The Supreme Court on Tuesday upheld the constitutionality of a process for challenging low-quality patents. Since its creation in 2011, this ” review” (IPR) process has dramatically lowered the cost of defending against frivolous patent litigation.
The process allows an executive branch agency—not the courts—to revoke a patent after it has been granted.
But the Supreme Court didn’t buy it. In a 7-2 decision written by Justice Clarence Thomas, the nation’s highest court ruled that patent rights were fundamentally a government-granted privilege that could properly come with strings attached. One such condition is the risk that the patent office might change its mind and invalidate a patent that it had previously approved.
The ruling preserves one of defendants’ most potent weapons against patent trolls. Challenging a patent in court can cost millions of dollars. As a result, prior to 2011, it often made sense for defendants to settle a patent case even if they believed that the patent wouldn’t stand up in court.
But then Congress passed the America Invents Act, which created a new administrative process called review. That process cuts the cost of challenging a patent down to the low six figures. It has shifted the playing field for patent litigation, allowing the targets of frivolous patent lawsuits to fight back without going broke in the process. The new Supreme Court ruling puts that process on a firm constitutional footing, which should make life difficult for patent trolls for years to come.
The case was really about the nature of patent rights
The legal challenge to the IPR Process came from an oil company called Oil States Energy Services, which owns a patent on a method for securing a drilling tool to an oil well. In 2012, Oil States sued another oil company, Greene’s Energy Group, in the patent-friendly Eastern District of Texas. Greene’s used the IPR process to challenge the patent, and the patent office concluded that it was invalid.
But Oil States sued, arguing that the Constitution requires an IPR-like process to occur in the judicial branch—not in an executive branch agency like the patent office. Executive branch agencies do not have the independence of judges, and they don’t necessarily offer all of the due-process protections provided to litigants by the judicial system.
While the argument was officially over the difference between the executive and judicial branch, this was really a dispute about the nature of patent rights. Are patents fundamentally a government-granted monopoly (a “public right,” in legal jargon), or are they a form of private property akin to a home or car?
The Constitution provides robust legal protections, including a guarantee of due process through the judicial branch, to private property: a law allowing a federal agency to take someone’s home or business without the approval of the courts would be unconstitutional.
But it doesn’t make sense to extend that same level of protection to government-granted monopolies. After all, the public interest may require curtailing or eliminating these kinds of monopolies in the future.
“Congress can grant a franchise that permits a company to erect a toll bridge but qualify the grant by reserving its authority to revoke or amend the franchise,” the court’s majority wrote, citing a 101-year-old precedent on the topic. “The same is true for franchises that permit companies to build railroads or telegraph lines.”
The big question, then, was which category a patent fell into. The court’s seven-member majority ruled that patents are “public rights”—rights granted by government and subject to subsequent revision by the executive branch. The IPR process, the majority wrote, involves “reconsideration of the government’s decision to grant a public franchise.” In other words, it’s more like a government-granted privilege to run a toll bridge than it is like your property right in your home.
And this basic philosophical disagreement—are patents better thought of as government monopolies or private rights?—undergirds many of the patent cases the Supreme Court has heard in recent decades. During the 1980s and 1990s, the courts (especially the patent-loving Federal Circuit court) increasingly came to see patents as analogous to conventional property rights. This had the effect of tilting the field in favor of patent holders, since it made patents easy to defend and difficult to challenge.
But in the last 12 years, the Supreme Court has beat back many of these patent-friendly decisions, making patents weaker and easier to challenge. A landmark 2006 ruling made it more difficult for plaintiffs to get injunctions in patent cases—a right that is routinely granted to holders of conventional property rights but which gives patent holders massive amounts of leverage. A 2007 ruling made it easier to challenge patents that are obvious, while a 2008 ruling held that patent protections are “exhausted” once a product is sold to a customer—the patent holder can’t require subsequent use of the same product to get a separate license. The Supreme Court has also limited patent protection for abstract ideas, human genes, and computer software.
None of these rulings was explicitly about whether patents are monopolies or property rights. But the question implicitly shapes how courts think about these kinds of questions. Monopolies are generally viewed with skepticism; property rights are not. “Allowing petitioners to patent risk hedging would preempt use of this approach in all fields and would effectively grant a monopoly over an abstract idea,” the Supreme Court wrote in its 2010 ruling on patenting abstract ideas.
Tuesday’s ruling is important in its own right, as it preserves a process that has had a real impact on the patent-litigation problem. But it’s also a barometer of how the Supreme Court’s justices are thinking about the patent system more generally. The fact that seven of the nine justices continue to view patents as a government-granted franchise, not a form of property rights, suggests that the high court’s more-than-decade-long smackdown of pro-patent jurisprudence could continue for years to come.