By Kevin E. Noonan –

Perhaps overlooked in the widespread assessments of the Supreme Court's questioning of the parties in Oil States Energy Services, LLC. v. Greene's Energy Group, LLC is the argument before the Court in SAS Institute, Inc. v. Complementsoft, LLC that immediately followed.  Assuming the Court affirms the Federal Circuit in Oil States (considered likely, despite the "man bites dog" quality such decisions have had recently), the Court's decision should clarify how (and in individual cases whether) future inter parties review proceedings will proceed.

The case arose in litigation over U.S. Patent No. 7,110,936 assigned to Complementsoft.  SAS filed its IPR petition on claims 1-16, and the Board instituted as to claims 1 and 3-10 on obviousness grounds.  The PTAB found all instituted claims but claim 4 obvious and issued a final written decision on these claims.  SAS appealed, arguing that "the Board's final written decision is deficient for failing to address the patentability of all claims SAS included in its IPR petition, including those for which the Board did not institute IPR."

The Federal Circuit held that the Board was not required to render a decision as to claims for which it did not institute the IPR, and that its decision in Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309 (Fed. Cir. 2016) was controlling.  In that case, the Federal Circuit held that "no statutory requirement that the Board's final decision address every claim raised in a petition for inter partes review.  Section 318(a) only requires the Board to address claims as to which review was granted."  Id. at 1316–17.  At least one basis for this decision was the differences between the statutory language in 35 U.S.C. § 318(a), which recited "claims challenged by the petitioner," and the language in 35 U.S.C. § 314, in which the language "claims challenged in the petition" was used to describe the institution decision.  The Court held that this difference evinced a Congressional intent that the Board was able to institute on a claim-by-claim basis and was not compelled to render a decision on any non-instituted claim.

SAS's petition for certiorari set forth this Question Presented:

Whether 35 U.S.C. § 318(a), which provides that the Patent Trial and Appeal Board in an inter partes review "shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner," requires that Board to issue a final written decision as to every claim challenged by the petitioner, or whether it allows that Board to issue a final written decision with respect to the patentability of only some of the patent claims challenged by the petitioner, as the U.S. Court of Appeals for the Federal Circuit held.

At oral argument on November 27th, the Court, in particular Justice Sotomayor, questioned SAS's counsel (Gregory Castanias) on whether its argument was a poorly disguised attempt to circumvent the Court's decision in Cuozzo Speed Technologies LLC v. Lee (2016) ("Ah, you want to get around Cuozzo.").  The Justice's challenge was in one way practical:  how can the Board rule on claims that were not considered in the IPR because the Board exercised its discretion not to institute on those claims?  And on appeal, the argument would need to be that the Board should have instituted on those claims, and that's exactly what the Court said a party could not do under the statute.  Mr. Castanias's attempt to clarify his position was unavailing ("All right," said the Justice, "you do want to get around Cuozzo . . . .  Because there is absolutely no way that that's anything other than that.")  As to the practicalities of an appellate court reviewing patentability of uninstituted claims (where there would be "no record"), Mr. Castanias told the Court that the record before the Board is inherently fuller ("the petition filed here was a complete document") than a complaint before a district court, due to the requirement that the institution petition establish that at least one claim is unpatentable.  That was not enough for the Justice ("You're asking the appellate court to decide patentability on the basis of an incomplete, undeveloped record") who expressed her view that what SAS wanted to argue was that "the Board shouldn't institute partial reviews" and that "once it determines you have enough evidence to challenge one claim, it should hold a hearing on everything.  Because without that, you can't really decide patentability in a due process way, in a fair way" (perhaps being influenced somewhat by the arguments in Oil States that were heard by the Court immediately before this argument).  To Mr. Castanias's agreement with those statements Justice Ginsberg rejoined "[b]ut the statute precludes you from contesting the Institution decision," putting SAS back at Square One.  (At this point Mr. Castanias responded to Justice Ginsberg by answering a question the Justice had posed at the beginning of the argument.)  Mr. Castanias argued that the section of PTAB regulations rejecting SAS's position that all claims should be considered did not do so in the context of § 318.  His position was that Congress intended that the PTAB render a decision on "all challenged claims" and that this should include claims where review was instituted by the Board as well as claims where the Board did not grant review (as a matter of statutory interpretation).

Justice Kagan then asked about the status of cancelled claims, and whether the Board should be required to render a decision as to their patentability.  In the Justice's view, SAS did not dispute that the Board was not required to render a patentability decision on cancelled claims and wanted to know what distinguished those two classes of claims.  Mr. Castanias drew the distinction that "there's a world of difference between" cancelled claims and claims where the Board did not institute review, because cancelled claims "no longer exist."  This was unavailing before the Justice, who understood the practical implications but did not see the difference with regard to the statutory interpretation issue.

Justice Kennedy suggested that the Board could give a petitioner the choice:  either accept review on a subset of the challenged claims or forego the IPR proceeding in favor of district court litigation.  While Mr. Castanias agreed, this colloquy was cut off by Justice Sotomayor who asked where in the statute was the Board "prohibited" from instituting partial review (i.e., on only some of the challenged claims).  And the Justice then continued by asking why, if the Board was not so prohibited, should the Court read the statute differently than the Board has regarding the statutory requirements on the scope of the Final Written Decision under § 318?  Which prompted Justice Kagan to state:

Well, one of the stories that the statute as written seems to tell is of great discretion to the Board with respect to the institution decision.  . . .  It says you never have to institute; it's your choice whether to institute; you can't get review of the institution decision, which is our Cuozzo case; you get to write your own rules about the institution decision, which is the — the rule-making delegation.  So it's a little bit odd to say, well, here's the one thing you don't have discretion over when it comes to institution:  you can't say these claims but not those claims.  In a — in a context in which Congress said the institution decision is really for the Board, it's a discretionary decision that lies in its bailiwick, why should we carve out that one thing?

Mr. Castanias responded that as in litigation, it is typically the plaintiff who is the "master of the complaint" and that SAS petitioned the Board to institute with regard to all the claims; as it turned out what the Board actually did frustrated SAS's purpose for filing the IPR, in how it instituted with regard to one claim (claim 4) compared to another claim where it did not (claim 2).  Justice Breyer raised the issue that, as SAS would have it, the Board would be subject to appeal on all challenged claims even under circumstances where petitioner had only established the likelihood that one of the claims was unpatentable ("why [] would [someone] write a statute like that?") (later saying "I find it very practical to think of the statute as your opponents want it.").  Mr. Castanias responded by saying that having all challenged claims capable of appeal and then properly having estoppel attach as to those claims was the reason Congress legislated IPRs.

Complementsoft's counsel, Jonathan Bond, was challenged by the Chief Justice on the differences between challenged and unchallenged claims put to the Court by SAS, which the Chief said "put[s] them in a difficult position."  Mr. Bond relied on the discretion the statute gives the PTAB to make these distinctions and the burden on petitioners to make their case in the institution petition.  Responding to Justice Kennedy's hypothetical that the Board could require a petitioner to withdraw a claim before institution, Mr. Bond said that it was an illustration of the "artificiality" of SAS's position that "the Board could get to the same result, just through a more cumbersome, multistage process."  With regard to taking the district court option, as discussed with Mr. Castanias, Mr. Bond reminded the Court that SAS could have done that here as well ("A challenger here who's dissatisfied with the Board's decision about the scope of review can say, you know what, it's not worth our time, we can settle with the — the Patent Owner our — our IPR dispute, we can agree not to pursue it and can proceed in litigation.").

Justice Alito asked whether there was any ambiguity in the language of § 318 (and by implication why the statute should not be read as SAS had argued).  Mr. Bond's argument was that the language was plain in context (even if ambiguous in isolation) and that this didn't pose a "hard question" (drawing an incredulous "You think that's not a hard question at least?" from Justice Alito).  Justice Breyer suggested that the proper meaning of the term "patent claim" in the context of a challenged claim was only one where the Board instituted the IPR (an interpretation that the Chief characterized as "a stretch").  To Mr. Bond's reasonable foray into statutory language interpretation (on the word "any" in the statute being limited to instituted claims) Justice Alito echoed earlier argument by asking "why in the world would they phrase [its intention] the way it is phrased in § 318(a)?:

Why wouldn't they say with respect to the patentability of any claim found by the director to have at least some likelihood of success?  Or any claim on which review was granted?  Why in the world would they say any patent claim challenged by the Petitioner?

Mr. Bond countered by cataloguing the many types of claims that can be encompassed by the statutory language (instituted claims, amended claims, cancelled claims, noninstituted claims), and Justice Breyer speculated that perhaps Congress enacted the statute to be intentionally vague, permitting the PTAB to "decide which way it wants to go."  The Chief Justice reacted skeptically to that suggestion, and Justice Sotomayor directed the question to the differences between how Congress worded § 314 and § 318 ("If Congress intended claims challenged in the petition to be a part of 318, it could have used exactly the same words.").  Mr. Bond readily agreed (although it appeared that Justice Alito did not).  Justice Gorsuch raised the common-sense interpretation that the phrase as used in § 314 merely means all claims in the petition and in § 318 just means all those that are left after institution.  Justice Gorsuch also interrogated Mr. Bond on the interplay of his interpretation of § 314 and § 318 with the provisions of § 316 and whether the Director has the authority to pick and choose which claims to review.  Mr. Bond then presented his strongest statement of Complementsoft's position (with regard to policy and Congressional intent):

The Petitioner's all-or-nothing approach puts the Board to an untenable choice; either it wastes time on claims it's already determined don't have a reasonable likelihood of being invalidated at least based on the arguments presented in the petition, or it doesn't use this new tool at all and all of the work of creating inter partes review was for nothing.

Mr. Castanias in his rebuttal answered with "three specific responses to points made by my friend and then four broader points" (the efficiency with which he accomplished his objective caused the Chief to state at his argument's conclusion that "I thought you were being overly ambitious when you said you'd get to four points in rebuttal, but thank you, counsel" to laughter in the courtroom), addressing issues of scope, the requirements for means-plus-function claiming, the Board's purpose in rendering decisions to educate the public on the process, and Justice Breyer's speculation on the meaning of the word "any" in the statute.  He also answered a question from Justice Sotomayor on the status of claims where the parties "settled" during the IPR, and a question from Justice Kagan regarding the statute's commandments prohibiting partial institution, saying clearly that "the Board has already [been] given the discretion whether to institute.  The discretion whether to institute does not hide inside it a secret second level of discretion to decide to institute anything other than the petition."

By Andrew Williams —

Leading up to the Supreme Court oral argument for Oil States Energy Services, LLC. v. Greene's Energy Group, LLC on November 27, 2017, there was a lot of discussion regarding whether patents were a private or public right.  Of course, that question is relevant to whether the Patent Office as an administrative agency can be given the authority to cancel a patent after it has issued, or whether the Constitution requires that the validity of an issued patent be determined by an Article III court.  If patents are indeed private rights, then IPRs and related proceedings are likely unconstitutional grants of authority to the executive branch from Congress.  As we had been reporting for the weeks leading up to the argument, the arguments that patents are private rights appear to be grounded in what the Supreme Court said in the 1898 case McCormick Harvesting Machine v. Aultman, 169 U.S. 606 (1898).  We presented an analysis of that case and concluded that the language in McCormick Harvesting can be used to support both interpretations, whether alleging that the case refines the Constitutional limits of Congress with regard to issued patent rights, or whether alleging that McCormick Harvesting rests solely on the lack of statutory authority at the time.  That post generated a lot of debate, with many well-reasoned (and much appreciated) viewpoints.  Did the Justices see McCormick Harvesting to be as clear-cut as some of the comments to our post suggested it was?  Justice Gorsuch certainly thought that McCormick Harvesting already settled the issue.  But many of the other Justices that asked questions on this topic did not seem to share this view.  If the questions that the Justices asked are any indication, it seems unlikely that a majority will find IPR proceedings per se unconstitutional.  Instead, if the Supreme Court finds any fault with the current system, it will likely base that on due process considerations.

The position of Justice Gorsuch seemed clear from his questions.  In his first statement on the issue, addressed to Allyson N. Ho, counsel for petitioner, Justice Gorsuch indicated that he believed this issue had already been addressed by McCormick Harvesting and related cases:

JUSTICE GORSUCH:  Ms. — Ms. Ho, we have a number of cases that have arguably addressed this issue already, like McCormick, for example, in which this Court said 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.  We have cases — and American Bell is another one.  We have that wonderful quote from Justice Story indicating that any correction to a patent has to go to a court.

Justice Gorsuch then appeared to deride the position of the United States by stating:  "The United States takes the position, as I understand it, that some of those decisions are purely statutory interpretation."  Interestingly, Petitioner, while arguing that McCormick Harvesting was decided on constitutional grounds, did not rest its case solely on the private-right notion that a grant of authority to the Patent Office to cancel an issued patent would always be unconstitutional.  This did not appear to sit well with Justice Gorsuch:

JUSTICE GORSUCH:  Why not — why not, though, Ms. Ho, just simply say the question is whether there's a private right involved?  In answering Justice Kagan's questions and Justice Breyer's questions, you struggled with how much of an adjudication does an inquisitorial process have to have before it becomes an adjudication.  Why does that matter at all?

If — if you really want to stake your ground and think McCormick's right, why not just say any time a private right is taken by anyone, it has to be through an Article III forum?

Of course, Petitioner likely took the more moderate position because such a stance will likely be necessary for Oil States to convince enough of the Justice to decide the case in its favor.  In other words, it would be surprising if Justice Gorsuch does not side for Petitioner in this case, but whether he will be writing a concurrence or a dissent will likely turn on whether enough Justices believe that there are due process concerns with the current state of IPR proceedings.  The problem that Petitioner found itself in, as referenced by Justice Gorsuch, is that it took the position that ex parte reexaminations are constitutional, but that IPRs are not.  Justice Kagan took great interest in this distinction:

JUSTICE KAGAN:  Can — can I take you back to this question of where you would draw the line -­

HO:  Yes.

JUSTICE KAGAN:  — between ex parte and inter partes reexamination on the one hand and this?  Because, as I understand what you would permit, those proceedings too can be initiated by a third party — you know, can be at the request of a third party, and — and those — in those proceedings too, the third party can participate in some way, can file a reply to the patentee's statement, can make known its views.

So what's the line?  Where would you — what are the procedures that are here that you think make this essentially adjudicatory that are not in those other proceedings?

In an effort to draw more support, Petitioner may have created a distinction to which no real difference is found.  Ms. Ho responded to Justice Kagan's questioning by stating:  "Yes.  I think — I think certainly the existence of — of discovery, of a hearing, all of these things show that what you have here is — is trial — is trial-like."  Unless Justice Kagan finds this response satisfactory, she may find that Petitioner's entire argument has essentially unraveled.

Justice Ginsburg also noted the concession by Petitioner, but was clearly in support of it:

JUSTICE GINSBURG:  I think Ms. Ho conceded that there can be an examination -­ reexamination.  Some of the questions raised in the last few minutes suggest that no — no reexamination, it's a private right, it can't be taken away.

But Ms. Ho, I think, wisely, recognized that the reexamination procedure between the government is okay.  But — but the problem here is it looks too much like a court proceeding.

Christopher M. Kise, counsel for Respondent, responded to Justice Ginsberg's observation by agreeing that the issue had already been conceded by Petitioner, turning this into a process question, not a power issue:

KISE:  May I respond, Mr. Chief Justice?

Justice Ginsburg, what you're hearing from the Petitioner is a process versus power argument.  The quarrel is with the process.  The Petitioner has conceded that the power exists, the power of revocation, even though there are — there are citations in the brief that — that make that argument seem — their argument inconsistent, this is a process versus power argument.

With regard to the questioning from Justice Sotomayor, she appeared to agree with Justice Gorsuch that the private-right argument should foreclose the constitutionality of any post-issuance "correction" procedure at the Patent Office:

JUSTICE SOTOMAYOR:  If this is a private right, as you claim, what does it matter in terms of whether the process is adjudicatory or not?

If I own something, which is what your basic position, I understand, is, that this is a personal right, how can a government agency take that right away without due process of law at all?  Isn't that the whole idea of Article III, that only a court can adjudicate that issue?

Nevertheless, Justice Sotomayor did not think that the holding in McCormick Harvesting was so clearly constitutional.

JUSTICE SOTOMAYOR:  Ms. Ho, I'm sorry, I thought in McCormick, that — why did the Court even bother looking at the statute?  What it did, I understood, was look at the statute and say the statute basically defines the issue of a new patent being issued as one — before the old patent expires.

And so they were really doing a statutory analysis of whether or not, by that process, the old patent was expired, and they were saying, no, if you want it to expire now, you have to go to court, because there's no statutory authority for doing it currently.

So I'm not quite sure how — how you get to the constitutional holding.

As previously suggested, based on the questioning and statements of the Justices (including those provided above), this case will likely not turn on the public versus private right issue, but rather whether there is a due process concern with the current framework for IPR proceedings.  We will address that line of questioning from the Justices in an upcoming post.