Patent Trolls Lose Before Supreme Court

The 2012 America Invents Act created the inter partes review process which allowed for challenges to patents in an administrative, rather than a lawsuit, making challenges to patents faster and cheaper.

The patent trolls took it to court, saying that Congress could not delegate the court's patent authority in this way, and the Supreme Court just shot them down in well-deserved flames:

The Supreme Court on Tuesday upheld the constitutionality of a process for challenging low-quality patents. Since its creation in 2011, this "inter partes review" (IPR) process has dramatically lowered the cost of defending against frivolous patent litigation.

The process allows an executive branch agency—not the courts—to revoke a patent after it has been granted. Critics claim that runs afoul of the Constitution's requirement that only the courts can deprive people of their property.

But the Supreme Court didn't buy it. In a 7-2 decision written by Justice Clarence Thomas, the nation's highest court ruled that patent rights were fundamentally a government-granted privilege that could properly come with strings attached. One such condition is the risk that the patent office might change its mind and invalidate a patent that it had previously approved.

The ruling preserves one of defendants' most potent weapons against patent trolls. Challenging a patent in court can cost millions of dollars. As a result, prior to 2011, it often made sense for defendants to settle a patent case even if they believed that the patent wouldn't stand up in court.

But then Congress passed the America Invents Act, which created a new administrative process called inter partes review. That process cuts the cost of challenging a patent down to the low six figures. It has shifted the playing field for patent litigation, allowing the targets of frivolous patent lawsuits to fight back without going broke in the process. The new Supreme Court ruling puts that process on a firm constitutional footing, which should make life difficult for patent trolls for years to come.

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But Oil States sued, arguing that the Constitution requires an IPR-like process to occur in the judicial branch—not in an executive branch agency like the patent office. Executive branch agencies do not have the independence of judges, and they don't necessarily offer all of the due-process protections provided to litigants by the judicial system.

While the argument was officially over the difference between the executive and judicial branch, this was really a dispute about the nature of patent rights. Are patents fundamentally a government-granted monopoly (a "public right," in legal jargon), or are they a form of private property akin to a home or car?

The Constitution provides robust legal protections, including a guarantee of due process through the judicial branch, to private property: a law allowing a federal agency to take someone's home or business without the approval of the courts would be unconstitutional.

But it doesn't make sense to extend that same level of protection to government-granted monopolies. After all, the public interest may require curtailing or eliminating these kinds of monopolies in the future.

"Congress can grant a franchise that permits a company to erect a toll bridge but qualify the grant by reserving its authority to revoke or amend the franchise," the court's majority wrote, citing a 101-year-old precedent on the topic. "The same is true for franchises that permit companies to build railroads or telegraph lines."

This is why the case is important: It is a refutation of the entire idea of "Intellectual Property", that has come to the fore recently:

None of these rulings was explicitly about whether patents are monopolies or property rights. But the question implicitly shapes how courts think about these kinds of questions. Monopolies are generally viewed with skepticism; property rights are not. "Allowing petitioners to patent risk hedging would preempt use of this approach in all fields and would effectively grant a monopoly over an abstract idea," the Supreme Court wrote in its 2010 ruling on patenting abstract ideas.

Tuesday's ruling is important in its own right, as it preserves a process that has had a real impact on the patent-litigation problem. But it's also a barometer of how the Supreme Court's justices are thinking about the patent system more generally. The fact that seven of the nine justices continue to view patents as a government-granted franchise, not a form of property rights, suggests that the high court's more-than-decade-long smackdown of pro-patent jurisprudence could continue for years to come.

The Federal Circuit, aka the "Patent Court" has been mishandling, and expanding, patents for years, and the Supreme Court has been pushing back for about a decade against the excesses of the Federal Circuit.

This one is significant, because it throws a brick through the "Intellectual Property" window.