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The U.S. Patent and Trademark Office seal is displayed inside the agency’s headquarters in Alexandria, Virginia. (Bloomberg file photo)
The U.S. Patent and Trademark Office seal is displayed inside the agency’s headquarters in Alexandria, Virginia. (Bloomberg file photo)

Justices signal divide on patent-review system

U.S. Supreme Court justices signaled Monday they are divided over a review system that has invalidated hundreds of patents, hearing arguments in a case being closely watched by the technology and drug industries.

The high court is weighing contentions that the system, which has benefited tech companies including Apple Inc. and Google Inc., violates the Constitution by letting an administrative board invalidate issued patents.

The court’s conservative justices, including newly appointed Neil Gorsuch, suggested they viewed the non-judicial review system as unconstitutional, while liberals including Ruth Bader Ginsburg indicated they would uphold it.

The central question is whether the U.S. Patent and Trademark Office, once it issues a patent, has the ability to go back and determine whether its decision was correct — or whether that can only be done by a federal court.

“There must be some means by which the patent office can correct the errors that it’s made,’’ Ginsburg said.

Gorsuch said people have an expectation of certain rights once they’ve been granted a patent, an understanding he said is based on 400 years of American and English law.

“This is not a new idea, that once it’s granted, it’s a private right belonging to the inventor,” Gorsuch said.

As is often the case at the Supreme Court, the outcome is likely to turn on Justice Anthony Kennedy, who asked questions of both sides and didn’t clearly indicate which way he is leaning.

‘Death squads’

Since the Patent Trial and Appeal Board reviews began in 2012, more than 7,000 petitions have been filed, primarily on computer and high-tech patents. Critics call the review board a “death squad” because it uses a different legal standard than courts and is more likely to cancel a patent.

Silicon Valley companies in particular have used the system as a less-expensive way to ward off demands for royalties, particularly from patent owners derided as “trolls’’ because they don’t use their patents to make products.

Drugmakers, research companies and independent inventors, which rely on patents to fend off competitors, say the review system has lessened the value of their investments and made it harder to protect their ideas from copycats.

More than two dozen protesters outside the Supreme Court building held signs with slogans including “PTAB killed my startup’’ and “Patent rights = property rights.’’

Fracking equipment

The case before the Supreme Court involves a patent owned by Oil States International Inc. for an apparatus that protects wellhead equipment from pressure caused by hydraulic fracturing, commonly known as fracking. In 2012, it filed a patent-infringement claim in federal court against Greene’s Energy Group LLC, which took the matter to the patent review system and won.

Oil States said the reviews violated its constitutional right to a jury trial and supplanted the role of the federal judiciary. Oil States lawyer Allyson Ho said other types of agency reviews, called re-examinations, pass muster because they involve the patent owner and examiner. The new reviews involve the administrative branch resolving disputes between two private parties with a proceeding before administrative judges who aren’t part of the judicial branch.

Justice Elena Kagan said the review board’s opinions still can be reviewed by a federal court. Justice Stephen Breyer asked whether a victory for Oil States would call into question actions by other administrative agencies, such as the ability of the Federal Communications Commission to consider the revocation of a television studio’s license.

“I thought it’s the most common thing in the world that agencies decide all kinds of matters through adjudicatory-type procedures often involving private parties,” Breyer said.

The justices grappled with where patent rights begin and end. Kennedy asked Ho whether Congress could reduce the life of all patents by 10 years.

When Ho said Congress could, Kennedy asked, “Doesn’t that show that the patent owner has limited expectations as to the scope and the validity of the property right that he holds?”

Bitter with sweet

Kennedy also asked why Congress couldn’t grant patents on the condition that recipients agree to the review process.

Chief Justice John Roberts, however, questioned whether those applying for patents could be required to “take the bitter with the sweet.”

“Haven’t our cases rejected that proposition?” Roberts asked.

At another point, Kennedy hinted he viewed patents as protected property rights. He quoted the constitutional provision that says Congress’ powers include “securing for limited times to authors and inventors the exclusive right” to their innovations.

Christopher Kise, a lawyer representing Greene’s Energy, said Congress establishes the standards for getting a patent, and all applicants know they have to comply with them to keep the patent in force. In separate arguments Monday, the court also considered some of the procedures used by the patent board. The question is whether the board is required to issue final written decisions on all challenged aspects of a patent or if it can issued a more limited ruling.

The justices are expected to rule on both cases by June.

The cases are Oil States Energy Services LLC v. Greene’s Energy Group LLC, 16-712, and SAS Institute Inc. v Matal, 16-969.

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