In a provocative new article called “Taking Patents,” 72 Wash & Lee L. Rev. (forthcoming 2016), Gregory Dolin (Baltimore) and Irina Manta (Hofstra) argue that the Federal Government effectuated a taking through its creation and implementation of the inter partes review mechanism. Below, Camilla Hrdy and Ben Picozzi summarize the main points of their recent response to Dolin and Manta, “The AIA Is Not a Taking: A Response to Dolin & Manta,” 72 Wash. & Lee L. Rev. Online 472 (2016).
Gregory Dolin and Irina Manta argue in a forthcoming article that the Leahy-Smith America Invents Act (AIA) effectuated a Fifth Amendment “taking” by enhancing the mechanisms for challenging issued patents in administrative proceedings. Initial data do indicate that patents are more likely to be found invalid in the new inter partes review (IPR) and covered business method review (CBMR) proceedings than in district court actions or through the IPR and CBMR’s administrative predecessors. Patentees’ have even complained that the filing of individual IPR petitions has affected their stock prices.
Has the AIA made it too easy to invalidate a patent? Have patentees been treated unfairly? Maybe. Maybe not. But one things is clear: Dolin and Manta’s argument that the AIA is a taking faces serious legal hurdles.
First, Dolin and Manta’s premise that patents are property rights protected by the Takings Clause is far less clear than they contend. While the Supreme Court has recently suggested that patents, like land, “cannot be appropriated or used by the government itself, without just compensation,” see Horne v. Department of Agriculture, 135 S. Ct. 2419 (2015) (quoting James v. Campbell, 104 U.S. 356, 358 (1882)), both that statement, and the statement it quotes, are dicta. More recent decisions express greater ambivalence regarding patents’ status under the Takings Clause.
In contrast with trade secrets, the Supreme Court has never held that patents are property under the Takings Clause. In Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999), the Court held that Congress can’t abrogate states’ sovereign immunity from patent infringement claims. In reaching this conclusion, the Court stated that patents are “surely included within the ‘property’ of which no person may be deprived by a State without due process of law.” Id. at 642. But the Court declined to rule on patents’ status under the Takings Clause. See id. at 642.
Most recently, in Zoltek Corp. v. United States, 442 F.3d 1345 (Fed. Cir. 2006) (per curiam), vacated on other grounds, 672 F.3d 1309, 1314–22 (Fed. Cir. 2012) (en banc), the Federal Circuit held (rightly or wrongly) that 28 U.S.C. § 1498 is the only means of recovery for patentees whose patents are infringed by the U.S. government. Patentees can’t bring claims for compensation under the Takings Clause. Although the court eventually vacated that decision, the court never repudiated the reasoning behind its constitutional holding.
Dolin and Manta try to get around Zoltek by arguing that, unlike government infringement—which is like a forced permit and leaves all the rights of a patent intact—the AIA “changed the scope of patent rights themselves” by subjecting issued patents to more stringent post-issuance review. However, courts have not endorsed that argument, and analogs are difficult to find.
Second, even if we accept the argument that government can potentially take patents by altering their scope retroactively, courts are unlikely to view post-issuance review proceedings as the kinds of government actions regulated by the Takings Clause. Courts assessing constitutional challenges under the Fifth or Fourteenth Amendment tend to distinguish actions intended to “cure” defects in government administrative systems from incursions on property rights. In Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985), the Federal Circuit rejected a very similar challenge to IPR’s predecessor based partly on this distinction, noting that reexamination statute belonged to “the class of ‘curative’ statutes, designed to cure defects in an administrative system[,]” and that such statutes are treated more favorably for Fifth Amendment purposes even when they devalue property rights. We see little reason that a court would reach a different conclusion today.
Lastly, even if a court decides it is possible for the government to take patents by subjecting them to more stringent post-issuance review, Dolin and Manta’s argument almost certainly loses as a matter of takings doctrine. To determine whether a particular governmental action effectuates a taking, courts assess “the character of the governmental action, its economic impact, and its interference with reasonable investment-backed expectations.” See Penn. Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978). Thus, even assuming we accept that the AIA significantly devalued all patents (a big “if”), whether this constitutes a taking depends on whether patentees should have anticipated that Congress would amp up administrative review, given the existing regulatory background.
Dolin and Manta argue the AIA’s enhanced IPR and CBMR proceedings interfered with patentees’ “reasonable investment-backed expectations” by increasing the likelihood that their patents would be found invalid in administrative proceedings utilizing patentee-unfriendly rules such as “preponderance of the evidence” standard for invalidation and “broadest reasonable construction” with limited opportunity to amend. But, as Dolin and Manta concede, the AIA was enacted against a background of federal statutes and regulations that authorize challenges to patent validity. IPR and CBMR review are only the latest in a series of administrative procedures authorizing parties to offensively challenge the validity of issued patents. To us, it seems highly unlikely that the question of whether the Takings Clause applies to the creation of new IPR and CBMR review could turn on such small differences as whether or not patentees have a full opportunity to amend their claims during review.
Also, it is worth noting that beyond third party challenges to patent validity, numerous federal regulatory statutes limit patentees’ ability to exploit their inventions for purposes of health and safety. For example, various regulatory review statutes, such as the Food, Drug, and Cosmetic Act (FDCA), the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), and the Toxic Substances Control Act (TSCA), practically reduce effective patent lifetimes by prohibiting patentees from commercially marketing or using protected products prior to regulatory approval. Yet none of these statutes fully compensate patentees for their losses.
Are these actions all takings as well? This conclusion has troubling consequences. Does Congress really need to compensate patentees every time it passes a statute that significantly affects the value of issued patents? Could Congress pass regulations for the purpose of restraining bad-faith enforcement of patents that have already been granted? What about judicial actions that reduce the value of patents? Do they intend for Congress to compensate patentees in these cases or to take fewer actions limiting patent rights, simply due to the fear of effectuating a taking? This seems like a dangerous basis on which to formulate patent policy.
In any case, we think that, given this regulatory backdrop and the existence of administrative review proceedings for over thirty years, patentees could foresee—or reasonably should have foreseen—that the government would continue to actively regulate patent rights without “just compensation.”
Together, these arguments persuade us that the AIA is not a taking. Nevertheless, the authors’ article is a thought-provoking and educational analysis of the constitutional implications of Congress’s recent efforts to reform the patent system. We thank them for reopening the door on this area of scholarship.