Federal Circuit Rebuffs Fifth Amendment Challenge to IPR Proceedings

In Oil States Energy Services, LLC v. Greene’s Energy Group, LLC,[1] the Supreme Court suggested that whether inter partes reviews (“IPRs”) apply to pre-AIA patents is an open constitutional question.[2]  But following the Federal Circuit’s recent decision in Celgene Corp. v. Peter,[3] it appears that retroactive IPRs are here to stay, at least for now.

In Celgene, the Coalition for Affordable Drugs filed petitions for inter partes review (“IPR”) of all of the claims of U.S. Patent Nos. 6,045,501 (“the ’501 patent”) and 6,315,720 (“the ’720 patent”), which concern methods for safely distributing teratogenic drugs such as thalidomide in order to prevent birth defects.  The Patent Trial and Appeal Board (“Board”) sided with the Coalition and invalidated the claims for obviousness.[4]  Celgene appealed the Board’s obviousness determinations, but also attacked the Board’s decision by arguing that the IPRs themselves were unconstitutional.  Celgene’s Oil States–inspired theory was that applying IPR proceedings retroactively to pre-AIA patents amounted to an unconstitutional taking under the Fifth Amendment.  After affirming the Board’s obviousness decisions, the Federal Circuit rebuffed this constitutional challenge and held that IPRs may constitutionally be applied to pre-AIA patents.

The Federal Circuit began by explaining why it could reach Celgene’s constitutional challenge notwithstanding that Celgene had not raised that challenge before the Board below.  Reaching the constitutional challenge was appropriate, the Federal Circuit concluded, because of “exceptional circumstances” demonstrated by: (a) the “growing number of retroactivity challenges” following Oil States; (b) the fact that Oil States was decided after the Board’s final written decisions in the IPRs at issue; (c) the lack of need for the Federal Circuit to make new factual findings; and (d) the thorough and complete briefing on the constitutional issue.

Having concluded that it could consider Celgene’s constitutional challenge, the Federal Circuit proceeded to reject it on the merits.  Celgene had 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.”  The Federal Circuit rejected this argument because “IPRs do not differ significantly enough from preexisting PTO mechanisms for reevaluating the validity of issued patents,” including ex parte reexamination and inter partes reexamination, “to constitute a Fifth Amendment taking.”  The Court noted several important similarities between reexaminations and IPRs, and that the two types of procedures “serve essentially the same purpose” of “correcting prior agency error of issuing patents that should not have issued in the first place.”  As to the differences between the two types of procedures, the Federal Circuit explained that “[t]hese differences 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, on the grounds specified in § 311(b), that the patents should not have issued in the first place.”  Ultimately, the Federal Circuit held that “the retroactive application of IPR proceedings to pre-AIA patents is not an unconstitutional taking under the Fifth Amendment,” because “[p]atent owners have always had the expectation that the validity of patents could be challenged in district court,” and “[f]or forty years, patent owners have also had the expectation that the PTO could reconsider the validity of issued patents on particular grounds, applying a preponderance of the evidence standard.”

Although the Supreme Court left the door open to retroactivity challenges to IPRs in Oil States, the Celgene Federal Circuit panel began to slam the door shut.  Whether the en banc Federal Circuit or the Supreme Court will consider the issue and, if so, agree with the panel’s approach remain to be seen.