The following is a summary of my paper on Private Patent Rights, the Patent Bargain and the Fiction of Administrative “Error Correction” in Inter Partes Reviews. As the Supreme Court considers in Oil States v. Greene’s Energy the constitutional limits on adjudicatory authority of the U.S. Patent and Trademark Office (“PTO”), it is important to recognize that the substantive question at hand is no longer whether or not the patent right is a property right. Contrary to widespread belief, both respondents – Greene’s and the Government – concede that the patent right is a property right. They contend, however, that adjudication of those rights is subject to the “public rights” exception, permitting Congress to remove patent validity adjudications from Article III courts and relegate them to an administrative tribunal, the PTO’s Patent Trail and Appeal Board (“PTAB”), whose final fact-finding is conclusive and binding on Article III courts.
In justifying the constitutionality of the inter partes review (“IPR”) statute enacted by the America Invents Act (“AIA”), a common refrain persistently asserted is that patent rights emanate solely from federal statute and are therefore public rights, derived from a “federal regulatory scheme.” Another reprise is the remedial tenor of the IPR statute: Congress merely authorized a “narrow” post-issuance means for the agency to “correct its own errors.”
My paper shows that both contentions above are without merit; that the exclusive patent right emanates from the inventor – not from Congress – and therefore the right adjudicated in IPRs is a “private right”; and that the notion of post-issuance “error correction” is fiction, as it overlooks the irreversible and uncorrectable exchange of rights upon patent issuance. A summary of the paper follows.
1. Congress does not create the patent right – it only creates the statutory design for securing the inventor-created right
Article I, Section 8, Clause 8 of the U.S. Constitution (the “IP Clause”) empowers Congress “To promote the Progress of … useful Arts, by securing for limited Times to … Inventors the exclusive Right to their … Discoveries.” (Emphasis added). The Supreme Court has recognized that this language “is both a grant of power and a limitation.” Graham v. John Deere Co., 383 U.S. 1, 5 (1966). Thus, Congress is not authorized to create a new exclusive property right in a grant – it is only empowered “to secure” the existing rights of the inventors. Gibbons v. Ogden, 22 U.S. 1, 146–8 (1824).
At the time the Constitution was adopted, the term “to secure” meant what it means today – “[t]o make certain, to put out of hazard, to ascertain, to protect, to make safe, to insure.” Thomas Sheridan, A complete dictionary of the English language, 2nd ed., London: C. Dilly (1789). The choice of the word “secure” in the IP Clause rather than “grant” appears deliberate; the Framers were well aware of the word “grant,” having used it 8 times elsewhere in the Constitution. And the term “grant” meant what it means today – “to bestow something that cannot be claimed of right.” Sheridan (1789) (emphasis added). Thus, Congress is empowered only to secure that which can “be claimed of right” by inventors – “the exclusive Right to their … Discoveries.”
Before the patent issuance, from the moment of first possession and reduction to practice of a patentable invention, the inventor in fact has an exclusive right to the invention. Indeed, exclusivity nominally begins even before an application for patent is filed. This is because a patentable invention is novel and non-obvious to the world; it would not have been previously known or available to the public and the inventor could have kept it secret to himself and therefore necessarily would have remained the exclusive user to exploit the invention, at least for a while. However, although the inventor created the exclusive right, that right would not have remained secure. Enter Congress.
Congress does not create the exclusive patent right – it only creates the statutory design and the legal formalities needed for securing the inventor-created exclusive right. This was repeatedly enunciated by the courts over the years, as further detailed in my full paper. The fact that the inventor’s exclusive right is among rights secured by congressional legislation does not mean that it can be extinguished by legislative courts. Indeed, were this principle to apply consistently, it would make Article III courts optional for every statutory cause of action, stripping them of their constitutional jurisdiction. This would exceed separation of powers limits by countenancing a doctrine under which “what Congress giveth, Congress can taketh away” on whatever terms it pleases.
2. The Irreversible Patent Bargain
The notion of the patent bargain – disclosure of an invention in exchange for a secured exclusive right to the invention – was introduced in 1792 by Joseph Barnes, one of the early American patent commentators. The Supreme Court explained that under the patent quid pro quo, the “immediate disclosure is not the objective of, but is exacted from, the patentee. It is the price paid for the exclusivity secured.” Eldred v. Ashcroft, 537 U.S. 186, 216 (2003) (emphasis added).
The recognition that the public receives valuable consideration from the inventor –the publication of the full enabling detailed disclosure of the invention, which is “the price paid for the exclusivity secured” – further underscores the private right nature of the underlying source of the patent right.
3. The Fiction of “Error Correction” in Post-Issuance Review
The notion that an IPR merely “corrects” an error – that the PTO simply “reconsiders” its prior decision and is given a chance for a “do over” – is fiction. First, the exchange of rights upon patent issuance is irreversible and therefore uncorrectable. The public disclosure of the invention made under the patent quid pro quo in exchange for secured exclusive right cannot be erased and the status quo ante cannot be restored; one cannot unring the bell. Moreover, the substantial investments that the patentee may have made in reliance on the exclusive patent right cannot be returned; investment-backed expectations are conclusively gutted without judicial review. In short, there can be no “do over” of the patent bargain.
Second, there is no assurance that the PTAB will actually correct an error. In fact, the PTAB record indicates otherwise – that IPR error correction is illusory: if a PTAB final decision “corrects” an issued patent, why are subsequent “corrections” of the same patent again and again in up to a dozen IPRs necessary? This is definitely not about a “do over” – it is a “do over, and over, and over…” scheme.
Furthermore, rather than striving to “correct errors,” the PTO admitted that in certain cases it expanded PTAB panels with selected judges in repeated adjudications to reach preferred substantive results. As such, there are no real checks on the PTAB “correction” mechanism – the PTAB decision is conclusive as to fact-finding.
The decision in McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606 (1898) was directly on point as it pertained to “error correction”. Here, the Supreme Court held that “[t]he 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., at 609. The Court reasoned that for the Patent Office “to attempt to cancel a patent … considered invalid by the examiner would be to deprive the applicant of his property without due process of law, and would be in fact an invasion of the judicial branch of the government by the executive. Id., at 612.
The common narrative on this holding asserted by IPR proponents, is that McCormick did not address Article III and was decided according to the then-existing patent statute, which in 1898 gave no unilateral authority to the Patent Office to cancel issued patents. But this too is fiction, as McCormick’s reasoning is clearly constitutionally-based. Admittedly, one can reasonably argue that the first part of McCormick’s statement about patent cancellation cited above – that doing so “would be to deprive the applicant of his property without due process of law” – can be interpreted as stating a void in statutory authority, even though it points to a Fifth Amendment infirmity. This is because Congress ostensibly could have cured this type of infirmity by providing procedural due process through a statutory scheme for canceling claims in existing patents.
However, the second part of McCormick’s holding – that it “would be in fact an invasion of the judicial branch of the government by the executive” – has no possible statutory cure. Instead, this holding in McCormick is purely constitutional, pointing out the constitutional infirmity of exceeding the separation of powers limits. Contrary to IPR proponents’ contention, this holding in McCormick has everything to do with Article III. And curing it requires amending Article III of the Constitution. While McCormick’s holding may not be a Fifth Amendment holding, it is certainly an Article III holding.
4. The Administrative Mythical Ghost of Reexamination
Proponents of IPRs point to the long existence of post-issuance “error correction” at the PTO in (a) ex parte reexamination, a procedure enacted in 1980 that withstood constitutional challenges at the Federal Circuit, and (b) inter partes reexamination enacted in 1999. Because such long-established proceedings also allow the PTO to cancel claims in issued patents, proponents contend, Congress is similarly within its power to establish IPRs. This argument, however, glosses over critical aspects of reexaminations. As opposed to the reasoning given by Oil States’ counsel in her oral argument, I do not believe that the distinction can be predicated on the degree of “third party participation” but is rather based on Article III fundamentals.
First, PTO’s ex parte reexamination decisions were not conclusive – they were subject to de novo fact-finding judicial review under 35 U.S.C. §145 by a civil action in an Article III court. Because Article III protections were fully available, ex parte reexaminations were constitutional. For the same reason, so are interferences. It was only the AIA in 2011 that eliminated the path to such protective judicial review by amending 35 U.S.C. §§ 306, 141, and 145. Second, before the AIA’s conversion of inter partes reexamination into IPR, this type of proceeding was never challenged on constitutional grounds in any court. It was the AIA that stripped patent owners of their long-standing, fundamental, statutory right to challenge adverse decisions of the PTO by civil action in federal district court, not only in IPRs but also in reexaminations. The notion that a Supreme Court decision finding IPRs unconstitutional would necessarily bring down the 1980 reexamination statute is a myth – it would only mean that Congress must restore the ex parte reexamination statute as it existed in 2011 and that any new inter partes proceeding contain similar Article III protections.
Stay tuned for the Supreme Court’s decision. Read my full paper on SSRN.