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Monday, June 12, 2017

SCOTUS Symposium: Is Patent Agency Adjudication Unconstitutional?

This morning the Supreme Court granted review in just one case, and limited its review to one question (three were presented in the petition): Oil States Energy Services LLC v. Greene’s Energy Group, LLC. It's yet another patent law case from the Federal Circuit, but it is no ordinary question presented--at least for patent and administrative law scholars (and constitutional law and federal courts scholars):

Whether inter partes review—an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.

The argument, which is marshaled by Allyson Ho and her team at Morgan Lewis, is nicely summarized at the outset of the petition:

Patents create property rights, protected by the Constitution. Once a patent is granted, it “is not subject to be revoked or canceled by the president, or any other officer of the Government” because “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” McCormick Harvesting Mach. Co. v. C. Aultman & Co., 169 U.S. 606, 608-09 (1898).

In 2011, Congress passed the America Invents Act to combat what it perceived as inefficiencies in patent litigation. The Act allows the PTO’s Patent Trial and Appeal Board (the Board) to review existing patents and extinguish those rights in an adversarial process. See 35 U.S.C. §§ 311(a) & 318(a); Google Inc. v. Jongerius Panoramic Techs., LLC, No. IPR 2013-00191, Paper No. 50, at 4 (PTAB, Feb. 13, 2014). This is known as inter partes review. 37 C.F.R. § 42.100(a); H.R. REP. NO. 112-98, pt. 1, at 46-47 (2011). Inter partes review commences when a party—often an alleged patent infringer—asks the Board to reconsider the PTO’s issuance of an existing patent and invalidate it on the ground that it was anticipated by prior art or obvious. 35 U.S.C. § 311(b).

Historically, though, suits to invalidate patents would have been tried before a jury in a court of law. The Constitution thus provides patent owners with a right to a jury and an Article III forum. Inter partes review violates these rights. 

Unsurprisingly, the Solicitor General sided with the Respondent in filing a brief in opposition, arguing that the statutory scheme is constitutional as "[p]atents are quintessential public rights" and the process Congress has designed for agency review of its own decisions to issue patents is proper for the administration of a public-rights scheme. I can't wait for all the amicus briefs on both sides of the public-private rights debate, and I wonder if we'll see a full Hamburger assault on the modern administrative state, accompanied by witty (perhaps one-word) responses. 

The stakes are high here. This agency patent adjudication procedure has become extremely popular among those parties seeking to challenge patents, arguably because it is faster and cheaper than district court litigation--and also, perhaps, because the two paths under the statute are not mutually exclusive, such that patent challengers can pursue both options (with some limitations) to invalidate patents.

The numbers speak for themselves. As of last fall, the Patent Trial and Appeal Board (the agency that adjudicates these claims) had received over 5,000 petitions for inter partes review since starting to hear such claims in 2012 (shortly after the American Invents Act was enacted in 2011 to provide this adjudicatory authority to the agency). Indeed, the Federal Circuit, the court of appeals that has near-exclusive jurisdiction over patent appeals, now hears more patent appeals from the PTAB than from the district courts. 

I would expect this agency adjudication path to become even more popular after the Supreme Court's decision this Term in TC Heartland LLC v. Kraft Foods Group Brands LLC, which interpreted the patent venue statute to require that lawsuits only be brought in districts where the defendant corporation resides--i.e., its State of incorporation. In other words, we should see far fewer patent lawsuits being litigated in a small town in East Texas (a venue patent plaintiffs have found to be very favorable) and more cases being filed in federal district court in Delaware and arguably even more patent challengers opting for agency adjudication.

Selfishly, this cert grant could not have come at a better time. Last year the Duke Law Journal held a terrific symposium on the intersection of patent law and administrative law, which I had the opportunity to attend and pen a short response regarding Chevron deference to PTAB statutory interpretations. I write a fair amount about agency adjudication, including the annual ABA administrative law developments chapter on agency adjudication with ACUS Executive Director Matt Wiener, and I've become just fascinated by the PTAB's adjudicatory procedures. In fact, Melissa Wasserman and I are currently working on a project--tentatively entitled The Lost World of Agency Adjudication (yes, this is a nod to Dan Farber and Anne O'Connell's fabulous article The Lost World of Administrative Law)--that takes a closer look at the PTAB. In this paper, we will draw substantially from Michael Asimow and the Administrative Conference of the United States' terrific work on the rise of agency adjudication outside of the Administrative Procedure Act and will situate the PTAB adjudicatory process within administrative law’s larger movement away from APA-governed formal adjudication and toward formal-like adjudication outside of the APA. 

In all events, I hope to blog more about the merits of this case later this month. For now, I'd  flag Part III of Justice Thomas's 2015 dissent in B&B Hardware v. Hargis Industries, in which he expresses constitutional concerns about a somewhat similar agency adjudication institution (the Trademark and Trial Appeal Board). Note that he is the only member on the current Court who expressed such concerns then, with only Justice Scalia joining him. Yet with today's grant we have at least four Justices who are interested in this related constitutional question.

Posted by Chris Walker on June 12, 2017 at 11:38 AM in 2018 End of Term | Permalink


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