Supreme Court Decides Two Major Cases Affecting Administrative Adjudication of Patents

Today, in two much-anticipated decisions, the Supreme Court resolved two issues related to administrative adjudications of patent validity. In Oil States Energy Services LLC v. Greene’s Energy Group, LLC, the Court upheld the constitutionality of the American Invents Act’s “inter partes review” process, which allows an administrative tribunal—the Patent Trial and Appeal Board (PTAB)—rather than a federal court to adjudicate the validity of patents that have already been issued. And in SAS Institute, Inc. v. Iancu, the Court held that where a party files a petition for inter partes review and the PTAB decides to institute a trial on at least one claim, it must address all of the challenged claims.

Oil States

The Oil States case arose when Oil States sued Greene’s Energy for patent infringement in district court, but Greene’s separately challenged the validity of Oil States’ patents in the PTAB, which then invalidated the patents. On appeal, Oil States argued that, in allowing an administrative agency to adjudicate the validity of patents, Congress violated both Article III of the Constitution, which vests the judicial power in the federal courts, and the Seventh Amendment, which preserves the right to a jury in suits “at common law.” The Federal Circuit rejected these challenges, ruling that inter partes review in the PTAB was constitutional, and Oil States sought and obtained Supreme Court review.

Today, in a 7-2 decision authored by Justice Thomas, the Court affirmed. The Court held that inter partes review fits comfortably within the Court’s cases involving “public rights,” which are “susceptible” to judicial determination not only in Article III courts, but in Executive Branch agencies. See Ex Parte Bakelite Corp., 279 U.S. 438, 451 (1929); Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 284 (1856). The Court concluded that determining the validity of patents in an inter partes review proceeding involves “public rights” because it arises “between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.” Crowell v. Benson, 285 U.S. 22, 50 (1932). As the Court explained, the grant of a patent is akin to a “public franchise” that is a “creature of statute,” and thus can be revoked by the government without resort to the courts because Congress can “qualify the grant by reserving its authority to revoke or amend the franchise.”

The Court relied significantly on history, noting that as of the Founding it was known that the Privy Council in England had exercised “exclusive authority to revoke patents until 1753, and after that, it had concurrent jurisdiction with the courts.” Based on this practice, the Court observed that “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.” And because the Court held that such an adjudication did not require an Article III court, the Seventh Amendment did not apply for that reason because Executive Branch adjudications do not require juries.

Justice Gorsuch, joined by Chief Justice Roberts, dissented, reasoning that by the time of the Founding the practice in England had shifted from executive determination of ongoing validity to determination by judicial courts. In his view, this move reflected a changed historical understanding of the nature of patents from exclusive privileges to operate a monopoly in an ordinary occupation to a reward for scientific and industrial ingenuity—a reward that was to be treated as other private property was treated, and could be stripped away only by traditional courts.

SAS Institute

In SAS Institute, the Court then proceeded to address whether the PTAB could make “partial institution” decisions on some but not all claims challenged by a petition for inter partes review—as had been the PTAB’s practice—or whether the agency was instead required by statute to institute a trial on all challenged claims if it exercised its discretion to institute trial on at least one of them. In a 5-4 decision authored by Justice Gorsuch, the Court held that partial institution violated the statute.

The Court reached this result based on the statutory language. An institution decision can be made if there is “a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.” 35 U.S.C. § 314(a). “If an inter partes review is instituted and not dismissed,” however, the Board “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” Id. § 318(a). The Court interpreted “any” in this context to mean “every.”

The Court acknowledged the policy concern, raised by Justice Breyer for the four dissenting Justices, that such a practice would be inefficient. The Court also acknowledged SAS’s response that all of the claims will usually be challenged somewhere—whether in the PTAB or in court—thus making it more efficient for the PTAB to address all the claims together. But the Court declined to weigh in on this “debate,” holding only that “who should win … isn’t [the Court’s] call to make. Policy arguments are properly addressed to Congress, not this Court.”

Also interesting is the Court’s rejection of the Patent Office’s argument that the Director’s decision to institute trial was unreviewable under 35 U.S.C. § 314(d). That section mandates that the “determination by the Director to institute an inter partes review under this section shall be final and nonappealable.” The Court found that this statute was no impediment its review of the Patent Office’s partial institution practice: “If a party believes the Patent Office has engaged in ‘shenanigans’ by exceeding its statutory bounds, judicial review remains available consistent with the Administrative Procedures Act.”

Justice Breyer also reasoned that the statute was ambiguous or left a gap for the agency to fill under Chevron v. Natural Resources Defense Council. In his view, “any patent claim challenged by the petitioner” could still mean any such claim after a partial institution decision.

In sum, today’s decisions means business as usual on the question of whether inter partes review may continue apace at the PTAB. But while the inter partes review has been held constitutional, the PTAB is required by statute to end its practice of “partial institution.” How this holding will affect discretionary institution decisions, and appeals from partial institution decisions, remains to be seen.