Courthouse Steps: Oil States Energy Services v. Greene's Energy Group Decided

Intellectual Property Practice Group and Regulatory Transparency Project Teleforum

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Under what circumstances may patents be revoked or modified? What process is due?  The questions animating Oil States Energy Services v. Greene’s Energy Group have been answered.  The Supreme Court Opinion that came down today 7-2 affirms the constitutionality of the jurisdiction of the Patent Trial & Appeal Board,  a non-Article III forum without a jury. 

Featuring:

Prof. Adam Mossoff, Founder, Director of Academic Programs & Senior Scholar, Center for the Protection of Intellectual Property and Professor of Law, Antonin Scalia Law School, George Mason University

Brian Pandya, Partner, Wiley Rein LLP

 

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Event Transcript

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Intellectual Property Practice Group, was recorded on Tuesday, April 24, 2018, during a live teleforum conference call held exclusively for Federalist Society members.

 

Wesley Hodges:  Welcome to The Federalist Society's teleforum conference call. This afternoon we are hosting a Courthouse Steps decision discussion on Oil States following the Supreme Court's decision earlier today. My name is Wesley Hodges, and I'm the Associate Director of Practice Groups at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today's call.

 

      Today we are fortunate to have with us Professor Adam Mossoff who is the Founder and Director of Academic Programs & Senior Scholar at the Center for the Protection of Intellectual Property and Professor of Law at the Antonin Scalia Law School at George Mason University. With us is also Brian Pandya who is a partner at Wiley Rein law firm. After hearing from our speakers today, we will move to an audience Q&A. Thank you for speaking with us. Brian, the floor is yours to begin.

 

Brian Pandya:  Thank you, Wesley. And Adam, thanks for joining us on short notice. And thanks to everyone that has dialed in to talk about this interesting case today. And my name is Brian Pandya. I am a Partner at Wiley Rein in Washington D.C. where my practice focuses on patent litigation.

 

      So the case we're talking about today is Oil States Energy Services v. Greene's Energy Group, and this case dealt with the constitutionality of inter partes review. Now, for the people on the call who are not patent lawyers or who aren't in the IP space, inter partes review is a procedure that was created in 2012 by the America Invents Act that gave a body called the Patent Trial and Appeal Board the authority to hear and receive petitions that were filed by private parties challenging whether a patent was properly granted or not. The PTAB would form panels of three administrative patent judges, and if the APJs said there was a question of patentability that was raised by the petition, then they would institute an inter partes review, and they would call the proceeding a trial where certain evidence could be taken, arguments would be submitted, and then after an oral argument, the PTAB would decide whether to cancel claims or to confirm their patentability.

 

      This case was interesting because, like most IPR, or like most petitions for inter partes review, this case, the IPR arose in parallel to district court litigation between two parties, here, Oil States and Greene's Energy Group. And what was interesting was that in the district court litigation, the court construed the claims—that is that the district court said the claims had a certain meaning that was narrow—and that precluded certain invalidity defenses from being asserted in the district court. On the other hand, the PTAB, which takes the broadest reasonable interpretation of claims, said that under this interpretation, the patent claims were held invalid or unpatentable, as the Patent Office said. Oil States petitioned to the -- they appealed to the federal circuit. The federal circuit affirmed the PTAB. Oil States then petitioned to the Supreme Court challenging the outcome of this case, but also arguing that the Patent Trial and Appeal Board is unconstitutional because it takes away property rights; here, patents without an Article III tribunal making the decision. And secondly, it violates the Seventh Amendment right to a jury trial.

 

      Now a couple of interesting things in this case -- one of the key issues in this case was whether a patent is a piece of private property like land, like your automobile, like any other real property that you own, or whether a patent is a public right like a taxicab medallion or a public franchise. And the analogies that were given in a decision related to toll roads, to bridges, to other franchises or rights given by the government or a private party for some ostensibly public purpose. And that was one of the main decision points in the case because if a patent was found to be a private right, then it would almost certainly follow that the PTAB was an unconstitutional encroachment on Article III and on the Seventh Amendment right to a jury trial. But as the Supreme Court found in the majority decision, which I'm going to talk about in a minute, that a patent is a public right, it's a grant of a public franchise, then it seemed to follow that the PTAB was okay, just as other agencies resolving disputes are able to do.

 

      So a couple things about this case -- in the majority decision, which was a 7-2 decision. It was Justice Thomas who authored the decision. He was joined by Justices Breyer, Ginsburg, Kennedy, Alito, Sotomayor, and Kagan. Justices Gorsuch and the Chief Justice Roberts dissented. The Supreme Court first found that a patent was, in fact, a public right, not private property. The Supreme Court said was that because the grant of a patent arises between the government and persons subject to its authority, it's a public right. The decision to grant a patent is a matter involving public rights, specifically the grant of a public franchise.

 

      So that was the first decision or the first issue that the Supreme Court decided. And a couple of reasons that it gave for finding that a patent was a public right rather than private property -- first, the equivalent is akin to a franchise. It's like granting or giving a right to build a toll road or right to build a bridge. Secondly, the majority said that the right to patent did not exist in the common law. The right to a patent is created by Article I, Section 8 of the Constitution. And then, on that point, granting a patent is a constitutional function that does not involve the judiciary. Congress is authorized under Article I to grant patents. The Patent Office, or some other part of the Department of Commerce or the executive branch, has historically, since the founding of the country, been authorized to grant patents.

 

      The next argument, or the next issue that the Supreme Court resolved was that it does not matter that an IPR happens after the grant of a patent because the grant of a patent is, at least since 2012, subject to review by the Patent Trial and Appeal Board. So just as the Patent Office can grant a patent, the Patent Office can take a patent away from a patent owner if the patent is invalid as anticipated or obvious in the context of an IPR, or on other grounds in some of the other post-grant mechanisms. The Supreme Court also said that a patent can confer only the right that the statute proscribes because it's a public franchise, so the fact that the Patent Office is giving the right to exclude means they can take the right away.

 

      The last interesting thing about the case was that there was a lot of discussion in the majority opinion, especially in Justice Gorsuch's and the Chief Justice's dissent, about this body in the 17th Century England called the Privy Council. And there was some discussion about what patent rights existed in England before the formation of the United States, before the Revolution. And the petitioner here, Oil States, argued that -- acknowledged that while there was a Privy Council which was formed by the King or Queen of England and had the right to revoke patents, their argument was that by 1787, the Privy Council had no longer existed or was largely out of commission in disputes over patents, which involved disputed facts, were resolved in courts, not by the Privy Council.

 

      The majority opinion, and I think some amici raised this point, that there were a handful of Privy Council determinations, and the Privy Council worked in parallel, or complemented some of the courts. So the conclusion they reached was that there was no common law right to a patent. There was no common law expectation that only a court could revoke a patent.

 

      Now, some things about this case -- I attended oral argument back in November, and I was, frankly, a bit surprised this was a 7-2 decision, and Adam's going to talk a bit more about that in a minute. But I felt when I was at argument, there were at least five Justices who expressed concern about the PTAB -- Justice Gorsuch, Chief Justice Roberts, Justice Alito, Justice Kennedy, and Justice Breyer. They raised -- now, my opinion was that it was not going to be -- they weren't going to find five votes to find the PTAB unconstitutional, but I thought this was going to be a 5-4, maybe 6-3 decision upholding the constitutionality of the PTAB. But I thought there was some surprise that this was a 7-2 decision.

 

      Second related point -- when I thought this case was going to be a bit like the Cuozzo case a couple years ago dealing with broadest possible reasonable interpretation of the PTAB, reviewability of the PTAB, institution decisions, and most of us patent lawyers looked at that case as a patent law case. How should claims be construed? But the Supreme Court summarily disposed of that case, or a 7-2 decision, but it really wasn't that close of a case, looked at that as an administrative law case, and so I thought this would also be seen as an administrative law case.

 

      And when you look at cases like FCC v. Arlington where the Chief Justice, and Justice Alito, and Justice Kennedy raised concerns about certain administrative judges making decisions, I thought that 6-3 was the baseline. So the fact that it was a 7-2 decision and really seen as more of a patent law case than an administrative law case was surprising, both from the tenor of the oral argument and from some of the earlier cases.

 

      But, again, we can talk a lot about the case. I'll turn it over to Adam who has a few thoughts on this case and some of the decisions that were cited in support of this decision.

 

Prof. Adam Mossoff:  Thank you, Brian. It's a pleasure to be speaking today about the decision that was just handed down this morning, hot off the digital presses for many of us in our offices, in the Oil States v. Greene's Energy case. As a general matter, it's a very surprising decision, if only for the very first time the Supreme Court has held now that, as Brian has explained, that patents for new inventions are public regulatory grants on par with monopoly grants for bridges or toll roads. So the inventor who toils away on an invention, or the company who spends billions of dollars on R&D in creating the next new radical technology like 5G or the next new pharmaceutical miracle, is being told that the fruits of their labors are being secured to them not as the property rights that had long been secured under Supreme Court precedent reaching back over 200 years, like all property rights, and homes, farms, and animals, and other things. But that, no, this is on par with the royal privileges that were granted by kings or queens in England and thus, what the government giveth, the government can taketh away, which is pretty much exactly what Justice Thomas in his majority opinion says.

 

      I wasn't surprised by the split nature of the decision as Brian described it. I had been paying attention to the Supreme Court's extensive amount of activity in the patent system of the past five to ten years where it's ruling on cases at a rate that we really haven't seen since probably the 19th Century. And we have to also remember that was a time when the Supreme Court didn't have control over its docket, so there was no writ of certiorari, so it had to hear appeals. So that's why it was hearing so many cases at that time.

 

      And one of the reasons why the Supreme Court's been hearing the cases at this rate is because they really have been caught up in, for lack of a better term, what is a moral panic in Washington D.C. that's been driven by millions of dollars in lobbying and extensive activism by organizations that have been pushing both the regulatory agencies, have been lobbying Congress, as well as engaging in extensive strategic litigation campaigns, to convey the point that the patent system is broken. And we all know this because of the epithets that have now become common currency, like patent troll, and other terms.

 

      And so the Supreme Court, not immune to these activities, and they read in newspapers, and they live in D.C., and they hear all of this, so they've shown that they've been caught up. And as Justice Scalia, for instance, in one of his last opinions on the term in which he served in the Supreme Court, actually was one of the first Justices to actually use the phrase "patent troll" in an opinion.

 

      So I always was of the belief that if they viewed this as a patent case, that they would rule in favor of the PTAB, that they would agree with the arguments that the patent system has problems, that there are so-called low equality patents that are being issued, although that's largely an empirically unproven claim that's more rhetoric than actual data driven. And that they would, therefore, find that this is just a patent system quirk where the Patent Office issues patents, and they sometimes make mistakes, and therefore, they have to be given the power to correct it.

 

      I was of the view that if they viewed this as an administrative state issue, if they viewed this as the growing regulatory overreach by the administrative state that we have seen over the past 10, 20, 30 years as the administrative state just reaches in to every aspect of our lives and weakens all of the constitutional protections provided to U.S. citizens through the separation of powers, through the substantive protections of our right to life, liberty, and property, and other matters, that this would be a much closer call. And it would be harder to decide, and maybe it might have been a 5-4 decision, very difficult to decide which way they went, but I'm actually on record saying that if they viewed this as a patent case, that they would likely be a 7-2 decision at most, or a 6-3 decision if being optimistic. And unfortunately, my realistic prediction came true with the 7-2 decision with Justice Gorsuch and Chief Justice Roberts joining him in dissent.

 

      As I mentioned, it is the first time that the Supreme Court has held as a broad matter that patents are kind of public regulatory grants, what are called public rights, and that they're on par with monopoly grants for bridges or toll roads. There're decisions by people like Chief Justice Taney in the 19th Century who through dictum said things that are similar, but those are largely dictum. What drove the majority of the Supreme Court's decisions in this area, and what drove legislation in this area, was the view that patents, in fact, were not public grants, similar to the royal privileges bestowed upon English subjects by the Crown. But, like all other aspects in which the United States broke with England, that we secured patents, in fact, as private property rights.

 

      And thus, in the 19th Century, they were provided substantive protections under the Takings Clause and the Due Process Clause, and many cannons of construction, including very liberal cannons of construing them in favor of patent owners, were applied, adopted from the cannons of construction for title deeds. They were analogized to and had similar protections afforded under trespass doctrine. And most importantly, like all private property rights, they were secured in their commercialization through assignment and license in the marketplace. And that actually was essential, as economic historians like Zorina Kahn and many others have explained, to the explosion in economic activity in the United States that we now identify as the Industrial Revolution, and which we refer today, 200 years later, as our growing innovation economy.

 

      And all of this now is called into question by this opinion that was just handed down because it makes it very clear that patents are not vested private property rights secured to innovators, securing to them the fruits of their labors, as Justice Gorsuch referred to in his dissenting opinion, but instead, that these are monopoly grants, as Brian said, similar to bridges and toll roads and other types of franchise grants that can be conditioned, changed, revoked, repealed, and what not, as they are. And that these thus become administrative placings in our contemporary administrative state where they will now suffer to the vicissitudes of the various forces that are brought upon the administrative state by various interest groups.

 

      And that's what we will probably see happen is that we will have a further weakening of the foundation of our innovation economy because patents, as I mentioned, had been historically protected in this country as private property rights. And thus, they served a very important role, just like all property rights, providing a stable and effective foundation by which inventors, venture capitalists, and companies created the new products and services that have driven our innovation economy from the 19th Century up till today. And all this will start to be called into question as we see the creeping, growing administrative state now kind of go into the patent system, and these become similar to taxi medallions and other things that become just the mere playthings, as public choice theory tells us, of politically powerful interest groups and economically powerful interest groups that vie for them instead of securing new innovation.

 

      So that's my kind of opening remarks and my view on this matter. As you can tell, I'm not particularly pleased with the decision. I was hopeful that they would recognize that the PTAB was, if anything, a bridge too far in the administrative state that Congress had created, kind of an administrative monstrosity that was violating the rights of patent owners through extensive examples of violations of their due process rights and their substantive rights, as referenced in the dissenting opinion by Justice Gorsuch. But they did not, and I think that we will unfortunately be living with the consequences of the decision for many years to come.

 

Brian Pandya:  If I can answer some of those, or chime in on some of those comments -- on the point of what's going to happen in the future, there were a couple of sentences that particularly intrigued me. Take a look at the bottom of page 16 of the slip opinion, and I'll read these sentences. "Moreover, we address only the precise constitutional challenges that Oil States raised here. Oil States does not challenge the retroactive application of inter partes review, even though that procedure was not in place when its patents issued. Nor has Oil States raised a due process challenge. Finally, our decision should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause."

 

      So I think those are -- when you look at the some of the arguments that were raised in the briefs, the points that are raised by amici, how the oral argument played out, what some of the broader discussion has been happening in both private practice and in the academy, I think what the Supreme Court is saying here is that there are some challenges to the PTAB, but there are some questions that'll need to be raised.

 

      One of the more memorable exchanges at oral argument came back in November, and this was right after there had been some news stories, and I don't know whether these stories are true, but this is -- the allegations were that there was some panel stacking going on at the PTAB where the Director or the Chief Judge of the PTAB changed the constitutional panels or added two judges to turn a 2-1 decision in one direction into a 3-2 decision in another direction. And again, those are the allegations. I'm just reporting what people alleged. And when some of the Justices heard that, there seemed to be a bit of shock and concern, but I think the references to due process challenges suggest that if that continues, and if those allegations are substantiated, there could be challenges to the PTAB on those grounds.

 

      The question of retroactive application -- I know that was one thing that I mentioned Justice Breyer was one of the Justices troubled by the PTAB. And he raised the hypothetical, and I think he was talking about, I mean, he was presumably talking about a pharmaceutical product, but I suppose you could extend the hypothetical to any product that's protected by patent, that if you invest 10 years in the patent and building up your product, is it fair to have an IPR filed 10 years later? Justice Kennedy also raised the point that while it may be true that for patents granted after 2012, there's an expectation that you can be subject to inter partes review if a petition is filed and it's shown there's a question of patentability for earlier patents, is that fair?

 

       So I think that whether this gets back up to the Supreme Court, but I think there will be more litigation at the federal circuit, at least, over -- this seems to be an invitation to challenge, to bring another challenge to the PTAB for patents that were filed before 2012. And if there are more panel stacking allegations, which again, I'm uncomfortable repeating the allegations without knowing the facts, but certainly the allegations are out there. If those allegations are proven true, I think that could be another ripe area. So I think you're being a little bit too pessimistic --

 

Prof. Adam Mossoff:  -- Well, I mean, Brian, you're --

 

Brian Pandya:  -- Yeah, they're well known, but --

 

Prof. Adam Mossoff:  Yeah. Well, Brian, look, you're certainly right that there's going to be ongoing litigation. In fact, I was saying this in 2011 when I was on the Hill giving -- doing briefings for staffers about the AIA. I was opposed to the AIA, and I was telling them that the only people who are going to win under the AIA are the lawyers because this is going to lead to massive litigation. I mean, we've already seen three Supreme Court decisions under the AIA and what Oil States clearly conveys to us is we're going to see at least several more. And this doesn't count the Supreme Court decisions. That's just the tip of the iceberg. We already know that there's thousands of decisions before the federal circuit out of the PTAB, and there's thousands of cases at the PTAB.

 

      So this is just, yeah -- this is not a good situation for innovators and for inventors. It is exactly what Director Iancu has been talking about when he's saying that we no longer have reliable patent rights to serve as the foundation for inventors to be incentivized to come up with their invention, and then for companies to take those inventions, secure it under property rights, patents, and take them into the marketplace. But I'm less sanguine about what's going to happen going forward because there is 200 years of precedent on what it means to classify something as a franchise grant or as a public right.

 

      This goes all the way back to Chief Justice Taney's decision in Charles River Bridge in the 1830s which was on the specific question of whether a bridge owner -- and by the way, this is what's significant about Justice Thomas's comparison of patent owners to recipients of bridge franchises because the very first Supreme Court case on this issue was on the issue of whether people who receive a bridge franchise can apply for protections under both the Due Process or the Takings Clauses of the Constitution. And Chief Justice Taney said absolutely not, that these are franchise grants, these are public regulatory grants that are not common law rights, and therefore, they are abridgements of common law rights and are to be construed very narrowly against the grantee, in favor of the public. And so we're just going to see a repeat of these same types of arguments, and Justice Thomas's own words are going to be used against him when these issues come before, again, come before the Court.

 

      And by the way, Brian, you're exactly right. You have ongoing panel stacking. It occurred in the Erickson case at the PTAB. It occurred in the Mohawk Indian case. There are obvious and real concerns, due process concerns, about the operations at the PTAB. Unfortunately, that was not the question before the Court. The question before the Court was is this a Seventh Amendment violation along with a violation of the separation of powers? And so they couldn't reach those issues. And that's why the expressions of concern about that during oral argument didn't really give an indication of which way the Court Justices were going to rule because that was not the legal question before them.

 

      But unfortunately, this decision that we now have in Oil States really boxes in the Justices who might be more inclined to find those to be violations when their own language is repeated back to them about how these are franchise grants, and franchise grants do not receive typical protections under the Due Process Clause or Takings Clause of the Constitution.

 

Brian Pandya:  I want to -- there was another interesting sentence in the decision. It came on page 9 of the slip opinion, and it was that the primary distinction between the setup this is -- the majority made the observation that "the primary distinction between inter partes review and the initial grant of a patent is that inter partes review occurs after the patent has issued. But that distinction does not make a difference here." And here is the interesting sentence. Here's what they said. "Patent claims are granted subject to the qualification that the PTO has," quote, "'the authority to reexamine—and perhaps cancel—a patent claim,'" unquote, "in an inter partes review." And they're quoting the Cuozzo decision from two years ago. Then they go on to conclude, "Patents thus remain 'subject to [the Board's] authority' to cancel outside of an Article III court."

 

      So I think that, as I mentioned earlier, the fact that the majority found the patent to be a public right versus private property was significant. And once that decision was made, or once that viewpoint was accepted, the rest of the decision was, in many ways, predetermined. My reading of the majority's decision is that because there is a statute that says the PTO can grant a patent and can take it away, that's a condition of taking a patent. That's really the central issue here. So that's …

 

Prof. Adam Mossoff:  Well, that's why I said in my opening remarks the outcome of this case was determined by how the Justices viewed the case. If they viewed it as a patent case, they were going to uphold the PTAB. Because of their views as expressed in Cuozzo too, the patent system has problems and so, obviously, the Patent Office has the powers to fix those problems as the agency that grants patents.

 

      Or if they had viewed this as an administrative law case, as a case of the overreach of the regulatory state that has been incurring with increasing commonality in our lives over the past 10 or 15 years, as I've been mentioning, if going back longer, then it would have become a broader issue and address a lot of the issues that are mentioned by Justice Gorsuch -- that we have separation of powers; we have due process protections; we have these types of protections, not because they're efficient, but because they secure people's liberty and rights. And that's a foundational principle, and we need to start kind of facing that principle, I believe, much more squarely. And we are going to have to face that principle much more squarely now that patents have been placed squarely on the side of the administrative state.

 

Brian Pandya:  And I will say I am genuinely surprised that they viewed this case as a patent law case rather than as an administrative law case. I'm on record as saying -- I've spoken at conferences including last year at the East Texas Bench and Bar Conference when I said I thought this case was a stalking horse for FCC v. Arlington as an administrative law case. And when, at least -- I saw Cuozzo as an administrative law case, not as a patent law case, or at least the interesting patent law issues did not get a lot of play in that case.

 

      And so I thought that, again, that's why I thought that this would be a -- well, I never thought that the Supreme Court would find the PTAB unconstitutional for a variety of reasons I can talk about. I was surprised -- was also not expecting a 7-2 decision. I thought this would be 6-3, which was FCC v. Arlington, or maybe 5-4 with Justice Gorsuch replacing Justice Scalia. So that was -- I was surprised that this was, as you said, Adam, a patent law case, not an administrative law case.

 

Prof. Adam Mossoff:  Yeah. Maybe -- Brian, I don't know if we have anything else to talk between ourselves, but it'd be maybe interesting to hear -- take some questions from the audience.

 

Wesley Hodges:  Sounds good. Let's go ahead and open the floor to questions then. Looks like we do have now two questions waiting in the queue. Let's go ahead and turn to our first caller.

 

Nathan Lowenstein:  Hi. My name is Nathan Lowenstein. And I'm actually a PTAB litigator, and so I've followed these cases with some interest. And I got on the call a bit late. I apologize if this is off topic, but as of when I joined, I didn't hear you guys talk about the SAS Institute case which, from my parochial perspective, is more significant of today's rulings. I was wondering if you had a chance to look at it, and if so, what your thoughts were.

 

Brian Pandya:  Well, I took a quick look at the case, and if I can make a plug, The Federalist Society is going to do a teleforum on that case, I believe, next week, so stay tuned and log in for that. But I thought that SAS actually was a surprising case, and from a practical standpoint, from my -- I also do some work at the PTAB, as well as in district courts and the federal circuit. I thought SAS was quite a significant case. I mean, if you have a petition for inter partes review that's granted on the basis of one claim being -- having a question of patentability but now all the claims, including your petition, are going to be reviewed, I think there's a possibility, I mean, one of the things you think about is do these claims come out as patentable? You don't know where the board stands on the claims that they don't review and that their institution decision. So I do think that was an interesting decision and a surprising case.

 

      And again, you never, ever want to look too much into what happens at oral argument. But these two cases were argued on the same day, the Monday after Thanksgiving back in November, and in Oil States was just buzzing with energy and discussion. And the oral argument at SAS was almost the Justices were looking at their watches and arguing about over what any means and differences between Section 314 and 318. And to have a 5-4 decision, which I'm still studying more carefully, but it was definitely a surprising decision. And I think, from a client counseling standpoint, it'll be something that we'll have to look at closely.

 

Wesley Hodges:  Thank you for your question, caller. Adam, do you have any thoughts on the case?

 

Prof. Adam Mossoff:  I must confess, I haven't had a chance to read SAS yet given the issues with Oil States, of which I have been directly implicated in my research and scholarship, and I filed an amicus brief in the Oil States case. But I actually will be calling in to listen to the SAS teleforum next week on it because it's a very, as Brian just said, it's a very important case, especially now that we are moving forward with the PTAB as it has been operating up until now.

 

Wesley Hodges:  Thank you. It looks like we do have one more question in the queue. If anyone would like to join the queue, just enter the star key and then the pound key. Let's go ahead and move to our second caller.

 

Rob Randall:  Hi. This is Rob Randall. I'm a patent litigator. I also filed an amicus brief in the Oil States case. And Adam, like you, I'm very disappointed. And I guess the question I have is if Director Iancu is successful in the reforms that he wants to implement at the PTO, at least it appears that he wants to implement, is that our only hope at this point to strengthen the patent system, and specifically the differences between the proceedings in an IPR versus Article III district court with respect to claim construction and presumptions?

 

Prof. Adam Mossoff:  That is a great question. And I'll take the first stab at it, Brian, if you don't mind, since you answered the SAS question very well. And as a preliminary matter, it's important to recognize that now that the PTAB has been upheld as constitutional and that patents have been defined as public rights by the Supreme Court, which will largely cabin in the scope and ability to continue to challenge the PTAB. On a going forward basis, if you see takings claims or due process claims, they, at best, will have to be framed as applied challenges as opposed to facial challenges because, as the Court held in Oil States, it's completely within the purview of the Patent Office and the administrative agency that it represents to create this type of tribunal and to create these types of rules.

 

      And so we're going to see a shift now in the debate to Congress, which actually a lot of the kind of legislative activity that wanted seen in the patent space over the past several years, they hadn't produced much bills, but there was a lot of lobbying and there was a lot of effort to pass bills that had been kind of held in abeyance while everyone was waiting for the Oil States decision to come down. And now that it has, we're going to see, I think, a renewed focus back on Congress to fix the PTAB. We're stuck with the PTAB now. I mean, ideally, it would have been held unconstitutional. The Court didn't have to worry about invalidating other agencies and things of that sort because the PTAB really has unique structures to it that other regulatory bodies don't have.

 

      But we're now going to face kind of a debate over how to reform this, how to stop the panel stacking, how to stop the abuse of due process rights in terms of separating the decision to institute a PTAB decision from the people who actually then hear the administrative law hearing as to the validity of the patent. The ability to actually allow the statutory right to amend a patent to actually be put into effect, given the almost universal denials of motions to amend by the PTAB up to the state. And in fact, there's now legislation that's been introduced in both the Senate and the House called the Stronger Patent Act, which specifically is directed to these issues, and I fully expect that there will be some renewed energy about this.

 

      The Stronger Patent Act actually addresses a lot of the concerns that were raised in the oral argument, and they address a lot of the concerns that have been raised by Director Iancu. Now, Director Iancu has indicated that he understands these concerns, and it's a relief, finally, to hear the Director of the Patent Office recognizing and acknowledging that there are real concerns with how the PTAB has been operating in that these concerns actually redound with negative effects upon on inventors and innovation economy, and that they need to be addressed.

 

      But the problem is that we could have a new administration with a new Director of the Patent Office appointed in four years, eight years, twelve years, and we could go back to the original administration that we'd had before Director Iancu where you had, essentially, an administrative tribunal running riot over the substantive procedural rights of patent owners. And so if we are going to better secure the foundations of our innovation economy, we really need to make sure that these rights are secured and that they're baked into the PTAB. So I fully support Director Iancu actually making administrative law changes and issuing new rules at the Patent Office to bring the PTAB in line with the typical protections that all property owners are expected to receive in adjudication of their rights.

 

      But I think that we should talk more directly about the need to, actually, for Congress to amend the Patent Act to provide for these types of protections and bake them into the very structure of the PTAB, as well as addressing other concerns like the recent bad decisions by the Supreme Court on patentable subject matter under 101 and reestablishing injunctive rights.

 

Rob Randall:  I agree, agree, and agree. Thank you.

 

Wesley Hodges:  Thank you so much, caller. We have another question in the queue. If you'd like to join, just enter the star key then the pound key on your phone.

 

Steve Meyer:  Hi, this is Steve Meyer. I'm a litigator in the IPR process, and in fact, I was lead counsel in the Nidec v. Broad Ocean case, which is cited in Gorsuch's dissenting opinion on the issue of panel stacking. And it seemed -- in my case, there was an allegation of panel stacking, but there was no evidence of panel stacking, but it seemed like it was taken as a given. In that case, there was a 2-1 decision against us in the institution decision with respect to one of the grounds. One of the grounds were granted; the other one was not. And then we filed, within one month, another petition that corrected the reason why the ground was denied, and we moved to join. And then we lost on that 2-1 on the issue of joinder, whether we could join ourselves. And it was contrary to the target case, so then we moved for an expanded panel and relied upon the target case. It was then two new judges were added, and it went from 2-1 against me to 2-1 in my favor.

 

      So there was then the allegation of panel stacking, but there was no evidence of panel stacking in that particular case, none whatsoever. So it seems that whenever there's a request for rehearing, given the odds of prevailing before the same panel, you try to come up with grounds for an expanded panel, and if you get that, and then the original panel was reversed, you're always going to be subject to allegations of panel stacking, regardless whether there is any evidence in that particular case. And in fact, there is no -- you can't -- the parties would not be able to obtain any evidence to substantiate an allegation of panel stacking because it's internal to the board.

 

      So what would be the cure, then, to get rid of allegations of panel stacking? Get rid of rehearing review on expanded panel? And if that's the case, the odds of prevailing on a request for rehearing are going to be even lower. So what do you propose for, as a solution, for allegations of panel stacking?

 

Brian Pandya:  Well, I think that that's a great question, Steve. And I really appreciate you sharing the background on the Nidec case that you were involved in and, of course, the other things you're doing with the American Bar Association on the PTAB space. Yeah, I think one -- and I hesitate, this isn't -- this is me speaking in a personal capacity, not my firm, not our clients. I mean, one possibility is that—and this has been suggested many times before in different contexts—that the panel that makes the institution decision is a different panel that hears the trial or hears the determination on patentability. And in the same vein, it would make sense, perhaps, to have a different panel hearing a petition for reconsideration rather than an expanded panel.

 

      But if I can circle back to the panel stacking issue, that was one thing that I think kind of came out of the blue in oral argument, and if my recollection of the chronology is right, the briefs were filed in the Oil States case before the so-called panel stacking allegations got in the news. And whatever the facts may be, or whatever the circumstances may be, that sounded unseemly and, I think, upset several Justices, if not all of them. But it was not something that was on a developed record, but, in fact, when Malcom Stewart was questioned about it, the Deputy Solicitor General who was just a fantastic advocate in IP cases, I think he didn't even -- he wasn't even fully aware of the context of those allegations, or what exactly was being alleged.

 

      So my reading of pages 16 and 17 of the majority decision is that if this is an issue, it is something that could be litigated or could be adjudicated in the future, but what exactly is the issue has to be determined in the first place. And as you said, this is a complicated issue, and if you ever want to petition for reconsideration to be granted, you're probably not going to move the initial panel if it's made of three administrative patent judges. Now whether that's best accomplished by an expanded panel, or by a substitute panel, or some combination of the two, I don't know the answer to that question.

 

Prof. Adam Mossoff:  This is -- yeah. Brian, I would say -- but I would reject the factual claim because there is evidence of panel stacking, because it's just -- what you're referring to as creation of expanded panels is panel stacking. And there's substantial -- there has been evidence of that. There's evidence that a panel hands down a decision, three AOJ's hand down a decision, and the chief judge said, "Not acceptable," and added two more and redecided the case. And then they redecided the case, and then it came to same decision. And the Chief Judge of the PTAB said, "Not acceptable," and added two more judges to it until they came out to another decision with seven judges now on it. That is panel stacking.

 

      Now there -- it occurred in Erickson, and then they also preemptively stacked a panel in Mohawk where Chief Judge Ruschke just added more judges even before they had the thing. This is what panel stacking refers to because most -- if you appeal a court opinion to an appellate court, you appear before three judges. And no chief judge of an appellate court anywhere in this country gets to say, "Well, actually, we're going to put four judges on this panel now, or we're going to put five, or you came to a wrong decision so we're just going to add two more judges." I mean, there's a process.

 

      Now, the Chief Judge has said that the reason -- of the PTAB -- the reason why he does this, and Chief Judge Ruschke has written into the regulations of the PTAB his ability to stack panels without notification to the parties, that they need to do this to incur consistency between panel rulings. Well, that's a fine thing to appeal to, if that's actually what they're doing. But you can create processes for doing that, like you can create what they have at appellate court levels, which is en banc rehearing processes and things of that sort. But what is occurring is panel stacking. It's a changing of the panels because they want them to reach a different result than what they originally reached. And there's evidence for that, in fact, substantial evidence of it occurring.

 

Steve Meyer:  Well, in my case, it just was the first time. And as I said, there was no evidence in my case. And it was just simply adding two judges. In fact, the case, the legal issue, there was only one case that supported the 2-1 decision against me, and the vast majority of the cases, all the other cases out there, were in my favor.

 

Prof. Adam Mossoff:  Yeah, so that's the example of what you're saying where they were trying to achieve consistency. But it's wrong to say that there's no evidence of panel stacking. I mean, there is because they're -- but you said more generally. So that's all I'm responding to, and because it is occurring.

 

Steve Meyer:  If you -- in that case, the widely held view was in my favor and against the 2-1 decision. So the odds of picking any judges out of the 100 plus ALJs, you were likely going to get two judges that favored my view and were in favor of flipping the decision. Now, what would you propose, that you then sample the judges to see what their opinion is beforehand?

 

Prof. Adam Mossoff:  No. No. You, you do what -- no, you do --

 

Steve Meyer:  -- If you do that randomly and they decide to flip based upon their own personal views, then the allegation of panel stacking can still be made.

 

Prof. Adam Mossoff:  Yes, because it's not the substantive outcome that matters. It's the fact that it's occurring, which is a fundamental due process problem, fundamental. And as I mentioned, we address this exact concern you talk about in terms of consistency between panels and following past panel decisions already in place. It's called en banc processes, and they could create that at the PTAB if they wanted to. If they -- it's very easy. It's why we have an appellate process in this country. It's why you go from a district court to an appellate court to the Supreme Court. It's why we don't add six more Justices to the Supreme Court if they happen to hand down a decision that contradicts a prior decision.

 

Steve Meyer:  Okay. I was just going to say there's another aspect to the standard operating procedures with respect to rehearing, that usually these requests for rehearing occur at the institution decision level. And if you have an expanded panel, the entire expanded panel stays with the case going forward. You don't go back from a five-judge panel to the original three. You stay with the five. So if you have an en banc case, you then have all 100 plus ALJs on your case, and you would bog everyone down. And --

 

Prof. Adam Mossoff:  -- No, that's -- so there's a much easier solution to this which is that the Director of the Patent Office identifies a set of PTAB ALJs, the Chief Judge, the Assistant Chief Judges, six or seven others, who serve as an en banc panel. That's all you need to do. And they're not -- their composition is not changed based upon the case or the substantive result that you want to receive or anything.

 

      Again, this is basic due process. This is written into the very structure of our government. This is why we broke from England. This is why -- this is the type of stuff that was occurring right at the Star Chamber in the 17th and 18th Centuries which became the synonym for fundamental depravations of basic rights, which is why we were breaking from England. And we're recreating the Star Chamber with these types of processes and these types of behaviors at the PTAB for patent owners. And, in fact, it's even a better comparison because Justice Thomas says in his majority opinion that we're following British practices and that these are just like the royal privilege grants by the Crown, which is exactly what the Star Chamber has viewed itself as enforcing.

 

Steve Meyer:  Also what aggravates me with respect to the citation to my case for panel stacking -- as I mentioned, it turns out that you have the five judges then going forward. And the final written decision on both grounds, it was 5-0 in favor of unpatentability. They were only in disagreement with respect to the legal issue, the construction of the regulation that allowed for joinder within the one month after an institution decision.

 

Brian Pandya:  Well, that’s -- I mean -- and so if I can interject for a second here, I -- this debate is why I think there will be more challenges to the PTAB. There'll be narrower challenges. They won't be broadly questioning constitutionality of the PTAB, whether a patent is a public right or private property, but I do think that if the panel stacking issue is not brought under control, this is ripe ground for other issues.

 

      Now, I know we're almost out of time here. It's 3 o'clock. I did want to ask one other question for Adam and anyone who also wants to chime in from the floor that's still with us. In Sections 1(b) and 1(c) of the opinion, there was the history, talking first about ex parte reexamination, then inter partes reexamination, then, finally, inter partes review. And all three of these procedures were lumped together, and the implication was that if one was okay, all were okay. Now, one of the more interesting things, again, to hold the caveats but not looking into the argument too much, was, and I think the first question asked at oral argument that Justice Ginsburg asked Allyson Ho was, "Is there any error correction mechanism that is acceptable?" And Allyson Ho said that ex parte reexamination would be okay but inter partes review is a bridge too far. So I'm surprised that there wasn't more discussion of the distinction between IPRs, inter partes reexamination, ex parte reexamination.

 

      And Adam, I don't know if you have -- maybe this is just a function of the way the case was framed that they didn't have to make that distinction, but I was a bit surprised that there was no -- that there wasn't more rigorous or substantive discussion of why, just because ex parte reexamination's okay, which I think most people would agree. Inter partes reexamination – I think most people would probably agree that's okay. Inter partes review, I think, raised some questions that were not answered, some challenges that were not answered, and I was a bit disappointed that there wasn't more analysis of that issue.

 

Prof. Adam Mossoff:  Well, we can have someone from the audience answer if they want to. I don't want to dominate the discussion. Wesley, if someone does chime in, will you just let me know? Will you interrupt me, please?

 

Wesley Hodges:  Sure. We do have one question waiting in the queue, but I don't believe it's for this question that's been posed.

 

Brian Pandya: Well, we can ask --

 

Prof. Adam Mossoff:  I prefer to take the question, yeah.

 

Brian Pandya:  Same here.

 

Wesley Hodges:  Okay, great. Let's go ahead and move to this next caller.

 

Nathan Lowenstein:  Yeah, hi. So this is actually a second question from me. This is Nathan Lowenstein again. And Adam, I believe you were giving a very impassioned set of points about the Star Chamber and whatnot, and I just want to push back on that a little bit as a devil's advocate, which is that, in reality, I've litigated probably about 50 of these things, and I've also litigated a lot in district court. And I don't feel that I'm before the Star Chamber very much. I think pairing PTAB decisions with district court decisions in patent matters, I think the PTAB decisions on average are probably better than your average district court decision. I think they're more involved.

 

      And by the way, I represent patent owners in these things, so I'm one of the few litigators representing patent owners who think pretty well of the process overall. And obviously there're decisions that we've had where we disagree with the board, but they tend to be on -- they don't tend to have the flavor of gross injustices. I think there are obviously lots of issues that can be objected to – the fact that requests for reconsideration are basically never granted from the patent owner's perspective, the fact that the discussion that you had with the other gentleman. The most surprising fact to me was that there was a split panel because I think in 80 cases that my firm has handled, we never have had a split panel where everything is unanimous, which raises the question to what extent are the judges really -- are they just pawning it off to one judge, or are they really disagreeing?

 

      But that being said, taking a step back, I do think the quality of decisions is pretty good, and a lot of district court cases don't proceed to juries. They sometimes get knocked out on 101 in the pleading stages, although I think there's been some pushback against that. I just wanted to get your reaction to sort of, at least, my limited perspective of the reality of these proceedings and how they go forward, and whether that affects your view of the broader administrative law issues.

 

Prof. Adam Mossoff:  Yeah. So it's a great question, and the point of this matter is I was making that what -- in the panel stacking, that's what is compared to the Star Chamber because the fact of the matter is the Star Chamber was a prerogative court, and they did a lot of things that were perfectly fine as prerogative courts. And I'm fairly confident, in fact, I'm absolutely 100 percent certain that you will find lawyers who appeared many times before the Star Chamber on many other matters where they said the procedure was fine. They followed the law, they applied it, they were very good judges that I appeared before. That was the same with the Privy Councils and other prerogative courts before the Crown.

 

      And so that's certainly the case. I mean, the PTAB had heard thousands of cases. Clearly not every one of them is going to be rife with injustice. In the same reason that the English government itself – not 1900 percent of everyone of its acts were acts of injustice. In fact, the Declaration of Independence lists a whole series of them, but one of the -- response by people in the Parliament, as well as some moderate -- some people in the United States who were Tories at that time, or the Colonies I should say, were like, "Yeah, but there are other things that the Crown has done that have been fine. They've been good, and they've protected us as loyal subjects."

 

      And so, yes, you haven't experienced injustice in your 50 times that you've appeared, but the problem is that there are injustices, and the injustices are arising out of structural flaws. They're not accidents. There are flaws that are made possible when you don't limit the government, in an agency, or an organization, or an official in their capacity. And that's why we have constitutional limits. I mean, because the fact of the matter is that if you go ask Josh Malone, who has appeared before the PTAB, has he experienced substantial injustice in the invalidation of his very valuable patents by a very deliberate, willful infringer who has abused the system and has destroyed what has been a -- what is a really important new innovation for children around the world, and he has spent millions of dollars having to defend his patent, he'll say, "Yeah, this is, this -- I experienced serious injustice here." And that is the concern, and that's a legitimate concern.

 

      And that's the concern that I hoped the Supreme Court would have taken cognizance of, although it was really -- going back to Brian's question before we asked yours, the problem was is that because the case was coming before the Court as a Seventh Amendment case, the nature of the structure of the arguments that they had to make, it was very binary as to whether the whole thing had to go down or not because ex parte wasn't -- well, there's no jury, either.

 

      And so it was an unfortunate case. It would have been a much, much, much better case if you had a due process, or a straight separation of powers, or a straight takings case had been brought before the Court as the first case to test the constitutionality of the PTAB. It's unfortunate that it was actually a Seventh Amendment case which forced the nature of the arguments into a much more narrow, constrained path that really made it much more difficult for Justices who would normally be inclined to hear and want to take into account the administrative abuses as reflecting a structural flaw with this agency and prevented them from recognizing that.

 

Brian Pandya:  Yeah, and I think that the argument was, in a way, it was underdeveloped here. One of the -- there was an exchange at oral argument, I think it was with Justice Ginsburg asking the question, but the answer -- the question was -- there was a question. Well, isn't ex parte reexam, or even inter partes, the old inter partes reexam, that was involving -- well, there was a petition filed by a third party. That was more or less between the Patent Office, a patent examiner, and a patent holder. So that was pretty similar to patent prosecution, patent application.

 

      Here, you have a patent trial and appeal board, three administrative patent judges, you have a petitioner and a respondent, a challenger and a patent owner. And the answer was given was that the -- here, the petitioner is just standing in the shoes of the patent examiner or the supervisory patent examiner that would have decided an inter partes exam or an ex parte reexam. I thought that was a distinction that wasn't developed and would have been interesting to see where that would have led to the outcome of the case because I do think there are differences between inter partes review and ex parte reexamination, for sure, and even the old inter partes reexam in how the cases proceed. And that those distinctions were glossed over was a bit disappointing, unsatisfying in the outcome of this case.

 

Prof. Adam Mossoff:  Agreed.

 

Wesley Hodges:  Thank you, Adam and Brian. Would either of you like to give any final remarks before we end the call today? Looks like the top of our hour has come upon us.

 

Prof. Adam Mossoff:  I, for one, have spoken too much.

 

Brian Pandya:  I will give one remark, and this is something I've said many times before. I think that the reason we have, if you look what is the common thread of a law, whether it be Section 101 jurisprudence, the creation of the PTAB, some other cases that have pushed back at the problem of bad patents or that have created that tenor is it's the fact that patent litigation is slow, and costly, and time consuming. It's hard to invalidate a patent as being obvious, so the courts and Congress are looking for shortcuts, whether that be Section 101 cases, or whether it be the creation of the PTAB as a way to get to an outcome that, no pun intended, is obvious. But it's hard to accomplish in district court, and I think these are all symptoms of a bigger problem with patent litigation and, frankly, with civil litigation more generally being expensive, and slow, and time consuming, and difficult to get to a decision that, in many cases, should be evident.

 

Wesley Hodges:  Thank you, Brian. So on behalf of The Federalist Society, I'd like to thank our experts today for the benefit of their valuable time and expertise. We welcome all listener feedback by email at info@fedsoc.org. Thank you all for joining us. This call is now adjourned.

 

Operator:  Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.