Will the Supreme Court Kill a Popular Patent Review Process?

The U.S. Supreme Court sent shockwaves through the patent law community in June when it decided to consider the constitutionality of a popular procedure for challenging patent validity. The outcome of this case could dramatically affect a company’s ability to defend itself against patent infringement allegations or, conversely, its ability to enforce patents against competitors.

Background
The Supreme Court case, Oil States Energy Services LLC v. Greene’s Energy Group LLC, began with Oil States’ lawsuit against Greene’s Energy for patent infringement. As has become fairly common in patent lawsuits nowadays, Greene’s Energy responded by challenging the validity of Oil States’ patent in a procedure called Inter Partes Review (IPR).  IPRs were created in 2011 by Congress as part of the America Invents Act. An IPR is basically a “mini-trial” at the U.S. Patent & Trademark Office where a panel of judges determines the validity of a patent. IPRs are designed to provide defendants with a relatively fast and inexpensive way to challenge patent validity, enabling them to theoretically weed out bad patents before having to endure the costs of a full district court trial.

More often than not, IPRs expose the defects of a patent: In 65 percent of completed IPRs, all challenged patent claims have been declared invalid, according to statistics. Conversely, less than 20 percent of patent claims survive an IPR intact. The rate of invalidating patents through IPR is significantly greater than the rate they are dismissed in district court. IPRs are also relatively fast (and therefore less expensive) compared to district court litigation. An IPR, for example, can be completed in less than 18 months, while district court litigation can last several years. Hence, IPRs enable accused infringers to place patent owners in a defensive stance early on in a lawsuit. Because of these advantages, IPRs have become an extremely popular tool for defendants in lawsuits.

What Is Being Decided?  
In the Oil States case, Greene’s Energy invalidated the relevant claims of its opponent’s patent during the IPR. Oil States, however, appealed that decision to the U.S. Supreme Court, contending the IPR procedure is unconstitutional because patents are “private” property rights. Under the U.S. Constitution, Oil States claimed, actions brought to eliminate “private” property rights must be tried in court rather than an agency setting (like an IPR). Naturally, Greene’s Energy disagreed, arguing that patents are “public” property rights granted by a government agency (the U.S. Patent & Trademark Office), and as such, can be invalidated by an executive entity in an agency proceeding.

Potential Impact
IPRs have become a powerful tool for defendants in patent litigation. If the Supreme Court decides that IPRs are unconstitutional, this tool will be lost. On the other hand, the elimination of IPRs could potentially trigger more patent lawsuits, as defendants would lose a cost-effective, quicker resolution to patent validity than traditional litigation. The impact on patents that have already been cancelled in IPRs or similar proceedings is unclear. 

The orthopedic industry will be watching this case closely due to the considerable number of technology-associated patents and related lawsuits in the sector. More likely than not, orthopedic companies will find themselves either enforcing their patent rights or defending themselves against patent infringement allegations. Their confidence in either case could hinge on whether IPRs are still available as a tool to challenge a patent’s validity. 

Conclusion
There have been more than 1,500 completed IPRs since they were first created. Thus, it is surprising that the Supreme Court is only now considering the constitutionality of this procedure. Currently, many legal experts are skeptical that Supreme Court justices would radically change patent law by eliminating such a popular procedure. It’s possible the Court will reach a compromise, such as allowing IPRs for patents issued after 2012 and eliminating IPRs for pre-2012 patents. Even if they are deemed unconstitutional, however, IPRs may not be completely eliminated from the litigation process. For example, some legal analysts portend that a Patent Trial and Appeal Board (PTAB) determination of invalidity will not be final; rather, the district court would have to sign off on the PTAB ruling.

The Supreme Court will hear oral arguments on the Oil States case this winter, and likely render a decision next spring. Stay tuned.