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Article: October 2017: Patent Litigation Update

Business Litigation Reports

What’s at Stake in the Oil States Case? Supreme Court Granted Cert. to Review Constitutionality of Patent Office IPR Proceedings. This term, the Supreme Court will hear a challenge to the constitutionality of inter partes review (IPR) in Oil States Energy Services LLC v. Greene’s Energy Group, LLC. Oil States has revived an argument last rejected by the Federal Circuit in 2015—that administrative adjudications of patent validity violate both Article III and the Seventh Amendment right to a jury trial. See MCM Portfolio, LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015).

Created in 2011 with the passage of the America Invents Act (AIA), the IPR system is the most recent congressional effort to create an administrative-review process that is “an effective and efficient alternative to often costly and protracted district court litigation.” H.R. Rep. No. 112–98, 2011 U.S.C.C.A.N. 67, 75, at 45. IPR allows a party—often, an accused patent-infringer—to petition the Patent and Trademark Office (PTO) to cancel a patent on the ground that it was anticipated by prior art or obvious. 35 U.S.C. § 311(b). Would-be litigants quickly seized on this new option, and by 2016, the Patent Trial and Appeal Board (PTAB) became the most popular patent-review venue in the country, outpacing even the so-called “rocket docket” in the Eastern District of Texas. 2016 Annual Patent Disputes Report, Unified Patents, https://www.unifiedpatents.com/news/2016/12/28/2016-annual-patent-dispute-report.

But while IPR petitions have proven popular for third-party challengers, patent owners—including Oil States—are markedly less fond of the process, which they argue “takes a patent infringement claim out of the jury’s hands and entrusts it to bureaucrats.” Oil States’ Cert Petition at 13. Patentees aren’t the only detractors. In a remarkable statement, former Chief Judge of the Federal Circuit, Randall R. Rader, described the AIA proceedings as “death squads, killing property rights.” “Rader Regrets CLS Bank Impasse, Comments on Latest Patent Reform Bill,” Bloomberg BNA, October 29, 2013, https://www.bna.com/rader-regrets-cls-n17179879684/.

Over 1,000 patents were “killed” in IPR proceedings as of December 2016. “Patent Trial and Appeal Board Statistics 12/31/2016,” United States Patent and Trademark Office, https://www.uspto.gov/sites/default/files/documents/2016-2-29%20PTAB.pdf. But while Judge Rader may view the killings as extrajudicial, his colleagues have been less sympathetic to the argument that a patent entitles the holder to the safeguards attendant to a jury trial in an Article III tribunal. Faced with multiple challenges to administrative review—ex parte reexamination and IPR—the Federal Circuit has held firm that, while patent disputes arise between private parties, the patents themselves are public rights that may be reviewed and extinguished by the body responsible for administering them according to a complex regulatory scheme. In other words, the PTO giveth, and the PTO taketh away.

After declining to review the 2015 MCM Portfolio decision, in which the Federal Circuit upheld the IPR process as constitutional, the Supreme Court has given patentees new hope that it may guarantee them an Article III forum in which to defend their right of exclusion. But will a decision by the Supreme Court holding the IPR process unconstitutional open the proverbial floodgates of patent litigation in the district courts? After all, patent litigation has been in decline in the past two years. After a spike in 2015, the number of patent suits filed in the district courts dropped significantly, from 5,823 in 2015 to 4,520 in 2016. “2016 Fourth Quarter Litigation Update,” Lex Machina, January 12, 2017, https://lexmachina.com/q4-litigation-update/. Ostensibly, some patent disputes have been rerouted to the PTAB for IPR review. IPR has hardly supplanted traditional patent litigation, but the number of petitions filed is significant enough—over 1,600 in each of the past two fiscal years—to have an appreciable impact on the courts. AIA Trial Statistics, United States Patent and Trademark Office, https://www.uspto.gov/patents-application-process/appealing-patent-decisions/statistics/aia-trial-statistics. This assumes, of course, that challengers choose to pursue their claims through the judicial process. But challengers face higher obstacles in the district courts, including the cost of litigation and Article III standing requirements, which may actually deter them from pursuing those claims. Former patentees whose patents were invalidated by IPR may also begin petitioning the courts to re-open their cases, raising the question of retroactivity. Finally, a decision in favor of Oil States raises broader questions about the future of the PTAB and its independence as a review body. Should the Supreme Court reverse the Federal Circuit, it is quite possible that this case will usher in a new era in patent litigation.