What’s All the Hubbub? Why Oil States Is Unlikely to Change Much and Might Only Make Things Worse

What’s All the Hubbub? Why Oil States Is Unlikely to Change Much and Might Only Make Things Worse

The Oil States Energy Services v. Greene’s Energy Group case has become famous in the intellectual property world, largely because of what the holding has been interpreted to mean about the future of challenging patent validity.^[1] On a fundamental level, the case may have implications about the nature of property and the role of juries. Sixty briefs – filed by parties ranging from major companies like Apple to dozens of individual inventors and investors – have been filed to the Supreme Court for the Oil States case, the most for any case the Court has heard this term.^[2]

This blog has covered the case since its inception.^[3] But what if all this time, money and effort was being wasted deciding the issue in Oil States, when in reality little was likely to change anyway, and the companies asking for the case to be heard in the first place were actually likely to be more harmed by the case’s outcome than they are likely to be helped? If the country’s handling of specialized bankruptcy courts is any indication, this may very well be the case.

Oil States deals with the America Invents Act, which allowed parties looking to claim patent validity to use inter partes reviews (“IPR”), as opposed to federal judges.^[4] IPRs are generally faster and less expensive than going to federal court, and specialized judges are used to determine patent validity in these reviews.^[5] Many have claimed that IPRs are essential because they put a check on harassment from “patent trolls”; Without a cheap, legally binding alternative to federal court, many companies might have to submit to a settlement offer from a patent troll, or risk a long, expensive – and potentially unsuccessful – litigation.^[6] On the other hand, companies with less resources might view patent trolls more favorably – without the resources of these non-practicing entities, it may otherwise be hard for a smaller company to enforce a patent against a large transgressor.^[7] A number of large organizations are in support of the current review system, including Apple, Volkswagen, Facebook, and Google.^[8]

On the other hand, big pharmaceutical companies, whose main source of income comes from securing the rights to patents, and small innovators that have difficulty enforcing their patents against larger companies, are seeking a ruling that mandates a jury trial.^[9] For them, the threat of an expensive suit is an essential weapon for enforcing a patent. Pharmaceutical companies also seem to be operating under the notion that jury trials are more likely to uphold the validity of a pharmaceutical patent, given the technical understanding these cases often require – in their view, juries are unwilling to deny a patent right for a product that they are unable to understand.^[10]

In this case, the plaintiff’s patent was cancelled as the result of an IPR that the defendant, a commercial competitor, initiated.^[11] The plaintiff then brought suit, claiming that a legally binding IPR decision is unconstitutional because patent cases require an Article III federal judge; among other things, an Article III judge enjoys life tenure and salary protection, and is required for any case dealing with a private right.^[12] This is the central question in Oil States – is patent ownership a private right, which can be vindicated by private citizens in a jury trial, or alternatively, a public right that cannot?^[13]

A look at the country’s bankruptcy law regime reveals why the outcome of this case is unlikely to matter. The Bankruptcy Act of 1978 established bankruptcy courts that were more specialized and efficient for adjudicating bankruptcy matters, just as IPRs are more specialized and efficient for adjudicating patent validity matters.^[14] Eventually, the Supreme Court ruled that these bankruptcy courts were unconstitutional in Northern Pipeline Construction Co. v. Marathon Pipeline Co.,^[15] stating that these newly established courts empowered non-Article III judges to preside over private rights.^[16] Immediately following this decision, Congress amended the Bankruptcy Act to allow bankruptcy courts to exist and make judgments that were non-binding – after all, bankruptcy courts are not inherently unconstitutional; however, a legally binding bankruptcy court that has no Article III judge is.^[17] In a similar vein, it seems likely that if a court rules that an IPR decision cannot be legally binding because there is no Article III judge, IPRs will continue to exist in an informative role as bankruptcy courts do.

There are reasons for believing that IPRs will continue to be used for the foreseeable future. Among them is the fact that IPRs create revenue for the Patent Trial and Appeal Board (“PTAB”), some of which flows to other government agencies.^[18] IPRs are also still less expensive alternatives to litigating in federal court – requesting an IPR costs $15,500 for a review of up to twenty claims.^[19] As such, PTAB will be unlikely to stop offering IPRs just because their decisions cannot be legally binding – this revenue stream is just too important for the PTAB.

Additionally, IPRs are likely to remain valuable for those seeking to enforce their patents, even though there are ultimately advisory opinions. District courts are reluctant to preside over patent cases given that some jurisdictions, notably Delaware, are already overburdened.^[20] Further, it is possible that district courts will view the decisions stemming from an IPR as more legitimate given the specialized knowledge that judges in an IPR have.^[21] Theoretically, a petitioner could move for a summary judgment in a district court based on a ruling from an IPR, and the district court could grant this; in such a circumstance, the jury will have been denied the opportunity to hear a case, but the outcome will be legally binding.

Abolishing IPRs may actually have a harmful effect on the pharmaceutical companies that are lobbying to do just that. As is, most pharmaceutical patent cases occur under the Hatch-Waxman Act, which allows innovative pharmaceutical companies to sue their generic-brand competition prior to entry.^[22] Because this litigation occurs pre-sale, damages can not be assessed, and only equitable relief is available.^[23] The Federal Circuit has previously held that there is not right to a jury trial in Hatch-Waxman cases, even regarding the validity of a patent.^[24] Therefore, IPR rulings are not unconstitutional in this context, and can remain legally binding.

On the other hand, the consensus among pharmaceutical companies that trial by jury will yield favorable results may not always be accurate. This consensus assumes that juries, for whatever reason, are more likely to uphold the validity of a patent in an especially technical area. But allowing for a trial by jury introduces an element of risk to the equation; juries are often easier to sway with appeals to emotion than the more rote, technical Hatch-Waxman judges.^[25] These pharmaceutical companies may soon find that juries are swept up by the argument that pharmaceutical companies, through pure corporate greed, are causing people to pay more for potentially life saving drugs than the generic drug companies would. While juries may remain hesitant to declare patents invalid, it is also very possible that they will let their emotions influence their decisions in pharmaceutical cases where thousands of lives could be at stake.