manage the trial proceeding, including, for example, permitting additional time, briefing, discovery, and/or oral argument, depending on various circumstances and the stage of the proceeding.”
Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, et al.,
584 U.S. ____ (2018), 2018 U.S. LEXIS 2630.
Oil States addressed two separate constitutional challenges to inter partes review (IPR): (1) whether IPR violates Article III of the Constitution because it allows an administrative agency—not Article III courts—to extinguish a patentee’s rights; and (2) whether IPR violates the Seventh Amendment because it allows administrative judges, rather than juries, to adjudicate validity. In a 7-2 decision, the Supreme Court affirmed the Federal Circuit, holding that IPR does not run afoul of Article III or the Seventh Amendment. The majority opinion was penned by Justice Thomas, who many thought would find IPR unconstitutional based on his dissent in B&B Hardware, v. Hargis Indus., 135 S. Ct. 1293 (2015), where he opined that decisions of the Trademark Trial and Appeal Board (TTAB) revoking issued trademark rights should not have a preclusive effect in a subsequent trademark infringement suit. Justice Thomas was joined in Oil States by Justices Kennedy, Ginsburg, Breyer, Alito, Sotomayor, and Kagan. Justice Breyer authored a concurring opinion, joined by Justices Ginsburg and Sotomayor. Justice Gorsuch, author of the majority opinion in SAS, filed a dissenting opinion, joined by Chief Justice Roberts.
As to the Article III challenge, the majority found that “[i]nter partes review falls squarely within the public-rights doctrine,” and therefore resides inside the scope of Congress’ authority to assign adjudication to entities other than Article III courts. Slip op., 6. In reaching this conclusion, the opinion reasons that patents are “public franchises” granted by the government to bestow upon the patent owner the right to exclude. Slip op., 7. According to the majority, “[i]nter partes review involves the same basic matter as the grant of a patent,” and “[s]o it, too, falls on the public-rights side of the line.” Slip op., 8. Like other public rights, patent claims are granted subject to the qualification that they may be reexamined and canceled by the United States Patent and Trademark Office (USPTO). Slip op., 9-10.
The opinion addresses prior decisions recognizing patent rights as “private property of the patentee” by noting that “those case(s) were decided under the Patent Act of 1870” and are “best read as a description of the statutory scheme that existed at that time.” Slip op., 10-11. Such precedents, therefore, “do not resolve Congress’ authority under the Constitution to establish a different scheme.” Slip op., 11.
The opinion also dismisses arguments based on historical practice in 18th-century English courts of law, finding that the framers of the Constitution were also aware of a Privy Council proceeding resembling IPR, and yet there is no evidence that the framers sought to preclude such a proceeding. Slip op., 12-14. The opinion similarly disposes of arguments citing the historical adjudication of patent validity in American Article III courts, stating: “That Congress chose the courts in the past does not foreclose its choice of the PTO today.” Slip op., 14-15. Separately, the opinion reasons that similarities between procedures used in IPR and Article III courts do not lead to a conclusion that the PTO is exercising judicial power. Slip op., 15. While IPR includes features of adversarial litigation, it does not make binding determinations as to liability between the parties and therefore remains a matter solely involving public rights. Slip op., 15-16.
In concluding its Article III discussion, the majority opinion emphasizes the narrowness of its holding, expressly leaving open three issues: (1) whether infringement actions can be heard in a non-Article III forum; (2) whether IPR would be constitutional absent review by the Federal Circuit; and (3) whether retroactive application of IPR to pre-America Invents Act (AIA) patents is permissible under the Constitution. Slip op., 16-17.
The opinion only briefly addresses the Seventh Amendment challenge, finding it resolved by the Article III challenge because “when Congress properly assigns a matter to adjudication in a non-Article III tribunal, “the Seventh Amendment poses no independent bar to adjudication of that action by a nonjury factfinder.” Slip op., 17.
Justice Breyer, joined by Justices Ginsburg and Sotomayor, authored a short
concurring opinion clarifying that the majority opinion should not be read in a manner
that categorically excludes adjudication of private rights other than by Article III courts.
Justice Gorsuch, joined by Chief Justice Roberts, authored a dissent analogizing a patent to a “personal right—no less than a home or a farm” and, therefore, finding that right properly revocable “only with the concurrence of independent judges.” Dissent, 2. The dissent characterizes IPR as a scheme that, while well-intended, “represents a retreat from the promise of judicial independence.” Dissent, 3. From this premise springs concern that a bureaucratic regime is subject to capture by “[p]owerful interests” in such a manner that “the losers will often prove the unpopular and vulnerable.” Dissent, 3. The dissent then embarks on a lengthy discussion of history and precedent, much of which is addressed by the majority opinion, to support its conclusion that the character of patents is such that, once issued, they may be revoked only by Article III courts. Dissent, 3-12.
SAS Institute Inc. v. Iancu, et al., 584 U.S. ____ (2018), 2018 U.S. LEXIS 2629.
In SAS, the Supreme Court addressed the question of whether 35 U.S.C. §318(a) requires the Board to issue a final written decision as to every claim challenged by the petitioner, or permits adjudication of only some of the challenged claims, as the Federal Circuit held. In a 5-4 decision, the Supreme Court reversed the Federal Circuit, holding that the Board must decide the patentability of all of the claims the petitioner has challenged. The majority opinion was penned by Justice Gorsuch (the author of the dissent in Oil States ) and joined by Justices Roberts, Kennedy, Thomas, and Alito. Justices Ginsburg and Breyer authored dissents joined by Justice Sotomayor and, in part, by Justice Kagan.
The majority found that “the plain language of §318(a) supplies a ready answer” to the question presented. Slip op., 4. The text of §318(a) is “both mandatory and comprehensive,” expressly stating that “the [Board] shall issue a final written decision with respect to the patentability of any claim challenged by the petitioner.” Slip op., 4 (original emphasis). In the majority’s view, the word “shall” imposes a nondiscretionary duty, and the term “any” means “every.” Slip op., 4-5. Thus, §318(a) “means the Board must address every claim the petitioner has challenged.” Slip op., 5 (original emphasis). The opinion finds no support in the text of §318(a) to support the director’s claimed power of “partial institution,” and explains that “what can be found in the statutory text and context strongly counsels against the Director’s view.” Slip op., 5.
Starting with pre-institution statutes §311(a) and §312(a)(3), the opinion gleans “that Congress chose to structure a process in which it’s the petitioner, not the Director, who gets to define the contours of the proceeding.” Slip op., 6. And, from comparison with the sister ex parte reexamination statute, it is clear that Congress purposefully departed from a regime in which the director has authority to conduct review and investigation of issued patents “[o]n his own initiative, and at any time.” Slip op., 6 (citing 35 U.S.C. § 303(a)).
As to the institution statute, §314(b), the opinion explains that the director is charged with determining “whether” to institute, which “indicates a binary choice—either institute review or don’t.” Slip op., 7. “Nothing suggests the Director enjoys a license to depart from the petition and institute a different inter partes review of his own design.” Slip op., 7. The opinion rejects the director’s contention that §314(a) authorizes claim-by-claim institution, finding instead that “it simply requires him to decide whether the petitioner is likely to succeed on ‘at least 1’ claim.” Slip op., 7. From here, “the Director need not even consider any other claim before instituting review.” Slip op., 7. Again, comparing the inter partes review statute in §314(a) to the comparable ex parte re-examination statute in §304, the majority opined that Congress knew how to grant claim-by-claim and ground-by-ground authority but deliberately chose not to. Slip op., 7-8. The extent of the director’s discretion under §§314(a) and 314(b) relates to the question of whether to institute review and excludes what claims that review will encompass. Slip op., 8.
As to the remainder of the statute, the opinion notes that §316(a)(8) instructs the director to adopt regulations governing the patent owner’s response to the petition, rather than a response to the director’s institution notice. Slip op., 8. Finally, §318(a) “categorically commands” that all claims be addressed in the Board’s final written decision. Slip op., 9. “In all these ways, the statute tells us that the petitioner’s contentions, not the Director’s discretion, define the scope of the litigation all the way from institution through to conclusion.” Slip op., 9.
The opinion discards the director’s assertion that “linguistic discrepancy” between §314(a) and §318(a) afford the implicit power to institute fewer than all challenged claims. Slip op., 9. According to the majority, the difference in language between these provisions is “fully explain[ed]” by §316(d)(1)(A), which permits the patent owner to cancel challenged claims during the proceeding. Slip op., 9-10.
Having fully vetted the statutory text, the opinion moves on to address the director’s policy argument that “partial institution is efficient because it permits the Board to focus on the most promising challenges and avoid spending time and resources on others.” Slip op., 10. This too was unpersuasive to the majority, which viewed policy considerations of this sort as more appropriately addressed in Congress. Slip op., 10. The opinion further disposes of the director’s suggestion that his office should be afforded deference with respect to its interpretation of an ambiguous statute, under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Slip op., 11. For the many reasons discussed above, the opinion finds the statutory text “deliver[s] unmistakable commands,” leaving “no room . . . for a wholly unmentioned ‘partial institution’ power[.]” Slip op., 12.
Lastly, the opinion rejects the director’s invocation of Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016), for the proposition that institution decisions are final and nonappealable. Slip op., 12. Here, the opinion re-emphasizes both the narrowness of the holding in Cuozzo and the Court’s prior proclamation that “§314(d) does not ‘enable the agency to act outside its statutory limits.’” Slip op., 13.
Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, authored a one-page dissenting opinion criticizing the majority’s reading of §318(a) as “wooden” and potentially subject to circumvention if the Board simply denies institution on all claims and details which claims have merit. Op., 1. The petitioner could then refile a new petition including only those claims receiving a favorable review in the first instance. Op., 1. Thus, the dissent asks “[w]hy  the statute [should] be read to preclude the Board’s more rational way to weed out insubstantial challenges?” Op., 1.
Justice Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan (in part), authored a full-throated dissent, finding the statutory text of §318 ambiguous because it “contains a gap just after the words ‘challenged by the petitioner.’” Op., 8. The dissent observes that, under Chevron, an agency is granted leeway to enact rules that are reasonable in light of the text, nature, and purpose of an ambiguous statute. Op., 8-9. According to the dissent, the United States Patent and Trademark Office has done so in this instance, and therefore its rules should not be disturbed. Op., 10.
Guidance on the Impact of SAS on AIA Trial Proceedings
USPTO – Chat with the Chief on SAS
Looking Ahead: Practical Implications of Oil States Energy Services and SAS Institute
Post-Grant Oil States Podcast