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Give and Take: IPR of Pre-AIA Patent is NOT an Unconstitutional Taking

On July 30, 2019, the Federal Circuit held that retroactive application of IPR (inter partes review) proceedings to pre-AIA (America Invents Act) patents is not an unconstitutional taking under the Fifth Amendment (Celgene Corp. v. Peter; appeals from IPR2015-01096, IPR2015-01102, and IPR2015-01103).

The appeals relate to IPR proceedings brought by The Coalition for Affordable Drugs VI LLC against two Celgene patents directed to methods for safely distributing thalidomide to patients to avoid fetal exposure (US 6,045,501 and US 6,315,720).  Both were filed before the advent of IPR proceedings under the America Invents Act, and the Patent Trial and Appeal Board found the claims of both unpatentable as obvious.  In its appeal, Celgene advanced a regulatory takings theory, arguing that subjecting its patents to a procedure that did not exist at the time of issue unfairly interfered with its reasonable investment-backed expectations without just compensation.  In particular, Celgene took note of several procedural differences between IPRs and pre-AIA reexamination, including that IPRs are adjudicative and have discovery, briefing, and an oral hearing.

Before reaching the constitutional question, the Federal Circuit first addressed the fact that Celgene raised this argument for the first time on appeal.  Such arguments are typically not reached, except under limited circumstances.  The limited circumstance recognized by the Federal Circuit in the present case was a “change in law,” citing the Supreme Court decision in Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 138 S. Ct. 1365 (2018).  The Federal Circuit stated that Oil States left open the possibility of a takings challenge with the statement (Id. at 1379):

Moreover, we address only the precise constitutional challenges that Oil States raised here.  Oil States does not challenge the retroactive application of inter partes review, even though that procedure was not in place when its patent issued.  Nor has Oil States 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.

Turning to the merits of the takings question, the Federal Circuit first noted that “[t]he validity of patents has always been subject to challenge in district court,” and “for the last forty years, patents have also been subject to reconsideration and possible cancellation by the PTO,” such as by ex parte reexamination.  “Celgene’s pre-AIA patents were therefore granted subject to existing judicial and administrative avenues for reconsidering their validity.” 

Rather than focusing on the few differences between IPRs and reexamination, the Federal Circuit instead emphasized “the far more significant similarities,” including the substantive grounds, standard of proof, claim construction (until recently), Director’s discretion to institute, and purpose (reexamining an earlier agency decision to grant a patent that should not have been granted in the first place).  Concluding this point, the Federal Circuit held that “[a]lthough differences exist between IPRs and their reexamination predecessors, those differences do not outweigh the similarities of purpose and substance and, at least for that reasons, do not effectuate a taking of Celgene’s patents.”

Takeaway:  For the time being, the Takings Clause of the Fifth Amendment does not preclude application of IPR proceedings to pre-AIA patents.  However, as the Supreme Court expressly raised but did not address this question in Oil States, the Court may have an interest in taking up the issue if Celgene were to appeal.

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Marc T. Morley is recognized as one of San Diego's top IP lawyers. He works with Mintz clients to develop and implement effective intellectual property strategies. Marc also handles IP-related transactions and due diligence. His clients include tech companies and research institutions.