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

Issues 

May the Patent Trial and Appeal Board, an administrative law body, extinguish patent rights in an inter partes review proceeding, or is the patent owner entitled to a jury trial before an Article III court?

Oral argument: 
November 27, 2017

The Supreme Court will decide whether inter partes review— a proceeding used by the Patent Trial and Appeals Board to reexamine the validity of existing patents—is constitutional. Oil States Energy Services, the patent owner, argues that inter partes review is unconstitutional because patents are private property rights that have historically been reviewable by courts. Oil States Energy Services further contends that patent rights can be eliminated only by an Article III court with a jury. In contrast, Greene’s Energy Group, the alleged patent infringer, counters that patents are public rights or “revocable privileges” and thus, Congress may assign an administrative agency to decide disputes involving patents. Furthermore, Greene’s Energy Group claims that the Seventh Amendment right to a jury trial does not apply to administrative proceedings, and that even if it did, there is no jury trial right for equitable claims, such as revocation of patent rights. The Supreme Court’s decision may either reinforce the administrative state and the ability of non-Article III tribunals to adjudicate certain claims, or instead, curtail the administrative state and instill trust in district courts to determine patent validity. 

Questions as Framed for the Court by the Parties 

Whether inter partes review, an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents, violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury?

Facts 

On January 30, 2001, the United States Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 6,179,053 (the “’53 patent”) to a predecessor company of Oil States Energy Services, LLC (“Oil States”). Greene's Energy Grp., LLC, Petitioner, v. Oil States Energy Services, LLC, Patent Owner, IPR2014-00216, 2015 WL 2089371, at *2 (May 1, 2015). The ’53 patent, labeled “Lockdown Mechanism for Well Tools Requiring Fixed-Point Packoff,” protects both the tools and methods used to prevent damage to wellheads from stimulation fluids. Id. at 2. According to the ’53 patent, technicians often pump dangerous liquids into oil and gas wells when servicing them. Id. at 1. These liquids may cause irreversible damage to equipment if they pass directly through the wellhead. Id. at 1.

In 2012, Oil States filed a patent infringement suit in the Eastern District of Texas, alleging that Greene’s Energy Group, LLC (“Greene’s Energy”) violated the ’53 patent. Oil States Energy Servs., L.L.C. v. Trojan Wellhead Prot., Inc., No. 6:12-CV-611, 2014 WL 12360946 (E.D. Tex. June 23, 2014). Within a year after Oil States filed the lawsuit, Greene’s Energy petitioned the Patent Trial and Appeal Board (the “Board”) for inter partes review of claims 1 and 22 of the ’53 patent. Greene’s Energy Grp., LLC, Petitioner, v. Oil States Energy Services, LLC, Patent Owner, IPR2014-00216, 2014 WL 2623464, at *1 (June 10, 2014). Claim 1 describes the tool itself that is used to anchor the mandrel of a wellhead in an operative position. Id. at 3. Claim 22 explains the method used to fasten the mandrel in an operative position. Id. at 3–4. The inter partes review proceeding before the Board proceeded simultaneously with the lawsuit in the district court. Brief for Petitioner, Oil States Energy Services, LLC at 13.  

The Board, notably disagreeing with the district court, found that the tool described in claim 1 and the method described in 22 were anticipated by Canadian Patent CA 2195118 (“Dallas ’118”), meaning that the claims were therefore invalid. Greene's Energy Grp., LLC, Petitioner, 2015 WL 2089371 at *8, *13. Murray Dallas is the named inventor of both Dallas ’118 and the ’53 patent. Id. at 8. The Board applied the Wands factors and concluded that a person of ordinary skill in the art would be able to use the disclosures in Dallas ‘118 to recreate the tool and method described in claims 1 and 22, respectively, of the ’53 patent, which invalidated the ’53 patent. Id. at 12; see In re Wands, 858 F.2d 731, 737 (Fed. Cir. 1988). The Board further denied Oil States’ motion to replace claims 1 and 22 with claims 28 and 29, respectively, because the proposed replacement claims lacked adequate support and remained indistinct from the prior patent. Id. at 16.

Oil States appealed the Board’s decision to the United States Court of Appeals for the Federal Circuit, arguing not only that the Board erred in its conclusions, but also that inter partes review violated Article III of the Constitution and the Seventh Amendment. Brief for Petitioner, at 13. The federal government intervened as a respondent (the “Federal Respondent”), arguing that inter partes review is constitutional and was properly conducted in this case. Id. at 13; see Brief for Federal Respondent. The Court of Appeals affirmed the Board’s decision without issuing an opinion. Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC, 639 F. App'x 639 (Fed. Cir. 2016). Oil States consequently appealed to the United States Supreme Court. The Supreme Court granted certiorari on June 12, 2017. Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC, 137 S. Ct. 2239 (2017).

Analysis 

JUDICIAL OR ADMINISTRATIVE NATURE OF INTER PARTES PROCEEDINGS

Oil States Energy Services (“Oil States”) asserts that inter partes review is an exercise of judicial power, noting that the procedure involves judicial elements such as motions, discovery, cross-examination of witnesses, and a final, binding judgment. Brief for Petitioner, Oil States Energy Services, Inc. at 20–21. Oil States adds that, beyond these procedural elements, the judges in inter partes proceedings fashion patent law through their decisions, thus establishing case law precedent. Id. at 22. The judges then apply the case law to the parties before it, who appear in an adversarial context; according to Oil States, this embodies the idea of judicial power as it was contemplated by the founders of the Constitution. Id. at 21, 22. Considering the fundamentally judicial nature of the proceeding, Oil States argues that an Article III court, and not an administrative tribunal, must preside over patent reexamination cases. Id. at 22.

Greene’s Energy Group (“Greene’s Energy”) instead maintains that inter partes review is a limited agency proceeding that is not judicial in nature and, thus, does not require an Article III court. Brief for Respondent, Greene’s Energy Group at 23-24. Greene’s Energy notes several distinctions between inter partes review and a judicial proceeding, including the fact that parties who bring the action need not have standing or a stake in the proceeding and that the Patent and Trademark Office (“PTO”) can continue an action even after the initiating party has settled. Id. at 24. Greene’s Energy adds that, also unlike a private suit, a party seeking to bring an inter partes review action must ask the PTO to initiate the action and the PTO will then determine whether the claim has enough merit to justify a proceeding. Id. Greene’s Energy also rebuts Oil Service’s comparison between the procedural aspects of inter partes review and private litigation. Id. at 25. Greene’s Energy asserts that the discovery and witness procedures in inter partes review are much more limited. Id. Thus, Greene’s Energy concludes, Article III courts need not preside over patent reexamination proceedings. Id. at 26, 29.

ORIGIN OF PATENT RIGHTS

Oil States argues that patent law rights are common law rights and, under Murray’s Lessee v. Hoboken Land & Improvement Co., Congress cannot remove patent reexamination cases from the scope of Article III courts. Brief for Petitioner, at 22–23. Oil States cites the principle from Murray’s Lessee that, under Article III, Congress may not remove from judicial scope a matter that was the subject of common law suits. Id. Oil States traces the history of patent validity suits in the English legal system and argues that they were typically, if not always, resolved by courts, making them a subject of suits at common law. Id. at 25–26. Oil States adds that the even if patent validity was occasional challenged outside courts historically, the historical analysis should be governed by where such challenges occurred most frequently—within courts. Id.   

Greene’s Energy counters that Oil States overstates the history of patent suits at common law. Brief for Respondent, at 44. Greene’s Energy claims that multiple avenues apart from courts have traditionally resolved patent disputes. Id. Greene’s Energy characterizes patent rights in the English tradition as royal privileges, granted by the Crown. Id. at 44. To the extent that English courts considered patent validity, Greene’s Energy distinguishes between that and patentability issues, the former of which is still decided by courts today and the latter of which inter partes review concerns. Id. at 47. Greene’s Energy then asserts that patent rights arise solely from federal statute, not common law. Id. at 12. They claim that the Constitution, through Article I, gives Congress complete power to determine how patent rights are to be handled. Id. Thus, Greene’s Energy argues, it is within Congress’s power to have administrative tribunals preside over patent reexaminations. Id.  

NATURE OF PATENT RIGHTS (PRIVATE V. PUBLIC)

Oil States also argues that patent rights are private rights and, therefore, do not fall within the public rights doctrine, which allows non-Article III tribunals to hear matters concerning public rights. Brief for Petitioner, at 27. Oil States defines matters that come under the public rights doctrine as claims by or against the government that either were not historically resolved by the judicial branch or are essential to a limited regulatory objective “integrally related” to a federal government action. Id. Oil States then asserts that patent-validity claims do not fit into any of these categories. Id. Oil States classifies patent rights as private property rights, owned by an individual, and compares owning a patent to owning a parcel of land. Id. at 29. Oil States notes that inter partes proceedings are brought by private parties and not against the government and reasserts that patent cases were not historically resolved outside of the judiciary. Id. at 30-31. Finally, Oil States contends that patent cases are not “integrally related” to a government action with a limited regulatory objective because 1) they fail the criterion that the cases must arise from a new statutory obligation and 2) there is no overarching federal regulatory scheme regulating the private parties in the inter partes review. Id. at 36-37.

The Federal Respondent counters that patent rights are “paradigmatic” public rights. Brief for the Federal Respondent, at 16. The Federal Respondent explains that the government issues patents to individuals and an individual’s right in a patent involves excluding all others from using the patented matter. Id. The Federal Respondent asserts that this right is not against another individual, but against the rest of the world; hence hearing patent cases is not the duty of an Article III court. Id. at 18. Greene’s Energy expands this argument, explaining that a patent right does not give the patent owner any affirmative rights (such as to sell or use the patent), but grants the right to exclude the public from the invention. Brief for Respondent, at 15. Greene’s Energy then argues that patent rights are “integrally related” to a government action with a limited regulatory objective because patent rights are solely derived from federal statutes and the Patent and Trademark Office’s regulatory objective is to issue valid patents. Id. at 30, 32. The Federal Respondent further describes the objective as preventing private parties from having an improper monopoly over a concept and keeping the public from using it. Brief for Federal Respondent, at 19.  

WHETHER INTER PARTES REVIEW VIOLATES THE SEVENTH AMENDMENT

Oil States argues that, apart from violating Article III, inter partes review also violates the Seventh Amendment by depriving litigants of their right to a jury trial. Brief for Petitioner, at 50–51. Oil States again traces patent cases to their common-law analogues, asserting that patent-validity matters, including disputed facts such as whether an invention was novel or whether the owner actually invented the patent, were routinely tried to a jury. Id. at 52–53. Oil States adds that, even when patent cases in England were brought in courts of equity, such as the Court of Chancery, if the validity of the patent came into dispute, the matter was sent to a court of law to be tried to a jury. Id. at 54. Oil States furthers that the same fact-disputes arise during inter partes review, where a party will challenge during review the novelty of the patent or obviousness of the invention, making these types of disputes ones that were typically tried by a jury at common law. Id. at 56. Thus, Oil States contends, patent owners have a Seventh Amendment right to have their cases heard by a jury. Id. at 57.

Greene’s Energy counters that, as inter partes review does not violate Article III, the Seventh Amendment does not require that a jury hear the cases. Brief for Respondent, at 47. The Federal Respondent adds that this is because, if Congress can assign the adjudication of a matter to a non-Article III tribunal, it follows that the parties to those matters do not have a jury right. Brief for Federal Respondent, at 51. Greene’s Energy asserts, however, that even if the Court were to consider the Seventh Amendment issue separately, it would fail because patent rights are public rights. Brief for Respondent, at 48. Further, patent rights were not typically tried at common law, and patent cases do not involve monetary damages; thus, actions involving patent rights lack remedies akin to those for private actions. Id. at 48. Greene’s Energy adds that, where there is no individualized relief, such as monetary damages, and where the benefits instead go to the public, this has historically eliminated a litigant’s jury right. Id. at 54. The Federal Respondent compares inter partes review to a declaratory-judgment action for the validity of a patent, as both involve the equitable—versus legal—remedy to cancellation of a patent. Brief for Federal Respondent, at 52. Just as a jury right does not attach for the equitable remedy provided by declaratory-judgment actions, the Federal Respondent argues, it should also not attach for inter partes review. Id.

Discussion 

RESPECTING THE TRADITION: PUBLIC RIGHT VERSUS PRIVATE RIGHT

Amici supporting Oil States—27 Law Professors, Biotechnology Innovation Organization (“BIO”) and Association of University Technology Managers (“AUTM”), and Pharmaceutical Research and Manufacturers of America (“PRMA”)—argue that the longstanding legal tradition and judicial precedents have consistently held that patents are private property rights that must be afforded Seventh Amendment protection. See Brief for 27 Law Professors in Support of Petitioner at 6-10; Brief for BIO and AUTM in Support of Petitioner at 12; Brief for the Pharmaceutical Research and Manufactures in Support of Petitioner at 28-30. Specifically, the 27 Law Professors argue that since the early American Republic, both the Supreme Court and lower federal courts have unequivocally defined patents as private property rights, and that the Constitution prohibits Congress from retroactively abrogating vested property rights in patents. Brief for 27 Law Professors in Support of Petitioner at 6-10. Similarly, BIO and AUTM assert that the quid pro quo of the patent system—involving an inventor’s public disclosure of an invention in exchange for a right to exclude for the term of the patent—is inconsistent with the government’s public rights theory. Brief for BIO and AUTM in Support of Petitioner at 12. Further, because biotechnology companies and other patent holders invest billions of dollars in research and development of new technologies, BIO and AUTM, as well as PRAMA caution that these innovations depend greatly on the strength and stability of patent rights. Id. at 12-13; Brief for the Pharmaceutical Research and Manufactures in Support of Petitioner at 28-30.  

On the contrary, United Patents Inc., in support of Respondent, citing Stern v. Marshall, claims that a public right may be distinguished from a private right where it is “integrally related to particular federal government action.” Brief for United Patents Inc., in Support of Respondent at 8. Accordingly, United Patents Inc. asserts that a patent right is a public right, because it is integrally related to a particular government action—the examination and issuance of patent claims. Id. United Patents Inc. adds that a patent right may be deemed a public right because it is integrally related to the particular government purpose of promoting scientific progress. Id.  Public Knowledge, et al, in support of Greene’s Energy, argues on the basis of historical tradition of early English patent law that a patent is a public right and a discretionary grant of privilege which the sovereign is free to constrain or take away in furtherance of public policy. Brief for Public Knowledge, the Electronic Frontier Foundation, Engine Advocacy, and the R Street Institute in Support of Respondents at 6–9.

Boston Patent Law Association, in support of neither party (“Boston Patent”), argues that the patent system is too complex to be reduced to the false dichotomy of purely public and private rights. Brief for Boston Patent Law Organization at 3-4. Instead, Boston Patent argues that and that the patent system is a balance of public and private rights. Id. Further, pointing out the high cost of litigation and procedural difficulty of establishing standing, Boston Patent argues that inter partes review often helps fill the gaps where litigation fails to solve the problems in a manner that is fair to both parties. Id. at 13. 

SEPARATION OF POWER

The Eagle Forum Education Legal Defense Fund (“Eagle Forum”), in support of Oil States, argues that because patent reexaminations have traditionally been the province of courts, ceding the power to extinguish patent rights to a juryless administrative board fundamentally violates the separation of powers between the legislative and executive branches. Brief for Eagle Forum Education Legal Defense Fund, in Support of Petitioner at 16–19. Eagle Forum argues that this exercise of authority by the PTAB is detrimental for the rule of law because it allows an executive agency to perform a judicial function, depriving patent-holders of rights in the process. Id.

In contrast, 72 Professors of Intellectual Property Law, in support of Greene’s Energy, argue that the Court has confirmed that Congress may assign adjudication to expert administrative agencies, where the right at issue derives from a federal regulatory scheme. Brief for 72 Law Professors Intellectual Property Law in Support of Respondent at 3-4. Asserting that patent rights are created by federal statute without a common law analog, the Professors argue that inter partes review is a “quintessential example” of constitutionally permissible administrative adjudication. Id. Unified Patents Inc. further contends that inter partes review is a proper exercise of the patent office’s authority to define and refine patent rights, which it argues has traditionally been within the Executive Branch’s purview. See Brief for United Patents Inc., in Support of Respondent at 20.

EFFECT ON PATENT VALIDITY PROCEEDINGS AND PARTIES

3M Company, et al., in support of neither party, argues that holding inter partes review unconstitutional could bring useful innovations to the realm of patent validity proceedings. Brief for 3M Company, et al., in Support of Neither Party, at 18, 29. For example, 3M Company maintains that holding inter partes review unconstitutional would require Congressional reforms that would likely improve the consistency, reliability, and fairness of patent validity adjudications. Id. at 18–19, 24–27. According to 3M Company, Congressional reforms to the inter partes review system would be a welcome change, because they would help to address the often slanted, anti-patent-holder outcomes that tend to occur at the PATB review level. Id. at 18–21.

AARP and AARP Foundation, in support of Greene’s Energy, assert that Congress passed the America Invests Act (“the Act”) to address the high costs of patent litigation and foster a climate for investment and innovation. See Brief for AARP and AARP Foundation in Support of Respondent at 4. They argue that prolonged patent litigation can inhibit medical research, while invalid patents only foreclose competition without the need or justification. Id. at 6–8. Similarly, Volkswagen Group of America adds that inter partes review was designed to provide a low-cost alternative to court adjudications. Brief for Volkswagen Group of America in Support of Respondents at 6, 9, 16. Volkswagen cites to its own experience to argue that the Act was successful in its goals and that the inter partes review process was substantially less costly than a full-blown district court litigation. Id.

Edited by