In Supreme Court oral arguments on Monday, justices seemed skeptical of arguments that a patent office process for challenging patents runs afoul of the Constitution.
The issue matters because the challenged process—which was created by the 2011 America Invents Act—has emerged as a key weapon against patent trolls wielding low-quality patents. Overall, defending a patent lawsuit can easily cost millions of dollars. By contrast, the new process, known as inter partes review, allows a patent to be invalidated for a sum in the low six figures.
That's bad for patent holders—especially those with low-quality patents—because companies accused of infringing a patent can attack the patent before the Patent Office rather than going through the much more expensive route of defending themselves in court.
That's what happened in the case the Supreme Court is considering this week. The case pits Oil States Energy Services against Greene's Energy Group—as you might have gathered from their names, both companies are in the oil business. Oil States owned a patent on a method for securing a drilling tool to an oil well, and in 2012 it sued Greene's in the patent-friendly Eastern District of Texas. Greene's responded by challenging key claims of the patent before the US Patent and Trademark Office using the new inter partes review process. The USPTO sided with Greene's Energy and ruled the challenged claims were invalid.
Oil States responded by challenging the process Greene's Energy had used to attack its patent. The US Constitution prohibits the government from taking someone's property—for example, seizing someone's land by eminent domain—unless the taking has been approved by an independent court. Oil States argues that patents are another form of private property, and so it had a right to a full judicial proceeding—including a jury—before the patent could be invalidated.
The company's lawyer, Allyson Ho, faced a lot of skeptical questions in Monday's oral argument.
Declaring patent reviews unconstitutional could have sweeping implications
The justices pointed out that the new inter partes review process is hardly the first time Congress has allowed the patent office to invalidate patents. Congress first gave the patent office the power to invalidate patents back in the early 1980s, and it has been tinkering with the process ever since. The justices asked the Oil States lawyer if she was seeking to have them declare nearly 40 years of patent policy unconstitutional.
Ho said no, arguing that pre-2011 processes where the patent office reconsidered patents were perfectly constitutional. The problem was that the 2011 law expanded the role third parties like Greene's Energy could play in the review process, making the proceedings look a lot like a full-blown judicial process. She argued that the Constitution requires that any court-like process be conducted by an actual court.
Several justices seemed perplexed by this argument.
"The government wants to put in place a set of procedures that will actually increase the government's accuracy in figuring out whether it made a mistake" in issuing a patent, Justice Elena Kagan said. "It seems a little bit odd to say, sure, the government can reexamine this, the government can allow a third party to request it, can allow the third party to do some things, but there's some line that falls short of what the government thinks of the procedures that enable the greatest accuracy."
"Why would we do that?" Kagan asked.
Ho didn't really have a good answer. And the Supreme Court's newest justice, Neil Gorsuch, suggested that Ho might want to stake out a stronger position instead.
"You struggled with how much of an adjudication does an inquisitorial process have to have before it becomes an adjudication," Gorsuch said. "Why not just simply say the question is whether there's a private right involved?"
The argument suggested that no one on the bench found the line Oil States was trying to draw very persuasive. Some justices—mostly liberals like Kagan and Breyer—didn't seem to see a problem with allowing the Patent Office to invalidate low-quality patents. On the other side, Justice Gorsuch seemed like he might be ready to require all re-examinations of patents to be done in the courts—something that would greatly strengthen the hands of patent holders. It seemed like the court was more likely to go to one of these extremes rather than creating a complicated new rule stating that executive procedures that looked too much like a judicial process were unconstitutional.
Another problem facing justices, however, is that buying the Oil States argument could impact a lot of other areas of administrative law. There are lots of areas of federal law—from disability benefits to federal employment—where executive branch agencies hold hearings that resemble court proceedings. If the high court buys the Oil States argument, it can expect a surge of follow-on litigation challenging administrative procedures in other areas of the law.
The Supreme Court is an inherently conservative institution. It generally tries to avoid making sweeping rulings that upend settled legal principles, and the justices seemed worried that accepting the Oil States argument in this instance could lead to that kind of outcome. Still, we'll have to wait a few months to find out how the high court rules on the case.