Supreme Court denies review of Federal Circuit holding that inter partes review does not violate takings clause

The U.S. Supreme Court recently denied petitions for certiorari from U.S. Court of Appeals for the Federal Circuit decisions affirming the Patent Trial and Appeal Board's cancellation of patents issued before the effective date of the America Invents Act using administrative inter partes review proceedings first authorized by the AIA. It is unlikely that the Supreme Court is waiting for a different fact pattern to address this constitutional issue, which is raised by the cancellation of any claim of a pre-AIA issued patent. So the Federal Circuit's underlying holdings in Celgene Corp. v. Peter, Collabo Innovations, Inc. v. Sony Corp., and Enzo Life Sci., Inc. v. Becton, Dickinson & Company -- that retroactively canceling claims of a pre-AIA issued patent does not violate the takings clause of the U.S. Constitution -- should be treated as the final word. Indeed, with each passing day, additional pre-AIA issued patents expire, and the continuously decreasing applicability of this particular issue may have discouraged the Supreme Court from taking up the issue.

Nevertheless, the Supreme Court's denial of certiorari may have farther reaching implications. While the petitions specifically dealt with the cancellation of pre-AIA issued patents, the same reasoning should apply to post-AIA issued patents. And even more broadly, these underlying Federal Circuit decisions support allowing Congress wide latitude to change the form of administrative procedures without running afoul of the takings clause.

Background

The AIA, enacted in September 2011 and generally effective as of September 2012, implemented sweeping changes to patent law including the establishment of inter partes review proceedings to review issued patents. Inter partes reviews are designed to be adversarial, and proceed before a panel of administrative law judges who may cancel patent claims.

The Supreme Court previously considered the constitutionality of inter partes review proceedings in Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC, 138 S. Ct. 1365, 1379 (2018). That decision confirmed that inter partes review proceedings did not violate Article III of the Constitution by vesting adjudicative authority in an administrative agency (the Patent Trial and Appeal Board) or improperly deny patent owners their right to a jury trial under the Seventh Amendment. But the court narrowly tailored its decision to address only the constitutional questions that had been raised. Consequently, Oil States explicitly left open the question of whether the inter partes review procedure violated the takings clause of the Fifth Amendment, which prohibits government from taking private property "for public use, without just compensation." And although the IPR process, "shall apply to any patent issued before, on or after" its effective date pursuant to Pub.L. 112-29 Section 6(b), Oil States specifically did not address "the retroactive application of [inter partes review s], even though that procedure was not in place when [the challenged] patent issued." It seemed as if the Supreme Court specifically invited the very challenge raised in Celgene, Callabo and Enzo.

Challenges Raised by Celgene, Callabo and Enzo

Seizing on this language, pre-AIA patent holders challenged the Patent Office's cancellation of their patents as violating the takings clause because the inter partes review procedure did not exist when those patents issued and unfairly interfered with their patent rights without just compensation. The Federal Circuit rejected the premise that canceling patent claims through an inter partes review constituted a taking, holding for example in Celgene that "IPRs do not differ significantly enough from preexisting PTO [reexamination] mechanisms for reevaluating the validity of issued patents to constitute a Fifth Amendment taking."

The patent holders in Celgene, Collabo and Enzo petitioned the Supreme Court, which denied certiorari. The "narrow" decision in Oil States may explain why. While not squarely addressing the Takings Clause, Oil States explained that an inter partes review is "simply a reconsideration" of granting a patent and that every patent -- whether pre- or post-AIA -- was subject to the condition that it could be administratively reexamined and canceled. Thus, according to the Supreme Court, the AIA merely supplemented the procedures by which the government could cancel an improvidently granted patent, and the application of the inter partes review procedure, even retroactively, impliedly did not take any portion of an owner's patent rights. Indeed, as the Supreme Court held in Oil States, an inter partes review is merely "a second look" that "protects" the public interest in ensuring that patent monopolies are "legitimate."

"Just Compensation"

Although neither the Federal Circuit nor the Supreme Court reached the issue, these takings clause challenges also raise a more fundamental question: Even if canceling a patent through an inter partes review constitutes a taking, would the takings clause mandate significant compensation for an invalidated patent? Faced with the hurdle of demonstrating the value of a patent the government had found to be unpatentable, a patent owner might attempt to highlight research and development, patent prosecution and legal costs, as well as return on investment expectations. But many of these costs would have been incurred even if the patent had been denied by the Patent Office in the first instance, and the government and patent challengers would likely argue that the canceled patent claims have no value, or de minimis value, because they never should have issued under preexisting statutory requirements. Further, the patent holder always bore the risk of an issued patent later being invalidated. The inter partes review procedure canceling claims might therefore be viewed as a determination that the invalidated patent lacks any significant value and therefore even if a taking occurred, no compensation would be due.

Moreover, it is not clear that merely challenging the constitutionality of the inter partes review procedure would preserve a takings claim for just compensation, which ordinarily would need to be made in the Court of Federal Claims. In Golden v. U.S., 955 F.3d 981 (Fed. Cir. 2020) the Federal Circuit held that compensation claims against the United States must be brought under the Tucker Act, and the AIA provides no jurisdiction for those claims. The petitioners in Celgene, Collabo and Enzo did not seek just compensation in the Court of Federal Claims, which may have further discouraged the Supreme Court from granting review. 