Supreme Court Update: Oil States Energy Services v. Greene's Energy Group (16-712), SAS Institute v. Iancu (16-969)
Greetings, Court Fans!
As we forecast last week, the downpour has commenced. The Court released five new decisions yesterday morning, including one of the most anticipated of the term, Murphy v. NCAA (No. 16-476), the New Jersey sports-betting case, in which it held (basically 6-3) that the federal Professional and Amateur Sports Protection Act, which prohibits states from legalizing sports gambling, violates the "anti-commandeering principle" of the Tenth Amendment. The rest of today's decisions touch on criminal law in one way or another:
McCoy v. Louisiana (No. 16-8255), holding (6-3) that the Sixth Amendment guarantees a defendant the right to insist that his counsel refrain from admitting guilt, even when his counsel has good reason to believe that confessing guilt would be the best strategy to avoid the death penalty;
Byrd v. United States (No. 16-1371), unanimously holding that a driver in lawful control of a rental car does not lose his otherwise reasonable expectation of privacy under the Fourth Amendment merely because he is not listed on the rental agreement;
Dahda v. United States (No. 17-43), holding (8-0, with Gorsuch recused), holding that a wiretap order that improperly authorizes interception of communications outside the issuing court's territorial jurisdiction is not facially "insufficient" under the federal wiretap statute; and
United States v. Sanchez-Gomez (No. 17-312), unanimously dismissing as moot a case challenging a federal court's policy of permitting full restraints on most in-custody defendants during nonjury proceedings because the named plaintiffs were no longer in custody.
We'll have summaries of all these decisions forthwith, but first, it's patent time!
Our remaining un-summarized decisions from the last sitting both deal with inter partes review, the process by which the U.S. Patent and Trademark Office (PTO) may reconsider and cancel an already-issued patent. Because patent prosecution is generally an ex parte affair, with the PTO relying on the applicant's representations that the invention satisfies the utility, novelty, and nonobvious requirements for patentability, the PTO inevitably issues patents that it might like to have back. Congress has created a number of administrative processes that allow the PTO to reconsider already issued patents, the most recent of which is inter partes review. Under that process, any person other than the patent owner can file a petition requesting cancellation of "1 or more claims of a patent" on the grounds that the claim fails the novelty or nonobvious standards for patentability. If the Director of the PTO determines that there's a reasonable likelihood the petitioner will prevail with respect to at least one of the claims challenged, the matter is referred to the Patent Trial and Appeal Board, and adjudicatory body within the PTO that was created to conduct inter partes review. The Board sits in three-member panels of administrative "patent judges." The petitioner has the burden of proving unpatentability by a preponderance of the evidence. The patent owner can file a motion to amend the patent or settle with the petitioner. If not, the Board must issue a written decision, based on which the Director will issue a certificate either cancelling or confirming the challenged claims. The Board's final decision can be appealed to the Federal Circuit.
Inter partes review is meant to make it easier for the PTO to review and cancel patents, but it has been challenged as a violation of Article III because it puts what appears to be a judicial process in the hands of Article II "patent judges." In 2015, the Federal Circuit rejected the constitutional arguments against inter partes review.
The Supreme Court took up the issue in Oil States Energy Services v. Greene's Energy Group (No. 16-712), and held that the procedure does not violate Article III or the Seventh Amendment. The decision saved an important administrative tool for the PTO and also revealed an interesting split between the Court's most avowed originalists.
The case began in 2012, when Oil States sued Greene's Energy for infringing a patent it had obtained in 2001. Greene's Energy responded by challenging the patent's validity—both in the federal court proceeding and by petitioning for inter partes review. Accordingly, the two proceedings progressed in parallel. In 2014, the District Court issued a claim-construction order that foreclosed Greene's Energy's arguments about prior art; but a few months later, the Board issued a conflicting decision, concluding that Oil State's claims were unpatentable due to the prior art. Oil States (the inter partes loser) sought review in the Federal Circuit and challenged the constitutionality of inter partes review. The Federal Circuit, following a precedent it had recently established in another case, summarily affirmed the Board's decision and rejected Oil States' constitutional arguments.
The Supreme Court affirmed, in a 6-3 decision authored by Justice Thomas. As Thomas observed, Congress cannot confer the "judicial Power" on entities outside of Article III. But whether a proceeding involves an exercise of Article III power depends on whether it involves "public rights" or "private rights." Historically, Congress has had significant latitude to assign adjudication of public rights—that is, matters arising between the government and others—to non-Article III entities. The question, therefore, was whether inter partes review involved private rights or public rights. It is largely undisputed that the initial granting of a patent is a matter involving public rights—namely, the grant of a public franchise. Thomas reasoned that, because inter partes review is simply a reconsideration of that grant, it, too, concerns a public right and can be undertaken by a non-Article III entity. He bolstered this conclusion with an exploration of the history of patent disputes at common law. Though he conceded that patent disputes were often decided by English Courts of law, they could also be heard by petition to the Privy council. Inasmuch as the Patent Clause of the constitution was written against the backdrop of this English system, Thomas concluded that the founders understood that a patent system could include a practice granting patents subject to later potential cancellation. Having concluded that Article III permits inter partes review, it followed that the procedure does not violate the Seventh Amendment, which poses no independent bar to the adjudication of public rights by a nonjury factfinder.
Justice Breyer penned a concurring opinion, joined by Ginsburg and Sotomayor. They joined the majority in full, but stressed that the Court's opinion should not be read to hold that matters involving private rights can never be adjudicated by non-Article III entities.
If Justice Thomas dusted off the history books to support his majority opinion, Justice Gorsuch dusted off the time machine to support his dissent. Joined by the Chief and Justice Alito, Gorsuch took an even deeper dive into the relevant common-law history and concluded that only courts of law could hear patent challenges in England at the time of the founding. Though the King's Privy Council once had that power, it had not invalidated an invention patent since 1746 and hadn't even considered doing so since 1753. Instead, by the time of the founding, English law had undergone a shift away from regarding patents as a public franchise—an agreement between the crown and the patentee—and toward regarding them as private rights possessed by patentees as an incentive to promoting ingenuity. In addition to rejecting the majority's history, Gorsuch underscored the separation-of-powers concerns at play. In his view, permitting an executive branch office to revoke a patent—the private property of the patent-holder—was an affront to judicial independence and, by extension, individual rights. He would read Article III robustly to "ensur[e] the people today and tomorrow enjoy no fewer rights against governmental intrusion than those who came before."
Though Gorsuch was unable to persuade four other judges to nix inter partes review entirely, his majority opinion in SAS Institute v. Iancu (No. 16-969) significantly undermined the PTO's current process for conducting that review. As noted above, any party can petition the PTO to initiate inter partes review requesting cancellation of "1 or more claims of a patent." Typically, challengers file petitions that contest all or most of the claims in an issued patent, but as a matter of efficiency, the Patent Trial and Appeal Board often agrees to review only those that it finds substantial. A PTO regulation expressly permits this "partial institution" of inter partes review.
In this case, SAS petitioned for inter partes review of a competitor's software patent and alleged that all fifteen of the patent's claims were unpatentable. The Board concluded that SAS was likely to succeed with respect to at least one claim and therefore instituted review, but it limited the review to eight of the fifteen claims. In its final written decision, the Board found claims 1, 3, and 5-10 to be unpatentable, while confirming claim 4 and ignoring the rest. But the authorizing statute provides that the Board "shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner." SAS therefore sought review in the Federal Circuit, arguing that the Board was required to decide the patentability of every claim challenged in its petition, not just some of them. The Federal Circuit rejected this argument, but the Supreme Court reversed, 5-4.
Writing for the majority, Justice Gorsuch invoked the statutory text to decide the case. The directive of the statute, he noted, is both mandatory and comprehensive. "The word ‘shall' generally imposes a nondiscretionary duty." And when the word "any" is used "with a singular noun in affirmative contexts," it normally applies to "every member of the class or group" referred to. So when the statute says the Board "shall" resolve the patentability of "any patent claim challenged by the petitioner," it means "the Board must address every claim the petitioner has challenged." That reading is supported by the structure of the statute, which reveals that Congress intended the petitioner, not the Board, to define the contour of an inter partes review proceeding. This is evident because there are other statutory provisions permitting the PTO to reexamine already issued patents "[o]n [its] own initiative, and at any time." If Congress wanted to give the PTO the power to pick and choose which of the claims a petitioner challenges to review, it could easily have said so. And, while the PTO had reasonable policy arguments about how partial institution allows the Board to more efficiently focus on only the more promising challenges and avoid wasting time on others, Justice Gorsuch insisted that those arguments were better directed at Congress, not the Court.
Justice Breyer, the Court's foremost functionalist, led the dissenters, joined by Ginsburg, Sotomayor, and (mostly) Kagan. In his view, the statute authorizing inter partes review contains a "gap" that Congress implicitly expected the PTO to fill. Specifically, while the statute refers to "any patent claim challenged by the petitioner," it is not clear whether that phrase refers to any claim challenged in the petitioner's original petition, as opposed to any claim that is challenged in the initiated proceeding. Breyer maintained that the text and structure of the statute did not fill this statutory gap, nor did the majority's formalist reading make much sense in light of the legislative purpose of making the reexamination of previously issued patents more efficient. Why, Breyer asked, "would Congress have intended to require the Board to proceed with an inter partes review, take evidence, and hear argument in respect to challenges to claims that the Board had previously determined had ‘no reasonable likelihood' of success?" Where there exists an ambiguity or a gap in a statute, Breyer noted, judges ordinarily defer to the relevant agency's interpretation if its reasonable. Here, he emphasized his view of Chevron "as a rule of thumb, guiding courts in an effort to respect that leeway which Congress intended agencies to have," as opposed to a "rigid, blackletter rule of law, instructing [courts] always to allow agencies leeway to fill every gap in every statutory provision." (Notably, Justice Kagan opted out of this one-paragraph section of Breyer's dissent.) In this case, agency deference is particularly appropriate because the statute concerns "detailed matters that [the] agency working with the statute is particularly likely to understand." Because the PTO possesses gap-filling authority, and its interpretation of the statute is reasonable, Breyer and the other dissenters would have affirmed the Federal Circuit's decision upholding the partial-initiation practice.
Justice Ginsburg penned a separate dissent (joined by the others), pointing out that the Board can get around the majority's "wooden reading" of the inter partes review statute by denying any petition that contains challenges having no reasonable likelihood of success and noting that it would likely grant the petition if it were limited to the one or two claims that warrant reexamination. Petitioners could then file new or amended petitions limited to those claims. While this three-step process may lead to the same result as partial initiation, Ginsburg wondered why the statute should "be read to preclude the Board's more rational way to weed out insubstantial claims."
In sum, after two decisions highlighting the Court's various formalist and functionalist approaches to constitutional and statutory interpretation, inter partes review survives, but will perhaps have to take on a different form in order to provide the streamlined means of patentability review that Congress apparently intended.
That's all for now. Stay with us as we wade through yesterday's opinions and the 40 or so more that'll be handed down in the coming weeks…