Reply Brief — Security People, Inc., Petitioner v. Andrei Iancu, Director, United States Patent and Trademark Office, et al.

No. 17-214

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In The

Supreme Court of the United States

-----------------------------------------------------------------SECURITY PEOPLE INC.,

Petitioner,

v.

JOSEPH MATAL, INTERIM DIRECTOR,

U.S. Patent & Trademark Office, U.S. PATENT &

TRADEMARK OFFICE, and OJMAR US, LLC,

Respondents.

-----------------------------------------------------------------On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Federal Circuit

-----------------------------------------------------------------REPLY BRIEF FOR PETITIONER

-----------------------------------------------------------------FREAR STEPHEN SCHMID

Counsel of Record

177 Post St., Suite 550

San Francisco, CA 94108

(415) 788-5957

frearschmid@aol.com

================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTION PRESENTED

The Question Presented by this Petition is the

same for which certiorari was granted in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No.

16-712 (granted June 12, 2017):

Whether inter partes review – an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of

existing patents – violates the Constitution by

extinguishing private property rights through

a non-Article III forum without a jury.

ii

TABLE OF CONTENTS

Page

QUESTION PRESENTED .....................................

TABLE OF CONTENTS ........................................

TABLE OF AUTHORITIES ...................................

INTRODUCTION ...................................................

BACKGROUND......................................................

ARGUMENT ...........................................................

THE UNDERLYING COMPLAINT IS NOT A

COLLATERAL ATTACK ON AN IPR ACTION

AS THE COMPLAINT WAS FILED BEFORE

THE INSTITUTION OF IPR .............................

i

ii

iii

1

4

5

5

AT THE TIME OF FILING THE UNDERLYING COMPLAINT, BECAUSE OF THE STAY

OF ITS INFRINGEMENT ACTION, THERE

WAS A RIPE DISPUTE SUBJECT TO DISTRICT COURT JURISDICTION IN THAT PETITIONER WAS AT ALL TIMES BEING

DENIED ITS RIGHT TO HAVE THE PATENT

INFRINGEMENT CASE RESOLVED IN AN

ARTICLE III COURT WITH A RIGHT TO A

JURY TRIAL AND TO EXPLOIT AND MONETARIZE ITS PATENT.........................................

9

SPI’S COMPLAINT ADDRESSES NOT ONLY

THE ONE PATENT AT ISSUE IN ITS INFRINGEMENT ACTION, BUT ALSO CHALLENGES THE

UNCONSTITUTIONAL DAMAGE IPR POSES

TO SPI’S PATENT PORTFOLIO......................... 10

THE IPR PROCESS BREEDS A MULTIPLICITY OF LITIGATION AND BURDENS THE

FEDERAL CIRCUIT WITH APPEALS ............. 11

CONCLUSION ....................................................... 12

iii

TABLE OF AUTHORITIES

Page

CASES

Crowell v. Benson, 285 U.S. 22 (1932) ..........................8

Disabled American Veterans v. U.S. Department of

Veterans Affairs, 962 F.2d 136 (2d Cir. 1992)............7

Free Enterprise Fund v. Pub. Co. Accounting

Oversight Bd., 130 S. Ct. 3138 (2010).......................7

GTNX, Inc. v. INTTRA, Inc., 789 F.3d 1309 (Fed.

Cir. 2015) ...................................................................6

In re: Tech. Licensing Corp., 423 F.3d 1286 (Fed.

Cir. 2005) ...................................................................7

Marbury v. Madison, 5 U.S. 137 (1803) ........................7

Markman v. Westview Instruments, Inc., 52 F.3d

967 (Fed. Cir. 1995), aff ’d, 517 U.S. 370 (1996)

...................................................................................7

McCarthy v. Madigan, 503 U.S. 140 (1992) .................8

McCormick Harvesting Co. v. Aultman, 169 U.S.

606 (1898) .................................................. 2, 3, 12, 13

MCM Portfolio LLC v. Hewlett-Packard Co., 812

F.3d 1284 (Fed. Cir. 2015) .........................................8

Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272 (1856) ....................................2

Northern Pipeline Construction Co. v. Marathon

Pipeline Company, 458 U.S. 50 (1982) ......................7

Oil States Energy Services LLC v. Greene’s Energy Group, LLC, No. 16-712 (granted June 12,

2017) ................................................................ passim

iv

TABLE OF AUTHORITIES – Continued

Page

Patlex Corp., Inc. v. Mossinghoff, 585 F. Supp.

713 (E.D. Pa. 1983) ....................................................8

Patlex Corp., Inc. v. Mossinghoff, 758 F.2d 594

(Fed. Cir. 1985) ..........................................................8

Roe v. Wade, 410 U.S. 113 (1973) ................................11

Stern v. Marshall, 564 U.S. 462 (2011).........................1

Super Tire Engineering Co. v. McCorkle, 416 U.S.

115 (1974) ................................................................11

Thomas v. Union Carbide Agric. Prods. Co., 473

U.S. 568 (1985) ..........................................................8

STATUTES

35 U.S.C. §329 ...............................................................6

1

INTRODUCTION

Federal Respondent’s opposition concedes that

the petition tenders issues worthy of review in view of

the pending case of Oil States Energy Services LLC v.

Greene’s Energy Group, LLC, No. 16-712 (granted June

12, 2017) and that a hold on the subject petition is appropriate pending the resolution of Oil States. Federal

Respondent makes these concessions subject to meritless jurisdictional arguments that the subject action is

a collateral attack, arguments rejected by the District

Court and Federal Circuit below. This action is not a

collateral attack as it was instituted before the inter

partes review was instituted. This action was instituted to preserve Petitioner’s First Amendment right

to petition and address its grievances in an Article III

court.

As stated in Stern v. Marshall, 564 U.S. 462 (2011):

In establishing the system of divided power in

the Constitution, the Framers considered it

essential that “the judiciary remain[ ] truly

distinct from both the legislature and the executive.” The Federalist No. 78, p. 466 (C. Rossiter ed. 1961) (A. Hamilton). As Hamilton put

it, quoting Montesquieu, “ ‘there is no liberty

if the power of judging be not separated from

the legislative and executive powers.’ ” Ibid.

(quoting 1 Montesquieu, Spirit of Laws 181).

As further stated in Stern:

Article III could neither serve its purpose

in the system of checks and balances nor

2

preserve the integrity of judicial decisionmaking if the other branches of the Federal

Government could confer the Government’s

“judicial Power” on entities outside Article III.

That is why we have long recognized that, in

general, Congress may not “withdraw from judicial cognizance any matter which, from its

nature, is the subject of a suit at the common

law, or in equity, or admiralty.” Murray’s Lessee v. Hoboken Land & Improvement Co., 18

How. 272, 284 (1856).

It is ironic, but not unexpected, that almost 250

years after the American Revolution freed us from the

usurpation of power by King George and Parliament

that Federal Respondent is ignoring the very words of

Alexander Hamilton and his fellow Framers by advocating that it is within the prerogative of the Executive

and Legislative Branches to strip patent holders of

their vested property rights, the only “right” expressly

articulated in the original Constitution. It is not unexpected because the Framers foresaw and understood

the nature of government to increase its reach, and

thus they attempted to prevent such overreach by the

well-defined separation of powers set forth in the Constitution, as espoused in the above quotes. This separation of powers was clearly recognized in McCormick

Harvesting Co. v. Aultman, 169 U.S. 606 (1898), holding

that patent invalidation was exclusively vested in Article III courts. It is up to this Court in this case and

the Oil States case to effectuate Hamilton’s words and

the Framers’ incorporation thereof in the Constitution

3

and uphold the rule of law by applying the stare decisis

precedent of McCormick.

The AIA is at odds with the Constitution because

IPR clearly encroaches on the judicial power reserved

to Article III courts. Although Federal Respondent

tries to deem IPR as a corrective action to review mistakenly issued patents, such result is incidental to the

reality that IPR is to determine the winner in an

adversarial trial limited to evidence and legal arguments submitted by the private parties to that trial,

the results of which generally serve to either absolve

an infringer from liability, or aid a patent holder in establishing liability. Such determinations are the classic

functions of common law courts. Federal Respondent

cannot justify its constitutional overreach because an

ancillary result of IPR also serves to invalidate “mistakenly” issued patents. IPR really does not look for

PTO mistakes, since it does not even consider any evidence other than that presented by private parties.

The IPR trial judges do not go back and independently

review the patent history (i.e., the patent file wrapper),

nor do they seek to depose or take testimony from the

original patent examiner. It hardly comports to traditional notions of fair play to find a patent examiner to

have made a “mistake,” when neither the patent examiner’s actual work product nor the patent examiner is

part of the “mistake” evaluation process. In sum, IPR

is conducted in a Monday morning quarterback style –

trying to recreate the hypothetical individual “skilled

in the art,” “obviousness,” and “claim constructions” often years after the issuance of the underlying patent.

4

What is obvious now was not necessarily obvious years

earlier.

------------------------------------------------------------------

BACKGROUND

Petitioner SECURITY PEOPLE, INC. (“SPI”) is

the owner of and a practicing entity of its subject ’180

patent. SPI filed suit against respondent OJMAR US,

LLC (“Ojmar”) for infringement of the ’180 patent. Pet.

App. 6. After a case management conference and after

the District Court had set the matter for a jury trial,

Ojmar petitioned for inter partes review and requested

a stay from the District Court of the patent infringement action. Pet. 7. The stay was granted prior to the

PTO instituting the inter partes review process, i.e., before the PTO had taken any action on the IPR petition.

Pet. App. 7, 9. Because the stay directly interfered with

SPI’s First Amendment right to seek redress in an Article III court and because it directly interfered with

the scheduled jury trial, including on the issue of

patent validity, SPI brought the underlying lawsuit

against the PTO and Ojmar for a declaration of its

rights. SPI alleges in its complaint that the IPR is unconstitutional in that it violates SPI’s rights to proceed

before an Article III court and specifically denied SPI’s

right to a scheduled jury trial under the Seventh

Amendment. Pet. App. 38-48.

------------------------------------------------------------------

5

ARGUMENT

THE UNDERLYING COMPLAINT IS NOT A COLLATERAL ATTACK ON AN IPR ACTION AS THE

COMPLAINT WAS FILED BEFORE THE INSTITUTION OF IPR.

Federal Respondent incorrectly asserts that the

underlying declaratory relief complaint against the

PTO is a collateral attack over which the District

Court and Federal Circuit lacked jurisdiction. The

complaint is not a collateral attack. The complaint was

filed on July 10, 2015, well before the PTO instituted

IPR on October 27, 2015. Thus, at the time of the complaint’s filing, there had been absolutely no PTO action

to collaterally attack.

Instead, the complaint (Pet. App. 38-48) was a facial challenge to the constitutionality of the IPR statute due to the unconstitutional threat IPR posed to

SPI’s patent portfolio in general, and specifically its

’180 patent and IPR usurpation of SPI’s right to adjudication in an Article III court with the attendant right

to a jury trial.

Rather incredulously, the Federal Respondent asserts that SPI should have idly stood by while its patent rights and rights to Article III adjudication were

being violated and that SPI first should have gone

through the costly IPR process, and only upon an adverse IPR decision should SPI have sought its instant

relief in an appeal to the Federal Circuit.

This logic fails for several reasons. First, Federal

Respondent misperceives SPI’s injuries. SPI’s ability

6

to exercise and monetarize the patent rights duly

granted approximately fifteen years ago were placed

on hold during the IPR process. Any ultimate validation of the patent by the IPR process would do nothing

to recompense SPI for such losses and injuries. Secondly, were the Federal Respondent’s “no harm no foul”

logic be followed, SPI would not have suffered any actionable injury unless and until the Federal Circuit upheld any negative IPR decision – i.e., unless the

Federal Circuit found the cancellation valid, SPI could

not argue to any court, including the Federal Circuit,

the unconstitutionality of the IPR process since SPI,

per Federal Respondent’s logic, would not have yet suffered any harm.

Further, Federal Respondent’s argument contravenes 35 U.S.C. §329, which expressly limits any appeal to the Federal Circuit “from written decision of the

Board.” This provision has been strictly construed to

issues of “patentability” (GTNX, Inc. v. INTTRA, Inc.,

789 F.3d 1309,1311 (Fed. Cir. 2015)) and since the

Board has no statutory authority to issue “constitutional” rulings obviously there can legally be no Board

decision tendering the constitutional issue for Federal

Circuit review.1

1

It is noteworthy that the Federal Respondent argued to the

District Court below that the constitutional argument had to be

first submitted to the IPR under an exhaustion of administrative

remedies theory. However, the Federal Respondent does not make

that argument here, apparently recognizing implying such judicial authority to the IPR conflicts with its untenable position in

Oil States, supra, that the IPR is not an exercise of judicial power,

but only a “second” look at the PTO “mistakes” in issuing patents.

In any event it is clear that the IPR judges engage in recognized

7

SPI’s direct facial attack on IPR is proper. Free

Enterprise Fund v. Pub. Co. Accounting Oversight Bd.,

130 S. Ct. 3138, 3150 (2010) (reaching Separation of

Powers issue after determining that appellate review

provision over final agency action did not cover facial

constitutional challenges, so that provision’s restrictions

did not apply).

The Second Circuit rejected the Federal Respondent’s “channeling” argument in a nearly identical context in Disabled American Veterans v. U.S. Department

of Veterans Affairs, 962 F.2d 136, 143 (2d Cir. 1992).

There, a statute channeling review of “decisions of the

[Secretary]” into the administrative process did not

require dismissal of a district court action involving a

facial challenge to the legislation itself. Id. (“Here,

since the Veterans neither make a claim for benefits

nor challenge the denial of such a claim, but rather

Article III functions such as claim construction (Markman v.

Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995), aff ’d,

517 U.S. 370 (1996)) and statutory/case law interpretation (Marbury v. Madison, 5 U.S. 137 (1803)), both of which have been “customarily cognizable in the courts” and “traditionally for judicial

determination.” Northern Pipeline Construction Co. v. Marathon

Pipeline Company, 458 U.S. 50, 67 (1982). In addition, the IPR

judges weigh evidence and make determination of credibility – all

matters traditionally and indisputably given to juries in this

country and England at the time of the founding. In re: Tech. Licensing Corp., 423 F.3d 1286, 1292-93 (Fed. Cir. 2005) (Newman,

J., dissenting): “[p]atent validity was a common-law action tried

to a jury in Eighteenth Century England. An action to repeal and

cancel a patent was pled as the common law writ of scire facias.”

See also Markman v. Westview Instruments, Inc., 517 U.S. 370, 377

(1996): “there is no dispute that infringement cases today must be

tried to a jury.”

8

challenge the constitutionality of a statutory classification drawn by Congress, the district court had jurisdiction to consider their claim.”). See also Thomas v.

Union Carbide Agric. Prods. Co., 473 U.S. 568, 579-82

(1985) (rejecting ripeness attack because challenge

concerned “the [agency] tribunal’s authority to adjudicate the dispute.”); Crowell v. Benson, 285 U.S. 22

(1932) (hearing Separation of Powers claim brought in

district court against agency proceedings). In fact, one

of Federal Respondent’s primary authorities for its

merits position (Patlex Corp., Inc. v. Mossinghoff, 758

F.2d 594 (Fed. Cir. 1985)) began as a district court suit

against the PTO. See Patlex Corp., Inc. v. Mossinghoff,

585 F. Supp. 713, 716, 720-22 (E.D. Pa. 1983) (rejecting

nonstatutory exhaustion defense).

Moreover, the Federal Circuit had already ruled in

MCM Portfolio LLC v. Hewlett-Packard Co., 812 F.3d

1284 (Fed. Cir. 2015) that IPR was constitutional, so it

makes no sense to impose on SPI an obligation to make

a futile argument (McCarthy v. Madigan, 503 U.S. 140,

147-148 (1992)) to the IPR trial judges, especially given

that SPI had the subject direct constitutional attack on

IPR pending long before the IPR was initiated.

9

AT THE TIME OF FILING THE UNDERLYING

COMPLAINT, BECAUSE OF THE STAY OF ITS

INFRINGEMENT ACTION, THERE WAS A RIPE

DISPUTE SUBJECT TO DISTRICT COURT JURISDICTION IN THAT PETITIONER WAS AT

ALL TIMES BEING DENIED ITS RIGHT TO

HAVE THE PATENT INFRINGEMENT CASE RESOLVED IN AN ARTICLE III COURT WITH A

RIGHT TO A JURY TRIAL AND TO EXPLOIT

AND MONETARIZE ITS PATENT.

The long and short of it is that every day since the

stay has been issued by the District Court in Petitioner’s Article III patent infringement action against

Ojmar, Petitioner’s rights under Article III of the U.S.

Constitution and the Seventh Amendment of the U.S.

Constitution had been and are being violated. Moreover, they will continue to be violated until and unless

the IPR is declared unconstitutional. It is the usurpation of Article III powers by the PTO pursuant to the

AIA that is causing Petitioner irreparable damage on

a daily basis by violating its vested property rights under a U.S. patent, duly issued almost fifteen years ago.

During the pendency of this inter partes review process, SPI has been and is being denied its right to have

these matters considered before an Article III court.

Moreover, given the nature of an inter partes review,

yet an unknown party could come and seek an inter

partes of the subject patent, thus making in essence

the SPI’s duly issued patent subject a non-stop continuous string of administrative indeterminate decisions

all the while denying SPI its rights in federal court.

10

The Federal Respondent argues, as addressed

above, that SPI must first await some final written decision from the PTO before being damaged. The Federal Respondent misunderstands the complaint. As

alleged in the complaint, the harm is that SPI is being

denied its right to have this matter as required by the

U.S. Constitution considered in an Article III court and

not before an administrative tribunal/agency. Moreover, as noted above, the damaging injury is ongoing on

a daily basis in that so long as the inter partes action

is pending, SPI is being denied its constitutional right

to actively pursue its claims in an Article III court.

Also, as alleged in the complaint, the IPR affects SPI’s

ability to monetize its valuable intellectual property

rights for the subject ’180 patent and numerous other

U.S. patents it owns. Pet. App. 39, ¶3. Obviously, a

pending IPR proceeding serves as a cloud on a patentee’s titles, manifestly negatively impacting the

value of the patent.

SPI’S COMPLAINT ADDRESSES NOT ONLY THE

ONE PATENT AT ISSUE IN ITS INFRINGEMENT ACTION, BUT ALSO CHALLENGES THE

UNCONSTITUTIONAL DAMAGE IPR POSES TO

SPI’S PATENT PORTFOLIO.

The Federal Respondent is inaccurate in arguing

that a determination in SPI’s favor by the IPR would

resolve the issue without any need to address the constitutional issues posed. The situation here is a classic

example of where such an argument would result in

the Federal Respondent being able to avoid any sort of

11

judicial review of an unconstitutional statute as alleged in SPI’s complaint, Paragraph 8 (Pet. App. 41).

This case falls within the jurisdictional doctrine of capable repetition, yet evading review and so alleges. Pet.

App. 41 ¶8. See, e.g., Roe v. Wade, 410 U.S. 113, 142

(1973). Here, the subject patent could be subject to

multiple and repetitive inter partes review petitions by

other parties other than Ojmar. Furthermore, as stated

in its complaint, SPI is a holder of numerous U.S. patents that are similarly subject to inter partes review.

Pet. App. 39 ¶3, 27 ¶28. Here, SPI has shown and can

show the existence of an immediate and definite government act or policy that has adversely affected and

continues to affect a present interest. See Super Tire

Engineering Co. v. McCorkle, 416 U.S. 115, at 125-126

(1974).

THE IPR PROCESS BREEDS A MULTIPLICITY

OF LITIGATION AND BURDENS THE FEDERAL

CIRCUIT WITH APPEALS.

Contrary to its ostensible purpose of reducing the

time and expense of Article III litigation, IPR has

proven to be very expensive, resulting in a multiplicity

of litigation and a virtual guarantee of appeals to the

Federal Circuit. The instant patent dispute between

SPI and Ojmar illustrates these facts. In addition to

the subject action, there is a patent infringement case,

the IPR process, the subsequent appeal to the Federal

Circuit, and a spin-off Walker Process anti-trust claim

by Respondent Ojmar against SPI. The latter was

brought after the IPR institution.

12

It is virtually assured that every IPR decision pro

or con to a patent holder will be appealed to the Federal Circuit since the downside of not pursuing such an

appeal is generally quite substantial and the cost of

such an appeal relatively speaking is de minimis. The

costs of appeal pale in comparison to the loss of a patent as a result of IPR after the substantial investment

of obtaining one and defending it in the IPR process.

Also, the invocation of IPR as an adjunct to a pending

patent infringement case necessarily leads to numerous motions before and reporting requirements to the

district court. In short, the district court patent litigation remains ongoing in some form or another irrespective of IPR.

------------------------------------------------------------------

CONCLUSION

SPI’s constitutional rights are being violated by

IPR of the ’180 patent, and by the prospect of other IPR

petitions concerning its patent portfolio. Thus, this direct attack on the constitutionality of IPR is proper.

Judges, lawyers, and politicians all like to wax

about the rule of law. This case and Oil States are easily resolved by applying the long-recognized rule of law

under stare decisis. This Court unequivocally ruled in

McCormick Harvesting Co. v. Aultman, supra, that it is

the exclusive domain of Article III courts to invalidate

issued patents. No party to this case or in the over 60plus briefs filed in Oil States has argued or suggested

13

that McCormick should be overruled. Thus McCormick

must be applied here.

For the foregoing reasons and given the pending

Oil States case, Petitioner requests a hold on this petition pending disposition of Oil States, and at that time

the granting of certiorari for plenary review or the writ

should be granted, vacating the decision below and remanding for further proceedings. For the foregoing

reasons, the petition for a writ of certiorari should be

granted.

Respectfully submitted,

FREAR STEPHEN SCHMID

Counsel of Record

177 Post St., Suite 550

San Francisco, CA 94108

(415) 788-5957

frearschmid@aol.com

November 28, 2017