April 25, 2018

Supreme Court Preserves Inter Partes Review But Changes Its Scope

On April 24, 2018, the Supreme Court preserved inter partes review (and similar procedures), but made a significant change in how it will be conducted. In Oil States Energy Services v. Greene’s Energy Group, the Court held (by a vote of 7-2) that IPR is constitutional. In SAS Institute Inc. v. Iancu, the Court held (by a vote of 5-4) that if the Patent Trial and Appeal Board (PTAB) institutes an IPR, it must address each and every claim that the petitioner challenges; it cannot limit its proceedings and final written decision to a subset of the challenged claims.


The 2011 amendment to the patent laws, the Leahy-Smith America Invents Act, created several new procedures for the Patent and Trademark Office (PTO) to review issued patents. IPR was the first and best known. It allows a challenger to ask the PTO to reconsider the validity of an issued patent, on specified grounds. A challenger files a petition with the PTAB, specifying the patent claims that it wants to challenge and the grounds of invalidity it wants to raise. The PTAB (acting on behalf of the PTO Director) then decides whether to “institute” an IPR; sometimes it has decided to institute, but only on a subset of the claims challenged in the petition.

Oil States

The Federal Circuit had previously upheld the PTO’s authority to reexamine patents after they are issued, and it reached the same conclusion about IPR. In MCM Portfolio v. Hewlett-Packard Co. (a case handled by Goodwin), the Federal Circuit rejected constitutional challenges to IPR, and the Supreme Court declined to review that decision in October 2016.

The constitutional challenge was revived after Justice Neil Gorsuch joined the Court in early 2017. Oil States successfully petitioned the Court to hear two questions:  (1) whether IPR violates the separation of powers because only a federal court has the power to invalidate an issued patent; and (2) whether IPR violates the Seventh Amendment’s guarantee of the right to a jury  in federal civil cases because the PTAB sits without a jury.

In an opinion by Justice Clarence Thomas, the Supreme Court rejected these challenges—and only these challenges—and held that IPR does not violate the separation of powers or the Seventh Amendment. Most of the Court’s analysis focused on the separation of powers. A line of cases has held that Congress can assign the adjudication of so-called “public rights” to administrative agencies rather than federal courts. The Court held that IPR “falls squarely within the public-rights doctrine.” Patents are property rights once issued, but the issuance of a patent is a public right because it involves the government’s decision to grant a statutory monopoly. And because IPR involves only reconsidering the issuance of the patent, the Court held that it too involves questions of public rights.

The Court placed some emphasis on the notion that today, “[p]atent claims are granted subject to the qualification that the PTO has the authority to reexamine—and perhaps cancel—a patent claim in an inter partes review.” The Court’s treatment of Founding-era history incorporated similar analysis:  while the separation of powers gives the federal courts exclusive authority to decide any matter that “from its nature” was a suit at common law at the time of the Founding, the Court concluded that “it was well understood at the founding that a patent system could include a practice of granting patents subject to potential cancellation in [an] executive proceeding.”

The Court’s reliance on this implicit reservation in the patent grant could be significant for future cases. IPR has been applied to review and cancel many patents that were issued before the AIA’s enactment in 2011. The Court expressly did not consider whether applying IPR to review those patents would be impermissibly retroactive.

The Court’s opinion also did not examine whether the PTAB’s practice of sometimes changing the membership of a panel—which drew substantial attention at oral argument—was problematic. The Court merely stated that it was not deciding any due-process issue.

Justice Stephen Breyer, joined by Justices Ruth Bader Ginsburg and Sonia Sotomayor, joined the opinion but concurred separately to observe that he might well have upheld IPR even if it were held to involve private rights rather than public rights.

Justice Neil Gorsuch dissented, joined by Chief Justice John Roberts. He concluded that a challenge to a patent’s validity is the sort of challenge that, at the time of the Founding, would have been heard in a court of law. Accordingly, he concluded, Congress may not assign it to a body that lacks the protections the Constitution’s Article III gives to federal courts, such as life tenure, Senate confirmation, and salary protection.

The Court’s decision does not change the law, but merely affirms the Federal Circuit’s decision rejecting these constitutional challenges. (Indeed, the IPR statute has now produced two of the increasingly rare affirmances of the Federal Circuit—in Oil States and Cuozzo Speed Technologies v. Lee—and both by a lopsided vote.) The Court signaled possible willingness to take up other challenges to IPR, but there is reason to doubt that any major challenge will succeed. First, the other potential challenges mentioned in the decision are narrower—they would not affect all IPRs, as Oil States did. Second, these other challenges would need to percolate up through the Federal Circuit, and it is far from clear that the Supreme Court will be eager to hear another IPR challenge soon after the lopsided, 7-2 affirmance in this case. For the foreseeable future, it appears IPR is here to stay.

SAS Institute

The statutory threshold for instituting an IPR is whether the PTAB (acting on behalf of the PTO Director) concludes that the petitioner is reasonably likely to prevail in demonstrating the unpatentability of at least one of the patent claims challenged in the petition. The PTO implemented a regulation allowing for “partial institution.” Under this regulation, the PTAB evaluates each claim challenged in a petition, and decides, on a claim-by-claim basis, whether or not to institute trial on a given claim. The statute, however, says that at the end of the proceeding the PTAB “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.”

In SAS, petitioner SAS filed an IPR petition challenging 16 patent claims. The PTAB instituted IPR on only nine of those claims, and went on to issue a final written decision finding eight of them unpatentable, while upholding the ninth claim. The final written decision did not address the additional seven claims that were challenged in the petition, but on which the PTAB did not institute IPR. SAS appealed to the Federal Circuit, arguing that the applicable statute requires that in the final written decision, the PTAB must address the patentability of every claim SAS challenged in its petition, not just a subset of the claims chosen by the PTAB. The Federal Circuit rejected SAS’s argument, upholding the PTAB’s partial institution practice.

The Supreme Court reversed and remanded. Writing for the majority, Justice Gorsuch stated that the PTAB “cannot curate the claims at issue” in an IPR. Rather, according to the Court, the relevant statutory text clearly mandates that in a final written decision, the PTAB “must address every claim the petitioner has challenged,” not just those claims the PTAB might wish to address. The Court emphasized that the language of the IPR statutes indicates that “Congress chose to structure a process in which it’s the petitioner, not the Director, who gets to define the contours of the proceeding.”

Justice Breyer filed a dissent, joined in full by Justices Ginsburg and Sotomayor, and for the most part by Justice Kagan. The dissent argued that the statutory language contains a gap, leading to ambiguity as to whether the PTAB must address any patent claim challenged by the petitioner in the original petition (as the majority found), or just those claims that become part of the IPR. The dissent would have found that Congress gave the PTO the authority to fill the gap, and that its regulation permitting partial institution was a reasonable exercise of this authority.

Justice Ginsburg also filed a short dissent, joined by Justices Breyer, Sotomayor, and Kagan, noting that the Court’s reading of the relevant statute is “wooden,” and that the Court did not offer a persuasive reason why the statute should be read to preclude the PTAB’s rational way to weed out insubstantial challenges.

It remains to be seen how the PTAB will handle institution decisions going forward. For example, will the PTAB substantively address all challenged claims, or find one viable claim and stop the analysis there? Indeed, as the Court noted:  “Once that single claim threshold is satisfied, it doesn’t matter whether the petitioner is likely to prevail on any additional claims; the Director need not even consider any other claim before instituting review. Rather than contemplate claim-by-claim institution, then, the language anticipates a regime where a reasonable prospect of success on a single claim justifies review of all.” 

Furthermore, if the PTAB now must institute on more claims, the scope of estoppel will potentially expand for the petitioner. The statute provides that the petitioner cannot raise in court any ground of invalidity that it raised or reasonably could have raised during the IPR; if the IPR must always include every claim the petitioner challenges, then every claim could potentially be subject to estoppel.