One Year after Oil States, Constitutional Questions Remain

by Dorothy Whelan, Karl Renner, and Rob Courtney.

In April 2018, the Supreme Court issued Oil States Energy Services, LLC v. Greene's Energy Group, LLC, 138 S. Ct. 1365, and SAS Institute v. Iancu, 138 S. Ct. 1348, a highly anticipated pair of decisions concerning post-grant proceedings at the Patent Trial and Appeal Board (PTAB).

Oil States resolved two constitutional challenges: (1) whether inter partes review (IPR) violates Article III because it allows an administrative agency rather than an Article III court to divest a patentee of his or her property rights and (2) whether it violates the Seventh Amendment because it allows administrative judges rather than juries to adjudicate patent validity. Regarding the Article III challenge, the Court held that IPR does not violate Article III, because patents are public rights. Granting patents is one of the constitutional functions that may be carried out by either the executive or legislative branch, and IPR is merely a reconsideration of those public rights by the executive agency that granted them. Turning to the Seventh Amendment challenge, the Court held that IPR does not violate the Seventh Amendment, because when Congress properly assigns a matter for adjudication in a non-Article III court, the Seventh Amendment does not prohibit adjudication of that action by a non-jury fact finder.

The Court was careful to emphasize the narrowness of its holding in this case and explicitly stated that it did not foreclose future constitutional challenges of IPR under the Due Process Clause or the Takings Clause. One can almost read the Court's disclaimer as an invitation to future constitutional challenges or as a clue to future litigants as to which arguments to pursue. In the year since the Court left this door open, many have tried to guess what those arguments might look like and how successful they would be. The most likely grounds for future constitutional challenges to IPR are based on those the Court suggested as well as challenges based on the retroactive application of IPR to pre-America Invents Act (AIA) patents.

Retroactive Application

A common argument against IPR is that its retroactive application to pre-AIA patents is a prohibited deprivation. These arguments are not strictly constitutional but rather are based on the well-established presumption against retroactivity inherent in the Supreme Court's jurisprudence and constitutional provisions such as the Ex Post Facto Clause. Landgraf v. USI Film Products, 511 U.S. 244 (1994). The Federal Circuit has previously rejected similar arguments against ex parte reexamination, finding that retroactive application of ex parte reexamination was not a prohibited deprivation, because patents are within the scope of the public rights doctrine. Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985). The Court in Landgraf also stated that while prospectivity is the default presumption in the civil context, retroactive application may be permissible where Congress has made clear its intent to disrupt settled expectations. The Federal Circuit is currently considering this issue in light of the AIA in Collabo Innovations, Inc. v. Sony Corporation, No. 18-1311.

Due Process

A principal constitutional argument against IPR is that the PTAB's procedures do not meet the Fifth Amendment's procedural due process requirements for divesting property. The Supreme Court has held that the Due Process Clause's requirements are flexible and that the exact procedures due in any particular case are those that are appropriate to the nature of the case. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950). However, the Court has generally held that due process requires, at a minimum, notice and an opportunity to be heard by an impartial tribunal. See, e.g., Goldberg v. Kelly, 397 U.S. 254 (1970), Mathews v. Eldridge, 424 U.S. 319 (1976). At oral argument in Oil States, the Court expressed concern about the degree of impartiality of PTAB tribunals, particularly the Director's authority to expand PTAB panels in order to overturn decisions with which he or she disagrees - a practice that has come to be known disparagingly as "panel stacking." Future constitutional challenges to IPR proceedings based on due process grounds may seize upon this practice as evidence of their unconstitutionality.

Takings

Potential challengers could also argue that cancellation of patent claims in IPR is a taking that requires compensation under the Fifth Amendment. A plaintiff in a takings case must show (1) a valid property interest and (2) a government action that amounted to a compensable taking of that interest. Air Pegasus of D.C., Inc. v. United States, 424 F.3d 1206 (Fed. Cir. 2005). Establishing the first element could be tricky for a patent owner, as Justice Thomas noted in Oil States. Because patents are public franchises, they are qualified property rights and are granted subject to the government's authority to reexamine and potentially cancel their claims. This was essentially the conclusion reached by the Court of Federal Claims when it denied a patent owner's takings claim in Christy v. United States, No. 18-657C (Fed. Cl. Jan. 29, 2019). The court in that case relied heavily upon Oil States as well as several other decisions reiterating the qualified nature of the property rights granted by a patent. See, e.g., Schillinger v. United States, 155 U.S. 163 (1894), Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24 (1923). As the Supreme Court has not yet settled this issue, it is likely that the question of whether a patent constitutes a property interest for Takings Clause purposes will reach the Court soon.

For now, Oil States is the Court's final word on the constitutionality of IPR, rendering unlikely its demise in the near future. Petitioners and patent owners may safely assume that the PTAB will continue to be the most active forum for patent challenges, and thus they should incorporate post-grant considerations in their overall patent strategies. We will continue to monitor the ongoing constitutional challenges to IPR currently making their way through the courts and will alert our clients to any decisions that may affect them. For more information, please contact your Fish attorney or contact us at [email protected].

The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.