IP Views

SCOTUS: Patents are "Public Franchises" (Oil States Energy Services v. Greene’s Energy Group, 2018)

Summary

Oil States Energy Services and Greene’s Energy Group are both oilfield service companies. In 2001, Oil States obtained a patent relating to an apparatus and method for protecting well-head equipment used in hydraulic fracturing.

In 2012, Oil States sued Greene’s Energy in Federal District Court for patent infringement. Greene’s Energy responded by challenging the patent’s validity, and later petitioned the Patent Trial and Appeal Board to institute an inter partes review. It argued that two of the patent’s claims were unpatentable because they were anticipated by prior art not mentioned by Oil States in its original patent application.

The proceedings before the District Court and the Patent Appeal Board progressed in parallel. In June 2014, the District Court issued a claim-construction order, which construed the challenged claims in a way that foreclosed Greene’s Energy’s arguments about prior art. But a few months later, the Patent Appeal Board issued a final written decision concluding that the questioned claims were indeed unpatentable. The Board acknowledged the District Court’s contrary decision, but nonetheless concluded that the claims were anticipated by prior art.

Oil States sought review in the Federal Circuit. It challenged the constitutionality of inter partes review. Specifically, it argued that jurisdiction over actions to revoke a patent lie with the federal courts, as provided for in Article III of the Constitution, and not the patent office."

Discussion

The Supreme Court granted the certiorari to determine whether inter partes review violates Article III of the US Constitution.

When determining whether a proceeding involves an exercise of Article III judicial power, the Court’s precedents have distinguished between "public rights" and "private rights." As a general matter, "public rights" involve "the relationship between the government and persons subject to its authority," whereas "private rights" relate to "the liability of one individual to another."

Public rights often involve statutory rights that are integral parts of a public regulatory scheme. It is in cases of this nature that Congress may dispense with juries as fact-finders through its choice of an adjudicative administrative forum. On the other hand, if a statutory cause of action is a private right for Article III purposes, then Congress may not assign its adjudication to a specialized non-Article III court lacking the essential attributes of judicial power, i.e. the case must be tried in a court with judicial power.

In the case at bar, there was a need to first determine whether patents are considered public or private rights.

Public rights may involve matters arising between the government and its citizens, which, from their nature, do not require judicial determination and yet are susceptible to it. Given these definitions of public rights, the Court ruled that the decision to grant a patent is a matter involving public rights, specifically, the grant of a public franchise. Ab initio, the grant of a patent involves a matter "arising between the government and others." By issuing patents, the Patent and Trademark Office (PTO) takes from the public rights of immense value and bestows them upon the patentee. Specifically, patents are "public franchises" that the government grants to the inventors of new and useful improvements. The franchise gives the patent owner the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States. This patent right did not exist at common law, rather, it is a creature of statute law.

Patents convey only a specific form of property right – a public franchise. One of the cases the Court cited was Seymour v. Osborne, where it was ruled that:

Inventions secured by letters patent are property in the holder of the patent, and as such are as much entitled to protection as any other property consisting of a franchise during the term for which the franchise or the exclusive right is granted. x x x 1

The Court interpreted this to mean that patents are franchises. As a public franchise, a patent can confer only the rights that the statute prescribes.

Additionally, granting patents is one of the constitutional functions that can be carried out by the executive or legislative departments without judicial determination. When the PTO adjudicates the patentability of inventions, it is exercising executive power.

Considering that the granting of patents concerns public rights, the same basic matter is applicable in inter partes review. Inter partes review of patents merely involves reconsideration of the Government’s decision to grant a public franchise, and thus, falls squarely within the public-rights doctrine.

Inter partes is a second look at an earlier administrative grant of a patent. The Patent Appeal Board considers the same statutory requirements that the PTO considered when granting the patent. Those requirements prevent the issuance of patents whose effects are to remove existent knowledge from the public domain. So, like the PTO’s initial review, the Patent Appeal Board’s inter partes review protects the public’s paramount interest in seeing that patent monopolies are kept within their legitimate scope. Thus, inter partes review involves the same interests as the determination to grant a patent in the first instance.

Correspondingly, it need not be adjudicated in an Article III court. The Supreme Court therefore ruled that the inter partes review of the Oil States patent by the Patent Appeal Board is valid and not unconstitutional.

Note: The Supreme Court emphasized the narrowness of their holding in this case. They addressed the constitutionality of inter partes review only, and did not address whether other patent matters, such as infringement actions, can be heard in a non-Article III forum. Moreover, this decision, according to the Court, should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.


1Seymour v. Osborne, 78 US 11 Wall. 516 (1870).

“x x x Letters patent are not to be regarded as monopolies, created by the executive authority at the expense and to the prejudice of all the community except the persons therein named as patentees, but as public franchises granted to the inventors of new and useful improvements for the purpose of securing to them, as such inventors, for the limited term therein mentioned, the exclusive right and liberty to make and use and vend to others to be used their own inventions, as tending to promote the progress of science and the useful arts, and as matter of compensation to the inventors for their labor, toil, and expense in making the inventions and reducing the same to practice for the public benefit, as contemplated by the Constitution and sanctioned by the laws of Congress.”

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