On April 24, 2018, the United States Supreme Court decided two important cases addressing administrative patent trials, launched in 2012 by the America Invents Act (AIA). In Oil States v. Greene’s Energy Group, the Supreme Court held that the AIA patent review proceedings do not violate Article III or the Seventh Amendment of the U.S. Constitution. And in SAS Institute, Inc. v. Iancu, the Court held that when the U.S. Patent and Trademark Office (PTO) institutes trial, it must address in its final written decision patentability of all claims challenged by the petitioner.

US Supreme Court Decision in Oil States

Under the AIA, the PTO implemented a program for challenging the validity of issued patents. The statute authorizes three types of proceedings to challenge patent validity: Inter Partes Review (IPR), Post Grant Review (PGR), and Covered Business Method Review (CBM). Under the program, challengers may file with the Patent Trial and Appeal Board (PTAB)—the adjudicative arm of the PTO—a petition to declare unpatentable some or all claims of a patent. IPR proceedings, in particular, have proven to be extremely popular among patent challengers, who collectively have filed over 8,400 petitions since the program was initiated.

Oil States involves a challenge to U.S. Patent No. 6,179,053, which relates to technology used to protect oil well equipment during hydraulic fracking. Oil States, owner of the ’053 patent, sued Greene’s Energy Group for patent infringement. About a year after suit was initiated, Greene’s filed a petition for inter partes review, which the PTAB granted, based on prior art submitted with the petition. After trial, the PTAB issued a final written decision holding that the two challenged claims, 1 and 22, are unpatentable, and denying Oil States’s motion to amend the claims. Oil States appealed to the Federal Circuit, which issued a per curiam, one-line order affirming the PTAB’s decision. The Federal Circuit also denied a petition for rehearing and rehearing en banc. Oil States then filed its petition for certiorari.

Oil States challenged constitutionality of inter partes review on the ground that actions to revoke a patent must be tried in an Article III court before a jury. The Supreme Court held that inter partes reviews do not violate Article III or the Seventh Amendment to the Constitution.

Article III of the U.S. Constitution vests the judicial power of the United States “in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.” However, Congress also has significant latitude in assigning adjudication of “public rights” to entities other than Article III courts. The public-rights doctrine covers matters “which arise between the Government and persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments” or matters “arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it.”    Critical to the Court’s Oil States decision was whether or not the grant—and revocation—of patent rights falls within the public-rights doctrine, in which case Congress’s delegation of authority to cancel patent claims in an inter partes review would not violate Article III.

The Court determined that “Inter partes review falls squarely within the public-rights doctrine” in that inter partes review “involves … reconsideration of the Government’s decision to grant a public franchise.” According to the Court, “Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.” Thus, the Court concluded that the Constitution does not prohibit the PTAB from resolving the question of patent validity outside of an Article III court.

Having rejected Oil States’s Article III challenge, the Court also rejected its Seventh Amendment challenge. According to the Court, “[b]ecause inter partes review is a matter that Congress can properly assign to the PTO, a jury is not necessary in these proceedings.”

Importantly, the Court “emphasize[d] the narrowness of [its] holding.” For example, the Court noted that Oil States did “not challenge the retroactive application of inter partes review, even though that procedure was not in place when its patent issued” and that Oil States did not “raise ‘a due process challenge.” The Court also noted that its decision “should not be misconstrued as suggesting the patents are not property for purposes of the Due Process Clause or the Takings Clause.”

Thus, for the time being, AIA patent reviews remain a viable mechanism for challenging validity of U.S. patents outside of district court litigation.

US Supreme Court Decision in SAS

SAS filed an IPR petition, challenging patentability of all sixteen claims of U.S. Patent No. 7,110,936. In its institution decision, the PTAB instituted IPR of claims 1 and 3 to 10 on certain grounds, declined institution of IPR of claims 1, 3, and 5 on other grounds, and declined institution of IPR of claims 2 or 11 to 16 on any ground. After trial, SAS unsuccessfully requested rehearing before the PTAB. SAS appealed to the Federal Circuit on the ground that it was improper for the PTAB to institute an IPR on some claims but not on all of the claims challenged in the petition—so-called “partial institution.” The Federal Circuit affirmed the PTAB’s decision and subsequently denied SAS’s requests for panel rehearing and en banc rehearing. SAS then filed its petition for certiorari.

The Supreme Court reversed, holding that §318(a) of the statute plainly requires the PTO, once it institutes trial, to issue a final written decision with respect to patentability of all claims challenged in the IPR petition. Addressing the statutory text of §318(a), “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner,” the Court ruled that “any” in this context means “every” and that “shall” made the requirement mandatory. Rejecting the PTO’s attempt to defend partial institution practice, the Court pointed to several additional statutory provisions that cut against the PTO’s position. For example, according to the Court, with IPRs the AIA introduced a new party-directed adversarial proceeding, rather than a PTO-led inquisitorial process (such as reexamination); the statute only gives the PTO a binary choice “whether” to institute a proceeding, but not a choice of which claims the PTAB should review; and the statute permits the patent owner to respond to the petition, not to the institution decision.

Further responding to the PTO’s policy argument that partial institution efficiently permits the PTAB to focus only on the strongest challenges, the Court pointed out the argument by SAS that the claims would need to be adjudicated somewhere, either before the PTAB or in the courts—an argument that the government had itself made at one time. As for the PTO’s argument that its partial institution procedures should be afforded Chevron deference, the Court ruled that the statute was clear and left no uncertainty that warranted deference to the agency. Finally, the Court rejected the PTO’s argument that the issue of partial institution was nonappealable, holding that under Cuozzo the question could be reviewed because it was directed to the PTO’s authority to act under the statute, rather than being directed to challenging the PTO’s determination of “reasonable likelihood of success” under §314.

Under SAS, the Supreme Court’s opinion effectively requires the PTO to make an all or nothing decision at the institution stage—which could have significant impact on all AIA trial proceedings. Prior to SAS, when the PTAB issued rulings to institute trial, in the vast majority of cases the Board would rule on each of the claims individually. After SAS, when the PTAB issues a ruling to institute trial, it may choose to limit the analysis in the institution decision to a single claim—which, as pointed out in the Supreme Court’s decision, would be sufficient to permit the PTAB to institute trial on the entire petition (assuming it meets the threshold for trial). And in any event, once trial is instituted the PTAB would be required to address, in the final written decision, all of the challenged claims (and not just a subset of claims that may have been ruled as meeting the threshold for trial).