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Why The Supreme Court Is Weighing in on Patents (A Discussion of Recent Cases)

By Irina Pomestchenko – Editor: Shandice Sluch | www.amdlawgroup.com

Over the past few years, the Supreme Court of the United States (SCOTUS) has taken a progressively strict position on patent matters. In 2013, SCOTUS issued a ruling that human genes could not be patented in the Association for Molecular Pathology v. Myriad Genetics, Inc. case. [http://www.scotusblog.com/case-files/cases/association-for-molecular-pathology-v-myriad-genetics-inc/]

This holding was followed by the Alice Corp. v. CLS Bank International ruling that held abstract ideas cannot be patented. [https://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf].

The Supreme Court has also overturned several rulings from the Court of Appeals for the Federal Circuit (CAFC), which has historically taken the position of strict enforcement of patents and copyright. A notable case is Impression Products, Inc. v. Lexmark. This case involved the doctrine of “exhaustion,” under which a patent holder’s rights to enforce its patent ordinarily are “exhausted” at the moment the patent holder sells the patent-protected object. The Supreme Court held that “Lexmark exhausted its patent rights in toner cartridges sold in the United States through its Return Program” and thus “cannot sue Impression Products for patent infringement with respect to cartridges Lexmark sold abroad, which Impression Products acquired from purchasers and imported into the United States, because an authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act”. [http://www.scotusblog.com/case-files/cases/impression-products-inc-v-lexmark-international-inc/ ]

To further prevent the continued inconsistency of patent validity decisions, the America Invents Act (AIA) was enacted by Congress and signed into law by President Barack Obama in 2011. The AIA was created to reform the existing patent system. First, it removed federal courts and juries from the process of testing the validity of issued patents. Secondly, the AIA created the Patent Trial and Appeal Board (PTAB) to review and cancel issued patents in an administrative tribunal within the USPTO. These reviews are organized in Inter Partes Review (IPR), post-grant review (PGR) and covered business method (CBM) review tribunals. These tribunal panels are intended to place all final patent validity decisions in the hands of the PTAB and its decisions are appealable only in the Court of Appeals for the Federal Circuit.

After the implementation of AIA, the legal community began to question the constitutionality of the AIA federal statute. This debate is ongoing. Some supporters believe granting the USPTO the ability to review and retract the issued patents is a positive shift in patent law. Supporters state that tribunal panels provide a much faster and more efficient means for challenging invalid patents compared to the federal court process. They also argue that this administrative avenue results in less litigation. It prevents aggressive patent holders from challenging other companies unless they are certain that their patents will withstand a review. At the same time, opponents wonder whether the patent tribunal process violates Article III or the Seventh Amendment of the U.S. Constitution. They argue that it could violate the U.S. Constitution by extinguishing private property rights through Article I tribunal without a jury. This argument can be traced back all the way to 1898 Supreme Court decision in, McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898). [https://supreme.justia.com/cases/federal/us/169/606/case.html]

In this case, the Supreme Court held that once a patent is granted it “is not subject to be revoked or canceled by the president, or any other officer of the Government” because “it has become the property of the patentee, and as such is entitled to the same legal protection as other property.” Historically, patent validity has been arbitrated in Article III courts. Patents have been treated as private property rights between private parties. Many believe that Congress should restore the exclusive domain for patent validity review to Article III courts in order to preserve the independence of the judiciary and the separation of powers.

Despite strong opposition to the AIA, in April 2018, the Supreme Court established that Article I tribunals are constitutional in Oil States Energy Services LLC v. Greene’s Energy Group LLC. In a 7-2 ruling, it upheld the Patent Office’s right to review and cancel already issued patents within the IPR process.

This case originates from a lawsuit that Oil States Energy Services LLC brought against Greene’s Energy Group LLC. The Oil States Energy Services had obtained a patent (U.S. Patent No. 6,179,053) in 2001 and in 2012 they sued Greene’s Energy for patent infringement relating to wellhead equipment used in hydraulic fracturing.  Greene’s Energy petitioned the Patent Trial and Appeal Board (PTAB) to institute Inter Partes Review. They argued that the invention that was the basis of the infringement claim was unpatentable. The PTAB initiated the review and later issued a final written decision concluding the claims were indeed unpatentable.  On appeal to the Federal Circuit, Oil States challenged IPR’s constitutionality, arguing a right to a jury trial in an Article III court.  The Court of Appeals for the Federal Circuit rejected the challenge to the constitutionality of Inter Partes Review and sided with the PTAB on this case. The Supreme Court had affirmed the Court of Appeals decision, [Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712] concluding that Inter Partes Review does not violate Article III or the Seventh Amendment right to a jury trial.  It was held that “when Congress properly assigns a matter to adjudication in a non-Article III tribunal, the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.” Thus, the rejection of Oil States’ Article III challenge also resolves its Seventh Amendment challenge”.

Many of the legal opinions on the case focused on the question of whether patent ownership involves a “public” or “private” right. The Court expressed that “Inter partes review falls squarely within the public-rights doctrine. 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”. It also specifically deemed patents as “public franchises.” Additionally, the Court held that granting patents is one of “the constitutional functions” that can be carried out by “the executive or legislative departments” without “‘judicial determination.” [https://www.supremecourt.gov/opinions/17pdf/16-712_87ad.pdf]

The court also referenced previous decisions that recognize patent rights as the private property of the patentee (United States v. American Bell Telephone Co., 128 U. S. 315, 370; McCormick Harvesting Machine Co. v. Aultman, 169 U. S. 606, 609; Brown v. Duchesne, 19 How. 183, 197), establishing that the current ruling was not contradictive in the light of the past cases. The Court also stated that post-issuance administrative review was authorized by Congress through AIA. The Court recited that “those cases were decided under the Patent Act of 1870 and are best read as describing the statutory scheme that existed at that time” and “the fact American courts have traditionally adjudicated the patent validity in this country doesn’t mean that they must forever do so”.  It also mentions that historically, the English Privy Council that was empowered in the 1790s to cancel issued patents without judge or jury closely resembles modern Inter partes review procedure. [https://supreme.justia.com/cases/federal/us/584/16-712/]

The decision was not unanimous. Chief Justice Roberts and the new Justice Gorsuch, who was appointed by President Trump last year, disputed that only Article III judges (judges from the Courts of Appeal, the Court of International Trade, or the Supreme court) should be able to decide the validity of a patent. [https://www.eff.org/deeplinks/2018/04/supreme-court-upholds-patent-office-power-invalidate-bad-patents]

The Court also noted that this holding was narrow, and “should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.”

The Electronic Frontier Foundation, together with three other leading nonprofit public rights organizations, (Public Knowledge, Engine Advocacy, and the R Street Institute) filed an amicus brief in the Oil States case in support of IPRs. [https://www.eff.org/files/2017/10/30/16-712_bsac_pk_eff_et_al.pdf] The brief elaborates on the history of patents being used as a public policy tool, and how Congress has long controlled how and when patents can be canceled. It further explains how the Constitution sets limits on granting patents, and how IPR is a legitimate exercise of Congress’s power to enforce those limits.

Interestingly, on the same day that Oil States Energy Services LLC v. Greene’s Energy Group LLC was held, the Supreme Court also reached a decision in rather related case of SAS Institute v. Iancu, Director, United States Patent Office, et. al. [https://www.supremecourt.gov/opinions/17pdf/16-969_f2qg.pdf]

In his case the petitioner, SAS sought the Inter Partes Review of respondent’s (Complement Soft) software patent. SAS alleged that the basis of all 16 patent’s claims were unpatentable.  The PTAB proceeded with IPR, but limited its review to only some of the 16 claims raised, relying on a Patent Office regulation recognizing a power of “partial institution,” 37 CFR §42.108(a).  SAS appealed to the Federal Circuit arguing that 35 U.S.C. §318(a) required the Board to decide the patentability of “any” (i.e. every) claim challenged in the petition, but the challenge was rejected. The Supreme Court reversed the CAFC decision by holding that, if the “Patent Office institutes an Inter Partes Review, it must decide the patentability of all of the claims the petitioner has challenged”. [https://supreme.justia.com/cases/federal/us/584/16-969/]

Though this decision will benefit some private parties allowing them to challenge previously issued patent claims in an adversarial process before the Patent Office, some believe it will result in making the PTAB’s job harder. In an attempt to address existing challenges in the patent system, in June 2017, Delaware Senator Chris Coons introduced the Support Technology & Research for Our Nation’s Growth and Economic Resilience (STRONGER) Patents Act of 2017. It is a pro-patent owner bill that intends to make significant changes to the patent laws and Patent Office post-grant review proceedings. However, the Senate has taken no action on the bill since. In 2018, an almost identical act called the STRONGER Patents Act 2018 was sponsored by Reps. Steve Stivers (R-OH) Bill Foster (D-IL) et al. It was recently introduced by the House of Representatives into Congress on March 20, 2018. [https://www.govtrack.us/congress/bills/115/hr5340/text]

Some of the changes to the existing patent system proposed in the both Patents Acts include:

  • Requiring the PTAB to use the same standards as district court when it rules on the validity of issued patents,
  • Restricting the ability of challengers to file and maintain IPR proceedings at the PTAB,
  • Re-establishing presumption of injunctive relief upon a finding of infringement in district court
  • Encouraging the Federal Trade Commission and State’s Attorneys to bring suit against entities who engage in misleading and deceptive practices through the sending of patent infringement demand letters. [https://www.lexology.com/library/detail.aspx?g=cd6c73bc-89e1-4f1c-b5fd-5f54878cea07]

No hearings are currently scheduled by the House on the recently introduced patent acts but the presence of mirror-image bills in both chambers of Congress could mean that the resolution of the topic is near. While many varied opinions exist regarding the ability of proposed legislation to resolve the problems faced by the current U.S. patent system today, both legal and business communities are holding their breath.

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