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Retroactive Application of IPRs to Pre-AIA Patents Does Not Violate the Takings Clause

Recently, the U.S Court of Appeals for the Federal Circuit held that the retroactive application of inter partes review (“IPR”) proceedings to pre-AIA issued patents is not a violation of the Takings Clause of the Fifth Amendment.  In Celgene Corp. v. Peter, Celgene appealed the Patent Trial and Appeal Board’s (“PTAB”) final written decision invalidating all claims of U.S. Patent No. 6,045,501 and claims 1-9 and 11-32 of U.S. Patent No. 6,315,720 as obvious. Celgene argued that the PTAB erred in invalidating the patents as obvious and that the retroactive application of IPRs to patents filed prior to September 16, 2012 (the effective date of the relevant provisions of the America Invents Act) constituted an unconstitutional taking under the Fifth Amendment. The Federal Circuit rejected this argument and upon review of the merits of the case, affirmed the PTAB’s decision.

First, the Federal Circuit decided whether the constitutional issue could be addressed as it was raised for the first time on appeal. Although, a party generally cannot raise an issue for the first time on appeal, the Federal Circuit has discretion to decide such issues in exceptional circumstances. Here, the Federal Circuit held that Celgene’s argument raised an issue expressly left unresolved by the Supreme Court’s decision in Oil States when it stated, “Oil States does not challenge the retroactive application of inter partes review, even though that was not in place when its patent issued…Finally, our decision should not be misconstrued as suggesting that patents are not property for the purposes of the Due Process Clause or the Takings Clause.” Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S.Ct. 1365, 1379 (2018). The Federal Circuit held that because the issue was unresolved and was purely a question of law, it constituted an exceptional circumstance such that the Federal Circuit had discretion to hear Celgene’s constitutional challenge.

Second, the Federal Circuit turned to the merits of Celgene’s constitutional challenge. Celgene argued a regulatory takings theory, stating that subjecting its pre-AIA patents to a procedure that did not exist at the time the patents were issued unfairly interfered with Celgene’s reasonable investment-backed expectations without just compensation. In response, the PTO argued that a PTAB’s final written decision in an IPR that invalidates a patent is not a taking because the patent was erroneously issued to begin with and thus the patent owner never had a valid property right. The PTO further argued that Celgene’s argument should fail because patents have been subject to reexamination proceedings for decades.

In deciding whether the retroactive application of IPRs to pre-AIA patents constitutes an unconstitutional taking, the Federal Circuit considered “the effect that doing so has on the patent right granted by the PTO, and specifically whether IPRs differ from the pre-AIA review mechanisms significantly enough, substantively or procedurally, to effectuate a taking.” Op. at 27. The Federal Circuit held that the AIA review mechanisms do not differ significantly enough from the pre-AIA review mechanisms so as to effectuate a taking. The Federal Circuit noted that patent validity has always been challengeable in district courts and that for at least the last four decades patents have been subject to reexamination and possible cancellation at the PTO. Although Celgene identified a number of differences between IPRs and reexamination proceedings, the Federal Circuit found these differences to be neither significant nor sufficiently substantive to be considered a taking. The Federal Circuit further noted the many similarities between IPR and reexamination proceedings—such as the fact that in both patents are reviewed on anticipation and obviousness grounds. The Federal Circuit further explained that district court challenges, IPRs and ex parte reexaminations are merely different forms of reexamining a patent and that all serve the purpose of “correcting prior agency error of issuing patents that should not have issued in the first place.” Op. at 32. The Federal Circuit concluded that although “differences exist between IPRs and their reexamination predecessors, those differences do not outweigh the similarities of purpose and substance and, at least for that reason, do not effectuate a taking of Celgene’s patents.” Op. at 36.

The Federal Circuit’s decision in Celgene Corp. v. Peter  issued on July 30, 2019], and the period for seeking appeal to the Supreme Court expires on Oct. 28, 2019.  As such, it is still possible that the Supreme Court will weigh in on the issue of whether retroactive application of IPRs to pre-AIA patents violates the Takings Clause.  It is unclear whether the Supreme Court is more or less likely to grant review of this case, given that the Court expressly carved this Takings issue out of its opinion in Oil States.

While the Federal Circuit’s Celgene decision appears to answer one of several questions left unresolved after the Supreme Court’s decision in Oil States, the decision raises new questions, as well. For example, one question is whether CBM proceedings are distinguishable enough from IPR proceedings (and pre-AIA proceedings) such that they constitute a taking.  In Celgene the Federal Circuit pointed out there has been a consistent expectation amongst patent owners that the PTO could reconsider a patent’s validity on anticipation and obviousness grounds.  But CBM proceedings are different from IPRs, in that they provide an opportunity for patents to be challenged on new grounds – under Section 101 and 112– which were not challenges that previously could be raised in inter partes or ex parte reexaminations. Thus, under the Federal Circuit’s analysis in Celgene, it appears that CBM proceedings could still be considered an unconstitutional taking.