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The collective expertise of our global team distinguishes OBWB in the field of Intellectual Property Law. We align our best resources to meet each client's specific needs and we treat each matter with the highest degree of attention and care.

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AIA Inter Partes Review Is Not Unconstitutional to Pre-AIA Patents under the Fifth Amendment's Takings Clause

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Since the Supreme Court’s decision in Oil States Energy Servs., LLC, v. Greene’s Energy Grp., LLC, 138 S. Ct. 1365 (2018), various constitutional challenges have continued to be raised by patent owners whose pre-AIA patents have been cancelled in AIA Inter Partes Review (IPR) proceedings.  The U.S. Court of Appeals for the Federal Circuit (CAFC) has finally addressed one such challenge.  In Celgene Corp. v. Peter, Appeal No. 18-1167 (Fed. Cir. July 30, 2019), the CAFC decided that the USPTO’s cancellation of claims of a pre-AIA patent in AIA IPR proceedings does not constitute an unconstitutional “taking” of private property without “just compensation.”  In Celgene, the CAFC explained that because patents have been subject to administrative cancellation for more than 40 years on similar or substantially the same grounds as those that may be raised in an IPR, grant of a US patent has long been understood to mean: “you may enjoy and exercise your patent rights until the USPTO cancels them, or the patent expires, whichever occurs first.”  Thus, such cancellation does not violate the Takings Clause of the Fifth Amendment of the U.S. Constitution.

Last year, in Oil States Energy Servs., LLC, v. Greene’s Energy Grp., LLC, 138 S. Ct. 1365 (2018), the United States Supreme Court approved constitutionality of Inter Partes Review (IPR) under Article III of the U.S. Constitution and the Seventh Amendment right to a jury trial.  In particular, an IPR is a patent validity procedure created by The Leahy-Smith America Invents Act (AIA), which became law on September 16, 2012.  The Supreme Court held in Oil States that, unlike ordinary private property rights, patent rights may be revoked by an administrative agency, namely, the US Patent and Trademark Office (USPTO).  However, the Oil States decision raised, but did not decide, other possible avenues of constitutional challenge to the entire post-grant review system.  For example, the Supreme Court particularly noted that retroactive application of such patent validity procedures to patents granted before enactment of the AIA was not raised as a potential violation of constitutional due process by the parties in that case.

Since the Supreme Court’s Oil States decision, various constitutional challenges have continued to be raised by patent owners whose pre-AIA patents have been cancelled in AIA IPR proceedings.  The U.S. Court of Appeals for the Federal Circuit (CAFC) has finally addressed one such challenge.  In Celgene Corp. v. Peter, Appeal No. 18-1167 (Fed. Cir. July 30, 2019), the CAFC decided that the USPTO’s cancellation of claims of a pre-AIA patent in AIA IPR proceedings does not constitute an unconstitutional “taking” of private property without “just compensation.”  The CAFC reasoned that because patents have been subject to administrative cancellation for more than 40 years on similar or substantially the same grounds, all patentees know that a patent grant includes the possibility of subsequent administrative cancellation.  In other words, grant of a US patent has long been understood to mean: “you may enjoy and exercise your patent rights until the USPTO cancels them, or the patent expires, whichever occurs first.”  Thus, such cancellation by retroactive application of IPR proceedings to pre-AIA patents does not violate the Takings Clause of the Fifth Amendment of the U.S. Constitution.

The Celgene case was a consolidated appeal of a series of successful IPR challenges filed by the Coalition for Affordable Drugs to two patents owned by the Celgene Corporation and directed to methods for safely providing teratogenic agents, such as thalidomide, to patients.  The Patent Trial and Appeal Board (PTAB) cancelled all claims of one patent and all but one claim of the other.  The Celgene Corporation appealed and argued, for the first time on appeal and having not raised the issue during the IPR proceeding, that “retroactive” application of IPRs to its pre-AIA patents was an unconstitutional “taking” of private property under the Takings Clause of the Fifth Amendment of the U.S. Constitution.  The CAFC acknowledged the general rule that “a party generally may not challenge an agency decision on a basis that was not presented to the agency,” including arguments of unconstitutionality.  The court found, however, that departure from the general rule was warranted for at least the reason that even if the issue had been raised in the USPTO’s PTAB, that tribunal is not authorized by Congress under the AIA to consider constitutional issues.

Turning to the substantive merits of Celgene Corporation’s takings challenge, the CAFC explained that for almost 40 years, the USPTO has been authorized by Congress to take a second look (and even third and fourth, in the case of ex parte reexamination) at the validity of issued patents.  The USPTO’s ability to review and invalidate patents both before enactment of the AIA and after, at least insofar as IPR is concerned, is quite similar, in fact.  Thus, as the CAFC explained, patents that were filed and granted both before the AIA created IPR proceedings and after that procedure was established were issued subject to the USPTO’s ability to reconsider the patents’ validity after issuance—at least on the substantive grounds of anticipation (35 U.S.C. § 102) and obviousness (35 U.S.C. § 103).  Moreover, at least as far as IPRs are concerned, validity challenges both before and after the AIA are based on the same categories of prior art (that is, patents and printed publications only) and under the same burden of proof placed on the patent challenger (preponderance of the evidence).

The Celgene Corporation noted that there are numerous procedural differences between prior USPTO reexamination proceedings and IPR proceedings, but the CAFC found the differences to be without significance, in constitutional terms.  Relying on Supreme Court precedent, the CAFC said “no one has a vested right in any given mode of procedure.”

The CAFC’s Celgene decision likely forecloses a larger class of constitutional challenges to “retroactive” application of IPR to pre-AIA patents.  However, the court’s reasoning leaves open the question of unconstitutionality of retroactive application of Post-Grant Review (PGR) and Covered Business Method Review (CBMR), two procedures also created by Congress in enacting the AIA.  Both PGR and CBMR provide for patent validity challenges on substantive grounds which could not be raised in any pre-AIA procedures in the USPTO.

Whether (and how) the rationale of the Celgene decision will be extended to cover other AIA validity challenge procedures, or whether the U.S. Supreme Court will review the CAFC’s Celgene decision itself, remains to be seen.