In consolidated appeals of a trio of Board decisions canceling pre-AIA patents in inter partes reviews (IPR), the Federal Circuit held “that the retroactive application of IPR proceedings to pre-AIA patents is not an unconstitutional taking under the Fifth Amendment.” Celgene Corp. v. Peter, Appeals 2018-1167, -1168, -1169, Slip Op. at 3 (Fed. Cir. July 30, 2019). As we previously discussed (link), the Supreme Court’s decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365, 1379 (2018), left open this issue. The Board’s decisions on appeal pre-date Oil States and unsurprisingly, perhaps, Celgene did not therefore raise the issue before the Board. But Celgene and the Patent Office briefed this constitutional issue in the appeal and then addressed it at oral argument to the Federal Circuit’s satisfaction. In further view of the growing number of appeals raising this issue in the wake of Oil States, the court exercised its discretion to decide the issue.
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. Celgene argued “that subjecting its pre-AIA patents to IPR, a procedure that did not exist at the time its patents issued, unfairly interferes with its reasonable investment-backed expectations without just compensation.” Slip Op. at 26. But the court rejected Celgene’s argument and determined that IPRs do not differ significantly enough from reexamination procedures “to constitute a Fifth Amendment taking.” Id. at 27 (citing Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985), as “control[ling] the outcome here”). The court noted that reexamination procedures existed for many years before Celgene’s patents issued, and that Celgene applied for the patents with knowledge that the Patent Office had discretion to review and cancel the patents.
Reexamination and IPRs share, according to the court, significant similarities: both are administered, at the Patent Office’s discretion, to review patentability based on the same categories of prior art; both use the same preponderance of evidence of standard of proof; and, with respect to the canceled patents, both construe claims under the same broadest reasonable interpretation standard. Id. at 30–31; cf. Return Mail, Inc. v. United States Postal Service, No. 17-1594, Slip Op. at 14 (U.S. June 10, 2019) (link) (noting that, procedurally, AIA trials are fundamentally and meaningfully different from reexamination). Consistent with district court invalidity determinations, both proceedings also serve the same purpose of correcting the Patent Office’s error in issuing a patent that it should not have issued. Celgene, Slip Op. at 32. The procedural differences by which each review forum serves this purpose, according to the court, “do not disrupt the expectation that patent owners have had for nearly four decades—that patents are open to PTO reconsideration and possible cancelation if it is determined … that the patents should not have issued in the first place.” Id. at 34.
The Patent Office did not dispute that a valid patent is private property for the purposes of the Takings Clause. Id. at 26. Nobody expects the Patent Office to cancel a valid patent. So the practical effect of the Patent Office’s position and the Federal Circuit’s Celgene decision may well be that that the Patent Office should be permitted to cancel a patent because the Office’s conclusion of invalidity means the owner never had a valid patent—at best, it had only a presumptively valid patent. But because the practical effect seems somewhat circular and because an administrative determination of invalidity could first arrive only years after the owner made significant investments based on the patent, it should come as no surprise if the Supreme Court someday decides to take a closer look.