In a highly anticipated decision, the Supreme Court upheld the Patent Trial and Appeal Board's (PTAB) authority to invalidate issued patents in Oil States Energy Services v. Greene's Energy Group. Writing for the majority in a 7-2 decision, Justice Thomas articulated how "the decision to grant a patent is a matter involving public rights...inter partes review is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO's authority to conduct that reconsideration." Nearly 60 amicus briefs were submitted in Oil States, making it one of the most heavily watched and, in some respects, controversial patent case in recent years. The Court's decision will significantly impact the rights of intellectual property owners.

The America Invents Act And Inter Partes Review

Enacted in 2011, the Leahy-Smith America Invents Act (AIA) overhauled key provisions contained in the U.S. Patent Act, which had last been amended in 1952. In particular, the AIA established inter partes review as an additional avenue for third-party challenges to the validity of a patent. The motivation behind the implementation of inter partes review proceedings included: (1) revitalizing post-issuance review procedures; (2) improving patent quality; and (3) providing IP owners with a mechanism to address non-practicing entity (NPE) patent enforcement of "weak" patents.

Before the AIA, the primary vehicle for challenging the validity of a patent was through litigation, either in response to a charge of infringement or a preemptive challenge under the Declaratory Judgment Act. The only alternative for companies to challenge a patent's validity outside of court, ex parte re-examination, suffered from a number of serious limitations that reduced its effectiveness. Re-examination (under the old version of the Patent Act) was slow, sometimes taking almost five years to reach a final determination. The proceedings, if the challenger's petition was granted, were entirely in the hands of the re-examination division, with no opportunity for the challenger to comment during the proceedings. This was believed to contribute to lower patent quality, an issue the creation of inter partes review sought to address.

Whether the implementation of inter partes review has helped promote innovation has been the subject of much debate over the past six years. While the PTAB was created to address concerns regarding the granting of undeserving or "weak" patents, the high rate at which the PTAB has invalidated patents has garnered it the reputation of a "patent death squad." Critics of the PTAB's inter partes review system have cited an increase in patent litigation, less certainty in the validity of a granted patent, and an overall higher cost of innovation.

The Supreme Court Decision

Oil States Energy Services, LLC's patent was challenged both in Federal Court and through inter partes review. While the District Court issued a claim construction ruling that favored Oil States, a parallel PTAB proceeding resulted in a decision that Oil States' patent was invalid. Oil States appealed to the Federal Circuit, arguing that all patent's validity determinations should be tried in an Article III court, and that the PTAB's authority ran afoul of the Constitution. The Federal Circuit addressed these issues in a separate case, and subsequently affirmed the PTAB's decision, leading Oil States to petition the Supreme Court.

The principal question raised in Oil States is whether inter partes review by the PTAB violates the U.S. Constitution by revoking private property rights through non-Article III courts. On April 24, 2018, the Supreme Court issued its decision, including a 7-2 majority opinion written by Justice Thomas. Invoking the public-rights doctrine, United States v. Duell, 172 U.S. 576, the Court characterized patents as "public franchises" which Congress reserved for determination by "executive or legislative departments" without "judicial determination." The Court reasoned that inter partes review involves the same subject matter and public interests as the grant of a patent, and merely represents a "reconsideration of [the Patent Office's] grant" of a patent. Relying on previous Supreme Court authority (Crowell v. Benson, 285 U.S. 22 and Louisville Bridge Co. v. United States, 242 U.S. 409), the Court held that issued patents remain subject to the PTAB's authority and may be cancelled outside of an Article III court.

The Court addressed Oil States' arguments by noting that even 18th-century English courts were not the only venue for cancellation, recognizing the practice of petitioning the Privy Council to vacate a patent, which the Court found closely resembled inter partes review. And the Court also rejected Oil States' analogy to private property rights cases decided under the Patent Act of 1870. The majority held that those early cases did not foreclose the authorization of post-issuance administrative review challenged by Oil States.

Finally, the Court also rejected Oil States' argument that inter partes review violates the Seventh Amendment, holding that "the Seventh Amendment poses no independent bar to the adjudication...by a nonjury factfinder" and preserving Congress' right to assign such matters to a non-Article III tribunal.

The minority opinion was written by Justice Gorsuch, joined by Justice Roberts, and stated that principles of judicial independence appreciated by the framers of the Constitution dictated a different conclusion than that reached by the majority. Justice Gorsuch also addressed the argument that perceived inefficiencies, which in his opinion are often vital, could be ignored in the Court's constitutionality analysis, stating "[t]he Constitution 'reflects a judgment by the American people that the benefits of its restrictions on the Government outweigh the costs,' and it is not our place to replace that judgment with our own."

Supreme Court Tells PTAB It Must Address Every Claim Challenged in A Petition

In addition to considering the constitutionality of AIA proceedings in Oil States Energy Services v. Greene's Energy Group during the October 2017 term, the Supreme Court also considered whether the AIA permits the PTAB to partially institute inter partes review proceedings (i.e. instituting on only some of the claims challenged in a petition) in SAS Institute v. Iancu. Writing for the majority in a 5-4 decision, Justice Gorsuch articulated that statute 35 U.S.C. § 318(a) requires the PTAB to address every claim challenged in a petition.

While certiorari was granted a few weeks before cert in Oil States, SAS Institute received little attention in the wake of Oil States – only two amicus briefs were filed compared to the nearly 60 in Oil States. However, SAS Institute has further reaching implications as it not only effects the PTAB's procedural practices buts raises a host of strategic questions for a petitioner given the estoppel impact of a final written decision on challenged claims.

The Supreme Court Decision

SAS filed an inter partes review petition of a ComplementSoft software patent. The patent included one independent claim and 15 dependent claims. In its petition, SAS alleged all 16 claims of the software patent were unpatentable for various reasons. The PTAB concluded that SAS was likely to succeed with respect to at least one of the challenged claims such that review was warranted. The PTAB instituted partial review for claims 1 and 3-10 while review of the remaining claims (dependent claims 11-16) was denied. The PTAB issued a final written decision finding that claims 1, 3, and 5-10 were unpatentable while upholding claim 4 as patentable. This prompted SAS to appeal to the Federal Circuit. At the Federal Circuit, SAS challenged the PTAB's failure to comply with § 318(a)'s requirement as SAS had challenged the patentability of all 16 claims but only received a final written decision as to nine claims. A divided panel at the Federal Circuit denied SAS's statutory challenge to the PTAB's partial-institution practice, and the full Federal Circuit denied SAS's request for en banc. SAS sought U.S. Supreme Court review on this issue, and in May 2017, the Supreme Court granted SAS's petition for certiorari.

The question raised in SAS Institute was does 35 U.S.C. § 318(a), which provides that the PTAB in an inter partes review "shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner," require that the PTAB issue a final written decision as to every claim challenged by the petitioner. On April 24, 2018, the Supreme Court issued its decision including a 5-4 majority written by J. Gorsuch joined by C.J. Roberts and J. Kennedy, Thomas and Alito.

In the decision, the majority found no basis for the PTAB to have discretion regarding "partial institution." Gorsuch provided a textual analysis of the provisions of the statue starting with the plain language of § 318(a), explaining that "the directive is both mandatory and comprehensive." Gorsuch's interpretation focused on the use of "shall" and "any" in the statue and concluded that the PTAB must address every claim the petitioner has challenged. The opinion also notes that, unlike in ex parte re-examination, "we see 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."

With regard to the slight differences in the language of § 314 and § 318, Gorsuch asserted that the majority "just don't see it," characterizing it as a "slight linguistic discrepancy," and rationalized that any differences between the claims challenged in the petition and the claims available for final written decision can be explained by the patent owner's ability to cancel or amend claims.

The majority also did not find the Director's policy argument regarding efficiency persuasive and stated "whatever its virtues or vices, Congress's prescribed policy here is clear: the petitioner in an inter partes review is entitled to a decision on all the claims it has challenged."

Takeaways

The Supreme Court's decision raises many unanswered questions and issues going forward. Whether this decision will have a retroactive effect on past decisions in PTAB proceedings is currently unknown. The Federal Circuit and the PTAB will need to address the impact to pending proceedings already subject to partial institutions. The PTAB may also rethink how its institution decisions are made. For example, as Justice Breyer eluded to in his dissent, this decision raises the possibility that the Board, rather than issue a final written decision on claims that do not rise to the "reasonable likelihood" standard will instead refuse to institute altogether. Petitioners and patent owners will also need to re-evaluate their respective strategies in light of SAS and any subsequent changes in the PTAB's practices. For example, SAS has enhanced the potential adverse consequences of the estoppel provisions under § 315(e). Because issuance of a final written decision triggers the estoppel provisions, petitioners will need to consider whether to file an AIA challenge more carefully. In some instances, petitioners may have an incentive to file more petitions per patent, while in others, not to challenge certain claims at all. Likewise, patent owners will likely adjust pre-institution strategies.

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