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Oil States Energy Services v. Greene's Energy Group, LLC: What You Should Know

August 17, 2017

On June 12, 2017, the United States Supreme Court granted a petition for a writ of certiorari in Oil States Energy Services LLC v. Greene’s Energy Group, LLC., 639 Fed. App’x 639 (Fed. Cir 2016), cert. granted, 198 L. Ed. 2d 677 (U.S. Jun. 12, 2017) (No. 16-712). The Court will answer the question of whether the United States Patent and Trademark Office’s (“USPTO”) statutorily created inter partes review (“IPR”) process—which analyzes the validity of issued patents—is unconstitutional. In other words, whether the U.S. Constitution is violated because “private property rights” are extinguishable by the same agency that granted the rights, through a non-Article III forum without a jury. Petition for a Writ of Certiorari, Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 at i (U.S. Nov. 23, 2016) (“Petition”). This is not the first time patent owners have challenged the constitutionality of post-grant proceedings before the USPTO. This is, however, the first time the Supreme Court has agreed to review the constitutionality of IPR proceedings, which Congress created with the passage of the America Invents Act in 2011.

I. Procedural History

In 2012, Oil States filed a patent infringement action against Greene’s Energy Group in the Eastern District of Texas.  The asserted patent, U.S. Patent No. 6,179,053 (“‘053 patent”), is directed to an oilfield tool that allows for high pressure pumping of fluids into an oil well without the fluids making contact with the wellhead pieces.  Shortly after the district court issued its claim construction ruling and before the one year deadline for filing, Greene’s Energy petitioned the USPTO for an IPR of Oil States’ ‘053 patent.  The Patent Trial and Appeal Board (“PTAB” or “Board”) instituted the IPR and subsequently held that Oil States’ ‘053 patent was invalid.  See Greene’s Energy Group, LLC v. Oil States Energy Services, LLC, No. IPR2014-00216, Paper 53 (P.T.A.B. May 1, 2015).  During the proceeding, Oil States moved to amend its ‘053 patent claims, but the PTAB denied the motion to amend.  Id. at 2.  Following the PTAB’s decision, Oil States appealed to the Federal Circuit.

Among the issues that Oil States appealed was that IPR proceedings conducted by the USPTO violate Article III or the right to a jury trial under the Seventh Amendment of the Constitution.  That same question was pending in another appeal before the Federal Circuit.  During the Oil States appeal, on December 2, 2015, a panel of the Federal Circuit issued its decision in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015).  The MCM decision answered the constitutionality questions raised in Oil States and held that IPR proceedings do not violate constitutional protections.  The MCM decision held that “patent rights are public rights, and their validity susceptible to review by an administrative agency, the Seventh Amendment poses no barrier to agency adjudication without a jury.”  Id. at 1293 (emphasis added).  The MCM opinion also noted that an IPR does not violate Article III because “[t]he patent right ‘derives from an extensive federal regulatory scheme,’ . . . and is created by federal law.”  Id. at 1290 (quoting Stern v. Marshall, 564 U.S. 462, 490 (2011)).  This panel decision by Judges Dyk, Prost, and Hughes was not reviewed en banc by the Federal Circuit, and the Supreme Court denied certiorari.  Id., cert. denied, 137 S. Ct. 292 (2016).

On May 4, 2016, the Federal Circuit rejected Oil States’ constitutional argument and summarily affirmed the PTAB’s decision without a written opinion.  Oil States’ petition for en banc review was denied.

On November 23, 2016, Oil States petitioned the Supreme Court for a writ of certiorari.

II. The Federal Circuit's Position on the Constitutionality of IPRs

The constitutionality of post-grant USPTO proceedings has previously been raised before the Federal Circuit. See Patlex Corp. v. Mossinghoff, 758 F.2d 594, modified on rehearing, 771 F.2d 480 (Fed. Cir. 1985) (holding that ex-parte reexamination proceedings do not violate the Seventh Amendment or Article III of the Constitution). As mentioned above, the Federal Circuit’s MCM panel decision reiterated the constitutionality of post-grant proceedings, specifically IPRs in the USPTO.

The Supreme Court’s decision to grant certiorari in the Oil States case, which did not have a written opinion by the Federal Circuit, followed shortly after the Federal Circuit’s denial of en banc review in Cascades Projection LLC v. Epson America, Inc., Nos. 2017-1517, 2017-1518 (Fed. Cir. May 11, 2017). Cascades Projection also raised a constitutional challenge to IPR proceedings. Multiple opinions were issued in conjunction with the denial of en banc review. Judges O’Malley and Reyna issued dissents from the refusal to have the entire Federal Circuit rule on the constitutionality of IPR proceedings.

Judge O’Malley dissented, asserting that MCM‘s underlying premise-that patents rights are public rights-is far from certain. Id. (O’Malley, J., dissenting). Judge Reyna also dissented explaining that the Supreme Court decision in McCormick Harvesting Machine Co. v. C. Aultman & Co., 169 U.S. 606 (1898), remains good law and specifically addresses the issue before the court. Cascades, Nos. 2017-1517, 2017-1518, slip op. at 1-2 (Reyna, J., dissenting). Judge Reyna identified the Federal Circuit’s Patlex and MCM decisions as “inconsistent” and “irreconcilable” precedential opinions that seek to distinguish McCormick. Id. at 2. Judge Reyna emphasized that en banc review was necessary because of the Federal Circuit’s conflicting decisions with McCormick and because of the importance of addressing the private versus public right distinction regarding patents.

The MCM panel judges issued a concurring opinion in the Cascades case explaining that MCM was correctly decided, was not inconsistent with the earlier Patlex decision, and that both the Patlex and MCM decisions correctly distinguished McCormick. Judge Newman also issued a concurrence that took the position that patent rights are property rights. Judge Newman framed the question before the Federal Circuit as being “whether the statutory scheme created by the American Invents Act . . . , with its decision subject to review by the Federal Circuit, meets the constitutional requirements of due process in the disposition of property.” Id., slip op. at 2 (Newman, J., concurring). The question whether all IPR decisions are subject to review by the Federal Circuit may now depend on which party is appealing the decision. See e.g., Phigenix, Inc. v. Immunogen, Inc., 845 F.3d 116 (Fed. Cir. 2017) (holding that a party to an IPR proceeding appealing the outcome of the Board’s decision lacked standing to bring a suit in federal court to challenge the decision of the Board).

III. Issue Before the Supreme Court

Prior to granting the petition for a writ of certiorari in this case, the Supreme Court had previously denied several other requests to review the constitutionality of IPRs.  The Oil States petition presented three questions for review: 1) whether IPR proceedings are constitutional; 2) whether the amendment process in IPRs conflicts with the Court’s decision in Cuozzo Speed Technologies v. Lee; and 3) whether the “broadest reasonable interpretation” of patent claims requires applying traditional claim construction principles.  The Supreme Court only agreed to review the first issue—whether IPR proceedings are constitutional.

With regards to the IPR amendment process, patent practitioners await the Federal Circuit’s en banc decision in In re Aqua Products, No. 2015-1177 (Fed. Cir.).  That case was argued before the Federal Circuit sitting en banc on December 9, 2016, and a decision remains pending as of the publication of this article.

IV. Overview of Key Issues

One of the central issues before the Supreme Court in determining whether IPRs are constitutional is whether patent rights are considered to be private property rights or public rights. If the Supreme Court finds patent rights are private property rights as argued by Oil States, then the Supreme Court could deem IPR proceedings as they currently exist as unconstitutional. If, however, the Supreme Court agrees with the Federal Circuit that patent rights are indeed public rights, the Court would likely conclude that IPR proceedings are constitutional.

The U.S. Supreme Court has previously considered the public versus private rights distinction but in the context of a trademark case. See B&B Hardware, Inc. v. Hargis Indus., 135 S. Ct. 1293 (2014). The majority opinion, written by Justice Alito, went out of its way to declare that the issue before the Court was not a constitutional issue. Justice Alito wrote,

“At the outset, we note that Hargis does not argue that giving preclusive effect to the TTAB’s decision would be unconstitutional. . . . The likely reason that Hargis has not directly advanced a constitutional argument is that, at least as to a jury trial right, Hargis did not even list the Seventh Amendment as an authority in its appellee brief to the Eight Circuit. . . . To the extent, if any, that there could be a meritorious constitutional objection, it is not before us.”

Id. at 1304 (internal citations omitted). Moreover, Justice Thomas dissented, joined by Justice Scalia, opining that “the right to adopt and exclusively use a trademark appears to be a private property right that ‘has been long recognized by the common law and the chancery courts of England and of this country.'” Id. at 1317 (Thomas, J., dissenting) (quoting Trade-Mark Cases, 100 U.S. 82, 92 (1879)). “Thus, it appears that the trademark infringement suit at issue in this case might be of a type that must be decided by ‘Article III judges in Article III courts.'” Id. (quoting Stern, 564 U.S. at 484).

In its petition for certiorari, Oil States relied on McCormick, which held that patent rights are private property rights “and as such [are] entitled to the same legal protection as other property.” 169 U.S. at 608-09. Furthermore, Oil States relies on McCormick to support its argument that the proper authority to cancel or set aside a patent is vested in the courts and not with the PTAB: “The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.” Id. at 609 (internal citation omitted). Further, Oil States noted that patents have for centuries been recognized as a private property right and adjudicating this type of right rests “at a minimum, with Article III judges in Article III courts.” Petition at 19 (internal citations and quotations omitted).

In contrast, Greene’s Energy takes the position previously advanced by the Federal Circuit, namely that patent rights are public rights. Greene’s Energy relies on the Supreme Court’s recent decision in Stern v. Marshall, 564 U.S. 462 (2011), and argues that this decision reinforced the “public rights” concept articulated in Patlex. Greene’s Energy argues that IPRs, like reexamination proceedings, fall under the two circumstances that allow agencies to “adjudicate ‘public rights’ claims between two private parties”—first, “where the claim [is] derive[d] from a federal regulatory scheme”; and second, where the “resolution of the claim by an expert governmental agency is deemed essential to a limited regulatory objective within the agency’s authority.” Brief in Opposition, Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 at 10 (U.S. Jan. 30, 2017) (citing Stern, 564 U.S. at 490). Greene’s Energy also relied on the Federal Circuit’s decision in Patlex and asserted that the question of patent validity centers on whether the USPTO properly granted a patent and thus concerns public rights, not private rights. Greene’s Energy did not respond to Oil States’ reliance on McCormick.

V. Conclusion

The Supreme Court’s decision in Oil States should close the debate on the constitutionality of IPRs.  As it stands now, a three judge panel of the Federal Circuit has the last word on the constitutionality of IPR proceedings.  If the Supreme Court upholds the Federal Circuit’s position that IPRs are constitutional, then patent practitioners may shift their focus to the ability to amend claims in an IPR to preserve validity.  If the Supreme Court finds that USPTO IPR proceedings are unconstitutional, it will likely have wide-ranging ramifications concerning the proceedings that may be conducted before the PTAB.

Briefing is scheduled to conclude by November 20, 2017.  The Supreme Court has not yet set a date for oral argument in this case.  The Oil States decision is expected no later than June 2018.