Summary of Oral Arguments in "Oil States"

By Stephanie J. Moats

The U.S. Supreme Court asked tough questions during the oral arguments in Oil States Energy Services LLC v. Greene’s Energy Group LLC. This case challenges the constitutionality of inter partes review (IPR), a procedure established under the America Invents Act. The following are 5 themes that came up during oral arguments on Monday:

1.  Is Oil State’s argument a "process" argument or an attack on the "power" of the USPTO to revoke a granted patent?

Ms. Ho, on behalf of the Petitioner, took the position that while Congress could condition the grant of a patent, it could not do so in a way that conflicts with Article III protections.

JUSTICE KENNEDY: Could Congress say -- let's hypothesize going forward -- that we will grant you a patent on the condition that you agree to this procedure; otherwise, we don't give you the patent. Could Congress do that?

MS. HO: No… we believe that would be an unconstitutional condition, so that Congress cannot condition the exercise of a right or a property or benefit of -- of any sort, to the extent that doing so would -- would conflict with another article of the -- of the Constitution.

And later reiterated:

MS. HO: There are any number of ways that Congress could certainly permissibly condition a grant on -- of a patent. What it can't do is exert an unconstitutional condition on it, either under takings or due process or Article III.

Mr. Kise, on behalf of the respondent, responded that since Congress holds the authority to condition the grant of a patent, IPR procedures are constitutional.

MR. KISE: To the extent standards of patentability were not met initially, the patent simply should not have issued.

MR. KISE: The scheme itself is set up so that these rights are taken subject to the power of Congress to determine patentability.

Mr. Kise then suggested that the Petitioner's position is really an argument about the process, not the power of Congress to establish IPRs. The justices, when considering the process, seemed concerned about the USPTO's "unfettered discretion" and whether there is sufficient judicial review of USPTO decisions. 

JUSTICE SOTOMAYOR: That -- that was what troubled me deeply… I mean, for me, this -- what saves this, even a patent invalidity finding, can be appealed to a court. There's deference with respect to factual matters, but there is de novo review as to legal matters. So how can you argue that the -- the crown, the executive, the PTO, here has unfettered discretion to take away that which it's granted?

MR. KISE:  With respect to this process there is judicial review.

JUSTICE GORSUCH: Well, now, counsel, there's only judicial review if somebody appeals.

2. Are IPRs adjudicational or examinational?

In discussing the constitutionality of IPRs, Ms. Ho took a position that IPRs are unconstitutional under Article III because they are adjudicational rather than examinational. Reexaminations were, according to Ms. Ho, consistent with Article III. 

JUSTICE GINSBURG: There must be some means by which the Patent Office can correct the errors that it's made, like missing prior art that would be preclusive. So do you recognize any error correction mechanism as within Article III?

MS. HO: Yes, certainly… we believe ex parte reexams, which are fundamentally examinational and not adjudicational in nature, are perfectly consistent with Article III.

Which then prompted the question – what makes a procedure adjudicational? 

JUSTICE KAGAN: So what's the line? Where would you -- what are the procedures that are here that you think make this essentially adjudicatory that are not in those other proceedings?... Is it discovery… participation in the hearing?... how many of these things do you have to take away before you have a constitutional system?

MS. HO: We would define an adjudication as it's where a tribunal is hearing and deciding a cause between two private -- two private parties. 

MS. HO: Hearing and deciding a cause between two private parties that results -- that results in a -- in a final binding judgment.

Mr. Kise responded by saying:

MR. KISE: This is an executive adjudication. And adjudications are not themselves inherently judicial.

Mr. Stewart (for the USTPO) analogized to executive functions taken by the Solicitor’s Office:

Mr. Stewart: Even though our procedures may resemble the Court's procedures, the decision that [the Solicitor’s Office] make[s] is the decision to file an amicus brief on behalf of the United States. So long as that's an appropriate exercise of executive branch authority, the fact that we get input from private parties can't render it constitutionally infirm.

3. Should there be heightened judicial review for patents that have been issued and relied upon for many years? 

Another theme centered around questions expressing concern for a patent owner's reliance on their issued patents, and whether there was – or should be – mechanisms in place to protect their often substantial investments. 

JUSTICE BREYER: Suppose that the patent has been in existence without anybody reexamining it for 10 years and, moreover, the company's invested $40 billion in developing it. And then suddenly somebody comes in and says: Oh, oh, we -- we want it reexamined, not in court but by the Patent Office. Now, that seems perhaps that it would be a problem or not?

MR. KISE: I don't think so.

Which prompted Justice Breyer to explore whether there should be a problem based on the patent owner's reliance, especially for patents that have been in force for long periods of time. 

JUSTICE BREYER:  Fifteen years?... Thirty?... Everybody's dead, by the way, who actually knows about the original article written in Danish, that nobody found except this one guy who happens to be sued for infringement.

MR. KISE: All patents are taken subject to these patentability standards.

MR. STEWART: The patentee never had any expectation that, having been granted a patent, its validity… is not immune from [review]. 

The justices then seemed to articulate the position of the respondents as taking the "bitter with the sweet." 

CHIEF JUSTICE ROBERTS: Your position, it strikes me, is simply that you've got to take the bitter with the sweet. If you want the sweet of having a patent, you've got to take the bitter that the government might reevaluate it at some subsequent point.

4. Should patents issued before the America Invents Act be subject to IPRs? 

The justices also asked questions about patents issued before IPRs were created by Congress, and whether those patents should be subject to IPR procedures despite not having an expectation that their patents would be subject to them after grant. 

CHIEF JUSTICE ROBERTS: How does that work since this patent was issued before there was inter partes review, before the America Invents Act?

MR. STEWART: There was ex parte reexamination. There was the possibility of judicial proceedings in which patent validity could be called into question.

CHIEF JUSTICE ROBERTS: I mean, inter partes review changed those things. It is something different…. Including particularly with respect to the procedures.

MR. STEWART: This is not a case in which Congress has changed the substantive rules.

5. Should the Commissioner have authority to “pack the panel”? 

Finally, the justices expressed concerns with panel packing, and whether the commissioner should have the authority to change panels with unrestricted discretion. 

CHIEF JUSTICE ROBERTS: What about this business… that the commissioner can change the -- the panels if she doesn't agree with the direction they're going, that she can add new judges to the panel so that they'll -- in other words, it's a -- the panel itself -- and I think constitutionally this may be fine, is -- is a tool of the executive activity, rather than something involving some – anything resembling a determination of rights?

MR. STEWART: This has been done on three occasions. It's been done at the institution stage.

CHIEF JUSTICE ROBERTS: Was it illegal under those three occasions?

MR. STEWART: I don't think it was illegal. It had functional similarities to a court of appeals granting rehearing en banc because the full court doesn't like the initial panel decision.

CHIEF JUSTICE ROBERTS: How did that case come out?

MR. STEWART: I -- I don't know how the institution decisions came out.