Supreme Court: Patent Office Retains IPR Authority, Loses Discretion to Streamline Proceedings

Legal Alert

Apr 25, 2018

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On April 24, 2018, the U.S. Supreme Court released two important decisions regarding the authority of the U.S. Patent and Trademark Office (“PTO”) to conduct Inter Partes Review (“IPR”) proceedings. IPRs, an administrative process to challenge the validity of existing patent claims, originated with the America Invents Act of 2011 and have become a popular and successful avenue to challenge patent validity, as they can be lower in cost and faster than litigation.

The decision in Oil States Energy v. Greene's Energy Group (No. 16-712) upheld the constitutionality of the IPR process, holding that a patent owner lacks a constitutional right to have patent validity decided exclusively in a federal court before a jury. The decision in SAS Institute, Inc. v. Iancu (No. 16-969) invalidated the PTO's practice of selecting which arguments to address in an IPR petition. Going forward, the PTO must address all arguments raised by the patent challenger if the PTO goes forward with the IPR challenge on any grounds.

As a result of these decisions, the IPR process remains alive, but the requirements of SAS Institute may change certain aspects of the IPR process that currently make IPRs attractive to patent challengers.

The IPR Process

The America Invents Act of 2011 created the IPR system to hear and decide disputes over patent validity. The process begins with the filing of a petition challenging the validity of selected patent claims. The PTO decides whether to deny the petition or to grant the petition and thereby institute an IPR proceeding. IPR cases are heard by three-person panels of administrative law judges (“ALJs”), who are employees of the PTO. When it went into effect in 2013, the IPR system quickly gained a reputation as a ‘death squad’ for invalidating 80% of the patent claims reviewed. Although the statistics have evened out by some measures, IPR remains a powerful tool in the hands of a party accused of patent infringement. Many federal courts have preferred to stay litigation during an IPR proceedings, effectively requiring the patent owner to defend the validity of its patent in an IPR before continuing in litigation against the alleged infringer.

In patent enforcement strategy, IPR has been a benefit for patent challengers and a detriment to patent owners, because the substantial burden on the challenger that comes with district court enforcement is at least delayed while the patent owner defends an IPR. Thus, IPR is a powerful tool for patent defendants because it imposes significant upfront costs on the patent owner at the outset of the infringement dispute, and may invalidate the patent.

The Oil States Decision

In Oil States, the Supreme Court held that a patent can be granted and withdrawn at the pleasure of the PTO because patents are "public rights" ¾ not "private rights." The decision to grant a patent in the first instance, reasoned the Court, involves taking rights from the public and bestowing them upon the patentee. Similarly, when the PTO takes a second look in IPR at an already-issued patent, the PTO is deciding whether the subject matter of the patent claims was properly franchised to the patent owner or should have remained open to the public. By way of analogy, the Court explained, a patent is like a franchise that permits a company to erect a toll bridge or railroads or telegraph lines—the government can reserve authority to revoke the franchise without giving the franchisee a constitutional right to be heard in court or before a jury in resisting the revocation.

The SAS Institute Decision

In SAS Institute, the Supreme Court held that the plain text of the IPR statutes requires the PTO, if it institutes an IPR challenge, to decide the patentability of every claim challenged by the petitioner. This left no room for the PTO's existing (now past) practice of selecting only some grounds raised in an IPR petition to go forward to decision, which the PTO had relied upon to streamline (and thus speed up) IPR proceedings.

Key Questions for the Future

1) The Supreme Court’s Decisions Today Do Not Resolve All Outstanding Areas of Uncertainty Around IPR Practice. Oil States expressly calls out two open areas for future constitutional challenges to IPR proceedings by dissatisfied patentees: (A) whether IPR can permissibly be applied retroactively to patents granted before enactment of the 2011 America Invents Act and (B) potential due process challenges to specific aspects of the IPR procedural scheme.

2) Other Changes to the IPR Process Are Possible. Oil States also highlights the power of Congress to modify the IPR scheme and other aspects of patent law. At least some in Congress have expressed interest in changing the IPR process or adjusting the scope of patentable subject matter to provide greater rights to patent owners (e.g., Senate Bill S.1390, STRONGER Patents Act). In addition, it remains to be seen if the Trump administration will alter any Obama-era procedural rules governing IPR proceedings in the wake of today’s Supreme Court decisions.

3) SAS Institute May Impose New Stresses on the IPR System, Requiring Thoughtful Strategy in IPR Proceedings. By requiring the PTO to decide all challenges raised in an IPR proceeding if it decides any of them, SAS Institute may ultimately weaken IPRs as a tool for patent challenges. Compliance with this requirement will increases the burden, cost, and time required for an IPR proceeding, which may result in fewer IPR petitions and may increase backlog and delays in reaching a final decision. Second, if the time to conclude an IPR proceeding increases significantly, or if IPR institution rates fall, federal courts may become less willing to stay litigation, thus removing some of the benefit to the accused infringer of preparing and filing an IPR in the first place.

4) SAS Institute Requires Greater Strategic Consideration of the Scope of IPR Petitions. Because the PTO will now be required to decide all challenges raised in an IPR petition if it decides any, the estoppel effect of IPR proceedings on future litigation is likely to broaden. Previously, estoppel arguably did not apply to issues raised but not decided in IPR proceedings. The new rule of SAS Institute will require greater strategic analysis by patent challengers in deciding whether to prepare an IPR petition and on which grounds. Accused infringers who are considering IPR must strike a balance between preparing a large petition (that could invalidate all relevant claims) and preparing a focused petition (that has a higher likelihood of being instituted and concluded before a final judgment in litigation, and may carry narrower estoppel risks).

If you have any questions about these decisions or how they may affect your IP portfolio or strategy, please contact any of the listed attorneys.

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