RUTHFULLY YOURS

At issue is the inter partes review that Congress established with the 2011 America Invents Act to curb abusive patent litigation. Owners of low-quality patents—e.g., abstract ideas or processes with broad applicability—extort businesses with infringement lawsuits that are often cheaper to settle than fight. This can deter innovation. Inter partes review allows anyone to challenge a patent at any time. The Patent Trial and Appeal Board, composed of administrative judges appointed by the Commerce Secretary, then decides whether to grant a review and perhaps revoke a patent.

Oil States lost an inter partes review challenge after suing Greene Energy for infringement. The company then claimed that inter partes review violates the Constitution’s Article III and the Seventh Amendment because it allows an administrative agency to revoke patents without a jury trial. Article III sets the qualifications for the federal judiciary—that is, judges are appointed by the President with the consent of the Senate. They also have lifetime tenure. The Seventh Amendment guarantees a jury trial in suits involving common law such as private property, contracts and trademarks.

Congress has increasingly ceded authority to administrative bodies over disputes involving public rights—those between the government and individuals that don’t have a basis in common law. But private rights are strictly the domain of the federal judiciary. This distinction is crucial since Article III judges are intentionally insulated from politics and the two political branches.

Imagine if an Administration official could adjudicate a fraud case between Jeff Bezos and Ivanka Trump. A similar potential for executive abuse and political interference exists with the Patent Trial and Appeal Board, which lacks the due process and separation-of-powers protections enshrined in Article III. Administrative judges are essentially political appointees with civil service protections. A patent challenger doesn’t even have to be a party to a case or controversy to present a claim. Hedge-fund investors have been known to file petitions to invalidate patents prior to short-selling stocks.

Panels also use a “preponderance of the evidence” to invalidate patents rather than the more rigorous “clear and convincing” standard applied by federal courts in civil lawsuits. Patent owners can be subject to double or quadruple jeopardy since inter partes review doesn’t limit the number of challenges. One panel decision isn’t binding on another panel. The Federal Circuit Court of Appeals, which hears patent cases, has even ruled that inter partes review panels can invalidate patents upheld by federal courts and juries.

The Patent and Trademark Office director also wields enormous discretion. When unsatisfied with results of a review, Obama PTO director Michelle Lee granted rehearings and added judges. In other words, she stacked the administrative courts.

Oil States is before the High Court because the Federal Circuit broke with 200 years of judicial precedent in 2015 by declaring that patents are public rights—that is, executive privileges—and thus not entitled to Article III or Seventh Amendment protections. Large tech companies have supported this radical legal departure to salvage inter partes review.

In its landmark McCormick decision (1898), the Supreme Court asserted that “upon the issue of [a] patent, the patent office . . . los[es] jurisdiction over it.” The Court has consistently reaffirmed that patents are private property rights, as recently as 2015 when Chief Justice John Roberts wrote in Horne v. Dept. of Agriculture that a patent “confers upon the patentee an exclusive property in the patented invention which cannot be appropriated or used by the government itself, without just compensation.”

Patents encourage innovation by protecting the fruits of entrepreneurs’ labor, and that protection is undermined if patents can be revoked at any time by an administrative agency. While abusive litigation can sap innovation, inter partes review offers the potential for legal and government abuses.

The Supreme Court in May curbed forum shopping in patent infringement cases, and Congress can create other patent-troll deterrents such as requiring more rigorous training for examiners who issue patents. Lawmakers could also establish district patent tribunals similar to bankruptcy courts within the federal judiciary. Inter partes review was well-intended, but any economic benefits aren’t worth the constitutional damage.