Manufacturing Firms and Organizations File Briefs in Oil States

By Steve Brachmann
December 7, 2017

“Supreme Court Building, Washington, DC, USA. Front Facade” by Daderot. Public domain.

On November 27, 2017, the United States Supreme Court heard oral arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC (see here and here). We have previously profiled briefs filed by independent inventors, law professors and the tech elite. Manufacturers and the industry groups representing those firms also filed briefs to inform the Supreme Court of their point of view on this important case.

Doubtless there are some manufacturing firms, such as Telebrands, who are great endorsers of inter partes review (IPR) proceedings at the Patent Trial and Appeal Board (PTAB) and how that agency has found in favor of copy-cats even as federal courts have repeatedly issued injunctions and found in favor of the inventor of an award winning toy (see here and here).But the manufacturing sector did not all line up in favor of Greene’s Energy Group, although most did. Nevertheless, given that manufacturing firms tend to license patents and do not necessarily develop their own technologies, it is informative to see how this sector feels that the Supreme Court should decide Oil States.

Alliance of Automobile Manufacturers Brief in Support of Petitioner Greene’s Energy Group

The Alliance of Automobile Manufacturers is a trade organization representing a collection of automakers who contribute to 70 percent of all car and light truck sales in the United States. The amicus brief filed by this organization notes that members of the Alliance hold more than 100,000 patents and “ have a strong interest in ensuring robust legal protection for validly issued patents” despite facing numerous lawsuits from non-practicing entities (NPEs) on asserted patents “that are not valid and should never have been issued.”

Amicus in this brief begin by arguing that patent rights are different from ordinary property rights as Congress has broad authority to define both the substance and the procedures which govern patent law. Congress is given the authority to grant patents through the Intellectual Property Clause of the U.S. Constitution, but it is not given the “obligation” to do so. Patent law at the time of the Framing of the Constitution did not give inventors any common-law or preexisting natural right to any property in their inventions, amicus argues. Nothing in the Constitution prevents Congress from granting the U.S. Patent and Trademark Office with the authority to issue patents or reexamine patents which have issued.

“[W]hen Congress crafted the bundle of sticks that comprise the property interests conveyed by a patent, Congress did not (and had no obligation to) include a stick that a grantee could later brandish at the Patent Office to prevent that agency from ever reconsidering its decision.”

The automaker organization moves on to argue that patents pose unique risks to the property and contract rights of others. Because patent law must serve the public interest, “Congress must protect not only the public in general but also the individual rights of those who may be accused of infringing newly granted patents.” Amicus cites to the Supreme Court’s 1833 decision in Shaw v. Cooper in arguing that “patent monopolies” must be “kept within their legitimate scope.” IPR proceedings ensure that “the rights of innocent bystanders” are not affected by the broad scope of infringement actions that “enables patents to restrict the liberty even of infringers that commit nothing resembling a trespass or any form of common-law tort against the patentee.”

IPR proceedings also reflect the proper separation of powers in the federal government by avoiding conflict between the Executive and Legislative Branches, according to amicus. Like others, amicus here argue that the sheer number of patents issued by the USPTO will naturally lead to errors. “It is thus unsurprising that Congress would elect to give the Patent Office a second chance to determine if an invention is actually, legally patentable.” Congress has the authority to decide how best to identify patents worthy of reevaluation, how that reevaluation should be conducted and the type of judicial scrutiny that should follow the renewed executive consideration. Thus, it’s not the exclusive mandate of the Judicial Branch to determine if Executive Branch actors have complied with the Patent Act.

Finally, amicus argue that this case is not a good vehicle to reconsider public-rights doctrine in part because patents are “creatures of statutory rather than common law.” If the USPTO has only one opportunity to assess the validity of an issued patent, amicus questions whether that would be consistent with the Due Process Clause “without giving any process to those who stand to lose property and contract rights… as a result of the determination that the patent should issue[.]”

Pharmaceutical Research and Manufacturers of America Brief in Support of Petitioner Oil States

Amicus Pharmaceutical Research and Manufacturers of America (PhRMA) represents drug developers who have spent more than $500 billion in research and development between 2000 and 2017. In its amicus brief filed in Oil States, PhRMA notes that its members “rely on the patent system to protect innovations resulting from those investments” even as they are also sometimes the defendant in patent infringement proceedings.

PhRMA argues that American law has long considered patents to be private property. Citing to the Supreme Court’s 1871 decision in Johnson v. Towsley, amicus argues that once the government has issued a title in the form of a patent, any disputes involving that title becomes one of private right. The Judicial Branch has considered patents to be private property going back to the Supreme Court’s 1824 decision in Ex Parte Wood and Brundage. In McClurg v. Kingsman, decided by SCOTUS in 1843, PhRMA notes that the Court has previously stated that Congress does not have the ability to take away rights to existing patents. Citing to historic U.S. patent law, PhRMA contends that patent owners have a right to sue at common law, thus indicating that patents are private rights. Until 1981, the only mechanism for invalidating an issued patent was through the court system. “Despite myriad revisions to the patent laws spanning nearly two centuries, Congress consistently refused to treat issued patents as anything less than granted and vested property rights,” PhRMA’s brief reads.

The notion that patents are property rights is further compelled by common sense, PhRMA argues. In contrast to public rights, which are non-transferrable, patents can be bought, sold or inherited. “No one would suppose that the public right to bring a citizen suit for Clean Water Act violations could be sold by one environmental group to another,” amicus argues. Patent infringement suits can result in damages awards of hundreds of millions of dollars and thus it “blinks reality to suggest that those actions involve ‘public’ rights akin to a citizen suit.” The notion of patents as private rights is confirmed by analogous areas of law, such as law surrounding land or mining patents. As the Supreme Court held in 1888’s Iron Silver Mining Co. v. Reynolds, the title to such patents can only be revoked in court. The Court has previously looked to the treatment of such patents in cases like 1898’s McCormick Harvesting Machine Co. v. Aultman and patent principles have also been applied to copyright cases given the similar origins of the two matters.

Recent decisions by the Court of Appeals for the Federal Circuit has improperly conflated the process of patent issuance with the status of issued patents, amicus argues, citing to that court’s 2015 decision in MCM Portfolio LLC v. Hewlett-Packard Company. The Federal Circuit’s determination that patents are issued as part of a federal regulatory scheme “looks at the wrong end of the elephant.” The regulatory process for issuing patents may be a public right, but the issued patent itself becomes the inventor’s private property. Further, patents bear no resemblance to licenses from the U.S. Food and Drug Administration or other regulatory agencies and thus are not themselves part of a “regulatory scheme.” The adversarial nature of IPR trials between two parties also undermines the argument that the USPTO needs such trials to correct its own errors; it is the challenging party, and not the USPTO, who is asking for reconsideration of the patent. That patents are granted by statute does not deprive their status as personal property.

“Today’s farmers would surely be surprised to learn that the fields they have worked for generations are not their private property, but public rights the Department of Interior can reconsider any time so long as title traces back to a centuries-old, statutorily authorized land grant.”

“Private property is the foundation of this Nation’s economic prosperity,” PhRMA notes. As the Court has previously held in a land patent context in 1887’s Maxwell Land Grant Case, the immense importance and stability of such private property cannot “be dependent upon the hazard of successful resistance to the whims and caprices of every person who chooses to attack them.” Such stability is required if PhRMA’s members are to develop life-saving drugs and medications as it costs $2.6 billion on average to develop new drugs and bring them to market. Such stability is lost if a patent is subject to “virtually unlimited, continuous agency reconsideration and revocation throughout its lifespan.” Given the Federal Circuit’s misunderstanding of patents as public rights instead of private property, reversal in Oil States is warranted.

Taiwan Semiconductor Manufacturing Co. Brief in Favor of Respondents Greene’s Energy Services

Amicus Taiwan Semiconductor Manufacturing notes in its Oil States brief that it is “the most advanced semiconductor manufacturer in the world,” constructing semiconductor components which are 20 nanometers in size while employing thousands of engineers and holding the ninth-largest portfolio of U.S. patents. Although Taiwan Semiconductor agrees with respondent Greene’s Energy Services that patents are public rights, more of its focus was placed upon “the significant problems invalid patents create for manufacturers like TSMC and their customers.”

Taiwan Semiconductor argues that “[s]ome worthless patents are an inevitable feature of any patent system,” arguing that third parties are often in a better position than patent examiners to challenge a patent application. Improperly issued patents “complicates inventing for TMSC” by claiming an idea that already existed and until the patent is rendered invalid, Taiwan Semiconductor risks facing either a lawsuit or a license to a patent which it argues shouldn’t exist. Manufacturers are often the target of NPEs, amicus argues, and such firms are often compelled to fight back because “[t]he infringement suit is in essence the plaintiff claiming that it invented the manufacturer’s product.” (Although it should be pointed out, many NPEs purchase patents from the original inventors, so this would seem to be an oversimplification on Taiwan Semiconductor’s behalf.) Compared to manufacturers, however, customers facing patent infringement suits have a diminished incentive to engage in costly litigation and they face potentially greater damages in the form of a reasonable royalty on a lucrative consumer electronic. In certain cases, some NPEs “increase settlement demands by waiting to file suit against a customer until a product becomes successful.”

The creation of IPR proceedings at the PTAB gives manufacturers like Taiwan Semiconductor an “effective mechanism” for dealing with NPE suits which are filed against their customers. Prior to the AIA, manufacturers could seek a declaratory judgment against the patent owner in district court, but “that option often did not work.” Courts often find that manufacturers don’t have standing, even when they offer to indemnify customers on patent infringement matters. Citing to this year’s Federal Circuit decision in Allied Mineral Products, Inc. v. OSMI, Inc., amicus here argues that a patent owner can “thwart” standing for a manufacturer simply by not threatening suit.

Amicus argues that IPR helps Congress fulfills its constitutional mandate to “promote the Progress of Science and the useful Arts” by serving as a post-grant review “targeted to those questionable patents that become problematic.” Manufacturers like Taiwan Semiconductor are given a greater ability to defend its customers against infringement suits; Taiwan Semiconductor itself has filed petitions for 50 IPRs challenging patents which have been asserted against its technologies. Amicus further notes that IPRs helped invalidate a patent covering a dual printer scanner owned by MPHJ Technologies, one of the very few actual patent trolls sending abusive demand letters whose owner was charged in 2016 with loan fraud by the U.S. Securities and Exchange Commission.

U.S. Golf Manufacturers Council Brief in Support of Respondent Greene’s Energy Group

Amicus U.S. Golf Manufacturer Council’s brief in Oil States notes that thousands of patents cover technologies in the golf industry, many of which cover subject matter like physics, micron-level surface treatments, chemical coatings and motion sensors. “Thus, the USGMC has a strong interest in protecting the integrity of the game and, as a corollary, ensuring the quality of the vast number of golf related patents,” the brief reads, noting that USGMC members have faced numerous lawsuits from “non-practicing entities, a/k/a ‘patent trolls.’” (The U.S. Federal Trade Commission has released a study on NPEs and patent assertion entities [PAEs] which noted that the use of the term ‘patent troll’ to describe such entities was prejudicial.)

USGMC argues that IPR proceedings work in “stopping specious patent claims,” citing the two-thirds of all IPR petitions which have led to instituted trials and the more than 80 percent of final written decisions which cancelled some or all of the challenged claims. “The suggestion that inter partes review is an indiscriminate death star destroying good patents is demonstrably wrong,” USGMC argues, noting that 80 percent of PTAB decisions appealed to the Federal Circuit are upheld. USGMC notes that IPR proceedings are cost-effective for patent infringement defendants, costing a median $250,000 which “pales in comparison” to the average $3.1 million it costs to litigate a mid-size patent case. IPR proceedings are also much quicker as they are required by statute to be concluded within one year, much less than the 2.33 year-average for patent suits in federal courts.

“Just as the game of golf depends on the integrity of the players, the patent system depends on the integrity of issued patents,” amicus argues. IPR addresses an imbalance in the patent system by allowing persons which knowledge of potentially invalidating prior art, including magazine articles, competitor advertisements and catalogs, which aren’t readily available to patent owners. This helps to reestablish fairness in a process which is typically “a one-sided affair” between an applicant and the USPTO. Patent examiners spend an average of 19 hours on examining a patent application, amicus argues, and the process results in “overworked examiners with too little time to review unclear applications containing broadly-worded claims which cite an unreasonably large number of prior art references, which often is not the most relevant prior art.”

Citing to a 2013 article published by the Virginia Journal of Law & Technology, amicus argues that as many as 28 percent of issued patents could be found invalid on grounds of either anticipation or obviousness if litigated. Ex parte reexamination provides validity challenges but deprives a challenger of “meaningful participation in the proceeding” once prior art has been presented to the USPTO. Any elimination of IPR proceedings could also render ex parte reexamination proceedings moot under the same arguments, which “would dramatically increase the number of ‘zombie’ patents that could only be finally put to rest through invalidation in federal court.” Further, elimination of the PTAB could overburden the federal court system with an additional 1,000 patent suits per year, amicus argues.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

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 10 Comments comments. Join the discussion.

  1. Paul Morinville December 7, 2017 8:40 am

    I was surprised to see so many foreign corporations file briefs. I read a few of them and those I read supported the new idea that patents are public rights. I suspect all of them took a similar position.

    What right does a foreign corporation have to influence our laws?

    Another point… the briefs largely lay out a battle between small US inventors, startups, their investors and a few other industries that require extensive R&D and rely on patents who are pitted against huge multinational corporations many of which generate most of their income from foreign sources or are fully foreign corporations.

  2. Anon December 7, 2017 10:13 am

    Paul,

    Your question of “What right does a foreign corporation have to influence our laws?” takes on an interesting ‘tone.’

    The straight up answer is that influencing our law should be outside the domain of non-US citizens (and that includes citizens of the “juristic person” persuasion).

    However – as parallel to the LACK of any “bite” from ethics rules, most anybody can (and do) say most anything in regards to being a “friend of the court,” and attempting to influence court decisions which in turn – especially in the patent arena – have drifted FAR over the line of separation of powers.

  3. Edward Heller December 7, 2017 6:48 pm

    Just commenting on the brief of the Alliance of Automobile Manufacturers, they make a point that invalid patents are not in the public interest. But they openly suggest that the only means for removing invalid patents is through a PTO proceeding, as if the defense of patent invalidity in a court system were not sufficient. This argument presumes that the ability to assert a patent in a court of law, even when the defense of invalidity exists, itself is a violation of the public interest.

    But we all know that the reason they prefer the PTO system is because it lowers the standard of proof, and gives the accused infringers at least one more bite at the apple under circumstances were any bite that is successful is a total victory.

  4. Edward Heller December 7, 2017 6:56 pm

    Commenting on Pharma’s brief, its argument that Congress has always recognized patents to be property seems out of place when one is considering whether Congress’s creation of IPR’s is constitutional. The real reason that patents are property is because the Constitution only authorizes Congress to secure inventions with exclusive rights for a limited time. Exclusive rights for a limited time are the very definition of a property right.

  5. Edward Heller December 7, 2017 7:01 pm

    Commenting on Taiwan Semiconductors’ brief, they make the argument that declaratory judgment actions for invalidity are insufficient because they require standing. Thus IPR’s are necessary to avoid the constitutional requirement of standing before a patent owner can be harassed. Well boohoo.

  6. Edward Heller December 7, 2017 7:05 pm

    The U. S. Golf Council’s brief also seems to make the argument that having to litigate validity in a court of law is somehow a violation of their members rights.

    Again, what they are after is transparently out obvious to all: they do not seek simply an alternative forum to test validity, they a seek a forum that has a lower standard of proof and provides multiple bites at the apple.

  7. Ternary December 7, 2017 10:02 pm

    TSMC’s brief is a real laugh. “Worthless patents” (which by now are most of them) are the ones that are asserted against TSMC (despite “TSMC employs thousands of engineers and spends billions of dollars”). The real valuable patents are of course the ones that TSMC owns (“TSMC believes in
    the value of patents that protect true innovation, and
    TSMC is now the company with the ninth most U.S.
    patents.”)

    This is the basic mantra on patents by large companies: our patents good, other patents bad.

    My impression is that large technology companies on balance would like to get rid of the patent system. But that is not possible. So they settle for making the system as ineffective as possible.

  8. Edward Heller December 9, 2017 3:02 pm

    Ternary, that has been true for a long time.

    I was once patent counsel for one to those large Silicon Valley tech companies, well before the word troll was ever mentioned. While there were some executives who believed our company could innovate, patent and sue our competitors, I knew otherwise from the experience of Conner Peripherals, a company that went toe-to-toe with IBM. Needless to say, the only winners in that suit were the lawyers. The IBM executives involved were “fired.” Conner had to sell itself or go out of business.

    It because clear to me that the only wise choice was to cross license one’s competition (including suppliers) so as to eliminate the possibility of such a patent war. One only had to invest in patents enough to force such cross licensing.

    But then there is the issue of individual inventors. Obviously they were not something one could plan for – which is why, I think, Silicon Valley would like to eliminate their ability to reliably enforce. With these wildcards out of the way, the patent system can be largely ignored and competition can be based solely on producing better products at lower costs.

    But I switched sides 10 years ago because the problem now is that weakening patents for the little guy true harms the kind of innovation that the small inventor, the start up and the university brings to the table.

  9. angry dude December 9, 2017 5:32 pm

    Edward Heller @8

    “But then there is the issue of individual inventors”

    Dude, its not about “individual” inventors, not even about “innovation”

    It’s about possibility to attract investors, to start companies, to establish whole new industries, to hire American engineers and workers … all afforded by reliable US patent protections

    This is how it used to be in good old USA

    Think Bell, Goodyear, Polaroid, Xerox, Dolby etc

    Not anymore

  10. Edward Heller December 9, 2017 8:22 pm

    angry, true all.

Post a Comment

Respectfully add to the discussion.

Name *
Email *
Website