Oil States Preview Take II -- Just What Did the Supreme Court Hold in McCormick Harvesting Machine v. Aultman?

By Andrew Williams --

Last week, we provided a preview of the Supreme Court case Oil States Energy Services, LLC. v. Greene's Energy Group, LLC. that will be argued on November 27, 2017.  The underlying case has received a lot of attention, so it is not surprising that the post generated a lot of interest and discussion in the comments.  And while the remarks were well-reasoned (and much appreciated), it was interesting that essentially diametrically opposed views could be generated from the exact same language from the cited Supreme Court precedent.  To say that the Oil States case has generated a lot of interest would be an understatement.  Fifty-eight amicus briefs were filed on behalf of even more unique parties -- 21 in support of petitioner, 25 in support of the respondent, and 12 in support of neither party.  In fact, at least 110 separate law professors filed or joined various amicus briefs on both sides (with more than two-thirds supporting the constitutionality of IPRs).  There were several arguments asserted by Petitioner and its supporting amici as to why patents represent private property rights and, as a result, cannot be canceled by an adversarial process at the Patent Office.  However, the argument as to the unconstitutionality of IPR proceedings appears to grounded in what the Supreme Court said about patent rights in the 1898 case McCormick Harvesting Machine v. Aultman, 169 U.S. 606 (1898).  Therefore, we thought it useful to take a closer look at this case and whether it conclusively answers the question presented in Oil States.

McCormick Harvesting stemmed from an 1870 change to the patent laws as they related to reissue applications.  Prior to that change, the reissue statute required a patent owner to surrender its patent when filing for a reissue, which the prior Supreme Court case of Peck v. Collins, 103 U.S. 660 (1881), had held "absolutely extinguished the original patent."  McCormick Harvesting, 169 U.S. at 610-611.  The 1870 version shifted when the surrender of the patent took effect, changing it to the issuance of the amended patent.  As a result, the applicant could chose to abandon the reissue application and have the original patent returned.  However, Peck and other contemporary Supreme Court cases did not consider, and therefore took no position, on what would happen if an examiner determined that an original claim in a reissue application (as opposed to a newly added claim) was invalid.  Would the Patent Office have the ability to cancel such a claim if the patent owner had requested the return of the patent?  This was the question decided by McCormick Harvesting.

The patent at question in McCormick Harvesting was U.S. Patent No. 159,506, issued to Marquis L. Gorham on February 9, 1875 and covered automatic twine binders for harvesting machines.  The patent owner had filed a reissue application that included several original claims and many new ones.  The Examiner rejected claims 3, 10, 11, 25, and 26 of the original patent for lack of novelty.  This decision was not appealed, but instead the patent owner (then McCormick Harvesting) requested return of the patent.  McCormick Harvesting subsequently sued C. Aultman and the Aultman-Miller Company in the U.S. District Court for the Northern District of Ohio.  Subsequently, the Circuit Court of Appeals determined that claims 3, 10, and 11 of the original patent were infringed "unless it should be determined that they were invalidated by their being rejected by the examiner upon an application for a reissue of the same . . . ."  Id. at 607.  Therefore, the question presented to the Supreme Court was:

If the owner of a patent applies to the patent office for a reissue of it, and includes among the claims in the application the same claims as those which were included in the old patent, and the primary examiner rejects some of such claims for want of patentable novelty, by reference to prior patents, and allows others, both old and new, does the owner of the patent, by taking no appeal and by abandoning his application for reissue, hold the original patent, the return of which he procures from the patent office, invalidated as to those of its claims which were disallowed for want of patentable novelty by the primary examiner in the proceeding for reissue?

Id. at 607-08.  In other words, did the Examiner have the authority to reject the original claims in a reissue application that was abandoned and returned?

The Court answered the question in the negative.  In doing so, it never specifically evoked the Constitution, nor did it specifically state that Congress could never provide the Patent Office with the authority to cancel a claim in an issued patent.  Nevertheless, the Court did cite to cases whose resolutions were grounded in the Constitution.  Moreover, it did use language that is often associated with constitutional violations:

Had the original patent been procured by fraud or deception, it would have been the duty of the commissioner of patents to have had the matter referred to the attorney general with the recommendation that a suit be instituted to cancel the patent; but to attempt to cancel a patent upon an application for reissue when the first patent is considered invalid by the examiner would be to deprive the applicant of his property without due process of law, and would be in fact an invasion of the judicial branch of the government by the executive.

Further, the Court stated that "[t]he 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."  The difficulty, of course, is that there was no statutory authority for the Patent Office to act in such a manner at this time.  In fact, before the 1870 change to the reissue process, an examiner had absolute discretion to cancel any reintroduced original claim (because the original patent had already been surrendered).  Nevertheless, without that grant of authority from Congress, an examiner's cancellation of the original claims after 1870 would have certainly been a violation of due process and an invasion on the then-exclusive jurisdiction of the judicial branch by the executive.  As a result, we are left with language in McCormick Harvesting that can be used to support either interpretation, whether alleging the case refines the constitutional limits of Congress with regard to issued patent rights, or whether alleging that McCormick Harvesting case rests solely on the lack of statutory authority at the time.

So how will the current Supreme Court interpret McCormick Harvesting?  It's unclear.  Cynically, using the above reasoning, the Court could cite to McCormick Harvesting as supporting its opinion in Oil States regardless of what the Court's conclusion turns out to be.  And, somewhat unsatisfyingly, we will only truly find out what McCormick Harvesting means if and when the Court tells us when it resolves Oil States.  Until then, hopefully the Court will give us some clue during the oral hearing next Monday.

Comments

[Ron Katznelson]

I am puzzled how the author can equally read McCormick as resting "solely on the lack of statutory authority at the time." McCormick's statement that cancellation of issued claims "would be in fact an invasion of the judicial branch of the government by the executive" is purely a constitutional separation of powers holding - not a statutory interpretation of the Patent Act. There can be no valid statute that would empower the executive to breach the separation of powers (Article III).

[EG]

"The difficulty, of course, is that there was no statutory authority for the Patent Office to act in such a manner at this time."

Hey Andrew,

That may have been true, but if lack of statutory authority was reason for SCOTUS' holding in McCormick Harvesting, wouldn't SCOTUS had said something like or equivalent to "the patent office was not granted statutory authority" to invalidate a patent in a reissue? Instead, all words in the opinion evoke Constitutional (not statutory) infirmity.

[Skeptical]

Cynically, using the above reasoning, the Court could cite to McCormick Harvesting as supporting its opinion in Oil States regardless of what the Court's conclusion turns out to be.

Nose of wax anyone?

[Andrew Williams]

Dear EG,

Thank you for your comments (both to this post and the previous one). I also want to make clear that I think you have a perfectly valid view of the McCormick Harvesting case, and I recognize that many people agree with your position. However, I think that Respondent’s view of this case is also equally plausible. With that said, I am happy to, and capable of, arguing either position. Playing devil’s advocate, in response to your question, it could be argued that the Court WAS saying that the office did not have the statutory authority to cancel a patent – or more correctly that the statutory authority was revoked with the change in the 1870 patent act. With that change in the patent statute, and the lack of any other statutory authority, any attempt by the executive branch to assume power that was otherwise left to the courts was unconstitutional.

We could also flip your question to ask why SCOTUS did not say something like “Congress could never grant the authority to the executive branch to revoke an issued patent.” The problem is this wasn’t necessarily the question the Court were answering. And I do find the lack of mention of Constitutional infirmity slightly troubling.

With all of the said, I do find this debate interesting, and I am looking forward to seeing what questions the Court asks on Monday. And I will reiterate that I do appreciate all of the thoughtful and thought-provoking comments that have been provided to these posts. Thanks.

Andrew

[Andrew Williams]

Dear Ron Katznelson,

I hope my response to EG answered your question also. Thanks for the comment.

Andrew

[Paul F. Morgan]

A good article Andrew.
Ron, the McCormick Court's situation and statement of "an invasion of the judicial branch of the government by the executive" [absent any Congressional authorization] is not necessarily applicable to a Congressionally-established administrative tribunal 150 or so years later.
Even many of the expressly constitutional Sup. Ct. decisions of that long ago time period have long since been overruled by later Sup. Ct. decisions.

[Paul F. Morgan]

If McCormick Harvesting was really constitutional, why was it not used to attack subsequent statutory PTO interference proceedings adverse decisions against issued patent claims?

[Ron Katznelson]

Andrew,
Your response to EG was not at all responsive to my comment. You skirt the holding in McCormick; under your reading, what part of "would be in fact an invasion of the judicial branch of the government by the executive" lacks "mention of Constitutional infirmity"? Can you please explain how that SPECIFIC statement can in any way mean that the "Court WAS saying that the office did not have the statutory authority to cancel a patent" but not what the plain language means - that the Office had no separation of powers (constitutional) authority to do so?

Paul,
As best I recall, the relevant provisions of the Constitution have not been amended since McCormick. McCormick is good law as pertaining to the Constitution and therefore very much "applicable to a Congressionally-established administrative tribunal 150 or so years later."

The fact that the Federal Circuit ignored McCormick in prior cases is hardly a legal proof of anything.

[maxdrei]

Having made an attempt to understand the legal arguments, this way and that, it seems to me that the Supreme Court will find itself free to jump either way. The legal arguments are sound enough, on both sides, to support a defensible Decision, either way.

So, in the end, the Court will decide as it wants to decide.

The tie breaker is the general welfare, the public interest, public policy. That, I suppose, is where the Amicus Briefs will play a decisive role.

[Robert Greenspoon]

Andrew's article states:

"The difficulty, of course, is that there was no statutory authority for the Patent Office to act in such a manner at this time. "

This is a common misperception. From our Cooper v. Lee cert petition of last year:

"Indeed, at the time, reissue examiners acted under color of statutory authority to invalidate original patent claims during reissuance proceedings (just like IPRs today). See Patent Act of 1870, Section 46, R.S. § 4909 (providing that “any claim” – whether original or added – may be rejected twice during reissue, and rejection is final for appeal purposes). McCormick did not curtail executive action based on an absence of statutory authority; it held on constitutional grounds in the face of it."

[Ron Katznelson]

Robert,
I think your point only goes to the reissue process itself (which was abandoned in McCormick)-- not to the returned original patent that did not get reissued. It is the cancellation of claims in THAT patent that was at issue in McCormick and there was no statute prescribing invalidation of claims in the original returned patent due to the Office rejection of identical claims in a reissue application that was abandoned.

Therefore, I believe Andrew's article is correct on THAT point. And I would even accept as reasonable the argument that the first part of McCormick's statement -- that doing so "would be to deprive the applicant of his property without due process of law" -- can be interpreted as stating a void in statutory authority, even though it is a Fifth Amendment infirmity. This is because Congress could have cured this type of infirmity by providing due process through a statutory scheme for canceling claims in EXISTING patents.

However, my point is that the notion of a statutory void only goes so far. The second part of McCormick's holding -- that it "would be in fact an invasion of the judicial branch of the government by the executive" has no possible statutory cure. This holding in McCormick is purely constitutional. This constitutional infirmity is about the separation of powers and curing it requires amending Article III of the Constitution. It is on THIS issue that Andrew's article is incorrect. While McCormick's holding may not be a Fifth Amendment holding, it is certainly an Article III holding.