Cert Petitions Pursue Takings Clause Argument

Last week, Arthrex filed a petition for certiorari challenging the holding of the Federal Circuit that its Appointments Clause challenge was forfeited. (a companion case to the one that has received all of the notoriety).  In its first petition for certiorari, Arthrex also pursues a different constitutional issue based on the Takings Clause of the Fifth Amendment, like other recent filers.

I expect this argument to soon be added to the list of failed constitutional challenges to the PTAB.

The first question presented in the Arthrex petition is framed as follows (here):

(1) Whether the retroactive application of inter partes review to patents that were applied for before the America Invents Act violates the Fifth Amendment.

Interestingly the patent at issue here was granted post-AIA, but filed before.  Seems to me even if the argument were entertained, you can’t take —retroactively— what didn’t exist before the AIA.  Nevertheless, there are other cert petitions pending that are directed to patents that pre-date the AIA.

Like Cuozzo attempted some years back, this new flavor of constitutional challenges seeks to distinguish reexamination proceedings from AIA trial proceedings.  This is because since reexamination proceedings have existed since the early 1980s, if reexamination is not distinguishable from AIA trails, there can be no “retroactive” taking.  But much like Cuozzo, the arguments made here also fail to present any meaningful distinction.

The Arthrex petition argues that:

Patents survived 88% of ex parte reexaminations and 66% of inter partes reexaminations. In Inter Partes Review that rate dropped to 38%.  Inter Partes Review is thus roughly twice as lethal as the old regime.

But, this is an apples and oranges comparison. Reexamination applied the Substantial New Question (SNQ) standard to asses initial submissions.  For this reason, historical “institution” rates hovered around 95%.  Simply stated, there was no meaningful filtering at all on the front end of patent reexamination.  Thus, pointing to the fact that more patents “survived” reexamination is simply ignoring the back-end selection process of reexamination.  AIA trials apply a higher standard for institution, namely, whether the petition is reasonably likely to succeed— a far cry from the SNQ standard.

The petition goes on to allege a number of other distinctions:

In reexamination, the petitioner had to show a “substantial new question of patentability.” . . . In inter partes review, the Director can institute proceedings on grounds already rejected during the initial application 35 U.S.C. §§ 314(a), 325(d).

This is simply wrong.  35 U.S.C. § 325(d) performs the same function as the SNQ standard with respect to cumulative, the same, or substantially similar art (i.e., substantially “new” question). Moreover, 314(a) provides for discretionary denials that were never possible in patent reexamination.  In fact, this aspect of AIA trial practice is far more patent friendly than anything that happened in patent reexamination.

Reexaminations were conducted by examiners who specialized in the patent’s subject matter . . . ; inter partes reviews are heard by panels of administrative judges who may be assigned at the Director’s discretion

Also misguided.  Reexamination examiners “specialize” in reexaminations. There is no guarantee of any examiner that specializes in your particular technology being present in the Central Reexamination Unit, much less available.  Just like at the Board, if you have an electrical invention you will very likely get an examiner with an electrical background in most cases (but not always) ; same for other technologies.

In reexamination, the patent owner could appeal within the Patent Office . . .in inter partes review, the patent owner can appeal only to a court that applies a deferential standard of review. . . .

First, examiners are also given deference and need only present a prima facie case (a mechanism that favors agency fact finding and is not employed in AIA trials). Second, there is no examiner rejections to appeal to the Board in an IPR (i.e., the same Board that conducts IPRs hears examiner appeals).

In reexamination, moreover, patent owners could amend their claims to remedy any defects, even after an adverse ruling. . . . Patent owners routinely exercised that right, amending claims to avoid invalidation in 67% of ex parte reexaminations and 60% of inter partes reexaminations. . . .  Inter partes review sharply curtails that right, . . . and the Patent Office has denied the vast majority of motions to amend to date.

If an “adverse ruling” in reexamination is considered to be a first office action, then you also have to consider an IPR Institution decision to be an adverse ruling (both are preliminary).  There is no distinction here — an amendment is accepted after both.

As to amendment  to “avoid invalidation” this is just speculation.  In my experience, most claims are newly added, not amendments of existing claims due to intervening rights concerns.  Furthermore, given that inter partes reexamination lasted 5-7 years in many cases, many challengers walked away at some point and the proceeding morphed into an ex parte proceeding, or the district court proceeding concluded first, vacating the reexamination by operation of inter partes reexamination estoppel.  Simply citing to generic outcomes reflects none of these practical realities.  Also, in reexamination there is really one opportunity to amend, after the non-final action.  After final amendments (beyond cosmetic changes, or accepting allowable subject matter) are not accepted.  On the other hand, the PTAB’s amendment pilot guarantees two full amendment opportunities.  Finally, a single claim cancellation is an “amendment” in accordance with  PTO reexamination statistics.

The SCOTUS didn’t see these alleged distinctions in Cuozzo, and I wouldn’t expect that to change here.  And as pointed out by my partner Matt Rizzolo, this Takings Clause argument, meritorious or not, may be premature given it didn’t originate with the Court of Federal Claims.