Supreme Court Says Of Course The Patent Office Can Admit It Made A Mistake And Dump Bad Patents

For the second time in two years, the Supreme Court has needed to weigh in and note that, of course, the US Patent Office can take another look at the crappy patents it already granted, recognize its mistake, and void the patents. A little less than two years ago, it looked at what standards could be used by the Patent Trial and Appeal Board (PTAB) using the Inter Partes Review (IPR) system created by the America Invents Act of 2010. The latest case was much more broad: challenging whether the IPR/PTAB process itself was Constitutional.

The basic idea behind the IPR process was an admission that the USPTO is historically bad at properly reviewing patents before granting them. It grants a lot of bad patents. The IPR process allows anyone to present evidence to the PTO that it made a mistake and granted a patent that should never have been granted. If the PTAB is convinced, it can invalidate the patent. Seems pretty straightforward. Except that the usual patent lovers (mainly patent trolls and big pharma) insisted that this was some sort of unconstitutional taking of property, without the review of a court. This is wrong for a whole bunch of reasons -- starting with the incorrect view of patents as traditional "property."

The Supreme Court ruled on the issue, in a case called Oil States Energy Services v. Greene's Energy Group, and basically said that of course the PTAB can invalidate patents this way. Justice Thomas wrote the majority opinion with a 7 - 2 split (Gorsuch and Roberts dissented). The key issue was whether or not invalidating patents is reserved only for the courts, and most of the Justices don't see any support for that. In short, the majority opinion says what the Patent Office gives, the Patent Office can take away...

This Court has recognized, and the parties do not dispute, that the decision to grant a patent is amatter involving public rights-specifically, the grant of apublic franchise. Inter partes review is simply a reconsiderationof that grant, and Congress has permissibly reservedthe PTO's authority to conduct that reconsideration.Thus, the PTO can do so without violating ArticleIII.

The majority opinion points out that the Constitution doesn't require the Judicial branch to weigh in on the granting of patents, and thus it need not weigh in on the invalidating of those patents either.

Inter partes review is "a second look at an earlier administrativegrant of a patent." ... The Board considers the same statutoryrequirements that the PTO considered when granting thepatent.... Those statutory requirementsprevent the "issuance of patents whose effects are to remove existent knowledge from the public domain."... So, like the PTO's initial review, the Board's interpartes review protects "the public's paramount interest inseeing that patent monopolies are kept within their legitimatescope,"... Thus, interpartes review involves the same interests as the determinationto grant a patent in the first instance.

The court reasonably compares it to other administrative processes where the government can grant things, such as franchises, and later revoke or amend those franchises.

An important part of the ruling is that patents are not property in the traditional sense, and this isn't case of removing someone's property without the Judicial Branch. Specifically, the court says that patents are really more similar to a franchise right, than a traditional property right:

Patents convey only a specific form of property right-apublic franchise.... Andpatents are "entitled to protection as any other property,consisting of a franchise." Seymour, 11 Wall. at 533 (emphasisadded). As a public franchise, a patent can conferonly the rights that "the statute prescribes." Gayler,supra, at 494; Wheaton v. Peters, 8 Pet. 591, 663-664(1834) (noting that Congress has "the power to prescribethe conditions on which such right shall be enjoyed"). It isnoteworthy that one of the precedents cited by Oil Statesacknowledges that the patentee's rights are "derivedaltogether" from statutes, "are to be regulated and measuredby these laws, and cannot go beyond them."

And while Oil States points to some earlier rulings saying that only the courts can invalidate a patent, the Supreme Court correctly notes that the cases it points to were decided under the Patent Act of 1870 -- and under that Act, courts were necessary. But there is no Constitutional prohibition on Congress setting up different rules for the patent system, and since 2010 with the America Invents Act, Congress decided to allow for this administrative review.

Amusingly, the court also takes Oil States to school for a history lesson. The company had argued that historical principles have established that only a court could invalidate a patent, and points to cases decided in 18th century England. But, the Supreme Court, citing Mark Lemley, points out that Oil States not only gets its history wrong, but that the actual history shows that England had something quite similar to an Inter Partes Review process:

But this history does not establish that patent validityis a matter that, "from its nature," must be decided by acourt.... The aforementioned proceedings werebetween private parties. But there was another means of canceling a patent in 18th-century England, which moreclosely resembles inter partes review: a petition to thePrivy Council to vacate a patent. See Lemley, supra, at1681-1682; Hulme, Privy Council Law and Practice ofLetters Patent for Invention From the Restoration to 1794,33 L. Q. Rev. 63 (1917). The Privy Council was composedof the Crown's advisers.... Fromthe 17th through the 20th centuries, English patents hada standard revocation clause that permitted six or morePrivy Counsellors to declare a patent void if they determinedthe invention was contrary to law, "prejudicial" or"inconvenient," not new, or not invented by the patentowner. ...Individuals could petition the Council to revoke a patent,and the petition was referred to the Attorney General.The Attorney General examined the petition, consideredaffidavits from the petitioner and patent owner, and heardfrom counsel.... Depending on the Attorney General's conclusion,the Council would either void the patent or dismissthe petition....

The Privy Council was a prominent feature of the Englishsystem. It had exclusive authority to revoke patentsuntil 1753, and after that, it had concurrent jurisdictionwith the courts.... The Privy Council continued to consider revocationclaims and to revoke patents throughout the 18thcentury.

Just a note: if you're going to cite English legal history at the US Supreme Court to try to establish some sort of general and accepted rule, it's best if you don't skip out on the fact that the actual history supports the other side. Just saying.

The final argument from Oil States that the court rejects, is that the PTAB is a violation because it looks too much like an Article III court, without being an actual court. But the majority opinion basically says "so what?"

But this Court has never adopted a "looks like" test todetermine if an adjudication has improperly occurredoutside of an Article III court. The fact that an agencyuses court-like procedures does not necessarily mean it isexercising the judicial power. See Freytag, 501 U. S., at910 (opinion of Scalia, J.). This Court has rejected thenotion that a tribunal exercises Article III judicial powersimply because it is "called a court and its decisions calledjudgments."

The dissent from Gorsuch (with Roberts signing on) is all over the place. They seem taken in by the myth of patent greatness, kicking off the dissent with the following:

After much hard work and no little investment youdevise something you think truly novel. Then you endurethe further cost and effort of applying for a patent, devotingmaybe $30,000 and two years to that process alone. Atthe end of it all, the Patent Office agrees your invention isnovel and issues a patent. The patent affords you exclusiverights to the fruits of your labor for two decades. Butwhat happens if someone later emerges from the woodwork,arguing that it was all a mistake and your patentshould be canceled? Can a political appointee and hisadministrative agents, instead of an independent judge,resolve the dispute? The Court says yes. Respectfully, Idisagree.

But... that makes no sense. Congress, which has the power to set up the patent system to "promote the progress of the useful arts" has determined (reasonably) that since the Patent Office grants lots of bad patents, it can also review and invalidate its mistakes. That's not a "dispute that needs to be resolved." It's an administrative function that doesn't end once the patent is granted.

Gorsuch seems to think people will read the narrow ruling of the majority to more or less decimate the courts and move lots of disputes into administrative processes. That's silly. The majority opinion is quite clear that it is narrowly focused on the issue before it concerning Congress's authority to enable the Patent Office to invalidate patents. As for the history lesson mentioned above, Gorsuch claims it no longer applies because the English Privy Council stopped invalidating patents in the 18th Century. That's true, but meaningless. The whole reason English patent history is brought up in the first place was because Oil States tried to argue that it was the natural order of patents that only courts could remove them. What they really meant is that it was the natural order starting in the late 18th century... which is a lot less convincing if you're trying to argue a form of "we've always done it this way." The point is... we haven't.

This is a big and important win, protecting everyone from bad patents. The IPR process has been shown to be a tool that is at least somewhat effective in dumping bad patents. We should all strive for a situation in which the PTO doesn't grant bad patents in the first place, but given that it does, it should be able to acknowledge its mistakes and correct them.

Of course, that won't stop patent trolls and big pharma from flipping out. Even the site FiercePharma seems to be completely off its rocker in calling this ruling a "blow for pharma" and describing the IPR process as "hated." Except that's silly. IPR is only hated by those with junk patents. If pharma hates it, it's because they know their patents are junk.

As that article makes clear, though, the powerful Pharma lobby intends to pressure Congress to still kill the IPR process as quickly as possible:

In a statement, PhRMA spokesperson Nicole Longo said the "narrowly tailored decision" found only that IPRs are constitutional, not "efficient or fair." The arguments and a Tuesday ruling in another case-SAS Institute v. Iancu-mean it's "clear there are problems with the IPR process that need to be addressed," she added.

Amusingly, the article also notes that most of the big pharma companies have used the IPR process themselves to invalidate the patents of others, suggesting that maybe they don't actually "hate" it that much after all...