On July 30, the Federal Circuit issued a decision in Celgene Corporation v. Peter (Nos. 2018-1167, -1168, -1169, and -1171), where the patent owner argued that the PTAB’s authority to cancel claims through IPR amounted to an unconstitutional taking as applied to pre-AIA patents. Numerous patent owners have raised similar challenges since the Supreme Court expressly reserved judgment on the issue in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365, 1379 (2018). The Federal Circuit’s decision puts that issue to rest (at least for now) and confirms that all issued patents remain subject to IPR.
The Celgene appeal arose from four IPRs filed by the Coalition for Affordable Drugs targeting Celgene’s U.S. Patents 6,045,501 and 6,315,720. Both patents issued before the effective date of the AIA and covered methods for safely distributing drugs known to have serious side effects for certain patient populations, particularly the known teratogen thalidomide, by requiring mandatory screening and approval steps before filling a prescription. The PTAB instituted review and canceled nearly all of the challenged claims as obvious over the asserted prior art. See IPR2015-01092; IPR2015-01096; IPR2015-01102; IPR2015-01103.
Celgene appealed, challenging the PTAB’s claim construction and obviousness rulings on the merits and raising its additional constitutional challenge under the Fifth Amendment. The Coalition for Affordable Drugs declined to participate in the appeals, and the PTO intervened to defend the PTAB’s decisions.
The Federal Circuit’s Decision
In an opinion by Chief Judge Prost, joined by Judges Bryson and Reyna, the Federal Circuit affirmed. The court first considered the merits of the PTAB’s obviousness determinations as the logical predicate to reaching Celgene’s constitutional challenge. The court had little difficulty dispatching those issues, applying routine analyses premised largely on the deferential substantial evidence standard of review.
Having resolved the direct obviousness challenge, the court turned to the more demanding constitutional question.
As a threshold issue, the court exercised its discretion to reach the takings question even though Celgene failed to make that argument before the PTAB and instead raised it for the first time on appeal. The court weighed several factors: Oil States issued after the PTAB’s final written decisions, Oil States has prompted numerous similar retroactivity challenges that would benefit from prompt judicial guidance, the issue presented a pure question of law, and the parties presented sufficiently thorough briefing to facilitate review. Under those “exceptional circumstances,” the court deemed the issue appropriate for its review in the first instance on appeal.
Celgene advanced a regulatory takings theory, arguing that canceling pre-AIA patents in IPR proceedings that did not exist when those patents issued unfairly interfered with patent owners’ reasonable investment-backed expectations without just compensation.
In evaluating that theory, the court focused on whether IPRs differ substantially enough from pre-AIA administrative mechanisms for administrative patent review to constitute a taking.
The court noted that both of Celgene’s patents were filed subject to longstanding ex parte reexamination procedures and that inter partes reexamination was also available by the filing date of the ʼ720 patent. Both proceedings bore substantial similarities to IPR and could result in cancelation of issued claims. IPRs represent “the most recent legislative modification to the PTO’s longstanding reconsideration procedures” and the differences between IPR and those earlier proceedings were not “sufficiently substantive or significant to constitute a taking.” Citing the legislative history of the AIA and the Supreme Court’s statements in Cuozzo, Oil States, Return Mail, and SAS, the court emphasized the procedural and purposive similarities between IPR and its predecessors. To be sure, IPRs and reexaminations have notable differences, but “no one has a vested right in any given mode of procedure.” The court also rejected Celgene’s argument that IPRs cause a permanent reduction in the value of pre-AIA patents because Celgene did not and could not show that its claims would have fared any better under reexamination.
The Federal Circuit’s Celgene opinion provides definitive guidance on takings challenges for the PTAB and certainly dims the prospects for that argument going forward. But given the Supreme Court’s established propensity for weighing in on various aspects of the AIA—as illustrated by the abundant high-court precedent catalogued in the opinion—patent owners may choose not to abandon similar positions just yet.