Are Patents Property? Depends on what you mean…

By Gordon Hull

The Supreme Court issued a landmark patent ruling yesterday in Oil States v. Greene.  The most recent major revision to the Patent statute specifies that the validity of patents – in terms of whether they meet conditions of patentability (utility, non-obviousness and novelty - the opinion does not directly specify whether questions about patentable subject matters are included here, but it cites §101, so I think that’s probably covered too)  – can be challenged and resolved through an administrative inter partes review.  This review process has a number of procedural requirements, but at the end of the day the decision reached can result in a patent revocation and is conducted entirely within the administrative apparatus of the PTO.  The question posed is therefore whether the government can revoke a patent without going through the courts.  The answer delivered in a 7-2 opinion by Justice Thomas, is yes.  I haven’t digested the opinion fully, and there was another, somewhat related case yesterday that I haven’t even started on.  That said, Oil States is a very interesting decision, including the dissent authored by Justice Gorsuch.  Here’s some initial reflections on it (I did some context-setting earlier: see here).  I’ll first talk about the opinion, and then end with a thought about the underlying policy problem, for which inter partes review is basically a band-aid solution.

The basic argument of the opinion is that patents aren’t private property so much as they are a public franchise, and as such aren’t the sort of thing the Constitution is talking about when it says property claims have to run through the judicial branch.  As Thomas argues, “the decision to grant a patent is a matter involving public rights—specifically, the grant of a public franchise” (op. slip, 7, his emphasis).  As 19c case law establishes, a patent “take[s] from the public rights of immense value, and bestow[s] them upon the patentee” (op slip, 8), by granting a right of exclusion (traditionally the core of property).  It does so to incentivize invention.  It then follows logically that the decision to remove a patent is also a matter of public franchise.  Thomas cites a 1966 ruling that administrative review covers the “issuance of patents whose effects are to remove existent knowledge from the public domain” (8-9).  In other words, if the patent doesn’t cover something novel, it takes knowledge that was available to the public and privatizes it.

The ruling strikes me as exemplifying what I call “public biopolitics,” which is basically the pre-neoliberal version that Foucault identifies (especially in Security, Territory, Population and Birth of Biopolitics) with classic liberalism.  They don’t quote Mill, but the opinion is the sort of thing that the Mill of the Principles of Political Economy could get on board with. For example, Mill justifies the departure from laissez faire on the grounds that inventions are of tremendous public value, but require nurturing by the state. Similar instances of justified state intervention include public funding of things like universities (p. 968).  He also explains what happens in terms of a publicly-granted patent license: “this is not making the commodity dear for [the inventor’s] benefit, but merely postponing a part of the increased cheapness which the public owe to the inventor, in order to compensate and reward him for the service” (p. 928). Thus, even in the case of patents, Mill conceives of the production of knowledge as the production of something that benefits the public generally, and which the application of laissez-faire will not supply. The point is not to internalize externalities for the sake of the inventor.  This sense of knowledge as a public good is specific to modern liberalism.  As Foucault puts is, “activity that may go beyond this pure and simple subsistence will in fact be produced, distributed, divided up, and put in circulation in such a way that the state really can draw its strength from it” (STP 326).

In a concurrence, Justices Breyer, Ginsburg and Sotomayor push things much farther in their concurrence, and suggest that other types of property claims might also be adjudicated by administrative means.  The concurrence thus makes evident that the opinion – this is Thomas! – is also supportive of the administrative state.  Justice Thomas does go to considerable trouble to argue that the ruling only applies to Article III determinations, and does not reach questions such as whether patents are property for purposes of the takings clause.  The opinion also notes that the ability of losers in an inter partes review to appeal to the federal circuit tempers the reach of the opinion.  I confess I do not understand what the principled distinction would be between a takings clause argument and an Article III argument in the present case (I don’t doubt that there’s case law that would allow one to cobble such a distinction together).  Especially if you push a view of the takings clause (as people like Richard Epstein do) that says that rezoning decisions that damage property value can run afoul of the takings clause.  That claim essentially says that government decisions that damage expected returns on an investment could require compensation.  Since a patent basically rewards speculation on the value of an invention (more about this at the conclusion), the majority opinion seems to me to be attempting to walk a very narrow line.  The concurrence and dissent are both conceptually easier to get a grasp on.  All of that said, this is clearly a win for the administrative state.

Gorsuch’s dissent says that patents are property, that they represent considerable economic investment (even in getting the invention patented, never mind the cost of developing it), and that the framers would have had it no other way.   The dissent is of extraordinary interest for all kinds of reasons (cf. Ronald Mann at ScotusBlog says that “the most notable writing, though, is on the other side of the matter — a powerful dissent from Gorsuch, joined by Roberts”).  A couple of interesting subplots that emerge from it.

Most notable, Gorsuch is aware that he’s fighting public biopolitics and the concern for efficiency with juridical rights (ok, he probably doesn't think in Foucauldian terms.  But he clearly sees the stakes here).  He directly says that the efficiency of the administrative review does not justify rights violations (“economy supplies no license for ignoring these – often vitally inefficient – protections” (23)).  He also says that subverting judicial independence allows “powerful interests” and “armies of lobbyists and lawyers to influence (and even capture) politically accountable bureaucracies. But what about everyone else?” (24).  This is the rights-based view of limits on governmental power, cashed out through a strong view of separation of powers in the U.S. Constitution.  (Gorsuch seems less concerned about the cost of inefficient litigation – there’s a bit of a rosy view of the judicial process.  This rosy view has also prevented serious review of fair use in copyright, which requires litigating; only defendants with means can afford a fair use defense.  Others have to fold.).

The majority debates him, saying that the English system allowed privy courts to invalidate patents, that the framers had to know this, and that they were the 18c analogue of the administrative review under question. I don’t know enough take a strong position on the history, but to the extent that the majority is right, there is an interesting discussion to be had about the development of the administrative state.  The U.S. component of the debate seems to rely on an 1898 case, McCormick Harvesting v Aultman (169 US 606).  I may be falling for Gorsuch’s vaunted rhetorical skills, but the majority’s argument (that cases like McCormick only referred to the statutory regime at the time) does sound a little disingenuous.  It’s a topic for future discussion, for sure…

Gorsuch also implicitly accuses the majority of invoking a Schmittian view of executive sovereignty. “Because the job of issuing invention patents traditionally belonged to the Executive, the Court proceeds to argue, the job of revoking them can be left there too.  But that doesn’t follow. Just because you give a gift doesn’t mean you forever enjoy the right to reclaim it.” (31).  This is striking: if Gorsuch thinks his analogy is doing theoretical work, and not just rhetorical, patents are like grace in one sense – they can be bestowed according to a logic which is irrelevant to the juridical validity of their bestowing.  But once bestowed, they can’t be revoked.  At the risk of dropping too many analogies into the conversation, it’s like the medieval distinction between absolute divine power and ordained.  Once God has done something like establish the rules of geometry, he can’t take it back.  The accusation against the majority is thus that it vests arbitrary power of decision into the executive.  Again, this is a core challenge to the administrative state: is it rational?  There are all sorts of checks and balances built in to deter arbitrary agency decision-making (these keep causing Trump to lose in court), but there’s a very serious question about the relative merits of rights-based versus biopolitical views of governance not far below the surface.

Three takeaways:

1. The majority is less interested in why you limits than the fact that you limit them. SCOUTS has been trying to limit patent rights for a while.  For example, the (unanimous, Thomas-authored) Myriad decision ruled that isolated gene fragments weren’t patentable, but that  lab-produced cDNA was.  This is all fine and well, but uses contradictory logics to get at the two halves of the result.   Oil States doesn’t have any problems at that level, but it’s also attempting a tightrope walk in the service of limiting the number of patents.
2. Gorsuch likes him his property rights. This is his emerging theory of the 4^th Amendment, too, at least based on oral argument in a pending case about electronic surveillance.  He is very concerned with limiting government power, at least sometimes, and he seems inclined to do so when he sees a clear connection to what he takes to be well-established juridical principle.  This was also evident in his joining the liberals in a recent immigration case, where he (quite correctly, imho) joined a majority opinion that declared an impossibly vague statutory reliance on conflicting notions of “violent” to be void for that reason.
3. As the above implies, some initial responses to Oil States say that there’s a simmering battle over the scope of the administrative state. That seems right. Mann proposes that “Gorsuch’s dissent begins to reveal his deep-seated skepticism about the propriety and utility of the administrative state” and suggests that “it is remarkable that Thomas managed to secure seven votes for his entire opinion. Sharp divisions marked previous cases in the area, several of which were decided without any single majority opinion. The strong majority here could go a long way to establishing the public-right/private-right distinction – however incoherent it seems to the outsider – as a firm boundary delineating areas plainly within congressional control.”  He then adds that “having said that, the opinions as a whole do display a considerable divergence of viewpoint among the justices. First, three of the justices (Justice Stephen Breyer, joined by Justices Ruth Bader Ginsburg and Sonia Sotomayor) suggest that they would go much further in tolerating administrative innovation …for that group, sympathetic to the efficiencies of the administrative state, the distinction between public rights and private rights is not a useful way to identify limits on congressional power, though they are happy to use it as a way to define plainly permissible processes.”  Reading both cases today together, Thomas Cotter notes that “I'm not an administrative law scholar, but even I can see the makings here of some future struggle between the Court's liberal and conservative wings over the future of the administrative state”

As a final thought, I think it’s worth underscoring that there is a core problem at issue that inter partes review is trying to address.  The problem is that the PTO applies only very cursory review to patent applications on the question of prior art.  They do this for a very good reason: combing through all of history for prior art would take a lot more resources than the PTO has, given the volume of incoming patent applications.  There’s a good argument that something like the current system is efficient.  On that reading, patents don’t give you a right to exclude but rather confer a right to try to exclude through litigation. This makes sense because most patents are worthless and therefore there is a very high social cost to thoroughly vet all of them before granting; treating the patent right as probabilistic in this way transfers the cost of determining prior art and enforcing the monopoly onto those who care, and off of the public’s back.  So there is a way to talk about the rights of the public here, one that would push back against Gorsuch’s dissent.