Stayin' alive: What’s next for IPRs after Oil States and SAS

Eversheds Sutherland (US) LLP

On April 24, 2018, the US Supreme Court decided two important cases that directly impact inter partes reviews (IPRs) before the Patent Trial and Appeal Board (PTAB), and patent litigation as a whole. In Oil States Energy Services, the Court held that IPRs are constitutional. In particular, the Court found that a decision to grant a patent is a matter involving “public rights,” rather than “private rights,” and that Congress therefore has the authority to establish IPR proceedings. This decision maintains the availability of the IPR process—and its benefits in invalidating a patent—to potential patent infringers going forward.

Later the same day, the Supreme Court held in SAS Institute that when an IPR is instituted against a patent—which occurs upon a finding that the petitioner has a likelihood of success in proving at least one claim is invalid—then the Patent Office must determine the patentability of every claim raised by the petitioner in the IPR. No longer may the Patent Office review only the subset of claims initially determined to have a likelihood of success—all claims must be reviewed.  This change will be implemented swiftly; in a memo issued on April 26, the Patent Office revealed that (1) it will now review “all challenges raised in the petition,” and (2) in pending IPRs, "the panel may issue an order supplementing the institution decision to institute on all challenges raised in the petition.” 

Oil States:  IPRs are Constitutional Because Patents are “Public Rights”

In 2012, Oil States Energy Services filed a patent infringement suit against Greene’s Energy Group.  Greene’s Energy filed an IPR against the asserted patent, which the PTAB granted. The District Court then issued a claim construction order that foreclosed Greene Energy’s invalidity arguments. The PTAB, however, invalidated the claims in view of the prior art. In view of the conflicting decisions, Oil States questioned the validity of the IPR process. In June 2017, the Supreme Court granted Oil States’ petition for certiorari to determine whether the IPR process “violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”

In a 7-2 decision, the Supreme Court held that IPRs do not violate Article III or the Seventh Amendment of the Constitution. The Court found that the decision to grant a patent is a matter involving “public rights”—not “private rights”—and that matters governed by the public-rights doctrine may be assigned to the Legislature, the Executive or the Judiciary. The Court further found that, because an IPR is simply a reconsideration of the grant of a patent and falls squarely within the public-rights doctrine, it is proper for Congress to assign such reconsideration to a non-Article III tribunal. Finally, the Court found that the similarities between the IPR procedures and procedures typically used in an Article III court do not lead to the conclusion that an “adjudication” has improperly occurred outside of an Article III court.  However, the Court specifically emphasized the narrowness of its holding, noting that it only addressed the constitutionality of inter partes review, and not whether other patent matters, such as infringement actions, can be heard in a non-Article III forum. 

SAS Institute:  If the PTAB Institutes an IPR, then the PTAB Must Review All Challenged Claims

In 2013, SAS Institute filed an IPR challenging the patentability of all 16 claims in a patent asserted against SAS in district court litigation. The PTAB instituted the IPR only on claims 1 and 3-10, but refused to review claims 2 and 11-16. Ultimately, the PTAB found that all of the instituted claims but claim 4 were invalid.  

SAS appealed the PTAB’s failure to provide a final written decision on all of the claims requested in the IPR petition. The US Court of Appeals for the Federal Circuit held that SAS’s argument was foreclosed by Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016). In Synopsys, the Federal Circuit found that there was no statutory requirement for the Board’s final decision to address anything more than those claims for which review was granted. Judge Newman, however, dissented on this point, arguing that “the PTAB’s practice of deciding the validity of only some of the patent claims challenged in the petition does not conform to the America Invents Act.” Judge Newman’s dissent proved prescient. 

SAS sought, and was granted, certiorari on this precise point:

Whether 35 U.S.C. § 318(a), which provides that the Patent Trial and Appeal Board in an inter partes review “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner,” requires that Board to issue a final written decision as to every claim challenged by the petitioner, or whether it allows that Board to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the U.S. Court of Appeals for the Federal Circuit held.

In a 5-4 decision, the majority held that the PTAB must review all challenged claims based on the clear language of the statute. Citing to the Oxford English Dictionary, Justice Gorsuch, writing for the majority, found that as used in 35 U.S.C. § 318(a), the word “any” means “every.” Therefore the mandate that the Patent Office “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner” means that the final written decision must address every patent claim challenged by the petitioner. 

As a result of this decision, the PTAB’s prior practice of limiting the scope of an IPR to only select claims will no longer be permitted. The Court noted that the PTAB need not evaluate every claim individually for a “likelihood to succeed.” Instead, the PTAB need only evaluate if the petitioner is likely to succeed on “at least one claim.”  Thus, it is a binary determination: even if there is only one claim likely to succeed, the IPR will be instituted as to all challenged claims.

Potential Impact of the Court’s Decisions

As a result of the Court’s decision in Oil States, parties should feel confident in the PTAB’s constitutional authority to conduct inter partes review proceedings, as well as post-grant and covered business method reviews. A finding that IPRs are unconstitutional could have had a devastating effect on potential patent infringers that rely on the favorable IPR process to invalidate the asserted patents and stay costly district court litigation. The Court’s confirmation of the IPR process maintains the PTAB as an attractive forum to litigate invalidity given the high success rate for petitioners.

The expected impact of the SAS decision is not quite as clear. On the one hand, the rule that the PTAB must issue a final decision on all challenged claims may result in significant procedural inefficiencies and increased costs to the parties. This new rule may incentivize parties to challenge claims that they believe to likely be valid in IPR proceedings. For example, a petitioner may make a strategic decision to assert the invalidity of 32 claims—despite believing that many of the claims are likely to survive—because of an expectation that the patentee (particularly a non-practicing entity) cannot afford the cost of proceeding on all claims. The increased costs in proceeding on all claims could cause the patentee to abandon enforcement of an otherwise strong patent. This scenario obviously raises ethical/frivolous claim issues, and the PTAB has the authority to grant sanctions, including attorneys’ fees. But it is unclear whether and how the PTAB might use this authority to sanction the inclusion of frivolous claims in an IPR petition.

On the other hand, the SAS decision may also create trouble for defendants in district court patent litigation. Because the PTAB must render a decision on all challenged claims—including those expected to be valid—the IPR estoppel will apply to all challenged claims. Thus, a defendant will be foreclosed from asserting the prior art in the district court litigation against the “likely valid” claims it challenged in the IPR. If a patentee is expected to effectively fight the IPR, it would be wise for a patent infringer to reconsider whether to include “likely valid” claims in its IPR petition so that the patent infringer can maintain its invalidity defense against the claims in district court and potentially in front of a jury.

Overall, it will be interesting to watch how the PTAB manages its increased IPR workload.  Notably, the PTAB may use its “discretionary” power not to institute an IPR if only one or two claims out of dozens challenged meet the “likely to succeed”  test.  And, the projected increased workload may accelerate the implementation of long-discussed changes with IPRs, such as raising the claim construction and invalidity legal standards to those of district courts.

As a result of these decisions, IPRs could become an even better vehicle for potential infringers to delay a finding of infringement, increase costs to the patentee, and potentially leverage a lower settlement.  While it is as yet untested, patent owners may be able to use the PTAB’s authority to grant sanctions to help curtail petitioners’ inclusion of likely valid claims in IPR proceedings. And with the correlating estoppel effect on defendants in litigation, petitioners should still carefully evaluate whether or not to include “likely valid” claims in their IPR petitions. 

Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 584 U.S. ____ (2018); SAS Institute Inc. v. Iancu, 584 U.S. ____ (2018)

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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