The Judicial Power Over Patents and the Future of Administrative Adjudication after Oil States

The following guest post is by my FIU colleague Hannibal Travis, Professor of Law at FIU College of Law and this semester the Irving Cypen Visiting Professor of Law at University of Florida. He wrote about Oil States prior to argument.
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Although in a less spectacular way that in some other oral arguments, yesterday’s oral argument in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC put competing judicial philosophies on brief display.  Emily Bazelon, Eric Posner, Cass Sunstein, and others argue that one major “judicial philosophy,” by seeking to limit the discretion of administrative agencies, “would do nothing less than undermine the structure of modern government — including the rules that keep our water clean, regulate the financial markets and protect workers and consumers.”  Another judicial philosophy of “minimalism” and “majoritarianism,” according to Sunstein, would result in “reasonable” regulations being upheld from constitutional challenges.  There was a subtext of this struggle between constitutional worldviews as the justices questioned attorneys in Oil States.

The Ancient Doctrine of Vested Rights

Apart from the private rights theory of Article III that has been the focus of most briefing and commentary on Oil States, Justice Breyer highlighted the “vested rights” theory, commenting that it “had great popularity in the 19th century and might have moved Justice Story but in fact has happily sunk from sight.”  Justice Gorsuch had described Justice Story as concluding that once a patent is granted, it is a private right secured to its owner.  This sets up a potential 5-4 or 6-3 split in which Justice Breyer writes or joins an opinion strongly defending the administrative state from constitutional counter-majoritarianism, with Justice Gorsuch on the other side.

Constructing Left and Right in Article III Jurisprudence

In the era of the Greatest Generation, the Supreme Court’s left tended to take the side of due process and an independent judiciary, while the right found administrative adjudication to be acceptable.  This may play out a little bit differently in Oil States than in Northern Pipeline.  In the latter, Justice Brennan, typically associated with the judicial left, wrote a plurality opinion seemingly confining Article I courts to a small area covered by three categories, adding that an independent judiciary shields litigants from judges subject to “improper influences not only by other branches but by colleagues as well.”  Three conservative justices, led by Justice White, maintained that Article III’s preference for an independent judiciary should be balanced in an ad hoc fashion with “congressional values and … responsibilities.”

However, even Justice Brennan wanted to distinguish, and perhaps allow non-Article III courts to adjudicate, rights created by Congress as opposed to by the common law or state statutes.  This possibility led to much dialogue at yesterday’s oral argument about whether, not being obligated to create patent rights, Congress may condition them upon post-grant agency proceedings, or whether on the other hand, as Allyson Ho argued for Oil States, “in the Article III context, where Congress is taking a category of cases that have been adjudicated in courts for centuries and removes those cases -- withdraws those cases to a non-Article III tribunal, that impacts … the individual rights guarantees that Article III [contains]….”

The Oil States oral argument is being presented as a clash between a left that supports the PTO, and a right led by Justice Gorsuch that is defending private property.  In 2011, the four justice who are often portrayed as the Court’s liberals rejected Justice Brennan’s opinion in Northern Pipeline as an “analysis that did not command a Court majority …. and that was subsequently disavowed” in, among other cases, CFTC v. Schor, 478 U. S. 833 (1986).  They would have revived the principle from Crowell v. Benson, 285 U. S. 22 (1932), that Article III provides a right to appeal a judgment to an independent judge, not a right to a judge who initially decides all factual issues.  Therefore, in Crowell, an administrative adjudication of a private employer’s liability to an employee under a federal harbor worker’s compensation law, subject to appeal to federal district court for noncompliance with law or lack of support in the record, was consistent with Article III.  Except for patents being “property,” perhaps unlike an employer’s defense to a federal statutory claim, it would be a small step from that premise to say that the PTO can revoke patents, subject to appeal to the Federal Circuit for legal error or lack of evidence.

Defusing the Northern Pipeline Bomb

Justice Kennedy possibly signaled a fifth vote in favor of inter partes reviews passing Article III muster when he distinguished Stern v. Marshall, 564 U.S. 462 (2011), as involving a right not created by Congress.  In Stern, the Court held that a non-Article III court could not render a final judgment on a state law counterclaim, despite its relationship to a claim voluntarily filed in bankruptcy court by the counterclaim defendant.  As Malcolm Stewart pointed out for the government, “Stern versus Marshall and Northern Pipeline … are really directed at a different sort of problem,” because the “adjudicator was being asked to determine whether one party was liable to another for a violation of [state] law.”  This argument might be gaining some traction, despite the argument that Northern Pipeline merely echoed McCormick Harvesting and American Bell in insisting that private rights be enforced (or set aside) in Article III courts.

Introducing a Parade of Horribles

Justices Ginsburg and Sotomayor questioned counsel for Oil States about whether the PTO must allow its worst mistakes to be perpetuated if patents are private rights immune from revocation by the PTO, or by anyone other than a lay jury for that matter (assuming genuine issues of fact as to validity).  Justice Sotomayor asked whether, “somehow at the founding in 1789, given the replete English history of the crown and the Privy Council … sidestepping any judicial adjudication of validity, …  in 1789 the founders intended to change that system as radically as to say, no, we're not going to permit … the legislature to change the terms of a patent grant?” 

None of the justices seemed to question whether the Privy Council was thought in 1789 to have the power to revoke issued patents.  For justices who share this premise of the government in the case, it may seem to open Pandora’s Box to make flawed and foolishly granted patents administratively irrevocable, without a good constitutional reason to do so.  (Incidentally, patent law historians H. Tomás Gómez-Arostegui and Sean Bottomley make a strong case in their amicus brief that between 1780 and 1800, the Court of Chancery sitting as a law court sent patent validity issues for final judgment to the King’s Bench, and that the Privy Council’s power to revoke patents had fallen into disuse and virtually out of living memory.)

The Takings Turn

Justices Breyer and Gorsuch seemed concerned that a patent owner who has invested large sums of money in manufacturing a product may be divested of the patent rights by a non-Article III court.  This led to a line of questioning about whether the government could declare land held for decades to be subject to revocation by administrative panels within the Department of the Interior, before the landowners could sue other private parties for trespass.  

As Justice Kennedy pointed out, the Constitution refers to a congressional power for “securing” to inventors the “exclusive right” to their discoveries, not securing to Congress or the presidency the discretion to adjust issued patents in the public interest, etc.  The observation echoed a statement by the Supreme Court in 1888: “The patent, then, is not the exercise of any prerogative power or discretion by the president, or by any other officer of the government, but it is the result of a course of proceeding quasi judicial in its character, and is not subject to be repealed or revoked by the president … or the commissioner of patents, when once issued.”

The Takings Clause analogy to the Article III problem may cut both ways for Oil States, however.  Justice Roberts asked:

What is … the relationship between your position and the takings clause? The government can certainly diminish the value of your property rights quite extensively when it comes up with [a] new regulation. You have a lot that you think you could have built a mansion on, and then the government passes a law and you can only build a shed on it and … yet we often … give the government a lot of leeway in saying that … that they don't have to pay compensation. So, if the government can restrict your property right in real property to that extent, why can't it do so with respect to patent rights?

Most of the way through Mr. Stewart’s argument, Justice Breyer suggested reserving the Takings Clause question for another day, perhaps after a ruling in favor of the government on Article III.  Interestingly, these portions of the argument invert the supposed politics of the Court, as Chief Justice Roberts normalizes the regulatory erosion of property rights in the public interest, and Justice Breyer suggests that a massive disruption of investment-backed expectations is a taking.

Shoring up the Schor Test

One outcome of Oil States might be a decision upholding the inter partes review system of the America Invents Act, but clarifying why it is a special case and that other investments are not at risk of being caught up in administrative revocation under White House pressure.  Chief Justice Roberts asked whether the multi-factor Article III test articulated in Schor provides sufficient guidance to investors contemplating the manufacture and launch of a patented product.  Schor seemingly expanded Crowell into Justice White’s ad hoc balancing test from Northern Pipeline for sustaining non-Article III procedures.  Schor, which had the backing of seven justices, Justices Brennan and Marshall dissenting, looks to broadly-framed “factors”: whether the courts maintain the “‘essential attributes of judicial power’” despite the administrative adjudication at issue, “whether the non-Article III forum exercises the range of jurisdiction and powers normally vested only in Article III courts, the origins and importance of the right to be adjudicated, and the concerns that drove Congress to depart from the requirements of Article III.”  A firm requirement of historical understandings that a claim did not exist or was decided administratively and outside of law courts in 1789 would be more protective of judicial independence under Article III, and of the right to a civil jury.  Alternatively, a consent theory based on the possibility of a reexamination of patent claims by the PTO under a 1980 statute at the time Oil States filed could decide this case, without endorsing Schor.

Copyright Lurking in the Background

Although the government was asked whether the PTO could hear infringement actions consistent with Article III, copyright small claims and initiatives such as the Stop Online Piracy Act did not come up.  The government’s response to the question, however, indicated that such evasions of Article III would be difficult to sustain due to the lack of historical precedents.  Presumably the answer was aimed at compulsory agency adjudication and not to voluntary small claims tribunals like the proposed Copyright Claims Board.  If Oil States is based on a consent theory tied to a patent application being filed subject to a statutory scheme that warns the applicant that an issued patent may be reexamined or revoked, there will be few implications for copyright damages actions outside of Article III courts.  However, if five or more justices adopt broad readings of Crowell, Schor, or the Northern Pipeline dicta concerning congressionally-created rights being subject to congressional remedies and limitations, the copyright small claims movement will have a major precedent to draw on in Congress and during constitutional challenges.  

From a copyright perspective, the Oil States oral argument was noteworthy for what was not said.  Given the briefing on the Seventh Amendment and the fact that Justice Thomas wrote one of the landmark opinions in Seventh Amendment jurisprudence, some might have looked forward to a discussion of the right to a jury trial and the implications of Feltner v. Columbia Pictures, 523 U.S. 340 (1998).  The Seventh Amendment and the concept that jury trials shall be “preserved” did not come up, other than in the start of the government’s argument.  Justice Thomas did not ask any questions, and Justice Alito asked only one: whether Congress, which had the power not to enact any patent regime, was within its rights to enact one issuing patents subject to post-grant cancellation.  If the Court lumps the Seventh Amendment inquiry together with the jurisprudentially distinct Article III inquiry, and resolves the latter by expanding Crowell, Schor, or some other doctrine justifying non-Article III courts, collateral attacks on default judgments involving small copyright claims may fail.