Supreme Court Patent Case Could Affect Bankruptcy Court Authority

The bankruptcy system is facing a potential upheaval from an unlikely front: a patent dispute. The U.S. Supreme Court has heard oral arguments and is now considering the case Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, and its separation of powers issues could have a drastic effect on the operation of American bankruptcy courts.

The Oil States dispute

On its face, Oil States has nothing to do with bankruptcy law. It involves a patent infringement claim filed by Oil States Energy against Greene’s Energy Group. In response, Greene’s Energy invoked an “inter partes review”, under which a U.S. Patent and Trademark Office administrative board reviews the validity of the granted patent. Decisions by the PTO are then reviewable by the U.S. Court of Appeals for the Federal Circuit.

In the case of Oil States, the PTO review found in favor of Greene’s Energy, and held that the patent issued to Oil States Energy was invalid. Oil States Energy responded by challenging the authority of the review board as unconstitutional. Its argument is that Congress did not have the power to grant Article III judicial power in an Article I setting.

The Article I v. Article III power question has come up in patent law before. Prior cases have pointed to the conclusion that while a patent is private property, the question of the validity of a patent involves “public rights”. Oil States has taken the position that in a dispute over private rights such as the property rights involved in a patent dispute, the parties are entitled to a trial by jury under the Seventh Amendment.

Application of Oil States to bankruptcy courts

The question of public v. private rights of debtor-creditor restructuring has never been clearly and definitively settled. However, the general view has been that Article I judges can hear the bankruptcy claims under a “public rights” theory.

A new development in the issue came in 2010, when the Supreme Court decided Stern v. Marshall, involving a dispute between the late Anna Nicole Smith and the son of her late husband. The dispute raised a question over the scope of a bankruptcy court’s jurisdiction, and led the Supreme Court to state that if an issue pertains to private rights that would exist independent of the bankruptcy, the issue is of “private right” and cannot be determined by an Article I judge. While the Court presented the holding as narrow in scope, many legal scholars view it as presenting a gateway to potentially wider application.

Bankruptcy representation in changing settings

If Oil States leads to a structural change within the bankruptcy process, financial institutions will need to be prepared to present claims in a new setting, potentially before a jury.

Maryland’s Rosenberg Martin Greenberg is committed to representing the rights of financial institutions in any context, from civil trials involving consumer disputes to regulatory settings. Our established expertise means we are prepared to manage your case no matter it lands. Call today to schedule a consultation with one of our bankruptcy attorneys in Baltimore, Annapolis, or in Wilmington, Delaware.

Additional “Bankruptcy Law” Resources:

  1. S. Supreme Court, Stern v. Marshall,
  2. Iam, International report – Can the bankruptcy model salvage inter partes review?,
  3. New Private Law, Patents and the Public-versus-Private-Rights Distinction: Oral Arguments in Oil States Energy Services v. Greene’s Energy Group,