Guest Post by Prof. Gregory Dolin (Baltimore). Prof. Dolin recently filed an amicus brief supporting Celgene’s arguments that AIA post-issuance review represents an uncompensated takings of pre-AIA patent rights.
Since its passage in 2011, the America Invents Act has been subject to numerous Supreme Court decisions. But thus far, the major constitutional challenge to the Act in Oil States Energy Servs v. Greene’s Energy Group has failed. But while the Court the, upheld the AIA’s post-issuance review system against an Article III challenge, left a major question open. The Oil States Court stated that it was not resolving whether the application the AIA-created procedures to patents issued prior to the AIA’s effective date violates the Takings Clause of the Fifth Amendment. This question is now squarely presented to the Court in Celgene v. Peter. (There are also pending cases that in addition to the Takings issue raise a Due Process challenge).
Celgene owns two patents “generally directed to methods for safely distributing teratogenic or other potentially hazardous drugs while avoiding exposure to a fetus to avoid adverse side effects of the drug.” These patents were issued in 2000 and 2001, or more than a decade prior to the enactment of the AIA. These patents were challenged before the Patent Trial and Appeal Board (PTAB) in 2015 in an Inter Partes Review (IPR), and the proceeding resulted in cancellation of all but one of the challenged claims in both patents. As with other post-issuance proceedings, but unlike district court litigation, Celgene’s patents enjoyed no presumption of validity, and could be cancelled upon preponderance of evidence. Furthermore, in construing Celgene’s claims, PTAB utilized the “broadest reasonable interpretation” (BRI) approach, as was called for by the then-current rules. The interplay of lower standard of proof for cancellation and the BRI standard, combined with the lack of a meaningful opportunity to amend the claims, left patents challenged in IPR particularly vulnerable. (Since that time, the Patent Office issued new rules to amend its procedures and now measures the claims under the Phillips framework—the same standard in use by Article III tribunals).
Celgene challenged this procedure in the U.S. Court of Appeals for the Federal Circuit, arguing that by applying a different claim construction standard than in district court and denying the patent a previously existent presumption of validity, the America Invents Act retroactively devalued its property rights in their patents and therefore resulted in the constitutionally compensable Taking in violation of the Fifth Amendment. Relying on its two prior decisions, the Federal Circuit rejected the argument, holding that the presumption of validity is not “a property right subject to the protection of the Constitution.” Additionally, the Federal Circuit held that Celgene suffered no diminution in its property rights because its patents were always subject to ex parte and inter partes reexamination proceedings, both of which use (or used) the preponderance of the evidence standard with respect to patent validity. Celgene sought certiorari and I, together with Professors Kristen Jakobsen Osenga and Irina Manta filed a brief in support of the petition.
The argument we made in favor of Celgene is relatively straightforward. As the Supreme Court recognized time and again, a patent is a property right protected by the Takings Clause of the Constitution. In turn, the decision to procure a patent is fundamentally an investment decision which takes into account the likelihood that a patent would be challenged and survive such a challenge. In addition, the decision to disclose the invention and forgo trade secret protection is essentially a tradeoff: the patentee sacrifices the confidentiality of the invention in exchange for the protections of the patent system. (Admittedly, it is not always possible to keep the invention secret, especially if regulatory approval is necessary as in the case of Food and Drug Administration’s approval to market drugs or medical devices. Nonetheless, broadly speaking, an inventor has a choice between patent protection and trade secrecy protection). Depending on the robustness of those protections, the scales of the decision on whether to seek a patent may tip one way or another. Thus, the legal regime existing at the time the applicant filed for the patent constitutes the patentee’s “investment-backed expectation.”
The legal regime matters, and IPRs couldn’t be more different from reexaminations. As my research shows, the economic impact of the AIA on patent holders has been profound. The reason behind this significant drop in value is that although administrative review procedures have existed for nearly 40 years, these procedures have always been coupled with a patentee’s unlimited right to amend the claims in order to preserve their validity. Thus, prior to the AIA the patentee knew that if his patent were challenged one of two things will happen. One option was for the dispute to end up in an Article III court where the claim would rise and fall as written, but where the patent would enjoy a presumption of validity. Alternatively, the dispute would be resolved by the Patent Office where the claims would not be presumed valid, but would be subject to amendments for as long as the patentee was willing to continue prosecuting the patent. The AIA fundamentally altered this balance. Under the AIA, claim patentability can be adjudicated by the PTAB without the presumption of validity and without a robust opportunity to amend the claims. (Although the statute does permit claim amendments, these are not as of right, but must be requested by motion to the PTAB. Since October 2017 when the Federal Circuit held that Motions to Amend must be allowed unless the Patent Office carried its burden to show that claims are unpatentable, the PTAB has granted only 16% of such motions (with an additional 6.5% being granted in part). These already low numbers are a significant improvement from the pre-2017 system where the PTAB granted under 3% of such motions.
It should be acknowledged that Celgene did not seek to amend its claims during the PTAB proceedings, which may make it not an ideal vehicle to resolve the takings claim. On the other hand, given PTAB’s rejectionist approach to motions to amend, it is quite possible that Celgene was among countless patentees who chose not to bother with filing the motions in the first place. (It is worth noting that Celgene’s patents were adjudicated prior to October 2017).
The Supreme Court has previously concluded in Ruckelshaus v. Monsanto Co., that when the government changes the terms of the bargain with an individual, such a change can result in a regulatory taking. In Monsanto, the Court held that the Environmental Protection Agency’s public disclosure of data voluntarily submitted to the Agency may, in some circumstances, constitute a taking. The Court’s analysis was centered on the legal rules governing the use and disclosure of such data and the “nature of the expectations of the submitter at the time the data were submitted.” The Court held that the Government’s guarantee at the time of submission that the submitted data would remain a trade secret and not be disclosed to third parties “formed the basis of a reasonable investment-backed expectation” and played a role in the property holder’s decision whether to submit the data to the EPA in the first place. Celgene’s situation is analogous. When it had to make a decision whether or not to obtain a patent or rely on trade secrecy, it made the decision by reference to the then existing government guarantees of patent protections. Changes to that regime are what constitutes a compensable taking.
Before closing, it should be acknowledged that there is a significant issue that is antecedent to the question presented in Celgene’s petition. That is whether the Federal Circuit has jurisdiction to hear such claims absent filing of a claim for compensation in the Court of Federal Claims (CFC) and if so, how the Claims Court is supposed to evaluate the value of property lost. That question is embedded in a separate petition before the Supreme Court. The Federal Circuit has recently concluded that the CFC does have jurisdiction to hear such claims, even if on the merits it must reject them. The Government has advanced a contrary view (which the CFC endorsed, though this endorsement is at odds with the Federal Circuit’s later opinion). It may be that this issue may need to be resolved before (or concurrently with) the issue presented by Celgene.
In sum, the Supreme Court should answer the question whether retroactive application of the AIA’s post issuance review procedures to patents issued prior to the passage of the AIA, and which results in their invalidation, constitutes a taking within the meaning of the Fifth Amendment—a question the Court explicitly left open in Oil States. And in my view, the answer should be “yes.”
One option was for the dispute to end up in an Article III court where the claim would rise and fall as written, but where the patent would enjoy a presumption of validity. Alternatively, the dispute would be resolved by the Patent Office where the claims would not be presumed valid, but would be subject to amendments for as long as the patentee was willing to continue prosecuting the patent. The AIA fundamentally altered this balance.
I see one big issue with this last statement. The AIA has not abolished Ex-Parte reexaminations or reissues. The patentee can stil file for a reexamination or a reissue, even if all the claims in the patent were canceled in an IPR. The IPR does not “kill” the patent. The patent remains alive as long as the patentee pays the maintenance fees.
The IPR does not “kill” the patent. The patent remains alive as long as the patentee pays the maintenance fees.
Exactly.
“The patent remains alive as long as the patentee pays the maintenance fees.”
Exactly? I agree to the extent that the PTO would probably accept payment of maintenance fees for a patent that has no claims. (and likely deny a request to refund such payment)
“The patentee can stil file for a reexamination or a reissue, even if all the claims in the patent were canceled in an IPR.”
If the patent has no claims, it seems there might be, at best, an argument for a broadening reissue, which proceedings are limited by the two-year bar. Do you have an example of a reexamined or reissued patent that has issued after cancellation of all claims in an IPR? Or some re-exams or reissues that are currently being prosecuted after cancellation of all the claims?
Bravo Mr. Lincoln.
Tell me Mrs. Lincoln, other than that, how was the play?
No example.
And I guess, the argument would work only if the “original” claims are not the claims of the patents as issued. So I am not sure what original would mean.
?
35 U.S.C. 251 REISSUE OF DEFECTIVE PATENTS
*****
(d) REISSUE PATENT ENLARGING SCOPE OF CLAIMS.—No reissued patent shall be granted enlarging the scope of the claims of the original patent unless applied for within two years from the grant of the original patent.
That’s not the focus of the question mark, and that snippet is not what you posted at 5.2.2.
I have no idea what you are trying to say at 5.2.2, nor why you would put the word original in quotation marks.
Regardless (?) of how 35 U.S.C. 251 might be interpreted, the PTO does not accept reexam or reissue requests subsequent to all claims in the patent being canceled by ex parte reexamination (MPEP 2288) or inter partes reexam (MPEP 2688). I see no reason why cancelation of all claims by IPR would be treated differently.
Is this something that you picked up in your prior line of work?
(minimal snark)
Because in reexaminations, there is a final office action after which the patentee usually cannot amend the claims. That finality would be defeated if the patentee can simply file for another reexamination or a reissue. There procedure in an IPR is different.
Also, because the USPTO rules does not state that no reissue can be filed after all the claims are cancelled in IPR.
Well, the PTO rules (i.e., regulations) do not specify that a reissue cannot be filed after all claims are canceled in a reexam, either. But the cited MPEP sections make clear that reissues will not accepted in a patent having no claims after a reexam.
In addition, the PTO agrees with my take on post-IPRs. Their Federal Register Notice 84 FR 16654 (April 22, 2019) says:
“The Office will consider a reissue application or a request for reexamination any time before, but not after, either: (1) The Office issues a certificate that cancels all claims of a patent, e.g., a trial certificate in an AIA trial proceeding, or (2) the U.S. Court of Appeals for the Federal Circuit (‘Federal Circuit’) issues a mandate in relation to a decision that finds all claims of a patent are invalid or unpatentable.”
Thanks for digging the information. I was wrong, a reissue must be filed sometimes between the final decision on the IPR and the publication of the certificate cancelling all the claims.
… even then, the mere attempt at filing has no guarantee that such will have any effect (you are counting on a mere formality of the issuance of a paper that immediately draws from the prior event, plus there is NO basis of right for any filing in that window to have effect).
My turn to withdraw a comment – please scratch the 6:08 post immediately above.
The information that my pal with the shifting historical pseudonym refers to is actually pretty interesting (and the Office provides for an extremely high level of self-deference as to how it may choose to proceed.
See link to govinfo.gov
Friends of the Office may well benefit from such friendship (and yet another reason to be aware of and wary of) the political nature inherent in the Executive Branch dealings. Hint: USSC/Oil States nonsense….
[I]t seems there might be, at best, an argument for a broadening reissue…
How so? There is no reason to eliminate, ex ante, the hypothesis that all of the challenged claims read more broadly than the genuinely patentable subject matter. Narrowing reissue is just as plausible—in the abstract—as broadening reissue.
“than the genuinely patentable subject matter.”
What is that?
Mr. DeLassus, I think we’re talking about 2 different things. The poster posed the scenario of all claims being canceled in an IPR — the patent has no claims. You appear to assume the case that an order has been entered in an IPR’s Final Written Decision to cancel all the claims but the certificate canceling those claims has yet issued. In your scenario, yes, a narrowing reissue (filed before the certificate issues) might be appropriate.
Kindly change “has yet issued” to — has not yet issued — .
You are too generous Mr. Lincoln, as there is nothing in anything that Greg has ever written to indicate that he is talking about any particular narrow window between an act *by the PTAB cancelling all claims and the act of the certificate being issued.
Thanks for the clarification. My misunderstanding.
Prof. Dolin’s brief (pg. 14) explicitly argues that the Takings argument here is a regulatory takings. The brief never addresses, however, Andrus v. Allard, 444 U.S. 51, 66 (1979), which explains that in the context of a regulatory taking, “the denial of one traditional property right does not always amount to a taking. At least where an owner possesses a full ‘bundle’ of property rights, the destruction of one ‘strand’ of the bundle is not a taking, because the aggregate must be viewed in its entirety.”
That is exactly what we have here. Most of the strands in the patentee’s bundle remain entirely unchanged post-AIA relative to the pre-AIA status quo ante. There is no change to the patent term, no change to the varieties of infringement theory available for enforcement, no change to the assessment of damages, etc. The one change that occurs to the pre-AIA patents is that there is now one more variety of post-grant USPTO challenge than existed before. This is at most a change to one strand in the bundle, which is exactly the sort of thing that precedent tells us is not a regulatory Taking.
Presence, and degree of presumption of validity is NOT just any old single strand and has a massive importance to the value of the property.
Just ask i4i.
So yet again, Greg “I Use My Real Name” is ‘whipping it out’ in attempting to denigrate having a strong patent system…
Celgene must prove that but for Inter Partes Review their patent would not be invalid.
No Josh, that is not the appropriate question for this legal topic.
What is the property that was taken? If government takes a property of zero value do they have to provide fair compensation?
Here is a thought experiment. Could the government have confiscated the April futures for West Texas Intermediate crude without due process on Monday when they had a negative value?
Maybe you are right. Property can have a value of zero or even negative, due process is still required. But then why would the owners of the negative value property complain about due process?
What is the property that was taken? If government takes a property of zero value do they have to provide fair compensation?
This is another reason why I disagree with Prof. Dolin about the Takings merits here. The constitution does not prohibit government taking private property. Far from it—the constitution explicitly provides that “just compensation” must be paid for the property taken. In the case of an IPR, however, nothing of value has been taken.
[W]hy would the owners of the negative value property complain about due process?
Do not confuse Due Process with Takings. They are not the same thing. One can have a Due Process violation without a Takings violation, and vice versa.
Josh,
I have been over this numerous times.
There is a taking at the institution decision point — prior to any decision on the merits as to whether or not the property now returned to within the Executive Branch agency is or is not valid.
Also, your statement of “but for” is clear legal error.
The conflict between these statements illustrates the common flaw with Takings arguments, which is a failure to clearly identify when the Taking occurred.
If it was a regulatory takings, it doesn’t matter what happened during the IPR because the property was already taken by Congress. If the property was taken at the final written decision, then it was the PTAB that effected the taking of property. Had the PTAB granted a motion to amend, would that have negated the taking of the unamended claims? If not, why bring it up?
NS II,
Would you agree that Takings may occur at more than one point in the IPR process?
Anon, I think you may have overlooked the point Non-Sequitur II was making. You cannot conduct a proper “Takings Clause” analysis without a specific identification of the government action that is claimed to constitute a taking. A party challenging the constituionality of a federal statute cannot just hand wave over this issue, which Dolin and other supporters of this cert petition appear to have done.
But the claimants here appear to have (wisely) steered clear from directly arguing that the actual cancellation of invalid claims after a full PTAB hearing involves a “taking” under the Fifth Amendment. The challengers here are far more vague, but they appear to argue that the mere creation of IPR as a new remedy constituted the retroactive taking. The crux of the argument is that a “taking” occurred when the new IPR regime came into existence with the AIA, because it was less favorable to patent owners in the ability to amend claims than the previous reexmination procedures.
Dolin’s argument ultimately fails because the mere creation of a new way to challenge existing patents doesn’t rise to the level of a taking. Because every land use and environmental regulation ever promulgated in the history of the country creates some impediment or burden to the use of existing property rights, the Supreme Court requries that the regulation impose a fairly drastic economic burden on the claimant or the expectations of the claimant’s investors, before it will be deemed a “taking.” In practice, when you read these cases on regulatory takings, it becomes clear that the impact of the regulation has to approach a near-complete deprivation of the property to be deemed a regulatory “taking” under the Fifth Amendment.
Dolin and the others have not come close to showing the type of economic harm that would be required to show a regulatory taking. As Greg and others have pointed out, the mere existence of a new IPR regime doesn’t itself have impact on any patent, whether pre- or post-AIA. Dolin’s argument that the creation of a new IPR regime had dire economic consequences on patent owners, based on the lack of an unliminted right to amend, is pure speculation and unsupported by any evidence.
I understand why Dolin needed to argue it that way, though, as attenuated as his argument tends to be. The alternative would have been to acknowledge the truth — that the economic harm to a patent owner flows directly from the fact that if its patent is weak, it can more quickly be invalidated in an IPR challenge. The availability of IPR against weak patents makes them far less useful as leverage to exact licenses from competitors or infringers. But framing the economic harm to patent owners as stemming from the vulnerability of their patents to validity challeges would obviously get them nowhere at the Supreme Court.
It is not the party challenging that actually goes ahead and makes the taking that occurs AT the institution decision point.
It is less that I miss any point offered by NS II and more that I provide a counter point that he has likely not considered (and that rains on his parade).
And rains on yours as well, as you too seem to think that this only a matter of “it’s less nice.”
It is far more pernicious than that.
Further still, you are off the mark as to the right to unlimited amendments being something that “needs evidence.” Either you have that capability or you do not. The lack of it — in and of itself — IS a harm (revisit the days of the Claims and Continuation battle, and how the patent office LOST that attempt to limit ability of applicants to prosecute).
NS II,
The ‘bringing up’ of amendments may have to do with amendments by right versus amendments at the discretion of the government body.
Would you agree that there is a substantial difference between a right to amend (and that amendment being any amendment supported by the specification as filed — no new matter, and all — versus being allowed by the government to amend what the government deigns as a substitute?
If not, why?
[T]here is a significant issue that is antecedent to the question presented in Celgene’s petition. That is whether the Federal Circuit has jurisdiction to hear such claims absent filing of a claim for compensation in the Court of Federal Claims (CFC)… [T]his issue may need to be resolved before (or concurrently with) the issue presented by Celgene.
This is probably the most important point in the above essay. I happen to disagree with the author about the merits of the Takings issue here, but one way or another, Celgene is too seriously flawed a vehicle to resolve this question, because Celgene has never sought compensation, so its Takings claim is not ripe.
If a patentee really wants to make this argument, they need first to get into the necessary procedural posture. The CAFC appeal should not be an appeal from the PTAB, but rather an appeal from the CFC.
That is not even close to being the most important point Greg.
See: Knick v. Township of Scott, 139 S.Ct. 2162 (2019).
Of course, given your past views on this topic, I have some very low expectations from you.
Yes, even if the Sup. Ct. would take up a Constitutional taking challenge to pre-AIA patents, the jurisdiction question would logically and normally have to be decided first. Namely, why is this not controlled by the normal case law for other taking cases, requiring a suit for specifiable damages that must be brought in the Court of Federal Claims (CFC)? [Not the PTO or the Federal Circuit.]
Isn’t another issue here is that the government is not taking any patent rights for its own use? An adverse IPR decision only benefits private parties who make, use, sell or import products, or practice methods, covered by the in rem removed claims.]
Isn’t another issue here is that the government is not taking any patent rights for its own use?
Yeah, this is one of the reasons why I disagree with the author on the Takings merits. The fifth amendment provides that “nor shall private property be taken for public use, without just compensation,” (emphasis added). This is not a point actually worth disputing in most Takings cases, but here it really would be a point worth contesting whether the “taking” has occurred “for public use.” If not, then the fifth amendment just does not even come into it (regardless of whether there might still be some other legal issues to consider).
… Greg and Paul – two people who have refused to engage on the merits and have only sniped from the sidelines….
Let’s return focus to the underlying legal argument and NOT try to drive this into the weeds, eh?
Paul.
Wrong on both thrusts.
Go figure.
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