Predicting Oil States after Supreme Court Oral Arguments

The United States Supreme Court heard oral arguments in Oil States Energy Services, LLC v. Green’s Energy Group, LLC, the case that will require the Supreme Court to determine whether inter partes review (IPR) proceedings before an executive agency tribunal are constitutional, or whether the adjudication of patent validity must take place in Article III federal courts. See Supreme Court seems split on Oil States.

The issue specifically taken by the Supreme Court in Oil States is as follows:

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.

In advance of this much anticipated oral hearing, I reached out to a number of industry insiders with a simple question: What are you thoughts and predictions on Oil States in advance of Supreme Court oral arguments? These pre-argument thoughts and predictions can be found here.

After oral arguments were held in Oil States on Monday, November 27, 2017, I again asked a number of industry insiders what thoughts and predictions they now have after having the benefit of hearing the Q&A that took place between the Justices and the attorneys representing the petitioner, respondent and federal government. Their answers follow, and show that there is little agreement among those watching this case with respect to what the likely outcome will be.

For my thoughts click here.

Todd Dickinson
Former Director of the USPTO
Senior Partner, Polsinelli

In a pretty wide-ranging session, an amped-up Supreme Court seemed to understand the Constitutional problems embodied in several aspects of IPR hearing during the Oil States argument.  Whether they were up to fixing or abrogating them was another matter altogether, and probably not likely.  This one could take a while to resolve, however;  I wouldn’t look for it soon.   One trend which showed up, which would be a shame if it developed further, was a more partisan left-right, progressive-conservative split than the Court has seen in some time on patent cases.

Two interesting tidbits from the argument: Justice Breyer’s allowing that he didn’t know how many years the patent term ran: “Thirty?… I don’t know how long they last…” and the Chief Justice’s comment on the use of the title “Chief Judge” for the head of the PTAB:  “You’re talking about the executive employee?  When we say “judge,” we usually mean something else.”  The latter was in a discussion of “panel packing” by the Chief Judge and Director.     Given the Court’s reaction, they should probably check-in with former Commissioner Manbeck (see Alappat) on the political/optical wisdom of doing that very often.

Todd Dickinson is a Senior Partner at Polsinelli, LLC, in Washington, DC, and is the former Under Secretary of Commerce for IP and Director of the U.S. Patent and Trademark Office.

Neal Solomon
CEO of Advanced System Technologies Inc.

Did Congress exceed its power by providing an adjudicative forum for patent validity review in an administrative tribunal? Oil States has several core constitutional issues involving the limits of congressional power, the power of Article III courts, the IP clause, the Fifth Amendment and the Seventh Amendment.

From oral arguments, the case seems to turn on due process and the dramatically different standards of validity review in the PTAB versus the federal district courts. The differences in PTAB standards, including judge biases and conflicts, panel stacking, broad interpretations of obviousness and claim language, lack of presumption of validity, ignorance of the clear and convincing evidentiary standard and limited “discovery,” tilt the results in favor of petitioners, resulting in three times more patents invalidated in PTAB than in the federal courts.

Patent critic arguments maintain that IPRs are a cheap and fast method to correct the PTO’s errors in issuing “bad” patents, though burdens fall asymmetrically on patent holders. But with amendments being very rare, the IPR system has been a red herring for killing – not repairing – patents at abnormally high rates. The IPR system was sold as a way to deal with “bad” patents but it has clearly had the effect of destroying reliability in the patent system, with diminished investment in innovation, a free ride for infringers and the severe reduction of productivity growth.

IPR’s lack consent, due process and Article III court review, requirements of the public rights doctrine, even if patents are taken from their centuries-long private rights jurisprudence upon which the innovation economy depends.

I predict a 5-4 decision for Oil States. Given the precedence and reasoning in Stern, the Court is compelled to favor Oil States. In some ways, this case represents Stern II, the first major case after Stern v. Marshall that raises core separation of powers issues. Therefore, this case will fall squarely in the “public rights” jurisprudence line of cases, setting clear limits on the administrative state. Depending on the logic of the majority decision, this could be a landmark decision.

Neal Solomon is CEO of Advanced System Technologies Inc. A prolific inventor of technologies involving semiconductors, communications, data management, imaging, robotics and healthcare, he holds degrees from Reed College and the University of Chicago.

John White
Partner, Berenato & White

Suppose I woke up one morning and decided to start a non-profit called “Destroy Only Google Patents In Lucrative E-Business” (“DogPile”). I could raise DogPile money from those with a like-minded do-gooder “public interest” in seeing barriers to entry in these E-business fields swept away and the “promotion of competition” where too little existed. It is win-win, I’d say. It’s tax deductible (or a business expense) for the contributors to DogPile, and they are not a privy to whatever I do, so no collateral effect on them for any outcome except a win. If I succeed, there will be fewer impediments and “bad” patents getting in the way of the public interest of seeing this general “good” accomplished. It would stop Google from its “trolling” of those with whom it competes, and lower prices and stop frivolous litigation. An all-around good idea. Even better, there is no downside at all. I cannot be sanctioned or sued, and DogPile can file as many IPRs as it needs to accomplish DogPile’s objective. The PTO is DogPile’s ally in this project. And, besides, patents are not a “private right”; they are a public right, and what the PTO gives, it can take away whenever it wants or whenever DogPile wants! Forget the fees and disclosure and examination you’ve already been through, it doesn’t matter or even count. If the Supreme Court buys this argument – we all lose. Even worse, it was the Government that made this argument! Simply awful all-around. I’d say 5-4 they are smarter than that – I sure hope so.

Mr. White is a US patent attorney with Berenato & White, and a principal lecturer/author of the PLI patent bar review. Since John began teaching patent bar review courses in 1995, he has personally taught nearly 50% of all practicing patent attorneys and patent agents how to successfully become admitted to the Patent Bar.

Erik Oliver
Partner, Richardson Oliver Law Group

The Oil States oral argument showed the judges quite engaged on the issues and familiar with the briefing. However, obvious signals in support of IPR from the questioning were fewer and further between than I would have expected.

By my scorekeeping, a majority of justices were subtly signalling support for upholding the IPR process. Portions of the argument that I found particularly compelling in support of the SCOTUS upholding IPR included: The concession by Oil States (the petitioner) of the constitutionality of both ex parte reexam and inter partes reexam in the opening of the hearing.  To me, this will weaken support among the justices for a ruling invalidating IPRs based on private property, as opposed to public rights, requiring Article III adjudication. Relatedly, Oil States closing rebuttal point about attempting to differentiate IPR from say ITC or NLRB proceedings based on who is “prosecuting [the] action” may similarly help shift the justices who support IPR to frame the PTAB and the PTO as the fundamental party prosecuting the action. The discussion of the history of patent revocation at the privy council at English common law as well as the history of administrative proceedings to me again favored upholding IPRs as constitutional. Lastly, I found some of the cross-references to this case in the oral arguments in SAS to point to keeping the IPR process in place.

In terms of broader patent-law related changes, it seems possible that this case may produce a more vigorous dissent among the justices as to the proper outcome. Likely at least from Gorsuch and perhaps Alito and/or Thomas. Such a dissent might signal a shift away from largely unanimous outcomes in patent cases at the Supreme Court.

I continue to believe that IPR enables more cost effective challenges to weaker patents. Which in turn enables the delivery of products into markets that they might have previously avoided due to the high cost of patent challenges.

Mr. Oliver counsels clients on a variety of patent and business matters, including licensing, buying, selling, valuation, prosecution and business processes. Prior to founding the ROL Group, Mr. Oliver was a Vice President at ThinkFire Services USA, Ltd’s Silicon Valley office.

Louis Carbonneau
IP Strategist & Attorney/Patent Broker, Tangible IP, LLC

Based on oral comments made by the court (which is always highly speculative), I see a rather split decision along the liberal and conservative actions of the bench. The wild card seems to be Justice Breyer at this point; his conservative side does not like the PTAB and how it has been politicized, but he is also on record for disliking patent rights even more and his mindset has been contaminated overtime by the “patent troll” narrative, as per oral comments in made in a previous case where this was not even at issue.

So I predict a 5-4 split preserving the status quo. There are two scenarios where I could possibly see a different outcome: i) Chief Justice Roberts or Justice Gorsuch write the decision and no one on the other side cares enough about patents to use their powder on a strongly worded dissent. Or the court surprises everyone and puts a time limit to PTAB challenges, which could mimic the same 2 year window that is already in place for requesting a broadening reissue.

An expert in intellectual property with 30 years of a diversified US, Canadian and international experience in all facets of IP law and business. Louis has  been named 5 years in a row as one of the World’s Leading Intellectual Property Strategists by the Intellectual Assets Management (IAM) magazine.

Stephen Kunin (left) and W. Todd Baker (right)
Partners, Oblon, McClelland, Maier & Neustadt, L.L.P.

In a widely anticipated case, yesterday, the Supreme Court heard oral arguments in Oil States Energy Services, LLC. V. Greene’s Energy Group, LLC on the question of whether AIA administrative trials (“AIA trials”) are Constitutional.  While the justices appeared split on whether the AIA trials violate the Constitution’s separation of powers between the authorities of Article I and Article III adjudication bodies of first review to invalidate granted patents, it was readily apparent that Congressional action in concert with USPTO rule and practice changes may be needed to address the concerns raised at oral argument regarding the need to improve fairness and balance in the AIA proceedings.  The Article III right to jury trial question appeared to be cabined to the subject of patent infringement and the right to money remedies for infringement.

There appears to be disagreement among the justices whether patents are private or public property rights, especially when viewed under a quiet title theory where the patents have been in force for many years and investment expectations have been settled.  The justices seemed unimpressed with distinctions between reexamination proceedings and administrative trials when deciding the issue of Constitutionality.  Some justices were sympathetic to the correction of patents argument, limited to unpatentability due to prior art patents and printed publications in IPR, but expressed concern about the lack of fairness in how the PTAB conducts the proceedings.  While the justices’ interventions during oral argument were revealing it is difficult to predict the outcome.  Stay tuned.

Stephen Kunin serves as an expert witness and consultant on patent policy, practice and procedure. Mr. Kunin served three decades at the USPTO, including 10 years as Deputy Commissioner for Patent Examination Policy. W. Todd Baker is Chair of the firm’s Post-Grant Patent practice group. With significant experience in both patent reexamination and interference cases, Mr. Baker is uniquely positioned to advise clients on post grant USPTO proceedings such as inter partes review (IPR) and post grant review (PGR) proceedings, complementing traditional litigation-based patent validity challenges. Mr. Baker has extensive experience handling all aspects of post-issuance proceedings at the USPTO including reissue applications, ex parte reexamination, IPR proceedings, and appeals.

Paul Morinville
Managing Director, US Inventor

During the Cuozzo oral arguments, Chief Justice Roberts had hard questions about the PTAB. From those questions, it appeared to me that he would take a case. Then Justice Scalia died and Roberts passed on three cases questioning the constitutionality of the PTAB. Immediately upon Justice Gorsuch’s confirmation, Roberts takes Oil States. After hearing the arguments and the questions from the Justices, the split in the court is much larger than the pundits had us believe. Mr. Matal, it will not be 9-0. In fact, it appears to me that the Supreme Court will find for Oil States and will invalidate the PTAB.

I’m not sure how far they will go. There were enough questions that lead me to think that some Justices do not want to go all the way. Perhaps they will only protect pre-AIA patents or find some other way to fix it. But I think that Gorsuch and Roberts will prevail in the internal Supreme Court debate, it will be fully invalidated and all the patents destroyed by the PTAB will be resurrected – as it should be.

Paul Morinville is Managing Director of US Inventor, Inc., which is an inventor organization working in Washington DC and around the US to advocate for strong patent protection for inventors and startups. He is also an inventor and entrepreneur with multiple patents and pending patent applications in the area of Access Management Systems, Cloud Aggregation, Enterprise Software, and Business Process Management Systems.

Ron Cahill
Nutter McClennen & Fish LLP

Following the oral argument in Oil States, it still seems likely that the IPR procedures will stand, although possibly with some changes to ensure compliance with constitutional concepts of due process. A number of Justices were skeptical of the lines the Petitioner was trying to draw around IPRs being an unconstitutional exercise of judicial power by the executive branch, while other Patent Office proceedings, such as reexamination or interference proceedings, are not. When the Petitioner argued that the difference in IPR proceedings that made them problematic was the high level of third party involvement, the Justices came back with other examples of disputes between parties that are resolved by administrative bodies without violating the Constitution.

According to the government, IPRs are nothing more than the Patent Office continuing to ensure that it only issues patents that are novel and non-obvious. Some Justices, especially Justices Gorsuch and Breyer, worried about patentees’ settled expectations and investments made in their patented technology, only to have the government take back the patent. Using the words of the Chief Justice, the government argued that a patentee has to take the bitter with the sweet—in order to be granted a patent, the patentee has to understand that there is some chance that the Patent Office will review it and take it away. Regarding the process, some Justices expressed concerns about applying IPR procedures to patents that had granted before the AIA became law and the ability of the PTO to “stack” rehearings with expanded panels of APJs. While IPRs are likely to stay, issues such as these may need to be addressed in IPRs going forward.

Ron Cahill is partner and chair of the Intellectual Property Litigation practice group at Nutter. A leader in professional associations in the intellectual property field, Ron has chaired an American Intellectual Property Law Association patent law committee on legal standards for obviousness and is a past chair of the Litigation Committee of the Boston Patent Law Association.

Doug Stewart
Partner, Bracewell LLP

The Supreme Court’s decision in Oil States has the potential to reshape the process of challenging patents in the United States.  In 2012, the America Invents Act resulted in the creation of the inter partes review process at the USPTO, which has allowed for cost-effective challenges to patent validity with a significant success rate.  If the Petitioner in Oil States prevails, the inter partes review process will be curtailed, or even eliminated completely, which will provide a benefit to patent owners in the form of greater security from invalidity challenges.  This, in turn, will manifest as increased value for issued patents and will encourage both acquisition and enforcement activities.

A registered patent attorney, Doug’s practice encompasses all aspects of intellectual property and technology litigation and counseling. He also currently serves as chair of the firm’s IP litigation practice group.

Christopher Loh
Partner, Fitzpatrick, Cella, Harper & Scinto

Based on their comments at oral argument, Justices Roberts and Gorsuch appear to favor Oil States’ position, whereas Justices Ginsburg and Breyer appear to favor Greene’s. While Justices Kagan and Sotomayor expressed concerns about the constitutionality of the IPR process itself, those concerns appear to be assuaged by the availability of judicial review for IPR decisions. The views of the other Supreme Court Justices are less clear.

The Seventh Amendment right to trial by jury did not arise at oral argument. Thus, the two key issues upon which the Supreme Court’s decision likely will turn are: (i) the extent to which the Justices view the IPR process either as an Article III adjudication or as an administrative error-correcting mechanism; and (ii) the extent to which the Justices view patent rights as public or private rights. This is not an easy issue for the Supreme Court to decide. There is adequate precedent to support both sides’ positions, and those positions, moreover, don’t fall along typical ideological or partisan lines.

Christopher Loh practices complex patent litigation in the areas of pharmaceuticals, biotechnology and chemistry. He has litigated patent cases involving anti-HIV therapies, anti-hepatitis drugs, antidepressants and statins, and has experience arguing before the United States Court of Appeals for the Federal Circuit.

Julianne Hartzell
Partner, Marshall, Gerstein & Borun

The Court’s questions indicate a divide among the Justices seeking to balance the rights of a patent owner in an issued patent and the scope of Congress’s ability to establish limits on that right. The initial questioning of counsel for Oil States led by Justices Ginsberg, Kagan, and Roberts, focused on whether there is a significant difference between IPR and ex parte or inter partes reexamination. Those relatively long-standing proceedings that allow the patent office to reconsider the right to an issued patent appear to be accepted by all as constitutional, so the Court seemed to want to identify the dividing line where such a procedure would become unconstitutional.

Counsel for Oil States agreed with Justice Kennedy that Congress can limit the patent term or shorten the patent term of an issued patent, but did not agree with his characterization that accordingly a patent owner has limited expectations as to the scope and validity of its patent rights. Justice Kennedy’s questions primarily seemed directed to the patent owner’s expectations, including whether the patent grant had been made subject to the conditions of novelty and non-obviousness. This line of questioning could potentially track the argument made in the IPLAC (Intellectual Property Law Association of Chicago) Amicus brief that the decision in Oil States should be limited only to a determination of the constitutionality of IPR as it relates to pre-AIA patents because the expectations of the owners of patents issued after enactment of the AIA would understand those rights to be subject to IPR review.

Justice Breyer focused on concerns about how to protect the investments made by a patent owner, but as pointed out by counsel for Greene’s Energy, issued patents have always been subject to later validity challenges throughout the life of the patent (both in the Patent Office or in the courts). So, those concerns do not seem to be to be a problem created by IPRs. With respect to the Article III argument, Justice Roberts was particularly harsh in calling out Greene’s Energy Group’s counsel’s reference to the “chief judge of the PTAB,” with Justice Roberts emphasizing that this individual is an executive branch employee and that “when we say ‘judge,’ we usually mean something else.”

Justices Ginsberg and Kagan immediately pointed out that administrative law judges are recognized all over this country. Several of the Justices also expressed concern about the PTAB’s history of panel-stacking, as an indication of either unfairness in the IPR process or evidence that the process allows for potential abuse by the executive branch. If the Court’s ultimate decision relies on this point, that would appear to be an unforced error by the PTAB. While one must always be hesitant to reach any conclusions based on judicial questioning, it seems safe to assume that Justice Gorsuch believes that IPRs are unconstitutional.

From my perspective, I don’t find the argued distinction between IPR and the previous reexamination proceedings to be persuasive and find myself more convinced that Congress has the right to create a procedure that allows the office that grants patents to reconsider the decision to make that grant based on additional information, regardless of the source of that information. It is not necessarily the existence of IPR procedure providing a methodology to challenge the validity of an issued patent at the PTO or the ability to conduct limited discovery and have a hearing in an IPR that is truly problematic for patent owners. Instead, it is the lowered burden of proof to invalidate a patent in an IPR and the constrained ability to amend challenged claims that has had the most damaging effect on patent rights. Since that is where I see the patent owner’s true issues with IPRs and that is not what is challenged here, I don’t think the Article III challenge raised by Oil States should succeed.

Julianne Hartzell is a partner with Marshall, Gerstein & Borun, where she Chairs the firm’s Medical Device Practice Group. Ms. Hartzell has significant experience in intellectual property litigation, including cases involving patents, trademarks, copyrights, and trade secrets.