The US Court of Appeals for the Federal Circuit addressed for the first time whether the retroactive application of inter partes review (IPR) proceedings to pre-America Invents Act (AIA) patents is an unconstitutional taking under the Fifth Amendment, and concluded that it is not. Celgene Corp. v. Peter, Case Nos. 18-1167, -1168, -1169 (Fed. Cir. July 30, 2019) (Prost, CJ).

Coalition for Affordable Drugs VI LLC (CFAD) filed four IPR petitions challenging the validity of two patents owned by Celgene that cover methods and improved methods for safely distributing teratogenic or other potentially hazardous drugs while avoiding exposure to a fetus to avoid adverse side effects. In each of its final written decisions, the Patent Trial and Appeal Board (PTAB) concluded that CFAD had shown by a preponderance of the evidence that all claims of each patent were unpatentable as obvious over the instituted grounds. Celgene appealed.

Celgene argued that the PTAB erred in finding all claims of both patents obvious, and that the retroactive application of IPRs to patents filed before September 16, 2012, when the relevant provisions of the AIA went into effect, is an unconstitutional taking. CFAD did not participate in the appeal, and the director of the US Patent and Trademark Office (PTO) intervened pursuant to 35 USC § 143.

The Federal Circuit affirmed the PTAB’s decisions, holding all claims of both patents obvious over the asserted prior art.

Turning to the constitutional issue of whether the retroactive application of IPRs to pre-AIA patents is an unconstitutional taking, the Court first concluded that its discretion was appropriately exercised to hear Celgene’s constitutional challenge for the first time on appeal even though Celgene did not raise it before the PTAB. The Federal Circuit explained that resolving the constitutional issue was purely a question of law that was sufficiently briefed for its review, and further, that interests of justice warranted addressing the retroactivity question given the growing number of retroactivity challenges following the Supreme Court of the United States’ 2018 Oil States decision (IP Update, Vol. 21, No. 5).

Turning next to the merits of Celgene’s constitutional challenge, the Federal Circuit held that the retroactive application of IPRs to pre-AIA patents is not an unconstitutional taking. The Court rejected Celgene’s regulatory takings theory arguing that subjecting its pre-AIA patents to IPR, a procedure that did not exist at the time its patents issued, unfairly interfered with its reasonable investment-backed expectations without just compensation. In so doing, the Court reasoned that “for the last forty years, patents have also been subject to reconsideration and possible cancellation by the PTO,” and “IPRs do not differ significantly enough from preexisting PTO mechanisms for reevaluating the validity of issued patents to constitute a Fifth Amendment taking.” Although Celgene identified a number of differences between ex parte and inter partes reexamination predecessors and IPRs, the Federal Circuit stated that those differences did not outweigh the far more significant similarities of purpose and substance to effectuate an unconstitutional taking.