Case Challenging Constitutionality of Inter Partes Review Continues to 4th Circuit

By Robert P. Greenspoon
March 11, 2015

Editorial Note: The author, Robert Greenspoon, represents a client challenging the constitutionality of inter partes review at the Fourth Circuit. He is  available to discuss the case in more depth if anyone is interested in filing or joining an amicus brief.

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In 2011, Congress passed legislation diverting patent validity litigation into an administrative agency tribunal. Inter partes review (IPR) makes it harder for new firms to enter and compete in markets. James E. Daily and F. Scott Kieff, Benefits of Patent Jury Trials for Commercializing Innovation, 21 Geo. Mason L. Rev. 865, 878-79 (2014) (“One reason for this is that larger firms generally are thought to be more effective at bringing political influence to bear in agency determinations.”). The administration personnel who now replace juries and judges for such matters quickly gained a reputation as “patent death squads.” Statistics show that, at least at the beginning, 95% of adjudicated patent claims were being invalidated through these proceedings.

In Cooper v. Lee, our clients asked the Eastern District of Virginia to rule IPRs unconstitutional. Instead, on February 18, 2015, the district court ruling held that our clients must “exhaust administrative remedies,” even though the PTAB does not appear to have the power to grant the remedy our clients requested. Our clients have appealed to the Fourth Circuit, which is the appropriate venue because our claims do not arise “under” the patent laws. The nature of the district court’s “exhaustion” decision makes it necessary for the reviewing court to reach the core constitutional questions.

Inter partes review proceedings unconstitutionally assign to an Article I executive branch tribunal matters reserved for Article III Judges that make up the Federal Judiciary. This is in violation of Separation of Powers principles, which is particularly problematic given that we are talking about property rights being stripped from patent owners by administrative law judges in a proceeding designed to be a district court alternative. These administrative tribunals also adjudicate patent validity without a jury, in violation of patentees’ Seventh Amendment rights.

While these claims may at first sound a bit extreme, Supreme Court precedent clearly establishes the Separation of Powers violation presented by Patent Office administrative tribunals. A patent, upon issuance, is not subject to revocation or cancellation by any executive agent, including by any part of the USPTO. McCormick Harvesting Mach. Co. v. Aultman, 169 U.S. 606, 609 (1898). The Executive branch invades the province of Article III courts to cancel a patent as invalid during any kind of post-grant proceedings. Id. at 612. The Supreme Court explained:

[W]hen a patent has received the signature of the Secretary of the Interior, countersigned by the Commissioner of Patents, and has had affixed to it the seal of the Patent Office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property.

Id. at 608-09 (emphasis added, citations omitted). The Supreme Court went on to say: “The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.” Id.

The Seventh Amendment violation is clear from In re Lockwood, 50 F.3d 966 (Fed. Cir. 1995), which confirms the jury trial right in cases where there is a previous claim for damages against the invalidity petitioner.

Because inter partes review does to patents what the Supreme Court says cannot be done, it is clearly unconstitutional. Clear unconstitutionality means two things. It negates the district court’s application of administrative exhaustion, and entitles Appellants to substantive relief on the underlying claim.

The district court found otherwise by applying precedent that approved of a different Patent Office procedure (ex parte reexamination). But our brief will explain why ex parte reexamination passed muster only because it lacked the very things that inter partes review contains — a contest between private adversaries in front of a panel of judges. In fact, the courts created a new legal fiction to save ex parte reexamination that does not apply to inter partes review, namely that the former is just a re-do of the “grant” or “issuance” examination process.

There are those who, like the district court, would equate IPRs with ex parte reexamination and assert that there are no constitutionally significant differences. But the PTAB itself has bristled at any suggestion that it performs “examination” – a task reserved to the technologically trained (and largely non-attorney) USPTO examination corps. As the PTAB admits, “[a]n inter partes review is not original examination, continued examination, or reexamination of the involved patent. Rather, it is a trial, adjudicatory in nature and constituting litigation.” ScentAir Tech., Inc. v. Prolitec, Inc., IPR2013-00179, Paper 9, at 4 (PTAB April 16, 2013). The PTAB has made this point more than once: “An inter partes review is more adjudicatory than examinational in nature.” Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027, Paper 26, at 6 (PTAB June 11, 2013) (citing Abbott Labs v. Cordis Corp., 710 F.3d 1318, 1326 (Fed. Cir. 2013) (“The purpose . . . was to convert inter partes reexamination from an examinational to an adjudicative proceeding . . . .”)). The Federal Circuit also recognizes its adjudicatory nature. See In re Cuozzo Speed Techs., LLC, No. 14-1301, __ F.3d __, 2015 U.S. App. LEXIS 1699, at *20-21 (Fed. Cir. Feb. 4, 2015) (majority opinion acknowledging “adjudicatory” nature of inter partes review, and stating “Congress in enacting the AIA was aware of these differences in terms of amendments and adjudication . . . .”); Id. at *34 (Newman, J., dissenting) (“[Congress] provid[ed] a new adjudicatory proceeding in the administrative agency, the Patent and Trademark Office, in the Department of Commerce, whereby a newly formed Patent Trial and Appeal Board (PTAB) serves as a surrogate for district court litigation of patent validity.”).

Whether or not IPR and ex parte reexamination share similarities, no court, including the district court in Cooper v. Lee, has ever tested IPRs against the clear prohibitions of McCormick Harvesting. Our clients will ask the Fourth Circuit to follow unambiguous Supreme Court law. If you are concerned with breadth and scope of PTAB post grant proceedings you might consider filing a friend-of-the-court brief in support of our client’s pending federal appeal – Fourth Circuit App. No. 15-1205. Whatever the proceeding affecting a patentee’s interests (IPR, CBM, PGR), patentees can be heard by properly filing an amicus curiae brief (either via consent or motion for leave).

Contact me to learn more about the case, our arguments and the deadlines if you are interested in filing or joining an amicus brief.

The Author

Robert P. Greenspoon

Robert P. Greenspoon is a founding member of Flachsbart & Greenspoon, LLC. He is a registered patent attorney who concentrates his practice in the trial and appeal of patent cases involving computer and electronic technologies. He is also a former federal district court law clerk. The opinions presented above are his own, and not necessarily those of his firm or his firm’s clients.

Mr. Greenspoon represents both NPEs and operating companies, and both rights holders and accused infringers. He holds a winning appellate record, having argued numerous cases before the Court of Appeals for the Federal Circuit, as well as cases before the Fourth and Eighth Circuits.

CLICK HERE to visit Mr. Greenspoon's firm page.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 21 Comments comments.

  1. Mike_Roephone March 11, 2015 12:49 pm

    Two important questions/points:

    1 – is inter partes reexamination unconstitutional?

    2- does it (ultimately) matter if IPRs are unconstitutional – won’t decisions just be sent as “advisory suggestions” that will be adopted by a signing, article III judge, similar to how bankruptcy courts work? Check out the Wikipedia bankruptcy court article – it’s a blue print on how to get around lack of jurisdiction for an article I court.

  2. Anon2 March 11, 2015 2:13 pm

    Have we a government of laws or of men?

    Is government to dispense justice or dispense with it?

  3. Ned Heller March 11, 2015 4:28 pm

    Mike, I think your idea about the trial de novo review in district court would potentially solve the constitutional problems. However, the statutes are clear that an appeal may not be taken to a district court as with ordinary prosecution. Appeals are only to the Federal Circuit, which, under Zurko, must review on the record of the patent office, and findings of fact are reviewed for substantial evidence. This is not de novo review.

    Thus, Congress has to step in with a legislative fix.

  4. patent leather March 11, 2015 10:52 pm

    Ned, I haven’t had time to dig into this interesting issue as much as I’d like to. But, do you think inter partes reexamination is also unconstitutional for the same reasons as you allege inter partes review is?

  5. Ned Heller March 11, 2015 10:57 pm

    patent leather, I think the case law is clear that the executive has no authority to revoke a patent after it has issued without a de novo review.

  6. sab63090 March 12, 2015 7:49 am

    The President (Obama) won’t like this, nor will his friends (Apple)…..lol

  7. Mike_Roephone March 12, 2015 8:06 am

    My final thought/point is this, while the rule of law is definitely important, if the system can simply be modified to run somewhat as the article I bankruptcy system runs, even if IPRs as presently run are unconstitutional, who cares? We would just expect a few tweaks, and the same system (substantively) would be instituted in a slightly different (constitutional) form.

    Form over substance, so to speak.

  8. Ned Heller March 12, 2015 8:14 am

    Mike, think that through just a bit more. What happens if the patent owner appeals to an Art. III court? Does the petitioner have Art. III standing. Can the patent owner join claims for infringement? What happens to previously filed suits where validity and infringement are at issue?

  9. patent leather March 12, 2015 10:21 am

    @ #5, Ned, so if your arguments succeed in full (and as someone who favors strong patent rights I wish you success) then all administrative challenge outcomes would be null and void? That would create pandemonium and I would think the court is going to try to avoid that result at all costs.

  10. Ned Heller March 12, 2015 11:29 am

    Patent Leather: The only question we address are IPRs. FYI, until he AIA, reexaminations were subject to de novo review.

  11. Steve March 13, 2015 2:26 pm

    Any reason why CBMs aren’t also being Constitutionally challenged along with IPRs?

  12. Edward Heller March 13, 2015 2:52 pm

    Steve, we (MCM Portfolio LLC) are challenging IPRs from an IPR. Our standing to challenge IPRs is established. We have no standing to challenge any other proceeding.

    As to firms/clients subject to CBMs? It is their option to waive their rights if they so choose. But, given our brief in our appeal to the Federal Circuit, I suspect others may be thinking now of raising the Con Law issue in their own CBMs.

  13. Steve March 16, 2015 6:56 pm

    Thanks Ed. Hope you prevail.

    Makes one wonder how corporate clients who love to use IPRs and/or CBMs would feel if their law firm tried to — for another client — overturn the legality of such …

  14. Edward Heller March 17, 2015 2:19 pm

    Steve, “their law firm?” This presents a fundamental ethics question about zealously representing a client. If a firm waives a defense for one client to favor another client without even advising the first client of the defense, I think there could be a problem.

    I’ve always wondered what happened in In re Lockwood. Lockwood had prevailed at the Federal Circuit – wherein the court held there to be a constitutional right to a trial by jury for patent validity. American petitioned the Supreme Court, who granted certiorari. Lockwood then abandoned its request for a trial by jury, mooting the Supreme Court proceeding. Why? Why would they do that? It makes no sense whatsoever.

  15. Anon March 17, 2015 2:34 pm

    Mr. Heller,

    I read Steve’s comment a little differently. I read his comment more as to whether a law firm, advancing an argument that IPRs and/or CBMs were in in fact illegal (for constitutional infirmity reasons), would be somehow constrained in completely separate actions in which the firm attempted to use the IPR and/or CBM avenues, implicitly “vouching” that such avenues were in fact legal (and implicitly if not explicitly countering their separate assertions in the first instance).

    To me, the answer to Steve is “no,” such a “contradiction” does not in fact take place. This is because of the well known ability to plead “in the alternative” coupled with the ability to make reasonable pleadings as to why a current understanding of law is not correct. One does not give up the ability to argue “from both sides” while the issue remains unresolved.

    Of course, my take on Steve’s point could be off…

  16. Edward Heller March 17, 2015 2:39 pm

    Anon, but big clients could pressure “their” law firm to drop the con law issue or else. I am thinking something like this may have happened in Lockwood.

  17. Anon March 17, 2015 4:14 pm

    Mr. Heller, whether or not big clients could, or even have, done as you indicate, is not the point of the question advanced by Steve.

    My take, at least, is that Steve is asking a different question, quite apart from the possible influence of any clients.

    Your point is interesting in a different manner, and does immediately impact the law firm’s ethics stance on conflicts of interest. But that is as mentioned a different topic than the one that I think Steve is aiming for (whether a firm could even argue in the alternative without committing some type of ethical breach).

  18. Edward Heller April 9, 2015 6:00 am

    Re: MCM Portfolio LLC v. Hewlett-Packard, 15-1091

    Our announcement and the reply brief itself may be found at http://www.alliacense.com/alliacense-champions-inventors-constitutional-rights/. In the brief, we for the first time address the unconstitutional nature of the government’s statutory construction of 314(d) that there is no appeal, even from a final decision, of the government’s unlawful assertion of statutory jurisdiction in violation of 315(b) that bars late IPRs.

    Edward Heller
    Chief Patent Counsel
    Alliacense

  19. Brian Smith May 6, 2015 4:02 pm

    Hi Robert and Edward Heller,

    Here is an Example of “Agency Capture” you had raised in your challenge.
    Judge Scott Kamholz Joins Foley Hoag from PTAB

    http://www.prnewswire.com/news-releases/judge-scott-kamholz-joins-foley-hoag-from-ptab-300078573.html

    Since the APJ are not the same as regular Article III judges I see a lot of potential for abuse.

    -Brian Smith

  20. Edward Heller June 1, 2015 8:24 pm

    Wellness Int. Network v. Sharif, May 26, 2015. http://www.scotusblog.com/case-files/cases/wellness-international-network-limited-v-sharif/ The 6-3 majority held that one can waive their right to a trial in an Article III court just like one can waive their right to a trial by jury. Roberts, Scalia and Thomas disagreed, and strongly so.

  21. Edward Heller July 21, 2015 8:41 pm

    MCM v. HP oral argument is Friday, Sept. 11.