Many cases have been heard before the Court of Appeals for the Federal Circuit dealing with substantive patent issues, like questions involving anticipation under 35 U.S.C. §102, obviousness under 35 U.S.C §103, or patent-eligible subject matter under 35 U.S.C. §101. Constitutional issues have been rare, with the exception of Oil States which questioned the constitutionality of the AIA proceedings, but of which its constitutionality was upheld by the U.S. Supreme Court in 2018.[1] On July 30, 2019, the Fed Circuit tackled another constitutional question involving the AIA proceeding, Celgene Corp. v. Peter.[2] In Celgene, the Fed Circuit dealt with the issue of whether retroactive application of an AIA proceeding violated the Fifth Amendment as an unconstitutional taking. The Fed Circuit held it did not.
The Coalition for Affordable Drugs IV LLC (CFAD) filed a petition for inter partes review challenging U.S. Patent Nos. 6,045,501 (‘501) and 6,315,720 (‘720) owned by Celgene Corporation. Upon institution, the PTAB found all claims of both ‘501 and ‘720 patents invalid as obvious. Celgene appealed. Note that Celgene did not raise the constitutional takings issue at the PTAB; therefore, the issue is raised for the first time on appeal before the Fed Circuit.
The Fed Circuit panel was comprised of Senior Judge Prost, and Judges Bryson and Reyna, with Senior Judge Prost writing for a unanimous court. The panel first addressed the issue of deciding an issue not first heard in the lower court. Senior Judge Prost wrote:
It is well-established that a party generally may not challenge an agency decision on a basis that was not presented to the agency. [However, b]ecause we retain discretion to reach issues raised for the first time on appeal, we must consider whether this is one of those exceptional cases that warrants consideration of the constitutional issue despite its tardy presentation.
She noted that the list of exceptional cases was limited. First, there may be an intervening change of law which necessitates the appellate court to decide an issue for the first time on appeal. Second, there may be an interest of justice to consider a first-raised issue on appeal. Here, the panel determined that the constitutional takings issue would be a qualifying interest of justice exception to this general rule of waiver.
As the USPTO recognized, “given the growing number of retroactivity challenges apparently prompted by the reference to retroactivity in Oil States, however, this Court may nevertheless conclude that the interests of justice warrant addressing the retroactivity question quickly to avert further uncertainty regarding the constitutionality of inter partes review.”
Oil States, she determined, was decided by the Supreme Court on April 24, 2018, which was after the final decision rendered by the PTAB on October 26, 2016, and the case was already on appeal before the Fed Circuit. In other words, the issue of retroactivity, decided by Oil States, precluded Celgene from presenting the constitutional issue to the PTAB. Further, the constitutional question was purely a question of law, with no factual findings required to be introduced for the first time on appeal. Therefore, the panel concluded that this was one of the exceptional cases which militated discretionary review for the first time before the Fed Circuit.
As to the constitutional merits, Celgene argued that the retroactive application of an IPR against its pre-AIA-issued patents without just compensation was an unconstitutional taking in violation of the Fifth Amendment. The Takings Clause prohibits private property from being “taken for public use, without just compensation.” The USPTO countered that claims found unpatentable in an IPR is not a taking for Fifth Amendment purposes because the patent owner never had a valid property right if the patent was erroneously issued. Also, the USPTO countered that long before the AIA was enacted, issued patents were subject to reconsideration through reexamination and cancellation proceedings before the USPTO that were deemed proper administrative authority of the USPTO.
The Fed Circuit agreed.
In this case it suffices for us to decide that IPRs do not differ sufficiently from the PTO reconsideration avenues available when the patents here were issued to constitute a Fifth Amendment taking. Celgene identifies a number of differences between reexamination and IPRs, including that IPRs are adjudicative and have discovery, briefing, and an oral hearing, but as explained below, these differences are not sufficiently substantive or significant to constitute a taking.
Senior Judge Prost noted that both IPRs (37 C.F.R. §42.101) and ex parte reexaminations (35 U.S.C. §302; MPEP 2209) both are discretionary reviews made by the Director of the USPTO as to review a second time the claims of an issued patent based on slightly different standards – substantial new question of patentability for reexaminations, and reasonable likelihood that a petitioner will prevail as to at least one challenged claim for IPRs. Both offer a “second look” at an issued patent’s claims as to patentability. She concluded:
Patent owners have always had the expectation that the validity of patents could be challenged in district court. For 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 differences exist between IPRs and their reexamination predecessors, those differences do not outweigh the similarities of purpose and substance and, at least for that reason, do not effectuate a taking of Celgene’s patents.
The Fed Circuit affirmed the PTAB’s findings that the ‘501 and ‘720 patents were invalid as obvious.
As a side note, Celgene’s ‘501 and ‘720 patents were directed towards its THALOMID® product, and were challenged by CFAD in part because of the high cost of Thalomid, with some estimates about $6,000 for a monthly supply of the cancer/leprosy drug. CFAD, however, is composed of two notorious patent trolls, hedge fund manager Kyle Bass and PAE owner Erich Spangenberg. While this is a victory for possible lower drug prices, it also reprensents a victory for the patent trolls, depending on where one sits on this argument. It is probable Celgene will petition for rehearing before the Fed Circuit, and failing that, a petition for writ of certiorari before the U.S. Supreme Court. We will continue to follow developments on the blog as they occur.
[1] See Oil States Energy Servs., LLC v. Greene’s Energy Group, LLC, 584 U.S.___, 138 S. Ct. 1365, 1374-75 (2018) (slip op.).
[2] ___F.___ (Fed. Cir. 2019) (slip op.).