High Court to Review Process That Commonly Kills Patents

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By Peter Leung

The U.S. Supreme Court June 12 agreed to review the constitutionality of a controversial proceeding that has changed the face of patent litigation since it debuted in 2012 ( Oil States Energy Services LLC v. Greene’s Energy Group LLC , U.S., No. 16-712, cert granted 6/12/17 ).

Patent attorneys will be closely watching the case. The administrative procedure for challenging patents—known as inter partes review—has resulted in the filing of nearly 7,000 patent challenges, according to the Patent and Trademark Office. Of the challenges that reach a final written decision, over 80 percent have resulted in at least one patent claim being invalidated.

The challenged procedure, created by the 2011 America Invents Act (AIA), gives would-be defendants another path to attack granted patents. Companies that have been sued can also challenge patent validity in court.

The high success rate of inter partes rates means that high-stakes patent litigation often involves a complex interplay between trial court litigation and PTO challenges, such as when the court should wait for administrative challenges to conclude.

The administrative proceedings are similar to court proceedings, but are decided by administrative law judges at the PTO.

In the case before the court, Oil States argued that because patents are private property rights, they can only be extinguished by a non-administrative court created by Article III of the U.S. Constitution. The right to a jury trial is also guaranteed by the Seventh Amendment, which is not available in an IPR proceeding, it said.

On the other side, Greene’s Energy Group LLC and the PTO countered that patents are public rights that can be taken away by administrative agencies.

A decision in Oil States’ favor would be a significant win for critics who argue that the inter partes review proceedings have rules that are stacked against patent owners and undermine patent rights. Industries that rely on a relatively small number of patents for revenue, such as pharmaceuticals, have been particularly critical of the proceedings.

Oil States asserted U.S. Patent No. 6,179,053, on improvements to tools used in oil and gas production, against Greene’s. The PTO’s Patent Trail and Appeal Board, which decides inter partes review cases, ultimately ruled in favor of Greene’s and canceled the challenged claims.

Paul Morinville, managing director of U.S. Inventor Inc., a Washington-based advocacy group for inventors, told Bloomberg BNA that if patents aren’t a private property right, the funding for early stage startups will be stifled, hampering commercialization efforts by American companies.

What Kind of Right?

Inter partes reviews are designed to be a faster and lower cost way to challenge patents. Supporters argue that they are an important tool to weed out bad patents and prevent frivolous lawsuits.

The proceedings are very important for small and medium sized companies, because the cost difference between an IPR and a federal court proceeding is quite large, Vera Ranieri, a staff attorney on the Electronic Frontier Foundation’s IP team, told Bloomberg BNA.

The median cost of an administrative challenge, including appeal at the PTO, is around $350,000, according to a 2015 study by the American Intellectual Property Law Association. By contrast, the AIPLA study said the median cost of litigating all the way through a trial, if a case had more than $25 million at stake, was around $5 million.

Long Time Coming

Ranieri said that the Supreme Court’s acceptance of the case isn’t a sign that AIA proceedings are in trouble. She pointed out that many patent owners have raised the constitutionality issue.

Last year, the Supreme Court passed on the chance to review two cases that raised the constitutionality of AIA proceedings, Cooper v. Lee and MCM Portfolio LLC v. Hewlett-Packard Co.

But the Supreme Court’s 2015 decision in B&B Hardware Inc. v. Hargis Indus. Inc. may have pushed the issue forward, Naveen Modi, head of Paul Hastings LLP’s patent office practice, told Bloomberg BNA. In B&B, Justices Antonin Scalia and Clarence Thomas in dissent raised the question of public and private rights in the trademark context. Two Federal Circuit judges later cited the dissent, saying that the court should address the issue as it applied to patents.

Peter Harter of the Farrington Group, which advises companies on IP-related issues, also pointed out that Congress was aware of the constitutionality issue when it debated the AIA, and momentum has been building to review the private-or-public right question.

What makes Oil States so interesting is that it’s two operating companies, in Texas, in oil and gas, and not a software patent belonging to a patent licensing entity, he said.

Harter said that the optics is different from earlier disputes, as the case involves operating companies with patents in an industry critical to the national interest.

“It’s a patent to get your hands dirty in,” he added.

Morgan Lewis Bockius LLP is representing Oil States. Foley & Lardner LLP is representing Greene’s. Both declined, through their lawyers, to comment, as did the PTO.

To contact the reporter on this story: Peter Leung in Washington at pleung@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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