Print PDF


The Constitutional Argument Against Agency Adjudication: Can the PTAB Invalidate an Issued Patent?

BNA’s Patent, Trademark & Copyright Journal
March 13, 2015

McCorquindale, J. Derek , Cooley, Daniel C., Romrell, Jason L.


Authored by Daniel C. Cooley, J. Derek McCorquindale, and Jason L. Romrell

In 1981, Congress authorized the U.S. Patent and Trademark Office (PTO) to conduct ex parte reexaminations, providing an alternative venue for challenging the validity of patents previously issued by the agency.1 A few years later in Patlex Corp. v. Mossinghoff,2 the U.S. Court of Appeals for the Federal Circuit held that PTO ex parte reexamination proceedings do not violate the Seventh Amendment or Article III of the Constitution.3 Now—30 years after Patlex—courts have again been asked to consider whether administrative proceedings reviewing the validity of issued patents violates the patentee's Seventh Amendment right to a trial by jury.4

This article considers prior Federal Circuit decisions upholding the constitutionality of PTO reexamination proceedings, as well as two more recent cases, one before the U.S. District Court for the Eastern District of Virginia and the other currently pending before the Federal Circuit, challenging the constitutionality of the PTO's Patent Trial and Appeal Board (PTAB) post-grant proceedings under the Leahy-Smith America Invents Act (AIA).5 If the Federal Circuit changes course now, it is possible that the PTAB's authority to conduct post-grant proceedings—as well as ex parte reexaminations—would be undermined, leaving validity determinations exclusively in the hands of Article III courts.

I. Early Decisions Upholding the Constitutionality of Ex Parte Reexamination
The 1952 Patent Act, like earlier patent acts, did not include administrative means to challenge the validity of an issued patent.6 But in 1981, Congress created an administrative alternative to federal court litigation known as "ex parte reexamination," which authorized the patent owner or third parties to request that the PTO reexamine "the substantive patentability" of an issued patent.7

Patlex Corp. and Gordon Gould (collectively "Gould") challenged the constitutionality of this new procedure in the U.S. District Court for the Eastern District of Pennsylvania after a reexamination proceeding was initiated against Gould's patent.8 The district court upheld the constitutionality of the reexamination statute.9 On appeal, Gould argued that the "retrospective effect of patent reexamination" violated the Fifth Amendment's takings clause.10 Gould also asserted that he had been "deprived of the right to have validity determined by a jury and an Article III court," in violation of the Seventh Amendment and Article III of the Constitution.11 Gould primarily relied upon McCormick Harvesting Machine Co. v. Aultman,12 where the Supreme Court held that

[i]t has been settled by repeated decisions of this court that when a patent has received the signature of the Secretary of the Interior, countersigned by the Commissioner of Patents, and has had affixed to it the seal of the Patent Office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property.

The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.13

Gould further relied on Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,14 where the Supreme Court refused to uphold the legislative assignment to bankruptcy courts of disputes involving "private rights" historically adjudicated by Article III courts.15 Because patent validity had traditionally been adjudicated in Article III courts, Gould argued that Congress could not shift adjudication to the PTO.16

The Federal Circuit ultimately upheld the constitutionality of ex parte reexamination by the PTO, rejecting Gould's reliance on McCormick.17 In particular, the court reasoned that McCormick did not apply because the procedure there was a reissue to correct mistakes made by the patent owner, whereas reexamination is a procedure to correct mistakes made by the PTO.18 In other words, the Federal Circuit did "not read McCormick Harvesting as forbidding Congress to authorize reexamination to correct governmental mistakes, even against the will of the patent owner."19 The court similarly rejected Gould's reliance on Northern Pipeline, noting that unlike the "private rights" at issue there, the grant of a valid patent is primarily a matter of "public rights."20 While "[v]alidity often is brought into question in disputes between private parties, . . . the threshold question usually is whether the PTO, under the authority assigned to it by Congress, properly granted the patent."21

The constitutionality of reexamination was again challenged in Joy Technologies, Inc. v. Manbeck.22 There, patentee Joy Technologies argued that the Supreme Court's decision in Granfinanciera,23 entitling a person who had not submitted a claim against a bankruptcy estate to a jury trial when sued by the bankruptcy trustee to recover an allegedly fraudulent monetary transfer, "raise[d] serious doubt about the present vitality of Patlex."24 But the Federal Circuit disagreed, instead holding that Granfinanciera affirmed rather than undermined "the basic underpinning of Patlex, viz., that cases involving 'public rights' may constitutionally be adjudicated by legislative courts and administrative agencies without implicating the Seventh Amendment right to jury trial."25

Together, Patlex and Joy Technologies settled the question of whether the PTO can adjudicate the validity of issued patents for a generation.

II. Challenging the Constitutionality of Post-Grant Proceedings at the District Court
The arguments rejected in Patlex and Joy Technologies, however, resurfaced in recent constitutional challenges to post-grant proceedings under the AIA. In 2013, inventor J. Carl Cooper and eCharge Licensing LLC (collectively "Cooper") filed a patent infringement suit against Square Inc. in the U.S. District Court for the Northern District of Illinois.26 Square responded by petitioning the PTAB to conduct an inter partes review (IPR) of three of Cooper's patents.27 Square also successfully moved the district court to stay the litigation pending resolution of the IPR.28 Cooper filed a separate suit against the PTO in the Eastern District of Virginia, seeking a declaratory judgment that IPR proceedings are unconstitutional and an injunction barring the PTO from continuing to conduct PTAB trial proceedings.29

In moving for summary judgment, Cooper relied on United States v. American Bell Telephone Co.30 for the proposition that "[t]he power . . . to issue a patent for an invention, and the authority to issue such an instrument for a grant of land, emanate from the same source, and although exercised by different bureaux or officers under the government, are of the same nature, character and validity . . . ."31 According to Cooper, American Bell has already settled that it is an unconstitutional encroachment on Article III for the Executive branch—through agency action—to adjudicate the validity of a patent that has already issued:

Patents are sometimes issued unadvisedly or by mistake, where the officer has no authority in law to grant them, or where another party has a higher equity and should have received the patent. In such cases courts of law will pronounce them void. The patent is but evidence of a grant, and the officer who issues it acts ministerially and not judicially. If he issues a patent for land reserved from sale by law, such patent is void for want of authority. But one officer of the Land Office is not competent to cancel or annul the act of his predecessor. That is a judicial act, and requires the judgment of a court.32

McCormick, Cooper argued, merely "underscored the importance of this foundational principle."33 Moreover, Cooper maintained that the Supreme Court's most recent delineation of the "public rights" doctrine in Stern v. Marshall34—which limits the doctrine to cases "where the Government is involved in its sovereign capacity under a statute creating enforceable public rights, or in which resolution of the claim by an expert government agency is deemed essential to a limited regulatory objective within the agency's authority"—does not cover the PTAB's postgrant proceedings.35 At bottom, Cooper asserted that Patlex and Joy Technologies cannot be good law and, at the very least, should not be extended to cover post-grant proceedings under the AIA.36

The Director of the PTO also moved for summary judgment, arguing, as an initial matter, that Cooper had not exhausted available administrative remedies before seeking judicial relief.37 Specifically, the Director argued that Cooper must first obtain a final written decision from the PTAB, which would allow him to appeal the constitutional question directly to the Federal Circuit.38 On the merits, the Director asserted that the administrative adjudication of patent validity falls squarely into the "public rights" identified in Stern.39 The Director reasoned that patent rights are solely the product of a federal regulatory system that is "by its very nature . . . affected with a public interest."40 The Director further argued that the PTO's review of patent validity is a prime example of a "particularized area[] of law" where "Congress [has] devised an expert and inexpensive method for dealing with a class of questions of facts which are particularly suited to examination and determination by an administrative agency specially assigned to the task," as contemplated by the Supreme Court in Stern.41 According to the Director, Patlex and Joy Technologies were correctly decided in the first instance, and McCormick is properly distinguishable because it was limited to "the particularities of the patent statute at that time; namely, the unique limitations on reissue practice before the USPTO, and the lack of 'a separate procedure for reexamination.'"42

The district court denied summary judgment to Cooper and granted summary judgment to the Director, holding that Cooper had not "exhausted administrative remedies before seeking judicial relief."43 Rejecting Cooper's contentions that the "patently unconstitutional" exception to the doctrine of administrative exhaustion allowed review of Cooper's action, the district court observed that the Federal Circuit had already "twice upheld the constitutionality of PTO administrative proceedings concerning the reexamination of issued patents that are similar to inter partes review."44 Moreover, the district court held that litigation expenses did not constitute an "irreparable injury" exception to the doctrine of administrative exhaustion.45 Thus, the district court held that the exhaustion requirement "precludes judicial review of the constitutionality of inter partes review because the PTO proceedings are still ongoing."46

III. A Federal Circuit Challenge to the Constitutionality of Post-Grant Proceedings
MCM Portfolio LLC recently filed its principal brief in an appeal to the Federal Circuit from a final written decision of the PTAB invalidating certain claims of its patent.47 One of MCM's arguments is that actions to revoke or cancel a patent must be adjudicated in an Article III court with access to a jury in accordance with the Seventh Amendment of the Constitution.48 Like Cooper discussed above, MCM argues that the Federal Circuit's reasoning in Patlex is inconsistent with both McCormick and the "Public Rights" doctrine recently rearticulated in Stern.49 Given the timing and procedural posture of the case, MCM's appeal will likely provide the first opportunity for the Federal Circuit to decide whether Patlex and Joy Technologies remain good law, and whether their reasoning should extend to AIA post-grant proceedings.

IV. Conclusion
As post-grant proceedings continue to gain popularity, patentees are employing a wide range of legal arguments against the PTAB's authority to invalidate patents. But unlike many other challenges to the PTAB's authority or procedures, Article III and Seventh Amendment challenges have the potential to remove the PTAB's authority to adjudicate the validity of issued patents. MCM's recent appeal—which raises many of the same arguments as Cooper's action did in the Eastern District of Virginia—will place the constitutionality question squarely before the Federal Circuit.

Even if the PTAB's authority to invalidate patents is ultimately affirmed, future appeals are likely to raise new constitutional arguments, including due process considerations under the Fifth Amendment.

1 See Bayh-Dole Act, Pub. L. No. 96-517, 94 Stat. 3015 (1980) (amending Title 35 to include reexamination proceedings).

2 Patlex Corp. v. Mossinghoff, 758 F.2d 594, 225 U.S.P.Q. 243 (Fed. Cir. 1985).

3 Article III of the Constitution mandates an independent judiciary by directing that "[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." U.S. Const. art. III, §1; see also Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 848 (1986) (explaining that Article III "guarantee[s] … an independent and impartial adjudication by the federal judiciary of matters within the judicial power of the United States"). Moreover, the Seventh Amendment to the Constitution, in turn, preserves "the right of trial by jury" "[i]n Suits at common law." U.S. Const. amend. VII. The Supreme Court has explained that these two constitutional provisions are related because a separation of powers question is often dispositive of whether the Seventh Amendment applies. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 49 (1989).

4 The Federal Circuit has recently affirmed that it—rather than regional circuit courts of appeals—has jurisdiction over claims attacking the constitutionality of an Act of Congress relating to patents. Madstad Eng'g, Inc. v. U.S. Patent & Trademark Office, 756 F.3d 1366, 1370-71, 111 U.S.P.Q.2d 1569 (Fed. Cir. 2014) (88 PTCJ 657, 7/11/14).

5 Leahy-Smith America Invents Act (AIA), Pub. L. No. 112-29, 125 Stat. 284 (2011).

6 See Patlex, 758 F.2d at 601.

7 35 U.S.C. §§301-307 (2010).

8 See Patlex, 758 F.2d at 597-98.

9 Id. at 598.

10 Id. at 598-99.

11 Id. at 603-04.

12 McCormick Harvesting Mach. Co. v. Aultman, 169 U.S. 606 (1898).

13 Id. at 608-09 (citations omitted).

14 N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982).

15 Patlex, 758 F.2d at 604 (citing N. Pipeline, 458 U.S. at 69-70).

16 Id.

17 Id. at 603-05.

18 Id. at 604.

19 Id.

20 Id.

21 Id.

22 Joy Techs., Inc. v. Manbeck, 959 F.2d 226, 22 U.S.P.Q.2d 1153 (Fed. Cir. 1992), other grounds superseded by statute, 35 U.S.C. §145, as recognized in In re Teles AG Informationstechnologien, 747 F.3d 1357, 110 U.S.P.Q.2d 1310 (Fed. Cir. 2014) (87 PTCJ 1360, 4/11/14).

23 Granfinanciera, 492 U.S. 33.

24 Joy Techs., 959 F.2d at 228.

25 Id.

26 See Plaintiffs' Memorandum in Support of Motion for Summary Judgment at 2, Cooper v. Lee, No.1:14-cv-00672 (E.D. Va. June 5, 2014) (Dkt. No. 4) [hereinafter Plaintiffs' Memorandum].

27 Id.

28 Id.

29 Id.

30 United States v. Am. Bell Tel. Co., 128 U.S. 315 (1888).

31 Plaintiffs' Memorandum at 4 (quoting Am. Bell, 128 U.S. at 358-59).

32 Id. at 4-5 (quoting Am. Bell, 128 U.S. at 365).

33 Id. (citing McCormick, 169 U.S. at 612).

34 Stern v. Marshall, 131 S. Ct. 2594 (2011).

35 Plaintiffs' Memorandum at 9 (quoting Stern, 131 S. Ct. at 2613).

36 Id. at 18-22.

37 See Memorandum of Law in Support of Defendants' Motion for Summary Judgment & In Opposition to Plaintiffs' Motion for Summary Judgment at 11, Cooper v. Lee, No. 1:14-cv-00672 (E.D. Va. July 23, 2014) (Dkt. No. 15).

38 Id. at 11-16.

39 Id. at 24-30.

40 Id. at 25-26 (quoting Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 343, 169 U.S.P.Q. 513 (1971)).

41 Id. at 27 (second alteration in original) (quoting Stern, 131 S. Ct. at 2615).

42 Id. at 21 n.10 (quoting Patlex, 758 F.2d at 604-05).

43 Cooper v. Lee, No. 1:14-cv-00672, slip op. at 1 (E.D. Va. Feb. 18, 2015) (Dkt. No. 44).

44 Id. at 12.

45 Id. at 15.

46 Id. at 16.

47 See Principal Brief for Appellant MCM Portfolio LLC, MCM Portfolio LLC v. Hewlett-Packard Co., No. 2015-1091 (Fed. Cir. Jan. 21, 2015) (Dkt. No. 20) (89 PTCJ 1106, 2/27/15).

48 Id. at 46-56.

49 Id.

Reproduced with permission from BNA's Patent, Trademark & Copyright Journal, Vol. 89, No. 1305, 03/13/2015. Copyright © 2015 The Bureau of National Affairs, Inc. (800-372-1033) This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.