Supreme Court upholds legality of patent review process

WASHINGTON (Reuters) - The U.S. Supreme Court on Tuesday gave its stamp of approval to a government review process prized by high technology companies as an easy and cheap way to combat “patent trolls” and others that bring patent infringement lawsuits.

The phrase "Equal Justice Under Law" adorns the west entrance to the U.S. Supreme Court building in Washington December 3, 2014. Picture taken December 3, 2014. REUTERS/Jonathan Ernst

The justices ruled 7-2 that a type of in-house patent review at the U.S. Patent and Trademark Office does not violate a defendant’s right under the U.S. Constitution to have a case adjudicated by a federal court and jury.

The court ruled against Oil States International Inc OIS.N, a Houston-based oilfield services company that had challenged the legality of the process, called inter partes review (IPR).

Justices John Roberts and Neil Gorsuch dissented from the decision authored by fellow conservative Justice Clarence Thomas.

While the ruling gave Silicon Valley reason to celebrate, it displeased name-brand drugmakers, which had called the IPR process a threat to innovation. Firms dubbed “patent trolls” have a business model based on suing other companies over patents rather than actually making products.

The U.S. Congress created the reviews in 2011 to handle the perceived high number of flimsy patents issued by the patent office in prior years. Since then, the agency’s Patent Trial and Appeal Board has canceled all or part of a patent in about 80 percent of its final decisions. In 2015, it canceled an Oil States patent on protecting wellhead equipment after an IPR proceeding.

These reviews have been especially popular with companies like Apple Inc AAPL.O and Samsung Electronics Co Ltd 005930.KS frequently hit with patent infringement suits. But pharmaceutical companies like AbbVie Inc ABBV.N, Allergan plc AGN.N and Celgene Corp CELG.O called for scrapping the IPR system.

Oil States argued that patents are private property that may be the revoked only by a federal court, where the standard for canceling a patent is higher than in the review proceedings.

Thomas, writing for the court, called the IPR process an extension of the Patent and Trademark Office’s decision to grant a patent.


“Inter partes review is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration,” Thomas wrote.

Though it upheld the IPR process, the court in a separate 5-4 ruling on Tuesday faulted one aspect of how the reviews are carried out. The justices ruled that when several parts of a patent are challenged, the patent office does not have the discretion to review only some of them.

Patent office spokesman Paul Fucito said his agency is “carefully considering” Tuesday’s rulings and determining their impact on proceedings before its administrative tribunal that conducts the reviews.

More than 30 appeals raising similar questions piled up at the Supreme Court while the justices were preparing to decide the Oil States case, underscoring the continuing impact of these reviews across industries.

A ruling striking down the reviews could have diverted the bulk of patent disputes back to federal courts, where litigation is more drawn out and expensive. A patent office review costs about $350,000 to litigate fully, whereas in district court it could be $3 million, according to Apple.

The case began when an Oil States subsidiary sued in 2012 claiming Houston-based rival Greene’s Energy Group infringed its patent for use in the hydraulic fracturing, or fracking, of oil wells. Greene’s responded by filing an inter partes review. The patent office tribunal later canceled key parts of the patent. A federal appeals court upheld that decision in 2016.

Backed by the President Donald Trump's administration, Greene's Energy also had the support of large technology firms including Alphabet's Google GOOGL.O and Intel CorpINTC.O.

Reporting by Andrew Chung; Editing by Will Dunham