Opinion analysis: Justices rebuff constitutional attack on administrative re-examination of patents

This morning brought decisions in both of the patent cases argued in November, with the government prevailing on the constitutional question raised in Oil States Energy Services v. Greene’s Energy Group, but losing on the statutory question presented in SAS Institute v. Iancu. Both cases involve the process of inter partes review added to the Patent Act in 2012 as part of the Leahy-Smith America Invents Act. That process authorizes a petition for inter partes review by any competitor that believes that the Patent and Trademark Office erred in issuing a patent on an invention that already existed in prior art. If the PTO determines (in its sole discretion) that the petition has merit, it institutes a trial-like review process that can result, if successful, in amendment or invalidation of the patent, subject to review in the U. S. Court of Appeals for the Federal Circuit.

The question before the justices is whether the adjudication of those petitions by an administrative body (the Patent Trial and Appeal Board) is an exercise of the “judicial power” that under Article III of the Constitution can be exercised only by the federal courts. If it seems fanciful to suppose at this late date that the Constitution could invalidate such a seemingly innocuous administrative process, consider the example of the Bankruptcy Code, provisions of which have been invalidated for intrusions on Article III twice since its initial adoption in 1978.

As it happens, though, inter partes review found a more sympathetic audience than some of Congress’ earlier innovations. Writing for seven of the justices (all but Chief Justice John Roberts and Justice Neil Gorsuch), Justice Clarence Thomas took a straight and simple route to upholding the statute. Sidestepping the longstanding dissatisfaction with the court’s distinction between “public rights” and “private rights,” Thomas set the dispute directly within that framework, which gives Congress “significant latitude to assign adjudication of public rights to entities other than Article III courts.” Quoting the two cases that invalidated provisions of the Bankruptcy Code, Thomas acknowledged that the “Court has not ‘definitively explained’ the distinction between public and private rights,” and that “its precedents applying the public-rights doctrine have ‘not been entirely consistent.’” Still, he says, the framework is adequate for this case because it so clearly involves a public right – “reconsideration of the Government’s decision to grant a public franchise.”

Thomas divides the problem into two steps, first explaining why “the decision to grant a patent is matter involving public rights.” Once he establishes that point, he can argue that, because “[i]nter partes review is simply a reconsideration of that grant, … Congress has permissibly reserved the PTO’s authority to conduct that reconsideration.”

Two key points support the view that patents are matters of purely “public right.” The first is the notion, illustrated by quotations from earlier cases, that the patent is a “creature of statute law” that “take[s] from the public rights of immense value, and bestow[s] them upon the patentee.” The second is that the Constitution explicitly allocates to Congress the power to “promote the Progress of Science and useful Arts” by granting patents; Congress’ decision to authorize the executive branch to grant patents is thus a constitutionally sanctioned delineation of “the executive power,” something which “need not be adjudicated in an Article III court.”

The bigger hurdle is the second step, explaining why the trial-like process in which one competitor persuades the PTO to invalidate a patent is similarly “executive.” On that point, Thomas explains that because its purpose is to ensure that “patent monopolies are kept within their legitimate scope, … inter partes review involves the same interests as the determination to grant a patent in the first instance.” Thomas analogizes the patent to a franchise “to erect a toll bridge” or “to build railroads or telegraph lines,” as to which it has long been held that Congress can “qualify the grant by reserving its authority to revoke or amend the franchise … through legislation or an administrative proceeding.”

Thomas acknowledges a set of 19th-century cases in which the Supreme Court explained not only that “[t]he only authority competent to set a patent aside, or to annul it … is vested in the courts of the United States, and not in the department which issued the patent,” but also that administrative invalidation would “deprive the applicant of his property without due process of law, and would be in fact an invasion of the judicial branch.” Although those quotations might sound pretty persuasive at first reading, Thomas dismisses them as irrelevant in the modern context, “best read as a description of the statutory scheme that existed at that time” and shedding no light on “Congress’ authority under the Constitution to establish a different scheme.”

Given his interest in historical arguments, it will surprise nobody that Thomas gives extended attention to the argument that adjudication of the validity of an issued patent is “judicial” because those disputes ordinarily were resolved by a suit at common law in the English courts of the 18th century. Acknowledging the routine nature of judicial attention to patent litigation, though, “does not establish that patent validity is a matter that, from its nature, must be decided by a court.” The key point for Thomas is that “there was another means of canceling a patent in 18th-century England, which more closely resembles inter partes review: a petition to the Privy Council to vacate a patent.” English patents were subject at the time of the framing to validation by the Privy Council – admittedly a branch of the executive. Thomas therefore argues that “it was well understood at the founding that a patent system could include a practice of granting patents subject to potential cancellation in the executive proceedings of the Privy Council.” Because “nothing in the text or history of the Patent Clause or Article III … suggest[s] that the Framers were not aware of this common practice,” Thomas concludes that the Privy Council practice is enough to validate inter partes review.

It is remarkable that Thomas managed to secure seven votes for his entire opinion. Sharp divisions marked previous cases in the area, several of which were decided without any single majority opinion. The strong majority here could go a long way to establishing the public-right/private-right distinction – however incoherent it seems to the outsider – as a firm boundary delineating areas plainly within congressional control.

Having said that, the opinions as a whole do display a considerable divergence of viewpoint among the justices. First, three of the justices (Justice Stephen Breyer, joined by Justices Ruth Bader Ginsburg and Sonia Sotomayor) suggest that they would go much further in tolerating administrative innovation, emphasizing that the Supreme Court’s opinion says nothing about procedures in which “private rights” are “adjudicated [outside] Article III courts … by agencies.” For that group, sympathetic to the efficiencies of the administrative state, the distinction between public rights and private rights is not a useful way to identify limits on congressional power, though they are happy to use it as a way to define plainly permissible processes.

The most notable writing, though, is on the other side of the matter — a powerful dissent from Gorsuch, joined by Roberts. For Gorsuch, the “efficient scheme” that Congress has designed, however “well intended,” is an unacceptable “retreat from the promise of judicial independence.” Although the opening paragraphs of his opinion mention in passing some of the administrative abuses that have plagued inter partes review (such as the decision by the director to “pack” panels with favorable judges), he rests the weight of his analysis on his reading of the English history.

For Gorsuch, the point of Privy Council review is that executive review was fading away by the time of the Constitution’s framing, with the last actual invalidation occurring in 1746. Gorsuch portrays a progression from the early understanding of patents as “feudal favors” involving “the exclusive right to do very ordinary things, like operate a toll bridge or run a tavern” to a modern understanding of “invention patents … as a procompetitive means to secure to individuals the fruits of their labors and ingenuity.” Offering a remarkable paean to the value of strong protections of intellectual property, Gorsuch argues that the shift toward patents as the earned fruit of “a contract between the crown and the patentee” brought with it a shift toward purely judicial adjudication, coinciding with the “dying gasp” of the Privy Council’s authority in this area.

Having drawn such a firm distinction between “invention patents” and the patronage-like grants of franchises, Gorsuch is particularly critical of the majority’s reliance on cases sanctioning administrative limitations on franchises. For him the better analogy is the land patent – creating a right in real estate that could not exist without the grant from the sovereign. As he points out, courts always have held that the invalidation of interests in land, even when granted by the sovereign, necessarily involves an exercise of the judicial power. He sees no reason to treat invention patents any differently, and thus would reject the scheme for inter partes review as an intolerable incursion on the judicial power. He closes with a characteristically rhetorical flair, ornamented by a quote from the Federalist Papers: “[T]he loss of the right to an independent judge is never a small thing. It’s for that reason Hamilton warned the judiciary to take ‘all possible care … to defend itself against’ intrusions by the other branches.”

Paired with his concurrence last week in Sessions v. Dimaya (to say nothing of his majority opinion in SAS also issued yesterday), Gorsuch’s dissent begins to reveal his deep-seated skepticism about the propriety and utility of the administrative state. Coming hard on the heels of Monday’s argument in Lucia v. Securities and Exchange Commission, these opinions suggest that Gorsuch will not be eager to uphold the appointment practices challenged there.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel on an amicus brief in support of the petitioner in this case. The author of this post, however, is not affiliated with the firm.]