Private Property and Public Franchise: Patents Under the Supreme Court’s “Public-Rights Doctrine”

Post by John Golden

In an April 24 decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 584 U.S. __ (2018), the United States Supreme Court addressed a question previously highlighted on this blog (see posts of May 30, June 13, and December 4, 2017): the extent to which patents involve public or private rights for purposes of U.S. constitutional law. Specifically, the Court held that whether a patent claim should be canceled for lack of novelty or nonobviousness is “a matter involving public rights” and therefore may be determined by an administrative agency, the U.S. Patent and Trademark Office (USPTO), rather than an Article III court. With Justice Thomas writing for a seven-Justice majority, the Court emphasized its view that, although patents are a “form of property,” the decision to grant a patent—a matter long consigned to the USPTO—is a decision on “the grant of a public franchise” and thus liable to congressional reservation of administrative power “to revoke or amend” the grant. The Court thereby signals the existence of a subcategory of privately held property—namely, public franchises granted to private persons—that is particularly susceptible to administrative adjudication.

But what is a “public franchise”? The Court does not give a crisp definition. Nonetheless, by pointing to aspects of patents that apparently support their classification as public franchises, the Court provides some hints. First, the Court notes that the right to exclude provided by a patent “ ‘did not exist at common law’ ” (quoting Gayler v. Wilder, 51 U.S. (10 How.) 477, 494 (1851)), and is instead “a ‘creature of statute law’ ” (quoting Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24, 40 (1923)). Further, Congress has authorized such rights by exercising its constitutionally granted “power ‘[t]o promote the Progress of Science and useful Arts’ ” (quoting U.S. Const. art. I, § 8, cl. 8). In other words, Congress has provided for patents pursuant to a public purpose. These observations comport with a definition of “public franchise” that Justice Thomas has proffered before: a right or set of rights “ ‘which public authorities ha[ve] created purely for reasons of public policy and which ha[ve] no counterpart in the Lockean state of nature.’ ” Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 848 n.2 (2015) (Thomas, J., dissenting) (quoting Caleb Nelson, Adjudication in the Political Branches, 107 Colum. L. Rev. 559, 567 (2007)).

Interestingly, however, the Project on the Foundations of Private Law’s recent conference on “The Administrative-Private Law Interface in IP” revealed that the academic quoted for this definition, Caleb Nelson, might not agree with the Court’s conclusion that patents fall within it. The panel on which Professor Nelson appeared debated (in part) whether “invention patents” like that in Oil States are better analogized to land patents granting fee simple in public lands or, instead, to leases of public land. In dissent, Justice Gorsuch, joined by Chief Justice Roberts, came down on the land patent side. Footnote 3 of the majority opinion found the land-lease analogy more apt.

Some Justices likely viewed the “public franchise” characterization as less than critical to the result. Justice Breyer authored a one-paragraph concurring opinion, joined by Justices Ginsburg and Sotomayor, that signals continued belief in precedent indicating that at least some “matters involving private rights” may be adjudicated by non-Article III tribunals. In contrast, the dissenters openly questioned aspects of such precedent, declaring themselves “skeptical” of “the notion that the political branches may ‘depart from the requirements of Article III’ when the benefits outweigh the costs” (quoting Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833, 851 (1986)).

Of course, the above begs the question of whether a public-versus-private-rights distinction is a good basis for deciding when Article III adjudication should be constitutionally necessary. Various scholars have contended that, even with respect to matters of private right, sufficiently robust judicial review of administrative action commonly suffices to satisfy the U.S. Constitution’s assignment of “[t]he judicial Power of the United States” to courts whose judges enjoy tenure and salary protections under Article III, U.S. Const. art. III, § 1. See, e.g., Louis L. Jaffe, Judicial Control of Administrative Action 91 (1965); Paul M. Bator, The Constitution as Architecture: Legislative and Administrative Courts Under Article III, 65 Ind. L.J. 233, 269 (1990); Richard H. Fallon, Jr., Of Legislative Courts, Administrative Agencies, and Article III, 101 Harv. L. Rev. 915, 918 (1988). Moreover, Justice Thomas’s opinion reserves questions of (1) whether the administrative review process in Oil States may be retroactively applied to patents issued before Congress provided for such review; (2) whether the administrative review process violates due process; and (3) whether cancellation through the administrative review process might constitute a taking that requires “just compensation,” U.S. Const. amend. V. Does restriction of administrative action in accordance with such protections give adequate reassurance to holders of private property? Perhaps the next several years’ experience with administrative review of issued patents will shed some light.

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