Federal Circuit Upholds Constitutionality of Inter Partes Review

On December 2, 2015, the Federal Circuit in MCM Portfolio LLC v. Hewlett-Packard Co., held that the inter partes review provisions promulgated under the America Invents Act (2011) do not violate Article III or the Seventh Amendment. No. 2015-1091, 2015 U.S. App. LEXIS 20848 (Fed. Cir. Dec. 2, 2015).

MCM Portfolio LLC (“MCM”) owns U.S. Patent No. 7,162,549, which claims methods and systems for coupling a computer system with a flash memory storage system. Hewlett-Packard Co. (“HP”) filed a petition for inter partes review requesting the Patent Trial and Appeal Board (“Board”) to institute an inter partes review of four claims that HP thought were either obvious or anticipated. The Board instituted an inter partes review on the four claims only on obviousness grounds. After reading the parties’ submissions and conducting a trial hearing, the Board held all four claims invalid as obvious. Id. at *6-7. To reach this decision, the Board rejected MCM’s arguments that inter partes review violates Article III and the Seventh Amendment. Id. at *7. MCM appealed to the Federal Circuit.

The Federal Circuit affirmed the Board in all respects including the constitutionality of inter partes review. Id. at *19-22. In doing so, the Federal Circuit rejected MCM’s argument that the Supreme Court’s decision in McCormick Harvesting Machine Co. v. Aultman, 169 U.S. 606 (1898), reserves the authority to invalidate a patent for an Article III court. MCM Portfolio LLC, 2015 U.S. App. LEXIS 20848, at *9. In McCormick, the issue before the Court was the validity of original patent claims submitted to the Patent Office for reissue during litigation that the patent owner later withdrew before completion of the reissue proceedings. The Supreme Court held that, under the controlling statute at the time, the original claims were valid unless and until the patent owner surrendered the original patent. Id. at *10. Because this key fact did not exist in McCormick, the Supreme Court held that the only way to invalidate the patent is vested in the courts of the United States. Id. at *11.

The Federal Circuit also noted that McCormick did not address Article III and “certainly did not forbid Congress from granting the [Patent Office] the authority to correct or cancel an issued patent.” Id. at *11. And since McCormick was decided, Congress has enacted at least the following three procedures permitting the Patent Office to review patents: (i) “ex parte reexamination proceeding in 1980”; (ii) “the inter partes reexamination procedure in 1999”; and (iii) “inter partes review, post-grant review, and Covered Business Method patent review in 2011.” Id. at *11-12.

In addition to these statutory provisions enacted by Congress, the Federal Circuit further explained that both Supreme Court precedent and its own support that inter partes review provisions do not violate Article III. First, in Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568 (1985), the Court upheld a binding arbitration scheme articulated in the Federal Insecticide, Fungicide, and Rodenticide Act. The arbitration scheme permitted agencies (the EPA) to adjudicate private rights (amount of payments owed) and did not require resolution by Article III courts. Thomas, 473 U.S. at 593-94.

Second, the Federal Circuit’s own precedent—Paltex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985), modified on other grounds on reh’g, 771 F.2d 480 (Fed. Cir. 1985)—upheld the constitutionality of the ex parte reexamination statute of 1980. In Paltex, the Federal Circuit reasoned that “the threshold question usually is whether the [Patent Office], under the authority assigned to it by Congress, properly granted the patent…. A defectively examined and therefore erroneously granted patent must yield to the reasonable Congressional purpose of facilitating the correction of governmental mistakes.” Paltex, 758 F.2d at 604. Thus, in MCM Portfolio, the Federal Circuit held that “governing Supreme Court and Federal Circuit authority require rejection of MCM’s argument that inter partes review violates Article III.” MCM Portfolio LLC, 2015 U.S. App. LEXIS 20848, at *19.

Lastly, MCM argued that inter partes review violates the Seventh Amendment by denying parties the right to a jury trial. But the Federal Circuit disposed of this argument by citing Supreme Court precedent, which held that the Seventh Amendment does not apply to administrative proceedings. Id. at *20 (citing, e.g., Tull v. United States, 481 U.S. 412, 418 n.4 (1987). In sum, the Federal Circuit held that because “patent rights are public rights, and their validity susceptible to review by an administrative agency,” a jury trial under the Seventh Amendment is not required for adjudication. Id. at *22.