Two Sides: Oil States Energy Services v. Greene’s Energy Group Oral Arguments

Patents Tags: Greene's Energy Group, Inter Partes Review, IPR Proceedings, Oil States Energy Services

By: Devin Salmon, Patent Analyst, IP.com

On November 27th, 2017, the US Supreme Court heard oral arguments for Oil States Energy Services v. Greene’s Energy Group, a case that could have a major impact on the patent world. While the patent involved is directed toward a method for hydraulic fracking, at issue is whether the Inter Partes Review (IPR) proceedings, introduced as part of the 2001 Leahy-Smith America Invents Act (AIA), are constitutional. The question boils down to if IPR proceedings require judicial review of an Article III forum or the right to a jury trial under the Seventh Amendment of the US Constitution.  The key is whether IPR proceedings are “extinguishing private property rights through a non-Article III forum without the jury.” 1

This case has proponents on both sides, with nearly 60 amicus curiae, i.e., “friend-of-the-court”, briefs. Arguing for IPR being constitutional are technology giants Apple & Google, along with GE and Volkswagen. Arguing against are pharma companies (such as AbbVie, Allergan plc, and Celgene), biotech companies, inventors’ groups, and venture capitalists. This is not a case of David v. Goliath; unsurprisingly, law professors are split on each side of the case.

Those arguing that IPR is constitutional maintain that the proceedings were established as an efficient method by which to remove improperly granted patents, i.e. those having existing prior art that the examination might have missed. Apple’s brief on the case states that the company filed more IPR proceedings than any other did: 267 through 2016. IPR supporters tout estimations that the current IPR system has saved plaintiffs and defendants at least $2.31 Billion in legal fees.

The other side argues that IPR proceedings are unconstitutional. Pharma companies allege that competitors wanting to bring generics to the market are increasingly using IPR challenges paired with suits in the federal courts. This leads to a patent that is held to the two different standards — IPR versus the courts. This group also alleges because the IPR proceedings overturn so many patents, that the IPR process is less friendly to inventors. In contrast to the opposition, calculations show that the AIA and IPR proceedings actually cost the US economy over $1 Trillion.

Regardless of the pros and cons of IPR proceedings, the case must be decided on the legal issues. As an important first step in deciding the “non-Article III forum” issue, the Supreme Court must determine whether patents are a public or a private property right. If a patent is a private right, as Oil States is arguing, then IPR is unconstitutional under Article III because it extinguishes private rights through a non-Article III forum without a jury.

Oil States argues that patents are a “private right” and therefore subject to Article III, as explained in US Supreme Court case, McCormick Harvesting Machine v. Aultman, 169 U.S. 606 (1898). Justice Gorsuch directly called out the issue as being defined by McCormick and others.

JUSTICE GORSUCH:  Ms. Ho, we have a number of cases that have arguably addressed this issue already, like McCormick, for example, in which this Court said 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.  We have cases — and American Bell is another one.  We have that wonderful quote from Justice Story indicating that any correction to a patent has to go to a court.

On the other side, Greene’s Energy is arguing that patents are a public right. They point to Justice Sotomayor seemingly arguing that McCormick may not apply in this case.

JUSTICE SOTOMAYOR:  Ms. Ho, I’m sorry, I thought in McCormick, that — why did the Court even bother looking at the statute?  What it did, I understood, was look at the statute and say the statute basically defines the issue of a new patent being issued as one — before the old patent expires.

And so, they were really doing a statutory analysis of whether or not, by that process, the old patent was expired, and they were saying, no, if you want it to expire now, you have to go to court, because there’s no statutory authority for doing it currently.

So, I’m not quite sure how you get to the constitutional holding.

Justice Breyer also seems to support the “public right” side, as he pointed toward the Supreme Court’s recent decision in Stern v. Marshall, 564 U.S. 462 (2011).

JUSTICE BREYER:  The second is formal. That’s the public versus private right theory. And the best, or at least most recent, articulation of that is in the Chief Justice’s opinion in Stern.

In addition to looking to McCormick or Stern, Justice Roberts stepped back even further to call into question the “Schor Test” for public rights that was previously used.

CHIEF JUSTICE ROBERTS: I’d like to just touch on more directly the Schor test for whether something is or is not a public right. And as I understand it, it says five different factors that you consider.

JUSTICE BREYER: No, that’s what I thought.

CHIEF JUSTICE ROBERTS: Consent, this, this, this, and other things. And I’m wondering if that is a sufficiently stable and predictive test when you’re talking about something like a property right?

While not brought up during oral arguments, going back into the case history that led to the Supreme Court taking on this case reveals case law in MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015), supporting the premise that patents are a public and not a private right. It will be interesting to see if this is brought back up at some point.

At the end of oral arguments, it appears that Justices Ginsberg, Kagan, and Sotomayor lean toward upholding the constitutionality of the IPR proceedings, while Justice Gorsuch seems to lean toward a patent being a private right. At this point, however, when evaluating the entire history, where Justice Kennedy, Justice Breyer, and Chief Justice Roberts will fall is unclear.

A decision on the case is expected in the first half of 2018, and you can be sure that the many interested onlookers are closely watching and hopefully preparing for either outcome, as it is far from clear which way it will go.

Disclosure: IEEE-USA filed a brief of amicus curiae for this case. IP.com partners with IEEE in various capacities, but the author of this post is not affiliated with IEEE and does not represent IEEE in any way.

1 https://www.taftlaw.com/news-events/law-bulletins/supreme-court-to-decide-constitutionality-of-aia-patent-reviews