Caseflicks

Supreme Court of the United States • 2018

Oil States Energy Services, LLC v. Greene's Energy Group, LLC

584 U.S. 325 | 138 S. Ct. 1365 | 200 L. Ed. 2d 671 | 2018 U.S. LEXIS 2630

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Takeaway

In short, Oil States upheld inter partes review because canceling an improperly granted patent claim is a public-rights reconsideration of a government franchise, not an Article III case requiring a jury.

Background

Oil States owned a patent covering equipment used to protect wellheads during hydraulic fracturing. After Oil States sued Greene's Energy for infringement in federal district court, Greene's Energy challenged the patent's validity both as a defense in that suit and through an inter partes review petition at the Patent and Trademark Office (PTO).

The proceedings moved forward at the same time. The district court adopted a claim construction favorable to Oil States that undermined Greene's Energy's prior-art argument. But the PTO's Patent Trial and Appeal Board separately concluded that two challenged claims were unpatentable and canceled them. Oil States appealed to the Federal Circuit, arguing both that the Board had erred on patentability and that inter partes review was unconstitutional because patent revocation must be adjudicated by an Article III court and a jury.

After the Federal Circuit rejected the same constitutional theory in another case, it summarily affirmed the Board's decision against Oil States. The Supreme Court granted review on the Article III and Seventh Amendment questions and affirmed.

Issues

Issue #1

Whether inter partes review, through which the PTO may reconsider and cancel issued patent claims, violates Article III by assigning judicial power to a non-Article III tribunal.

Holding

No. Inter partes review concerns a public right—the reconsideration of the Government's grant of a patent franchise—and Congress may assign that matter to the PTO.

Reasoning

Article III generally vests the federal judicial power in courts whose judges have life tenure and salary protection. But the Court's precedents permit Congress substantial latitude to assign adjudication of “public rights” to legislative or executive bodies. Although the Court has not supplied a single exhaustive definition of public rights, the doctrine covers matters arising between the Government and persons subject to its authority in carrying out legislative or executive functions.

A patent's original grant is a public-rights matter. Patents are government-created public franchises: the Government removes certain knowledge from the public domain and grants the patentee a statutory right to exclude others. That right did not exist at common law, and Congress, exercising its Patent Clause authority, has long authorized executive officials to decide whether an applicant meets the statutory conditions for receiving it.

Inter partes review addresses the same basic matter as the original grant. It is a second administrative examination of whether a claim satisfied the statutory novelty and nonobviousness requirements, and it protects the public's interest in ensuring that patent monopolies do not exceed their legitimate scope. The fact that review occurs after issuance does not change the analysis because patents issue subject to the statutory possibility of PTO reconsideration and cancellation.

The Court rejected Oil States' reliance on older cases describing issued patents as the patentee's private property and stating that only courts could annul patents. Those decisions arose under the Patent Act of 1870, which lacked any post-issuance administrative-review mechanism. They described the authority Congress had then granted to the Patent Office, not a constitutional bar against Congress later creating inter partes review. A patent remains property, but it is property defined and qualified by the Patent Act's provisions, including inter partes review.

History did not establish that patent validity, by its nature, must always be decided in an Article III court. Eighteenth-century English defendants could contest validity in infringement litigation and parties could use scire facias proceedings, but they also could petition the Privy Council—an executive body—to revoke a patent. Because the Patent Clause was adopted against that background, Congress could permissibly provide that a patent grant is subject to administrative cancellation.

The Court also declined to treat inter partes review as unconstitutional merely because it resembles litigation. Discovery, evidence, adversarial hearings, administrative patent judges, and binding final decisions do not create a “looks like” test for Article III judicial power. The Board does not determine Greene's Energy's liability to Oil States; it reconsiders the Government's own patent grant. The Court stressed that its ruling was narrow: it did not decide whether infringement suits or other patent disputes may be assigned outside Article III courts, nor did it decide due-process, takings, or retroactivity questions not raised by Oil States.

Issue #2

Whether inter partes review violates the Seventh Amendment by allowing the PTO to cancel patent claims without a jury trial.

Holding

No. Once Congress validly assigns a public-rights matter to a non-Article III tribunal, the Seventh Amendment creates no independent right to a jury trial in that proceeding.

Reasoning

The Seventh Amendment preserves jury trials in suits at common law, but the Court's precedents hold that it does not independently require a jury when Congress properly commits a public-rights matter to administrative adjudication. Because inter partes review is constitutionally assigned to the PTO, its use of administrative patent judges rather than a civil jury is permissible.

Concurrences

Justice Breyer

Reasoning

Justice Breyer joined the Court's opinion in full because the public-rights conclusion was sufficient to resolve both constitutional challenges. He wrote separately to prevent the decision from being read too broadly.

In his view, the presence of a private right does not automatically mean that only an Article III court may adjudicate a dispute. Under decisions such as Commodity Futures Trading Commission v. Schor and Stern v. Marshall, some private-rights adjudication by agencies may also be constitutional after a more searching examination of the relevant separation-of-powers factors.

Dissents

Justice Gorsuch

Reasoning

Justice Gorsuch, joined by Chief Justice Roberts, viewed the case as a threat to the constitutional guarantee of judicial independence. Article III's tenure and salary protections exist to ensure that disputes involving individual rights are decided by independent judges rather than by political appointees and executive officials. Administrative efficiency, he argued, cannot justify dispensing with that constitutional protection.

The dissent would ask whether the dispute is the kind of suit traditionally heard in English common-law, equity, or admiralty courts at the founding. In Justice Gorsuch's view, patent-revocation disputes belonged in courts of law by that time. Although the Privy Council once had a role in revoking patents, its ordinary involvement had largely ended before the founding; its later interventions were exceptional wartime episodes rather than evidence of a general executive power to cancel patents.

American practice reinforced that conclusion, according to the dissent. For nearly two centuries after the founding, Congress left patent invalidation to federal courts. American invention patents were understood not as revocable royal favors but as property rights earned by inventors' labor and protected by the Patent Clause's goal of promoting progress.

Justice Gorsuch read McCormick Harvesting Machine Co. v. Aultman and related cases as confirming that, once issued, a patent passed beyond the Patent Office's power to revoke and could be canceled only through judicial proceedings. He rejected the majority's view that those cases merely interpreted the Patent Act then in force, because their reasoning invoked due process and the constitutional separation of judicial from executive power.

Finally, the dissent rejected the majority's analogy between invention patents and ordinary public franchises, such as a toll-bridge monopoly. By the founding, the law treated Patent Clause invention patents more like private property than like disfavored monopolistic privileges. The Executive's traditional power to issue a patent therefore did not carry with it a power to withdraw the granted right; revocation required an independent judge.