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At High Court, Just One IP Case That Matters

After several IP-heavy seasons, the 2017 term at the U.S. Supreme Court looks to be a quiet one for intellectual property—with one big exception.

The 2017 term at the U.S. Supreme Court looks to be a quiet one for intellectual property. But with one potential bang in the middle.

The high court has put only two IP cases on its docket thus far. Last year, it heard eight. Both of this year’s cases involve the Patent Trial and Appeal Board (PTAB) and will be argued Nov. 27. There aren’t many other obvious IP candidates on the immediate horizon, other than a wonky extraterritoriality case that the court has referred to the solicitor general for a recommendation.

But one of the two PTAB cases is potentially explosive. Petitioners in Oil States Energy Services v. Greene’s Energy Group argue that an administrative procedure for challenging patent validity is unconstitutional. The procedure, known as inter partes review (IPR) and established five years ago by the America Invents Act (AIA), has quickly become the No. 1 venue for patent validity challenges. Some 7,500 AIA challenges have been filed to date, with more than 1,300 resulting in at least some patent claims canceled.

The process has been a boon for high-tech companies, retailers and other fighting what they consider abusive patent litigation. Patent owners, on the other hand, call IPRs an unconstitutional shortcut around Article III courts. A number of large industrial and life sciences are supporting Oil States as amici curiae, adding some momentum to what once appeared to be a long-shot argument to do away with IPRs and, presumably, about half of the PTAB. 

“It would be a stunning rebuke to Congress, which is trying to fix a problem the Supreme Court has itself recognized,” said Emory University IP professor Timothy Holbrook.

If the PTAB survives Oil States, it still might be in for an overhaul from the second case, SAS Institute v. MatalSAS complains that the PTAB is picking and choosing which patent claims it wants to review, when the AIA says that the board must rule on all of the claims challenged in an IPR petition. When the PTAB issues partial decisions it means litigants have to win twice—once at the PTAB and then again in district court on the remaining claims. That makes patent litigation more expensive, not less, as the AIA intended, SAS says.

Other than those two cases, it looks like slim pickings. Some say it’s time for the court to clarify its 2013 Actavis decision on reverse-payment settlements in pharmaceutical patent cases. Others expect the Defend Trade Secrets Act to reach the court’s docket sooner or later. But it’s not clear that a vehicle to address either of those issues will arrive at the court in time for a decision this term.

And few expect the court to revisit its Section 101 patent eligibility jurisprudence anytime soon, even though the court has now taken its longest break from the subject since a quartet of decisions spanning 2010 to 2014. “From the Supreme Court’s perspective, they have offered what they think is fairly clear guidance, culminating in what people think of as the Mayo/Alice test,” said Kirkland & Ellis IP partner John O’Quinn. “If there was a 101 case for the court to take up again, it was [Ariosa Diagnostics v.] Sequenom,” O’Quinn added, referring to a medical diagnostics case that was criticized by the biotech industry and several Federal Circuit dissenters. The Supreme Court denied certiorari last year.

As Holbrook sees the landscape, “The court could completely destroy the PTAB and IPRs. Other than that, it could be a quiet term.”

A LESS ENTHUSIASTIC SG?

Last summer, the high court requested the views of the solicitor general’s office on two IP cert petitions—a sign of tentative interest from the court. But the SG has already recommended against granting cert in one. That case, Samsung v. Apple, stems from the second major trial between the smartphone-makers. On appeal, the Federal Circuit seemed to soften up slightly the Supreme Court’s 2006 eBay v. MercExchange standard for awarding injunctions in patent cases. Solicitor General Noel Francisco pointed out that the injunction was narrowly drawn and the questions presented “highly fact-bound.”

With the Trump administration likely to be more pro-patent than Obama’s was, Holbrook speculated that the SG’s office might become more reluctant, generally, to recommend cases for review, given the Supreme Court’s more anti-patent reputation.

The SG hasn’t made a recommendation yet on WesternGeco v. Ion Geophysical, a case involving about $95 million in lost profit damages for infringement under Section 271(f) of the Patent Act. That provision provides liability under U.S. patent law, even when U.S.-made parts are assembled overseas. In this instance, WesternGeco sued over technology used to survey ocean floors for oil deposits. The question is whether 271(f) covers not only liability, but also damages for overseas infringement.

Stanford law professor Mark Lemley said WesternGeco is “really interesting from a patent geek perspective.” But, if the court does take it, he expects any impact to be narrow, such as with last year’s Section 271(f) case Life Technologies v. Promega.

“This would be the third 271(f) case they’ve taken,” added Holbrook. “Who would have thought?”

Rutgers professor Michael Carrier says it’s high time for the Supreme Court to fill in some of the blanks in FTC v. Actavis, the 2013 decision that said paying generic pharmaceuticals to delay the release of competing products can be anti-competitive. The Third Circuit ruled in 2015 that the payoff doesn’t have to be in cash. A branded pharmaceutical company might agree instead not to authorize its own competing generic brand. But, in an August 2017 decision involving seven potential manufacturers of the antidepressant Wellbutrin, the same court ruled that the value of a reverse payment has to be balanced against the complexity of a settlement.

Carrier has already filed an amicus brief on behalf of 58 professors seeking rehearing, which the court denied. He’s also at work on a law review article on the case. It’s not clear yet if the plaintiffs bringing the Wellbutrin antitrust class action will petition for cert.

Holbrook says that, from the Supreme Court’s point of view, four years of percolation may be brief. “My guess is they’ve spoken their piece” on reverse payments, he said, “unless something the lower courts have done is egregiously extreme, which some people have argued it is.”

THE PTAB CASES

Morgan, Lewis & Bockius partner Allyson Ho represents Oil States in its constitutional challenge to IPRs. She argues in her brief that courts have been treating patent validity suits as disputes over private property rights for centuries. “Article III promises a court to these litigants, and the Seventh Amendment promises a jury,” she writes.

She points to the Supreme Court’s 1898 decision, McCormick Harvesting Machine v. Aultman, which states, “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.”

Oil States has received a surprising amount of support from industry titans. An amicus brief from 3M Co., The Procter & Gamble Co., Johnson & Johnson, Shell International and others calls IPRs “a significant regulatory overreach” and assures the court that killing them “would not significantly disrupt the patent system.”

Pharma companies, whose patents have come under increasing attack lately at the PTAB, have weighed in, too. AbbVie Inc., Celgene Corp. and Bristol-Myers Squibb Co. have joined amicus briefs calling for the PTAB’s head. So has Allergan Corp., which made news recently by trying to use Native American tribal immunity to avoid IPRs.

Stanford law professor Mark Lemley, who’s long argued that juries aren’t needed to determine patent validity, said he’ll be filing an amicus brief opposing Oil States on behalf of a group of law professors. In an interview, Lemley said jury trials aren’t required when the Patent and Trademark Office cancels a registered trademark that’s become generic or when the Federal Communications Commission withdraws a license to broadcast spectrum. So why shouldn’t the PTO have the right to cancel a patent, if it determines it was mistakenly issued, he asks.

Oil States’ supporters argue that, if patent validity is going to be reviewed in an adversarial proceeding as opposed to a traditional PTO re-examination, it must be in an Article III court. But Lemley questions why adding the due process protections of an administrative trial would render the proceeding unconstitutional. “It would be odd if the law required such a thing,” he said.

Still, Lemley said the Supreme Court’s interest in the case worries him and that he could imagine that five justices see an opportunity to pare back the administrative state, “and they’re going to use patent law because there won’t be that much of an outcry outside of the patent bar.”

Asked if there’s a middle ground position the Supreme Court could take, Lemley and Holbrook posit that the court could limit a holding for Oil States to patents issued before the AIA was signed into law in 2011. At that point, patent applicants were on notice of IPRs. That would be “one way to minimize the disruption,” Lemley says.

There’s a big wild card in how Oil States and other future IP cases could play out: new Justice Neil Gorsuch. “I think he could potentially be very influential on IP law, if that’s an area that piques his interest,” Kirkland’s O’Quinn says. Gorsuch showed at the Tenth Circuit that he was willing to dig into complex, technical issues. “He’s also a very clear writer. If you put those two together, he could be very influential when it comes to IP law.”

Scott Graham writes about intellectual property and the U.S. Court of Appeals for the Federal Circuit. Contact him at sgraham@alm.com.

Contributing Author

Scott Graham

Scott Graham is a journalist who writes for The Recorder and The National Law Journal.

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