“Adjudication:”  a proceeding which leads to a judicial decision

On November 27, 2017, the Supreme Court heard arguments concerning a challenge to the most frequent form of patent challenges before the United States Patent and Trademark Office (“USPTO”), known as inter partes review (“IPR”).  The USPTO is a federal agency empowered by Congress to grant patents and perform other functions related to patents.  Its other functions include the authority to review previously granted patents and determine whether they were, in fact, validly granted.

In some cases, the need for review may occur because material not found by the patent examiner would have prevented the patent from being granted in the first place.  With all the millions of patents, published applications and journal articles in this country and worldwide, as well as other written publications, industry standards and activities that could affect the right to a patent, there is no system of patent searching guaranteed to uncover every relevant item.  Thus, for several decades, Congress has authorized the USPTO to reconsider its own previous decisions in issuing patents and to establish what might be called “upon further review” proceedings to correct errors in the granting of patents.

The case argued on November 27th, Oil States Energy Services, LLC v. Greene’s Energy Group, LLC[1], does not concern the USPTO’s authority to review previous patent grants, but rather the manner in which review occurs.  This is because Article III of the United States Constitution states, “the judicial power of the United States shall be vested in one supreme court, and in such inferior courts as the Congress may from time to time ordain and establish.”  In this way, Article III places limits on an agency of the federal government, such as the USPTO, when it reviews its prior decisions.  The Oil States case also questions whether the USPTO’s review of granted patents violates the Seventh Amendment right to a jury trial.  Simply put, the USPTO is empowered to conduct reviews and decide disputes the same as many other administrative agencies in this country, which fall under the Executive Branch and sometimes are referred to as the Fourth Branch of Government.  But the USPTO cannot function like a court of law without violating the Constitution, because this would usurp the power of the federal courts.

IPR, the manner of reviewing existing patents which have been challenged, was established by the patent reform known as The America Invents Act.  IPR seeks “to improve patent quality and restore confidence in the presumption of validity that comes with issued patents in court.”[2]  In about the first five years of IPR, more than 7,000 patents were challenged, and more than 1,300 of those cases reached a conclusion in which the patent was invalidated in whole or in part.[3]  In an IPR, the third party challenger and the patent owner follow procedural rules allowing them to exchange discovery, introduce affidavits and declarations, file written Memoranda and participate at an oral hearing.  So the question becomes:  is this the functioning of a court?

During the Oil States hearing, several justices were interested in where to draw the line between administrative decision-making on one hand and procedures so adjudicatory in nature they result in the USPTO acting like a court on the other.  This is because patents are a personal property right.  The question here is whether a proceeding before an agency of the executive branch which may take away such a right has become a full-blown adjudication in a court of law.  This issue is driven by the perception that litigants might enjoy a more impartial decision-maker in a court than a proceeding before an administrative agency, which is made up of people who potentially might be tempted to curry favor with the executive who appointed them to their post.

Another potential concern raised in questions from the bench involves vested interests in a patent.  For example, if a company invested billions of dollars to develop a product in reliance upon a granted patent, and no challenge is brought for many years, should there be a vested interest, making the patent more difficult to challenge?

As some justices pointed out though, administrative agencies decide many kinds of disputes through procedures requiring evidence, brief writing, experts and other features at least resembling adjudication, without being unconstitutional.  Moreover, other questions from the bench characterized IPR as an “error correction mechanism” rather than a substitute for court litigation and offered a premise that if the government wants procedures for increased accuracy, why would it not want to use “the procedures that enable the greatest accuracy.”

In terms of questions about reliance interests, Congress has not established any vested interest or a stronger presumption for a patent based on the passage of time after it is granted, as it has with trademarks which can become incontestable after five years.  See, 15 U.S. Code § 1065.  Moreover, the question about reliance interests in the patent context seems to go to whether the USPTO has the authority to review its decisions – which is not at issue in this case – rather than the manner in which decisions are reviewed.

As in most cases before the Supreme Court, it might be difficult to predict with certainty how it will rule.  But at least some of the justices appear reluctant to dismantle the IPR system, because doing so could also call into question the constitutional role of many other agencies which frequently decide disputes.

[1] No. 16-712.

[2] 157 Cong. Rec. 9778 (2011) (remarks of Rep. Goodlatte) (noting IPR “screen[s] out bad patents while bolstering valid ones”).

[3] Patent Trial and Appeal Board, USPTO, Trial Statistics:  IPR, PGR, CBM at 11, https://www.uspto.gov/sites/default/files/documents/trial_statistics_july2017.pdf (accessed December 11, 2017).