SCOTUS News, April 27th, 2018: Inter Partes Defined

This week was the last week of argument for this SCOTUS term. That means the opinions will start coming hard and fast. Let’s take a look at the three latest opinions out this week.

The first two have significant overlap. Oil States Energy v. Greene’s Energy and SAS Institute v. Iancu both concern patent law and its nuances. One issue central to both cases is inter partes review. A relatively new doctrine, inter partes allows anyone to dispute a patent if they have a “reasonable likelihood” of prevailing in their dispute. So it’s a fact-finding process not dissimilar from the inital patent review process that occurs prior to a patent grant. In inter partes review, a challenger submits evidence based on prior art consisting of other patents or publications. The patent owner then has the right to file a preliminary response arguing against a new review. The Director of the Patent and Trademark Office (PTO) then sends the review to the Patent Trial and Appeal Board (PTAB). Notably, the Federal Circuit hears appeals from the PTAB.

Oil States Energy v. Greene’s Energy Group

In the first of these cases, a tussle arose over a patent held by Oil States. Greene’s challenged this patent and petitioned the PTAB for inter partes review, and Oil States sued them in Federal District Court. The District Court’s ruling went against Greene’s claims. However, the PTAB concluded that Oil States’ claims were unpatentable, a victory for Greene’s. Oil States then appealed this PTAB decision to the Federal Circuit and challenged the Article III jurisdiction of inter partes review. Interestingly, the Federal Circuit had already ruled in another case against such constitutional claims. After doing so, the Federal Circuit then affirmed the PTAB’s decision at issue here, for the same reasons.

SCOTUS granted certiorari to settle the issue, though from the case history it is not surprising which way they ruled. They hold that Congress can properly assign inter partes review to the Director of the Patent and Trademark Office. SCOTUS holds that this does not violate Article III, as Oil States contended.

The 7-member majority states that Congress can assign adjudication of public rights to entities other than Article III courts. Since the grant of a patent is a public right, the review of a patent – and potential revocation – must also be a public right. Not only does the Patent Act allow for such congressional delegation of authority over patents, but English common law also clearly points to similar mechanisms for review and revocation. The petitioners also tried to argue that because the PTAB is similar to a court, and has court-like procedures, that that makes it an Article III court. The majority rejects this classification. The majority is also careful to mention that their ruling passes no judgment on patents as property in a Due Process Clause or Takings Clause case.

Justice Breyer writes a brief concurrence, joined by Ginsburg and Sotomayor, reiterating that this decision has no bearing on private rights.

Gorsuch, with Roberts (dissenting)

The dissent writes that inter partes review amounts to an unfair endangerment of a patent holder’s rights. The majority’s decision gives too much power to the Director of the PTO, and could lead to partisan bias in patent revocation.

Gorsuch also finds evidence for a conclusion opposite that of the majority. Namely, that patent disputes proceeding outside a court of law have always been an exception, rather than a rule, in common law. To avoid this inconsistency, the courts should be the only resort for patent review or revocation. Property rights are too serious to allow the political branches to oversee them. As with property, the executive should not be able to reclaim a patent or revoke a patent unless a court of law rules it can. In a nutshell: “Just because you give a gift doesn’t mean you forever enjoy the right to reclaim it.”

Nevertheless, SCOTUS handily affirms the Federal Circuit’s ruling. The PTAB is not an Article III court

SAS Institute v. Iancu

After supplying a breath of fresh air to the patent system, the Justices split sharply in the second patent case this week. In SAS Institute v. Iancu, they hold that when the PTO institutes an inter partes review, it must decide the patentability of all of the claims the petitioner has challenged.

In this case, the Director of the PTO had only accepted review of some, but not all, claims brought by SAS against a competitor. SAS argued before the Federal Circuit that the PTAB, acting under the Director’s authority, should have considered all claims they brought, not just some. The Federal Circuit rejected this argument, but SCOTUS now reverses and remands.

The majority, only 5-4 here, writes that the PTAB should look at all of a challenger’s claims, instead of picking and choosing. The law requires that the Director find “a reasonable likelihood” that a petitioner will prevail on at least one of their patent claims. If the Director finds this likelihood, then the PTAB should consider all of a challenger’s claims, not just those that might seem to have the best chance of prevailing. They point to the plain language of the statute, but they also give another reason. A patent challenger should have control over which claims are adjudicated. The Director should not have the power to ignore certain claims, because any one of them might be the claim the challenger can prevail on.

Ginsburg, with Breyer, Sotomayor, and Kagan (dissenting)

Ginsburg writes to say that it is inefficient to disallow the Board from denying petitions that have no chance of success. It makes far more sense to only reexamine those patent challenges that have a chance of success.

Breyer, with Ginsburg, Sotomayor, and Kagan (dissenting)

Breyer elaborates on Ginsburg’s brief point. He points out that as long as an administrative Board like the PTAB makes a “reasonable” interpretation of an ambiguous statute, then under Chevron deference, the Court should allow it. In addition, under the Code of Federal Regulations, the Director (via the PTAB under his authority) may review all, or only some, of the claims a patent challenger brings. The statutory language is clearer than the majority contends. The phrase “any patent claim challenged by the petitioner” does not have to mean those claims that the PTAB already “weeded out” for being ineffective. The claims in the petition, some of which the PTAB may then reject, do not all have to go under review. As Ginsburg stated in her own opinion, it makes far more sense for the PTAB to reexamine those claims that have the most merit. This makes sense, as Congress likely worded the statute so that the Director and the PTAB could avoid wasting time on patent claims that will not prevail.

Jesner v. Arab Bank

Now we leave patents and head to the big case of the week. Petitioners sued Arab Bank, PLC, under the Alien Tort Statute (ATS). Originally an obscure law, the ATS has been used with greater frequency in recent years so aliens can file suit against foreign perpetrators of alleged human-rights violations. Arab Bank allegedly violated international law by financing terrorist acts that took the lives of petitioners and petitioners’ loved ones. The reason this is a matter of domestic law at all, though, is because Arab Bank has offices in New York.

The question in this case is not whether respondents committed violations of international law, per se. The question is whether the courts have authority under the ATS to hear this type of case. The lower court in this case ruled against petitioners. In a 5-4 decision, SCOTUS affirms, holding that foreign corporations may not be defendants in ATS suits. Justice Kennedy writes for the plurality. He begins by stating a common position: the judicial branch does not possess the power to create causes of action for a particular law. The ATS does not supply specific causes of action; it only provides the courts with jurisdiction. Congress could make laws that supply clearer causes of action, such as the corporate liability at issue in this case. The Torture Victim Protection Act (TVPA), for example, is an act of Congress that does supply such a cause of action. Meanwhile, the Judiciary Act of 1789, of which the ATS is a part, only created federal jurisdiction for disputes between alien plaintiffs and U.S. citizen or diplomat defendants. It did not provide more specific guidance on corporate liability. Since the circumstances in this case relate to foreign policy concerns, the matter should be left to the executive and the legislature.

Kennedy adds further explanation. Congress originally wrote the ATS to supply foreign entities with a forum for international-law violations. But in this case, Kennedy writes, “the opposite is occurring”. The plaintiffs in this case are foreign, the major defendant is foreign, and the United States is only involved due to Arab Bank’s transactions. These transactions, the majority notes, are an automatic type of foreign currency exchange that occurs hundreds of thousands of times per day. These transactions do not rise to the level of sufficient impact. “… where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application.”

This is as far as the conservative majority agrees. Only Roberts and Thomas join fully with the rest of Kennedy’s opinion, where he elaborates on the comparison of the TVPA to the ATS. The TVPA represents a law that provides for private actions against individuals. This precludes Arab Bank, since Arab Bank is a corporation, not an individual. Furthermore, the alternate Anti-Terrorism Act (ATA) quite clearly allows U.S. nationals to sue corpoate entities. If Congress wanted aliens to be able to sue corporate defendants, it could have made the ATS sound more like the ATA.

In a separate concurrence, Alito provides more detail on why courts should not create new causes of action. His main argument is that such new rules for corporate liability could result in diplomatic strife. Meanwhile, Gorsuch writes a separate concurrence reiterating the need for the political branches to write clearer laws. Foreign relations should not be tackled by the judiciary. In addition, he writes that it is clear from the text of the ATS, and other similar laws, that one party in such suits needs to be domestic. In this case, both parties are foreign-based.

The five-member majority together enunciates concern for unintended consequences and hardship placed on corporations. Companies can only conduct effective business if they know how to navigate international law situations where foreign entities may act against human-rights conventions and norms. They worry that cases like this one could open the floodgates for suits against corporations. The political branches must articulate a better method than what the ATS currently provides. Until they do, corporations cannot be defendants in ATS suits.

Sotomayor, with Ginsburg, Breyer, and Kagan (dissenting)

The dissent in this case does not disagree that “… customary international law does not require corporate liability as a general matter.” But they write that the ATS clearly allows tort claims against corporations for international law violations. To put it another way, international law may not levy specific liability onto corporations, but that is only because individual countries must decide how best to enforce international norms in their domestic capacity. One such norm is the prohibition of financing terrorism. Enforcement of these norms is up to state actors, and both Congress and the Executive have authorized such enforcement in the past. And the ATS is the conduit for enforcement when aliens wish to file suit against other aliens.

In this way, the dissent argues, corporate liability very much does exists under international law. The ATS facilitates this, and in the past, aliens have brought similar tort cases against corporations by using the ATS. Sotomayor counters Gorsuch by pointing out that international law is always evolving. The original drafters of the ATS knew this, and so allowed for new causes of action, if need be, by keeping the law’s language more encompassing.

The dissent rebuts several other claims the majority makes. They write that the ATS only allows alien plaintiffs, but that it says nothing about who can be a defendant. Thus, there is no reason an alien could not be a defendant. Furthermore, the political branches do in fact allow for corporate liability under ATS, and there are examples of such. And, while the TVPA may be a law that allows suits only against private individuals, the ATS’ language reads more like the ATA. The ATA provides a forum for citizens to sue corporate actors, and the ATS provides that same forum to aliens.

The FantasySCOTUS Crowd

The Crowd performed well this week, going 3 for 3. Even in the hotly contested Jesner case, they stayed close.

jesner arab bank

Jesner v. Arab Bank

This time of year, SCOTUS opinions start flying. Next week could see as many as six new opinions released. Now may be your last chance to sign up for FantasySCOTUS this term and still have a chance at those cash prizes!

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