U.S. Supreme Court Rules America Invents Acts Reviews by the Patent Trial and Appeal Board arm of the Patent and Trademark Office are Constitutional

In a 7-2 opinion, the U.S. Supreme Court ruled in OIL STATES ENERGY SERVICES, LLC v. GREENE’S ENERGY GROUP, LLC that inter partes review does not violate Article III or the Seventh Amendment of the Constitution. Thus, the Supreme Court rejected an argument that only federal courts, and not executive branch tribunals or administrative courts like the Patent Trial and Appeal Board (“PTAB”), can invalidate patent claims once issued by the US Patent and Trademark Office (“USPTO”). In so doing, the Supreme Court left intact a system created by Congress in 2011 that has been used by potential patent infringers to challenge and invalidate thousands of patents.

Inter partes review allows private parties to challenge previously issued patent claims in an adversarial process before the PTAB, which is the trial arm of the USPTO. A party that wishes to challenge one or more issued patent claims must file a petition to institute review that identifies the challenged claims and the grounds for challenge with particularity. The patent owner, in turn, may file a response. If the USPTO determines “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition” a review is instituted in front of the PTAB. At the end of the review process, which operates similarly to a litigation proceeding in a court, the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.”

In the underlying proceedings in this matter, a PTAB inter partes review and a District Court litigation were running in parallel. The PTAB issued a final written decision concluding that the challenged claims were unpatentable even after the District Court had issued a claim-construction ruling that construed the challenged claims in a way that foreclosed some of the arguments about the prior art. The PTAB acknowledged the District Court’s contrary decision, but nonetheless concluded that the claims were anticipated by the prior art. On appeal, the patent owner challenged the constitutionality of inter partes review. Specifically, it argued that actions to revoke a patent must be tried in an Article III court before a jury. After the Federal Circuit summarily affirmed the PTAB’s decision, the Supreme Court granted certiorari to determine whether inter partes review violates Article III or the Seventh Amendment.

First, the Supreme Court reasoned that inter partes review falls squarely within the public rights doctrine. The Court continued that the decision to grant a patent is a matter involving public rights—specifically, the grant of a public franchise. Inter partes review is simply a reconsideration of that grant, and Congress has permissibly reserved the USPTO’s authority to conduct that reconsideration. Thus, the USPTO can do so without violating Article III. Additionally, granting patents is one of “the constitutional functions” that can be carried out by “the executive or legislative departments” without “judicial determination.” Accordingly, the determination to grant a patent is a “matte[r] involving public rights.” It need not be adjudicated in Article III court.

The Court further reasoned that inter partes review involves the same basic matter as the grant of a patent. So it, too, falls on the public-rights side of the line. The primary distinction between inter partes review and the initial grant of a patent is that inter partes review occurs after the patent has issued. But, the Court held, that distinction does not make a difference. Patent claims are granted subject to the qualification that the USPTO has “the authority to reexamine—and perhaps cancel—a patent claim” in an inter partes review. Patents thus remain subject to the USPTO’s authority to cancel outside of an Article III court.

Next, the Court considered the patent owner’s argument that prior holdings recognize patent rights as the “private property of the patentee.” In rejecting this argument, the Court reasoned that patents convey only a specific form of property right—a public franchise. And patents are “entitled to protection as any other property, consisting of a franchise.” As a public franchise, a patent can confer only the rights that “the statute prescribes.” Thus, the patentee’s rights are “derived altogether” from statutes, and “are to be regulated and measured by these laws, and cannot go beyond them.” One such regulation, the Court held, is inter partes review. The Court also distinguished decisions from the 1800’s that held the patent office has no authority to revoke patents, reasoning this was before Congress enacted inter partes review. It further pointed out that the Patent Clause in our Constitution “was written against the backdrop” of the English system. Therefore, based on the practice of the Privy Council in existence at that time, it was well understood at the founding that a patent system could include a practice of granting patents subject to potential cancellation in the executive proceeding of the Privy Council.

The patent owner also argued that inter partes review violates Article III because it shares “every salient characteristic associated with the exercise of the judicial power.” But the Court quickly rejected that argument, holding it has never adopted a “looks like” test to determine if adjudication has improperly occurred outside of an Article III court. The fact that an agency uses court-like procedures does not necessarily mean it is exercising the judicial power.

Lastly, the Court quickly rejected the challenge to inter partes review under the Seventh Amendment. The Seventh Amendment preserves the “right of trial by jury” in “suits at common law, where the value in controversy shall exceed twenty dollars.” However, the Courted noted its precedent establishes 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 Court held, because inter partes review is a matter that Congress can properly assign to the USPTO, a jury is not necessary in these proceedings.

In conclusion, the Court emphasized that its holding is limited to the constitutional challenges raised in the case. In fact, the Court held in a separate opinion issued on the same day that the PTAB must decide the validity of every challenged patent claim when it agrees to institute an AIA review. Previously, the PTAB could review some challenged claims and deny review of others. However, the Court found that PTAB should not be able to select a subset of challenged claims to rule on; the PTAB’s final decisions must address all of the claims in a petition. The Court reasoned “everything in the statute before us confirms that SAS is entitled to a final written decision addressing all of the claims it has challenged and nothing suggests we lack the power to say so,….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.”
In short, although AIA reviews are here to stay for the time being as the US Supreme Court has upheld their constitutionality, their exact nature is still in flux.