An Interview with Kent L. Richland

For the benefit of those who may not be as familiar with Stern v. Marshall, please provide a brief background of how the Article III issues arose there and in the bankruptcy courts in general.

The Stern v. Marshall case involved a rather infamous fact situation. Anna Nicole Smith, who was my client, had married a man who was significantly older and significantly wealthier than she was, and his family was unhappy with that (to put it mildly). Her husband lived for only about a year after they married. His will left nothing to her, and all of his assets had been placed into a trust. The question was whether Anna Nicole was entitled to any of those funds.

Her claim was that her husband had actually attempted to have his lawyers draft an inter vivos trust for her benefit but that his son Pierce Marshall had interfered with that effort. The way that the bankruptcy courts became involved was that Pierce Marshall made sure that Anna Nicole could not have any access to any of her late husband’s assets. Not having the funds to pay her debts, she declared bankruptcy. Of course, one of the fundamental things that bankruptcy courts do is gather all of the assets of the debtor, in this case Anna Nicole, so that they can be fairly divided among the creditors. One of her assets was her legal claim against Pierce Marshall, that he had interfered with her husband’s efforts to set up a trust for her; that’s a common law tort claim called interference with the expectancy of a gift. For efficiency reasons, the bankruptcy court itself will typically try a legal claim that is an asset of the debtor, and so the bankruptcy court in our case proceeded to do that. It found that Pierce Marshall had interfered with his father’s efforts to set up a trust for Anna Nicole that was to hold half the increase in his assets during his marriage to her—a total judgment of about $180 million.

But a bankruptcy court is not an Article III court; its judges do not have life tenure and, unlike Article III judges, their salaries can be changed during their tenure. Pierce argued that because the bankruptcy court was not an Article III court, the bankruptcy court could not constitutionally enter a final judgment against him in a common law tort action. By a 5–4 vote, the U.S. Supreme Court ultimately agreed with Pierce and held that an Article III court was necessary and therefore that the bankruptcy judge’s decision was not an enforceable final judgment.

Having argued the Article III issue before the Supreme Court, what are the main sources of difficulty for the Supreme Court in deciding this kind of issue?

There are really three basic reasons why the Court has had so much trouble with these cases. First, there is a tremendous amount at stake for purposes of the way our government works. Article III provides that only the judicial branch of the government—the Article III courts—can exercise the judicial power of the United States, so it embodies one of the most fundamental structural principles of our system—the separation of powers. The idea is that federal judges are supposed to be independent of the political branches of the government, the executive and the legislative; that’s the reason they are appointed for life and their compensation can’t be changed. But at the same time, there are only a limited number of Article III judges and litigation before them is very expensive; and there are some types of situations (bankruptcy is one of them) where, for reasons of efficiency, it makes sense to have specialized, non–Article III courts dealing with the specialized law and disputes that arise in that situation. Thus, typically, the tension in these cases is between Article III values (really fundamental values, most importantly the separation of powers) and the need for a cost-effective way to handle certain kinds of disputes. If every decision that the government makes had to go to an Article III court, the Article III courts would be overwhelmed. For example, the number of bankruptcy cases is many multiples of the number of regular Article III civil cases that are tried in the courts. If every case that was in bankruptcy had to be tried in Article III courts, the system would not be able to operate, so these cases present very real practical difficulties that have significant real-world impact on our very system of government.

Another reason these cases are so difficult is that Article III itself provides essentially no guidance on what “the judicial power of the United States” is. All it says is that the judicial power of the United States is vested in one Supreme Court and in such courts as Congress may from time to time ordain and establish. So, since the beginning of our nation, the Supreme Court has struggled with this question: “What constitutes the judicial power of the United States?”

Third, because of the abstract nature of this question and the absence of guidance in the Constitution itself, the Court has come up with a significant number of different tests to make this determination, and in modern times it has analyzed these issues in two fundamentally different ways. In Stern v. Marshall, the majority employed a very formal analysis to hold that the bankruptcy courts could not decide common law disputes between private parties. Looking at its past cases, the majority noted that the Court had held that categories of courts were traditionally permitted to decide cases even though they were not Article III courts—for example, military courts and territorial courts. By contrast, the bankruptcy courts were not among those that had historically been empowered to decide common law disputes. The Stern v. Marshall dissent adopted a very different approach to the issue; it employed a balancing test. That test asks, “To what extent does a non–Article III court’s ability to decide common law cases undermine the purposes behind Article III, and does the cost of such intrusion outweigh the need for and advantages gained by having these disputes decided in a non–Article III forum?” Perhaps not surprisingly, the more formalistic approach tends to result in cases being determined to require Article III courts, while the balancing test often results in a decision that, for pragmatic reasons, a limited intrusion into Article III values is an acceptable price to pay for more efficient dispute resolution.

In Oil States, there’s a very similar kind of dilemma as was faced by the Court in Stern v. Marshall. The Patent Trial and Appeal Board (PTAB) is doing something that looks very much like what an Article III court normally does—deciding an inter partes dispute between two private parties—but it’s an efficient way of resolving questions concerning the validity of a patent that would be a real burden on the court system if they were required to go to Article III courts. At the same time, there are legitimate concerns that Article III values, including separation of powers, are being diluted by the fact that the dispute is being decided by what is effectively an agency, as opposed to a court.

What are the important similarities and differences between what you faced in Stern v. Marshall versus what Oil States presents in terms of the Article III question?

Most importantly, both cases are dealing with private parties who are engaged in a dispute over an issue in which both have an interest in the outcome. In the case of an IPR, the patent owner has what she claims is a property interest in the patent that the other side is attempting to invalidate. The second thing that is very similar is that you’ve got a system that looks very much like the regular litigation system that we have in our federal and state courts. There are advocates on each side who engage in discovery and then present evidence. They do so before a trier of fact, and that trier of fact then reaches a decision at the end. That looks very much like an exercise of judicial power. Those are the two most significant ways in which the bankruptcy and IPR situations are very similar. One of the main arguments that Oil States’ lawyer made in its briefing and at the argument was that very similarity between these systems—that there is something peculiarly “litigational” about what parties are doing in front of the PTAB and that the decision made by such a system is by definition an exercise of judicial power.

Now, how is the bankruptcy situation different from that presented in the Oil States case? Significantly. Perhaps the most profound difference is that bankruptcy courts can essentially entertain virtually any kind of civil case that might result in an increase in the assets of the bankruptcy estate. In Stern v. Marshall, it happened to be interference with an expectation of inheritance—a tort. But you could have an automobile accident case, a contract case, or essentially the entire gamut of the civil law that might be litigated in the bankruptcy courts. The PTAB situation is quite different. There, you’ve got a very limited issue that is being litigated, and it’s an issue with which the government is intimately involved. That involvement, of course, is that it is the government that issues the patent and it’s the government that is then deciding, in these inter partes review cases, whether or not there was a mistake in issuing the patent. So that is a pretty narrow and relatively government-centric kind of decision that’s being made, in contrast to the wide-ranging nature of the essentially private disputes that are decided in bankruptcy courts.

The other thing that is very different is that bankruptcy cases invariably involve monetary recovery because the question there is invariably whether a bankruptcy estate will or will not be increased. Of course, that’s not what is at issue in the inter partes review cases. Of course, there will very likely be monetary effects from what may result, but the decision of the PTAB does not result in award of damages from one party to another or any other kind of explicit monetary award. In fact, one of the most important arguments, if not the most important argument, that the U.S. government made at the oral argument in Oil States was that typically civil cases that are decided by Article III courts have to do with an explicit dispute over a monetary sum. PTAB cases are explicitly fights over rights. Ultimately, of course, there are economic consequences, but this is a difference that I think is quite significant in this context.

How do these similarities and differences weigh in the constitutionality question raised in Oil States?

Rather significantly. In one sense, it is easy to see that the Stern v. Marshall majority was ultimately convinced that the bankruptcy system violated Article III because bankruptcy courts were deciding exactly the same kinds of disputes—and essentially the very same range of disputes—that have been and are the traditional bailiwick of Article III courts. One of the things that the chief justice’s majority opinion in Stern v. Marshall picks up from earlier decisions is that the essence of what Article III courts do is decide issues that were the “stuff of the common law” in 1789, when the Constitution was adopted. And, of course, most state causes of action between private parties—common law causes of action, civil causes of action—generally find their genesis in the common law as it existed in 1789. The majority in Stern v. Marshall said that that’s really the essence of what Article III courts do, and it’s therefore what non–Article III courts can’t do. By contrast, in Oil States, the issue before the PTAB is this narrow question of whether a patent was mistakenly issued in the first instance. Because it is a function of government to issue patents, the issue before the PTAB ultimately sounds an awful lot more like an exercise of government power, and particularly that of the executive branch of the government, as opposed to something that the Court does.

What about the debate on the public versus private rights issue?

To some degree, that’s pretty much what I’ve just been talking about. The formal approach to Article III analysis employed by the Stern v. Marshall majority recognizes that a traditional exception to the requirement of an Article III decision maker is whether the matter at issue is a “public” right versus a “private” right. Private rights are those kinds of rights that were and are litigated under the common law as originally understood in 1789, including as the common law has developed since then. It is a little more difficult to define public rights with any precision—as originally conceptualized by the U.S. Supreme Court, as rights over which the government itself has the control and that, as a matter of public interest, we expect the government to control. One of the major arguments in Oil States is what’s really at stake when there is inter partes review: Are we talking about a public right, which is the right of the government to issue and to decide that it has improperly issued a patent? Or are we talking about a private right, in that you have two parties litigating over the patent issue because one of the parties would like to be able to take advantage of and develop the technology that is currently protected by a patent that was issued to that party’s opponent?

On the public versus private rights issue, some of the justices posed many questions on the investment in the patent right. Even though the government may have issued that right in the first instance, can something that looks like a public right be converted to something that looks more like a private right by the fact that a party invests a lot of time and money into the right granted by the government?

Justice Breyer expressed particular concern about that at the Oil States argument. He posed the scenario of a patent holder who has had the patent for many years and, relying on the patent, spends billions of dollars building factories to manufacture the patented product. Then, all of a sudden, someone comes along and says that granting the patent was a mistake in the first place—that it’s a shame that it cost the patent holder billions of dollars, but the patent should never have been issued. Justice Breyer wondered whether there might very well be some kind of a transformation of what, in the first instance, might be deemed just a public right, into something, simply by virtue of the detriment caused by reasonable reliance on the patent, became a private right. It’s going to be extremely interesting to see if he writes one of the opinions of this case because if he does so, there is a possibility that he might adopt a very creative approach to the problem presented in these cases along the lines that he spoke about at oral argument.

It seems that question might fall under a different constitutionality issue, but maybe not one presented in the Oil States case.

That’s exactly right. Some of the justices asked questions and talked about whether ultimately there might be a due process issue or a takings question presented in the Oil States situation. It may well be that one of those other provisions of the Constitution would guard against the kind of injustice that might occur where there has been very significant reliance on the grant of a patent.

Do you have a prediction of how Oil States is going to be decided?

Yes, I do. I’ve studied the argument carefully. As is his usual practice, Justice Thomas did not ask any questions, so there are no clues from the oral argument about how he might decide this case. But in the Court’s previous Article III cases, he has reliably voted for the “formal” analytic approach that has resulted in the invalidation of non–Article III decision-making practices. Justice Alito asked the fewest of the other justices, and his questions seemed to indicate that he is inclined to conclude that the inter partes review system presents substantial Article III problems. Justice Gorsuch seemed even more hostile to the defenders of the PTAB; moreover, he decided Article III cases before joining the Supreme Court, and in those cases he was a strong defender of Article III. And the chief justice is a strong Article III proponent; Chief Justice Roberts’s opinion in Stern v. Marshall talks about courts’ Article III powers and responsibilities in almost spiritual terms, and he sees the function of judges as being decidedly different from that of agencies. In fact, at one point in the Oil States argument, one of the advocates referred to the PTAB adjudicator as a “judge”; Chief Justice Roberts stated, in no uncertain terms, that someone sitting on the PTAB was not what he thought of as a judge, so I suspect that you’re going to have four clear votes finding that the inter partes PTAB procedure presents a problem under Article III.

On the other side, Justices Breyer, Kagan, Ginsburg, and Sotomayor—I think they all made it pretty clear from their questions that they are inclined to conclude that there is no right to an Article III court here. I think that Justice Kennedy, as usual, may well be the swing vote. Just reading between the lines of the questions he asked—such as whether Congress could condition the award of a patent on having to agree to the inter partes procedures—he seemed to be making the point that a patent is, by its nature, a limited right. In essence, the point seemed to be that when one gets a patent, one implicitly agrees to this kind of inter partes procedure by virtue of the fact that it’s already on the books. My guess is that we’re likely to see a 5–4 opinion finding that this procedure does not violate Article III. It’s always dangerous to rely on the oral argument to make predictions because the justices are often testing various possible approaches to the case in their questions, but that’s my guess, for what it’s worth.

Any thoughts on when the decision will come out?

It could be relatively soon because the Court is beginning to hand down a substantial number of this term’s argued cases right now. The earliest I would guess would be about a month from now (March), but it’s a big case. The Court tends to hold the big cases until later in the term, so I think May/June is probably a pretty good prediction.