Case Review: Federal Circuit Decides Retroactive Application of IPRs Not an Unconstitutional Taking

On July 30th the Federal Circuit ruled that the retroactive application of inter partes review ("IPR") proceedings to pre-AIA patents is not an unconstitutional taking under the Fifth Amendment, paving the way for another possible Supreme Court challenge to IPRs. Celgene Corporation v. Peter Case Nos. 2018-1167; 2018-1168; 2018-1169 (Fed. Cir. 2019) at 35.*

*All citations to the Celgene decision are to the decision linked above available on the Federal Circuit's website.

What is an IPR and What is "Pre-AIA?"

An IPR is a proceeding conducted at Patent Trial and Appeal Board to review the patentability of one or more claims in a patent on a ground that could be raised under (1) 35 U.S.C. § 102 (which requires inventions to be novel in order to be patentable); or (2) 35 U.S.C. § 103 (which requires inventions to be non-obvious in order to be patentable). See 35 U.S.C. § 311. IPR procedure was put in place as part of the America Invents Act signed into law in 2011. A "pre-AIA" patent is a "pre-America Invents Act" patent for which the patent application was filed before March 16, 2013. IPRs may be used for example, by an alleged infringer of a patent to try to contest the patentability of the patent on which the allegations of infringement are based. From September 16, 2012 through June of this year, 9,545 IPR petitions have been filed with the USPTO.

Available since 1981 is the ex parte reexamination proceeding. Any person may file a request for an ex parte reexamination. If a substantial new question of patentability is presented in the request, the USPTO will order a reexamination of the patent. The ex parte reexamination proceeding is limited to consideration of prior art patents or printed publications applied under U.S.C. §§102 and 103. MPEP § 2209. If a third party files a request for an ex parte reexamination proceeding, once the request is filed, the third party is largely precluded from the proceeding unless the patent owner makes a statement on the new question of patentability, to which the third party may respond. MPEP § 2251, 37 CFR § 1.535. Claims found to be unpatentable are canceled. Celgene at 29.

Created in 1999 by Congress was the inter partes reexamination proceeding. In this, a third party could request inter partes reexamination, and had more opportunity to participate in the USPTO's reexamination proceedings. Id. at 29. Inter partes reexamination proceedings are no longer available under the America Invents Act.

The Celgene Decision

Patent owners who do not prevail in an IPR challenge may appeal the Board's decision to the Federal Circuit. This was the case in Celgene. The Coalition for Affordable Drugs filed several IPR petitions challenging the validity of claims in two drug-related patents owned by Celgene. Celgene at 3. Celgene appealed to the Federal Circuit after the Board held the appealed patent claims to be obvious and therefore unpatentable. Id. On appeal, Celgene argued (1) that the Board erred in its findings on obviousness, and (2) that retroactive application of IPR proceedings to its patents which were pre-AIA was an unconstitutional taking. For purposes of this case review, only the unconstitutional taking issue addressed by the Federal Circuit is discussed.

Several different constitutional challenges to IPRs have been raised since the provision of the proceedings by the America Invents Act. Just last year, the Supreme Court of the United States addressed two of these constitutional challenges. Oil States Energy Services, LLC v. Greene's Energy Group, LLC, 584 U.S. __ (2018). First, the Supreme Court held that IPRs do not violate Article III of the Constitution and second, the Supreme Court held that IPRs do not violate the Seventh Amendment. Oil States at 5 (citations correspond to linked decision above). For more information on the Supreme Court's reasoning as to those two holdings, see my article reviewing Oil States: "Case Summary: Supreme Court Upholds Constitutionality of Inter Partes Review." Importantly, in Oil States, the Supreme Court explicitly stated it was not addressing retroactive application of IPRs:

Oil States does not challenge the retroactive application of inter partes review, even though that procedure was not in place when its patent issued. Oil States has not raised a due process challenge. Finally, our decision should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause.

Oil States at 16-17. The Federal Circuit addresses this carved out issue in its Celgene decision. Celgene, at 26.

The Takings Clause of the Fifth Amendment states that private property shall not be taken for public use without just compensation. U.S. Const. amend. V. On appeal, Celgene argued that the invalidation of its patent in an IPR--a proceeding that did not exist at the time its patent issued--without any compensation, was an unconstitutional taking. Celgene at 26. Celgene emphasized the takings factor of whether a law interferes with reasonable investment-backed expectations. See Case No. 18-1167 Document 31, page 52. Specifically Celgene argued that time and money was spent on meeting the FDA's requirements for new drug applications, and once FDA approval was reached, Celgene continued to invest in research and development to maintain the uses of its patented drug. Id.

The USPTO countered that there could be no taking by an IPR because the determination in an IPR to cancel a patent rests on a determination that the patent should not have been issued in the first place; in other words, the patentee never had a valid property right. Celgene at 26; Case No. 18-1167, Document 43, page 46. The USPTO further argued that patents have been subject to reconsideration and cancellation by the USPTO for nearly four decades, namely, the ex parte reexamination proceeding available since 1981, and the inter partes reexamination proceeding created in 1999. Accordingly, the USPTO argued, the cancellation of claims of a pre-AIA patent in an IPR proceeding could not be a taking because that patent was always subject to the possibility of being cancelled in one of the other proceedings. See Case No. 18-1167 Document 43, pages 50-52.

In reply, Celgene focused on the procedural differences between IPRs and existing reexamination proceedings:

Inter partes Review, meanwhile, mixes and matches aspects that remove all sorts of protections for the patentee, with a compounding effect that undeniably eviscerates the patentee's rights unlike any system before. Inter partes review is an 'adversarial' process, but with no requirement for clear-and-convincing evbidence. [] The claims are construed as broadly as reasonably possible, yet the patentee is given limited options to amend. [] Not surprisingly, then, the statistics show that patents subjected to inter partes review have been clobbered in ways previously unimaginable.

Case No. 18-1167, Document 48, page 33.

However, the Federal Circuit's reasoning is heavily based on the similarities between IPRs and reexamination proceedings that existed prior to IPRs. The Court found that despite the procedural differences between IPRs and previously existing proceedings, the similarities are more significant. Celgene at 30. Namely, in each of the proceedings patents are reviewed on the same grounds: novelty and obviousness, based on the same categories of prior art. Further, the same preponderance of evidence standard of proof is used, and the same broadest reasonable interpretation standard is used for claim construction. Id. at 30-31. Additionally, in each proceeding, the Director of the USPTO has the discretion of whether to initiate the proceeding, and the purpose of IPRs and the reexamination proceedings is essentially the same: "looking at an earlier administrative grant of a patent." Id. at 31. The Federal Circuit cited the Supreme Court's similar characterization in its recent June decision in Return Mail, Inc. v. United States Postal Service et al. 139 S.Ct. 1853, 1860 (2019): "[i]n sum, in the post-AIA world, a patent can be reexamined either in federal court during a defense to an infringement action, in an ex parte reexamination by the Patent Office, or in the suite of three post-issuance review proceedings before the Patent Trial and Appeal Board." In Return Mail, Inc., the Supreme Court decided that a federal agency is not a "person" able to seek review of a patent under the America Invents Act.

In the context of the takings analysis, the Federal Circuit dismissed the procedural differences of IPRs compared to the other proceedings citing the Supreme Court again for the proposition that "no one has a vested right in any given mode of procedure." Celgene at 33 (citing Denver & Rio Grande W. R.R. Co. v. Bhd. of R.R. Trainmen, 387 U.S. 55, 71 (1949)).

These differences do not disrupt the expectation that patent owners have had for nearly four decades--that patents are open to PTO reconsideration and possible cancellation if it is determined, on the grounds specified in § 311(b), that the patents should not have issued in the first place.

Celgene at 34. Because patent owners have always had this expectation that the validity of their patents could be challenged in district court, and for forty years have had the expectation that the USPTO could reconsider the validity of their patents, the Federal Circuit held that the application of IPR proceedings to Celgene's pre-AIA patents did not effectuate a taking of Celgene's patents. Id. at 36.

This decision opens up the door for the Supreme Court to review another constitutional challenge to IPRs.