In November, the Supreme Court will hear argument on whether Inter Partes Reviews (IPRs), one of the most influential changes of the American Invents Act, are an unconstitutional taking of property.  IPRs are a post-issuance review of patent validity before the Patent Trial and Appeal Board (PTAB). This administrative trial before a panel of three administrative judges involves limited discovery and usually reaches a conclusion within a year of initiation. Since their inception, IPRs have become a popular way for potential-infringers to quickly and cheaply challenge patent validity outside the courtroom. From September 2012 (when petitions were first received) until March 2017, the PTAB received over 6,100 petitions (over 300 per year) for IPRs. Of the over 4,500 petitions completed as of March 2017, over 50% resulted in trials, with nearly 1,600 trials reaching a final written decision by PTAB.

Despite their prominence, the nation’s high court has chosen to review the practice though a routine PTAB invalidity decision. In 2016, the Federal Circuit affirmed a finding of invalidity in Oil States v. Greene’s Energy Group, et al., finding that patent claims were anticipated by the prior art. On appeal, the court will hear arguments in the case on whether IPRs violate the Constitution by allowing a non-Article III forum to extinguish property rights. This grant of certiorari comes less than a month after a lengthy dissent in another Federal Circuit opinion, Cascades Projection LLC v. Epson America, Inc., in which Judge Reyna blasted the constitutionality of IPRs. Judge Reyna’s reasoning focuses on an 1898 Supreme Court decision in McCormick Harvesting Mach. Co. v. C. Aultman & Co., in which the court held that “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.” The Court will decide whether McCormick remains good law when it hears oral argument in November.

Still more challenges may be on the way for IPRs. In January 2017, the PTAB declared state-owned patents immune from IPR challenges under the sovereign immunity afforded to the states by the 11th Amendment. In Coviden LP v. University of Florida Research Foundation, Inc., the PTAB found that states were immune from patent challenges based on the similarity between IPRs and civil litigation, prior proceedings, and underlying patent law policy. Further, the PTAB found that research foundation of the state universities are under sufficient state control to qualify for this immunity. With significant quantities of intellectual property tied up in state-operated universities and research institutions it is unlikely we have seen the last of this issue. However, the Federal Circuit may wait until the Supreme Court’s decision in Oil States before granting an appeal on sovereign immunity.

Any restrictions on the limits of IPRs could have resounding effects in the patent industry. The most likely outcome would be a return to the courtroom, where roughly 5,400 patent cases have been filed annually since 2013. This change would likely lead to increased time and expenses for parties, but may provide a boost to the patent litigation industry. However, court imposed limitations on IPRs could also open the door for other PTAB proceedings, including Post Grant Reviews (PGRs) and Covered Business Methods (CBMs). While we may need to wait years to learn the true ramifications, the first domino will fall when the Supreme Court rules on Oil States in June 2018.

Nick Baniel

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