Federal Circuit Report

• Jurisdiction: United States,Federal
• Author: Rex Hwang
• Publication year: 2017
• Citation: Vol. 42 No. 3

Federal Circuit Report

Rex Hwang

Glaser Weil Fink Howard Avchen & Shapiro LLP

Nick Huskins

Glaser Weil Fink Howard Avchen & Shapiro LLP

CONSTITUTIONALITY OF IPRs

As most parents know, a strange thing happens when you have a baby. Before parenthood, it is difficult to imagine life with a baby. After, most parents find it impossible to imagine life without their child. Similarly, the patent system seemed complete before inter partes review ("IPR") proceedings were introduced through the America Invents Act ("AIA") in 2011. But now, it is difficult to conceive of a patent system without IPRs. Yet, with the Supreme Court's decision to grant certiorari in Oil States Energy Services, LLC v. Greene's Energy Group, LLC,¹ there is a realistic possibility that IPRs will be held unconstitutional. Given the prevalence of IPR proceedings, such a determination will fundamentally alter modern patent litigation, and leave practitioners to deal with the fallout.

This article will explore two Federal Circuit cases that paved the way to Oil States, and the potential implications of the Supreme Court's decision. First, the article will review the 2015 decision MCM Portfolio LLC v. Hewlett-Packard Co.,² in which the Federal Circuit upheld the constitutionality of IPRs. Notably, the Supreme Court denied MCM Portfolio LLC's petition for a writ of certiorari in that case.³ Next, this article will examine the recent Federal Circuit decision Cascades Projection LLC v. Epson America, Inc.,⁴ in which three Federal Circuit judges raised issues relating to the constitutionality of IPRs—previewing the arguments likely to be addressed by the Supreme Court in Oil States. Finally, the article will explore the potential ramifications if the Supreme Court does in fact deem IPRs unconstitutional.

MCM Portfolio LLC v. Hewlett-Packard Co.

In this case, MCM Portfolio LLC ("MCM") sued Hewlett-Packard Co. ("HP") alleging infringement of U.S. Patent No. 7,162,549 (the "'549 Patent"). HP filed an IPR petition, and the '549 Patent's claims were subsequently invalidated by the Patent Trial and Appeal Board ("PTAB").

MCM appealed to the Federal Circuit, arguing, in relevant part, that IPRs are "unconstitutional because any action revoking a patent must be tried in an Article III court with the protections of the Seventh Amendment."⁵ In support, MCM cited the following language from the Supreme Court's decision in McCormick Harvesting Machine Co., v. Aultman: "[t]he only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatsoever, is vested in the courts of the United States, and not the department which issued the patent."⁶ Thus, MCM argued, the PTAB is barred from invalidating patents via IPR proceedings, as only Article III courts can exercise that authority.

The Federal Circuit denied MCM's appeal. Citing to Stern v. Marshall, an even older Supreme Court case, the Federal Circuit noted the High Court's recognition that "there are matters, involving public rights, which may be presented in such form that the judicial power is capable of acting on them ... but which congress may or may not bring within the cognizance of the courts of the United States, as it may deem proper."⁷ In other words, Congress has the inherent authority to delegate disputes over "public rights" to non-Article III courts. And "what makes a right 'public' rather than private is that the right is integrally related to particular federal government action."⁸

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Guided by the above language, the Federal Circuit held that the patent right "derives from an extensive federal regulatory scheme," and that Congress "saw powerful reasons to utilize the expertise of the PTO for an important public purpose—to correct the agency's own errors in issuing patents in the first place."⁹ As such, "patent rights are public rights" whose validity is "susceptible to review by an administrative agency."¹⁰ Having determined patent rights are public rights, the Federal Circuit held that assigning review of patent validity to the PTO is consistent with Article III, and thus, constitutional.

MCM also argued that the IPR system deprives its "right to a trial by jury under the Seventh Amendment."¹¹ But the Federal Circuit rejected this argument as well, concluding that "[b]ecause patents rights are public rights, and their validity susceptible to review by an administrative agency, the Seventh Amendment poses no barrier to agency adjudication without jury."¹²

Cascades Projection LLC v. Epson America, Inc.

Last May, the Federal Circuit again weighed in on the constitutionality of IPR proceedings in Cascades Projection LLC v. Epson America, Inc. Here, Cascades Projection LLC ("Cascades") sued Epson America, Inc. ("Epson") and Sony Corporation ("Sony"), alleging infringement of U.S. Patent No. 7,668,347 (the "'347 Patent").

Epson and Sony filed two separate IPR petitions to invalidate the '347 Patent's asserted claims. In both proceedings the PTAB invalidated the '347 Patent's claims.

In response, Cascades filed a petition with the Federal Circuit challenging the constitutionality of IPRs. Because a three-judge panel cannot overrule a precedential...