Supreme Court Holds AIA Reviews Constitutional, PTAB Must Decide Validity

The U.S. Supreme Court recently ruled that America Invents Act (AIA) Reviews are constitutional. In a separate opinion on the same day, the Court held that if the Patent Trial and Appeal Board (PTAB) institutes a review, then it must decide the validity of all challenged claims.

AIA Reviews are Constitutional

Since their creation under the 2012 AIA, inter partes review (IPR) proceedings have been a powerful tool for challenging the validity of issued patents. Patent challengers enjoy several significant substantive and procedural advantages in IPRs as compared to district court litigation. Indeed, the stunning success rates enjoyed by IPR petitioners prompted former Federal Circuit chief judge Randall Rader to describe the PTAB, the administrative body in charge of inter partes reviews, as “death squads killing property rights.” Faced with the prospect of losing valuable intellectual property, owners of challenged patents have raised a number of constitutional objections to the IPR procedure. This week, in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, et al., the Supreme Court rejected one such line of argument and confirmed the constitutionality of IPRs.

Oil States is an oilfield services company and owner of a patent directed to well-head equipment for hydraulic fracking. Oil States sued a competitor, Greene’s Energy, for patent infringement. Greene’s challenged the asserted patent claims in an IPR and succeeded in invalidating the challenged claims in the PTAB. In its appeal to the Federal Circuit, Oil States argued that the IPR process violates a patent as a “private right,” akin to rights in real property, which could only be revoked by an Article III court presiding over a jury trial. In a 7-2 decision, in an opinion written by Justice Thomas, the Court disagreed. The Court found that patent rights granted by the USPTO (unlike land patents granted, for example, under the Homestead Acts) are “public rights,” “which arise between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.” As public rights, the Court concluded, patents can be reconsidered, and revoked, in an administrative proceeding by the agency that issued them, and without a jury trial.

Justice Gorsuch, writing for the dissenting Justices, would have found patents to be private rights, akin to public land dispensed under the Homestead Acts, which could be divested only through an Article III court action.

The Court insisted that its ruling was a narrow one, emphasizing that Oil States did not challenge the retroactive application of IPRs (i.e., the use of IPRs to invalidate patents issued prior to passage of the AIA). Additionally, the Court noted that Oil States had not made a due process challenge and emphasized that the Court was not finding that patents were not property for the purpose of 5th Amendment takings.

Takeaways: Permitting the USPTO to invalidate issued patents in IPRs is constitutional under Article III and the 7th Amendment. It remains to be seen whether future litigants will challenge their constitutionality under 5th Amendment retroactivity or takings grounds, or whether specific USPTO IPR procedures such as panel packing will be subjected to due process challenges. For now, though, IPRs remain a valuable tool for seeking to invalidate an accuser's patents.

The PTAB Must Decide the Validity of Every Challenged Claim

The PTAB’s current system of reviewing the validity of patents challenged in an AIA review includes a process in which it could institute review of some of the challenged claims, and deny review of others. After the decision to institute a review, the case then proceeds to a final decision where the board provides a final decision regarding the validity of only the instituted claims.

This past week, in SAS Inst., Inc. v. Iancu, the Supreme Court found that the current system does not meet the statutory requirements of the AIA. SAS sought an IPR of ComplementSoft’s patent, and in its petition, alleged that all 16 claims were invalid. The PTAB instituted review for claims 1 and 3-10 only and did not address the remaining claims. SAS appealed to the Federal Circuit arguing that the statutory text of the AIA requires the PTAB to decide patentability of every single claim challenged in its petition. The Federal Circuit rejected SAS’s argument and the Supreme Court granted certiorari.

Justice Gorsuch delivered the opinion in the 5-4 decision and said “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.” Focusing on the specific language of the AIA that provides that the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner,” the Court interpreted this to mean “the Board must address every claim the petitioner has challenged.”

Justice Breyer, writing in dissent, did not find the AIA language as clear-cut as the majority, but thought it rather ambiguous and reasonably interpreted by the patent office: “there is a gap, the agency possesses gap-filling authority, and it filled the gap with a regulation that … is a reasonable exercise of that authority.”

Takeaways: The Court’s holding will have an immediate impact on IPR proceedings. The patent office will have to reformulate its procedures at the PTAB to require a final determination on all claims if review is instituted. Presumably, all currently pending IPR cases will be subject to these new requirements.

• Michael J. Curley: (520) 770-8768 / michael.curley@quarles.com
• Otto E. Hinks: (602) 229-5251 / otto.hinks@quarles.com