Oil States Energy Services LLC v. Greene’s Energy Group, LLC

639 F.App’x 639 (Fed. Cir. 2016), cert. granted (June 12, 2017) (No. 16-712)
Supreme Court of the United States

The Supreme Court has granted certiorari in Oil States Energy Services LLC v. Greene’s Energy Group, LLC to examine the constitutionality of inter partes review proceedings by the United States Patent and Trademark Office (“PTO”).  Specifically, the Court will address “[w]hether inter partes review . . . violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.”[1] This case calls into question the review procedures enacted by the America Invents Act (“AIA”), and perhaps all of the PTO’s authority to invalidate a previously issued patent.

The appeal arises from an affirmance by the Federal Circuit of an inter partes review conducted by the Board of Patent Trials and Appeals (“the Board”) invalidating Oil States Energy Service’s U.S. Patent no. 6,179,053 (“the ‘053 patent”). The ‘053 patent discloses an invention relating to hydraulic fracking: an apparatus for securing a protective “mandrel” in place within a well designed to protect the wellhead from continuous exposure to the fracking fluids.  The apparatus utilizes a mechanical lockdown to secure the mandrel after insertion; a distinction from an earlier attempt to solve this problem put forth by Oil State Energy Service’s (“Oil State”) prior patent application—the ‘118 application—which utilized hydraulic pressure to secure the mandrel.

Oil States asserted the ‘053 patent in 2012 against Greene’s Energy Group, LLC (“Greene”), alleging infringement in the Eastern District of Texas. Before the statutory deadline, Greene petitioned the PTO to institute inter partes review of the ‘053 patent. The Board instituted review, and, in applying the broadest reasonable interpretation articulated in Cuozzo when construing the claims of the ‘053 patent, found that the patent was anticipated by the ‘118 application.  Oil States moved to amend the claims, but the Board disallowed their proposed amendments because, among other things, the Board found the proposed amendments lacked sufficient support in the originally filled specification.

Oil States appealed the decision to the Federal Circuit, where they argued that the Board had improperly formulated its broadest reasonable interpretation of the claims, that their amendments were improperly denied, and that inter partes review was unconstitutional under Article III and the Seventh Amendment. The Federal Circuit affirmed the Board’s decision without issuing an opinion, under Federal Circuit Rule 36. Rule 36 allows the Federal Circuit to affirm a decision without issuing an opinion—and Oil States utilized this appeal as an opportunity to criticize the increased frequency in which the Federal Circuit has relied upon it.

Following the affirmance by the Federal Circuit, Oil States then petitioned for certiorari on three issues: (1) whether inter partes review violates the Constitution by “extinguishing private property rights through a non-Article III forum without a jury”; (2) whether the amendment process as implemented by the PTO conflicts with Supreme Court precedent and congressional design; and (3) whether traditional claim construction doctrines must be applied by the Board when construing claim under the broadest reasonable interpretation.

On the constitutional issue, Oil States contends that patent rights are a private property right and that disputes relating the validity of patents must therefore be adjudicated by an Article III court. Their argument likely goes beyond only the constitutionality of inter partes review, as it is based in the proper separation of powers between executive agencies and the judiciary. As such, although the question presented to the Supreme Court was specific to inter partes review, the case has broad implications for all types of post-issuance review carried out by the PTO.

Additionally, Oil States argues, if patent validity must be determined by an Article III court then the Seventh Amendment guarantees a right to a jury trial for a patent dispute where validity is at issue based on historical practice regarding patent validity disputes in English courts around the late 18th century.

Both Greene Energy and the US Government filed Briefs in Opposition in to Oil States’s petition. As to the constitutional question, both contend that patent rights are a public right because they are closely tied to a public regulatory scheme, and thus they may properly be reviewed and potentially extinguished by an executive agency rather than by an Article III forum—a position held by the Federal Circuit in the 2015 case MCM Portfilio LLC v. Hewlett-Packard Co. They also dispute that the historical practice of how patent validity was disputed supports a Seventh Amendment right to a jury trial.

The Supreme Court granted cert only on the constitutional question.  Of course, we can only read the tea leaves as to why the other issues were denied. Perhaps the Court believes that inter partes review will likely be found unconstitutional and thus issues relating to how reviews are conducted are unimportant? Maybe the Court feels those issues may be properly addressed by a subsequent case or that they were answered sufficiently in Cuozzo Speed Techs., LLC v. Lee.

This case potentially has broad implications for both patent holders and patent law practitioners.  Oil States asserted that the implementation of inter partes review has resulted in the loss of hundreds of billions of dollars in patent value.  A decision by the Court holding inter partes, and perhaps other forms of post-issuance review, to be unconstitutional could, according to Oil States, have a significant effect on the value of existing patents.

Looking to the effects the case might have on the practice of patent law, such a decision by the Supreme Court would present practitioners with new strategic decisions to make in current litigations. For example, with inter partes review no longer available for defendants to challenge an asserted patent, should defendants reevaluate settling? Moreover, the willingness of the Court to address such a challenge raises questions about what arguments should be preserved in current and pending litigations. Looking to the future, will patent-assertion entities further proliferate if inter partes review will be unavailable as a forum for invalidating their patents?

In short, Oil States will be a closely watched case that, on its own or in combination with TC Heartland, dramatically change the current patent landscape.

[1] Petition for a Writ of Certiorari at i, Oil States Energy Services LLC v. Greene’s Energy Group, LLC, 639 F.App’x 639 (2016) (No. 16-712).