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Patent Invalidation System Upheld by Supreme Court

The ruling caused shares to drop in companies whose main source of revenue -- their patents -- are under threat from challenges.

The U.S. Supreme Court upheld an administrative review system that has helped Google Inc., Apple Inc. and other companies invalidate hundreds of issued patents.

The justices, voting 7-2 on April 24, said a review board that critics call a patent "death squad" wasn’t unconstitutionally wielding powers that belong to the courts.

Silicon Valley companies have used the system as a less-expensive way to ward off demands for royalties, particularly from patent owners derided as "trolls" because they don’t use their patents to make products.

The ruling caused shares to drop in companies whose main source of revenue -- their patents -- are under threat from challenges. VirnetX Holding Corp., which is trying to protect almost $1 billion in damages it won against Apple, dropped as much as 12%. The patent office has said its patents are invalid in a case currently before an appeals court.

The court’s ruling “will reassure, if not embolden, patent challengers,” said Christopher Bruno, a patent lawyer with Schiff Hardin. Patent owners are likely to turn their focus to asking courts to scrutinize some of the procedures used by the board, he said.

‘Public Rights’

Drugmakers, research companies and independent inventors criticized the Patent and Trademark Office system, saying it makes it harder to fend off competitors and protect their ideas from copycats. Congress set up the system in 2011.

Justice Clarence Thomas wrote the court’s majority opinion, rejecting contentions that issued patents are the type of rights that must be adjudicated in the federal courts.

"The decision to grant a patent is a matter involving public rights -- specifically, the grant of a public franchise," Thomas wrote. The review system "is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration."

Chief Justice John Roberts and Justice Neil Gorsuch dissented.

Since the reviews began in 2012, more than 7,000 petitions have been filed, primarily on computer and high-tech patents.

By Greg Stohr and Susan Decker

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