Is Inter Partes Review Constitutional?

The Monday after Thanksgiving a presumably well-fed and rested Supreme Court will hear oral arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, a Constitutional challenge to the Patent Trial and Appeal Board inter partes review (IPR) system. 

In 2012, Oil States asserted patent infringement claims against Greene Energy in a U.S. District Court, and nearly a year after litigation had commenced, Greene petitioned the PTAB to institute an inter partes review of the asserted patent.  During the IPR, the Board refused to adopt the same claim construction as the District Court, and instead, under a new claim construction, held that the patent claims were anticipated and invalid.  The merit of the Board’s final judgment was appealed to the Federal Circuit along with constitutional challenges to the IPR under Article III and the Seventh Amendment (“…the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court…”)

The questions confronting the Court in Oil States are the nature of the property granted by a government-issued patent, and whether that property
can be extinguished by a non-Article III tribunal, such as the judges making up the PTAB panels.

A quick review of the powers granted under the Constitution finds that Article I outlines the Legislative powers including the power

“[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries  (See Art. I, Section 8, Clause 8),

that Article II describes the powers of the Executive branch, and that Article III of the Constitution sets forth the basic parameters of the judicial branch.

With passage of the America Invents Act in 2011, Congress replaced inter partes reexamination with inter partes review, a procedure which allows for more third party intervention and more litigation like actions. The review process leads to a “trial” in front of a panel of at least three administrative law judges as selected by the Director of the PTO from a pool of over 200 judges, which includes the Director himself. 

So, should the IPR regime be viewed as a full-on adversarial judicial proceeding without the protections afforded by the Article III district courts, or as a permissible administrative law proceeding focused on improving patent quality by cancelling patents that slipped through the PTO system?

With respect to the definition of the property right involved in a patent, the issue revolves around whether patents are “public” or “private” property rights.  In view of the Court’s recent statements in Stern v. Marshall (564 U.S. 462 (2011)) (the Anna Nicole Smith estate case), it seems likely that the Court will view patents as granting private property rights. However, even the Court recognizes that “our discussion of the public rights exception…has not been entirely consistent, and the exception has been the subject of some debate…” Stern 564 U.S. at 488.

Consider that in Stern, claims arising under the public rights exception included only claims (i) by or against the government, (ii) which “historically could have been determined exclusively” outside the Judicial Branch, or (iii) the “resolution of the claim by an expert government agency is deemed essential to a limited regulatory objective…integrally related to particular federal government action.” Stern, 564 U.S. at 490 (emphasis added.)

On the other hand, the patent code sets forth that patents “shall have the attributes of personal property,” 35 U.S.C. § 261, so perhaps disputes over the validity of patent claims, personal property, should be adjudicated by Article III courts.

Should the Court find that IPR is unconstitutional, the proverbial wrench would be thrown into the cogs of the U.S. patent system; stay tuned.

Sam Burkholder is a member and intellectual property attorney at Capitol City TechLaw.  His practice covers a range of issues, including patent prosecution and counseling.  He can be reached at sburkholder@capcitytechlaw.com.

GOING ONCE….SOLD…GOODBYE, PATENT RIGHTS

The sale of a patented article anywhere in the world will exhaust the patent holder’s patent rights.

The Supreme Court has strengthened the doctrine of patent exhaustion, based on the common law concept of not allowing restraints on alienation of chattels.  Once a patented article is sold, inside the U.S. or internationally (outside the reach of U.S. patent law,) a patent owner no longer has any patent rights on that article.  The Court’s decision was issued Tuesday May 30, 2017, and except for Justice Ginsburg’s concurrence and dissent in part, was unanimous.  (Justice Gorsuch did not take part in the consideration or decision.)  The Court’s opinion can be found at Impression Products, Inc. v. Lexmark International, Inc.

This case grew out of a dispute between Lexmark and Impression over the domestic sale of Lexmark laser printer toner cartridges refurbished by Impression.  The cartridges were initially sold by Lexmark domestically and overseas.

In an attempt to control the re-sale of their cartridges, Lexmark ran a “Return Program,” which offered a 20% discount in exchange for signing a contract agreeing to use the cartridge once only, and to return the empty cartridge to Lexmark.  Cartridges sold under the Return Program had microchips installed to prevent reuse of empty cartridges.  Remanufacturers developed ways to counteract the microchips, refill, and resell the tagged cartridges.

Lexmark sued Impression for patent infringement on its practice of purchasing used Lexmark toner cartridges in both the U.S. and overseas, refilling with toner, and reselling the refurbished cartridges to consumers in the U.S. at a significant price reduction.

The Court found that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.”  Lexmark’s attempted restrictions and the location of the sale were considered irrelevant by the Court.  They found that, “what matters is the patentee’s decision to make a sale.”

Tracing the common law doctrine of restraints on alienation of chattels back to, at least, Lord Coke’s 1628 statement of the doctrine, the Court found that “[p]atent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.”

An analogy was drawn by the Court to their recent copyright case regarding foreign sales (Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 591 (2013)) to reason that it would “make little theoretical or practical sense” to differentiate between the patent exhaustion and copyright first sale doctrines, and therefore they included foreign sales under the patent exhaustion doctrine.

The impact of this decision on chattels such as life changing pharmaceuticals covered by U.S. patents which are frequently sold at lower prices abroad, especially in third world countries, will be interesting.  Which party will suffer the most, U.S. patentees or the foreign ill?

Sam Burkholder is a member and intellectual property attorney at Capitol City TechLaw.  His practice covers a range of issues, including patent prosecution and counseling.  He can be reached at sburkholder@capcitytechlaw.com.

GOODBYE, TEXAS… HELLO, DELAWARE??

A patent owner planning an infringement suit against a U.S. corporate entity now could likely be forced to file suit in the state where the alleged infringer is incorporated.

The Supreme Court placed tight restrictions on where a patent owner can sue a domestic corporation for patent infringement in their unanimous decision issued Monday May 22, 2017.  (Justice Gorsuch did not take part in the consideration or decision.)  The TC Heartland LLC v. Kraft Foods Group Brands LLC decision reversed the Federal Circuit, and now having a defendant subject solely to personal jurisdiction will not be enough to permit a patent owner to bring an infringement suit.

Accused corporate patent infringers now will be subject to patent infringement suits only in districts in the state where they are incorporated, or in districts where infringing acts have been committed and the corporation has a regular and established place of business.  The Court ruled that the definition of “reside[nce]” in the statute controlling venue, 28 U.S.C. §1400(b), “refers only to the State of incorporation.”

The Federal Circuit, since 1988 when Congress changed 28 U.S.C. §1391, had looked at §1391(c) as controlling venue with respect to patent infringement cases, and thus a finding of personal jurisdiction was the determining factor.  However, the Supremes found that Congress, in both 1988 and 2011, had not, in their judgment, changed §1400(b)’s definition and scope of “resides,” as further interpreted by an older Supreme case, Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).  So, “patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business,” as stated in §1400(b).

This decision should greatly affect the number of suits filed in the current epicenter of patent litigation, the Eastern District of Texas.  Approximately 35% of all the country’s patent infringement suits are filed in this district with the quaint town of Marshall gaining some renown for its hospitality. It is anticipated that Delaware litigators soon will be much busier.

Sam Burkholder is a member and intellectual property attorney at Capitol City TechLaw.  His practice covers a range of issues, including patent prosecution and counseling.  He can be reached at sburkholder@capcitytechlaw.com.