On July 30, 2019, in Celgene Corp. v. Peter, the Federal Circuit (CAFC) held that “retroactive application of IPR proceedings to pre-AIA patents is not an unconstitutional taking under the Fifth Amendment.” A provision of the Fifth Amendment, known as the “takings clause”, provides that private property shall not “be taken for public use, without just compensation.” In Celgene Corp. v. Peter, the CAFC affirmed the Patent Trial and Appeal Board’s (PTAB) decision to institute inter partes review (IPR) of two patents and further affirmed its holding that the relevant claims of the two patents were obvious.

After the PTAB instituted IPRs and found the relevant claims of the two patents obvious, Celgene appealed the decision arguing not only that the PTAB erred in finding the claims obvious, but also that the retroactive application of IPRs to pre-AIA patents is an unconstitutional taking in violation of the takings clause of the Fifth Amendment. More specifically, Celgene argued that since IPR proceedings did not exist at the time the patents were issued, institution of IPR proceedings “unfairly interferes with its reasonable investment-backed expectations without just compensation.”

When deciding whether retroactive application of an IPR proceeding to a pre-AIA patent is an unconstitutional taking, the CAFC considers to what extent IPR proceedings differ from pre-AIA reexamination mechanisms. The CAFC notes that patent validity has always been able to be challenged in district courts and for the last forty years the United States Patent and Trademark Office (USPTO) has also provided mechanisms to reconsider the validity of issued patents. The CAFC acknowledges that ex parte reexamination existed for decades prior to when either of the patents in question were filed. Further, inter partes reexamination was available at the time when one of the patents in question was filed. The CAFC holds that the differences between IPR proceedings and its reexamination predecessors “do not outweigh the similarities of purpose and substance” and thus institution of IPR proceedings for a pre-AIA patent does not constitute an unconstitutional taking.

The CAFC notes several similarities and differences between IPR proceedings and its predecessors. For instance, IPR proceedings review patents on the same substantive grounds, namely anticipation and obviousness, as ex parte and inter partes reexamination. Also, IPRs as well as ex parte and inter partes reexaminations use the same standard of proof – preponderance of the evidence. Additionally, IPRs and the preexisting reexamination mechanisms use the same, most broad and reasonable interpretation standard when interpreting patent claims. Also, in both ex parte reexamination and IPRs, the USPTO Director has discretion whether to institute the proceedings. Importantly, the CAFC noted that IPRs serve the same purpose as the previous reexamination mechanisms.

The CAFC acknowledges differences between IPRs and the preexisting reexamination mechanisms, such as that procedural differences exist between IPRs and its predecessors. One difference is that IPRs are adjudicatory in that they involve discovery, briefing, and oral hearing. However, the CAFC reasons that the differences are not significant enough to constitute an unconstitutional taking. Celgene also argues that IPR proceedings differ from district court proceedings. The CAFC rejects this argument because the differences between IPRs and district court proceedings cited by Celgene, such as the preponderance of the evidence standard of proof and the broadest reasonable interpretation standard for claim construction, are the same characteristics that render IPRs similar to the pre-AIA reexamination mechanisms. Thus, the CAFC concludes that applying IPR proceedings to pre-AIA patents does not constitute an unconstitutional taking.

In light of this decision, it is important for patent owners to be aware that IPR proceedings can retroactively be applied to pre-AIA patents.