Arthrex recently filed a certiorari petition with the Supreme Court in Arthrex v. Smith & Nephew Inc. (a case related to Arthrex, Inc. v. Smith & Nephew, Inc., which has also the subject of petitions from the U.S. government and Smith & Nephew).
The Questions Presented are:
1. Whether the retroactive application of inter partes review to patents that were applied for before the America Invents Act violates the Fifth Amendment.
2. Whether a court of appeals can invoke forfeiture principles to refuse to address a constitutional claim in a pending appeal despite an intervening change in law.
The latter of these Questions were also presented in the U.S. government's and Smith & Nephew's petitions; the former is unique to Arthrex and addresses a question the Court has been unwilling to address directly. Although it is reasonable to assume that the Court will not respond in the affirmative this question does address one of the grounds of appealing a Patent Trial and Appeal Board decision left open by the Supreme Court's decision in Oil States Energy Serv. LLC v. Greene's Energy Grp. LLC. Arthrex notes that the Court is already considering a petition on this issue in Celgene Corp. v. Peter, but this case differs because Celgene had both applied for and been granted its patent prior to enactment of the Leahy-Smith America Invents Act in 2011. Arthrex asks the Court to consolidate these cases to decide whether invalidating a patent arises to a Fifth Amendment taking in each factual context.
The forfeiture issue arises in this petition because Arthrex is asking the Court to review this Federal Circuit decision that did not consider its constitutionality challenge under the Appointments Clause because Arthrex had not raised the issue before the Patent Trial and Appeal Board. This raises the question according to Arthrex of "[w]hether a court may refuse to address constitutional claims on forfeiture grounds despite an intervening change in law," which the petition characterizes as "another important and recurring issue."
But the focus of the petition is Arthrex's contention that applying inter partes review retroactively to patents filed or granted prior to enactment of the AIA constitutes an unconstitutional taking in violation of the Fifth Amendment. In support of this argument, Arthrex cites the effect of the IPR regime:
Hundreds of inter partes reviews are filed each year, and more than 60% challenge patents issued before the America Invents Act. Around 15% more challenge patents like Arthrex's for which the application was filed before the statute's enactment but granted afterward. Innovators like Arthrex disclosed their inventions to the public in reliance on the patent regime that prevailed at the time. Revoking patents through a new and far more lethal mechanism is a classic bait and switch that violates basic Fifth Amendment norms against retroactivity.
These facts establish that the question of the constitutionality of IPRs are "an important and recurring issue" and Arthrex notes several other cases have recently raised unconstitutionality claims, including Genentech, Inc. v. Hospira, Inc., OSI Pharm. LLV v. Apotex Inc., Enzo Life Sciences, Inc. v. Becton Dickinson & Co., and Collabo Innovations, Inc. v. Sony Corp., as well as Celgene. This issue "will affect thousands of cases for years to come" Arthrex contends, illustrating the point by noting that "[m]ore than 10,400 petitions for inter partes review have been filed since the proceedings began in September 2012." And in view of the timing of patent term and inter partes review, it is not a surprise according to Arthrex that this is the case. Arthrex estimates that nearly one in seven patents challenged in inter partes review proceedings are those like the Arthrex patent at issue that were filed before but granted after enactment of the AIA.
Turning to the distinctions between IPRs and prior reexamination statutes, Arthrex emphasizes the "fundamental" differences wherein "[i]nter partes review is far more potent than its predecessors," such as the requirement in prior reexamination regimes that a challenger show a "substantial new question of patentability," citing 35 U.S.C. § 303(a) (emphasis in petition), in contrast to the "more likely than not" standard that at least one patented claim is unpatentable for IPRs. (In fairness, this circumstance is what Congress clearly intended, rightly or wrongly.) Importantly, the petition notes that prior reexamination regimes permitted the patentee to amend claims to retain patentable claim scope, whereas the PTAB implemented the IPR provisions of the AIA to make any such opportunity infrequent if not entirely ephemeral.
The petition also asks the Court to consider that IPRs negatively affect the fundamental choice each inventor faces to "keep [the] invention secret and reap its fruits indefinitely," Bonita Boats, Inc. v. Thunder Craft Boats, Inc., or choose to apply for a patent that "enabl[es] others to 'practice [the invention] and profit from its use." This bargain is disrupted by "[a] legal system where Congress can change the rules after an inventor has already made that choice casts a pall over others facing the same decision." The petition provides the Court with a real world perspective: "[c]ompanies invest hundreds of billions of dollars each year creating new technologies," citing a Congressional study, which is particularly costly in medicine-related fields according to Arthrex's petition. The cost imposed by IPRs amounts to loss of 2/3rds of the value of patents pre-AIA Arthrex contends.
The petition supports its assertion that the Federal Circuit erred by citing precedent that stands for the proposition that "the presumption against retroactive legislation is deeply rooted in [the Court's] jurisprudence, and embodies a legal doctrine centuries older than our Republic," Landgraf v. USI Film Prod., and "[e]lementary considerations of fairness" counsel that "settled expectations should not be lightly disrupted." These concerns are particularly important in property rights, Arthrex argues, as "matters in which predictability and stability are of prime importance." The petition cites Lynch v. Mathis, Cherokee Nation v. Leavitt, Perry v. U.S., and Lynch v. U.S. in support of this proposition generally, as well as McClurg v. Kingsland and Richmond Screw Anchor Co. v. U.S. with regard to patents. Contrary to recent Supreme Court pronouncements (Oil States), the petition argues that patents are property rights and entitled to these constitutional protections, relying on Fla. Prepaid Postsecondary Educ. Expense Bd. V. Coll. Sav. Bank, Ex parte Wood (1824), and 35 U.S.C. § 261.
But according to Arthrex, the AIA breaks the bargain with an inventor because it "dramatically expands the opportunities for attaching a patent and thus diminishes the value of the rights conferred." The petition notes the significantly higher burden imposed by the clear-and-convincing quantum of evidence needed to invalidate a patent in district court (that difference being one of the principal motivations for enacting IPRs in the first place). And the petition notes the troublingly frequent fulfillment of the potential for the PTAB and district courts to come to different conclusions regarding validity. Arthrex asserts that the practical difference between prior reexamination regimes and IPRs is that the "fatality" rate of patents changed from one in three to two in three with at least concomitant reduction in patent value.
Finally, the petition argues the Federal Circuit erred in basing its decision in part on the fact here that Arthrex's patent granted after AIA enactment because the proper assessment of retroactivity is when a party acted, which in this case Arthrex argues was when they decided to disclose the invention and put protection at risk (essentially arguing a reliance interest).
Addressing the issue of whether this case is an appropriate vehicle for the Court's consideration of the issues, Arthrex argues that while even on its own it would be the different procedural postures between this case and Celgene gives the Court the opportunity, should they consolidate the cases, to decide the retroactivity questions for patents that granted before or after enactment of the AIA.
The petition then sets forth Arthrex's argument regarding whether the Court should review the Federal Circuit's holding that its Appointments Clause decision should apply to all pending appeals. This portion of the petition recapitulates Arthrex's arguments on appeal and in its certiorari petition (discussed in a forthcoming post). In brief, Arthrex argues that the Federal Circuit correctly recognized the constitutional infirmity in how PTAB APJs are appointed. In addition to arguing that the Federal Circuit had fashioned an improper remedy (severing the removal provisions in the statute from being applied to APJs), Arthrex argues that the Court should consider the issue here because how to apply the earlier decision to pending appeals constitutes an "important and recurring issue" needing the Court to resolve. In this regard, the petition cites later Federal Circuit decisions that refused to apply the Arthrex holding (and remanding to the PTAB for renewed IPR before properly appointed APJs), see Customedia Techs. Inc. v. Dish Network Corp.; Bos. Sci. Neuromodulation Corp. v. Nevro Corp.; Ciena Corp. v. Oyster Optics LLC; and Sanofi-Aventis Deutschland GmbH v. Mylan Pharmaceuticals Inc.
Forfeiture, the Federal Circuit's holding in these cases, is error according to Arthrex because it is contrary to Supreme Court precedent that an intervening change in the law should nullify the consequences of failing to bring a ground of appeal in the first instance at trial (or here, before the PTAB). This cited precedent includes Curtis Publi'g Co. v. Butts; Hormel v. Helvering; and Joseph v. U.S. as well as cases where the Court has permitted consideration of an unbrought constitutional challenge without an intervening change in the law, including Nguyen v. U.S.; Freytag; and Glidden Co. v. Zdanok.
The petition concludes with the suggestion that the Court in the alternative postpone a decision on certiorari grant in this case until certiorari petitions are filed in the Customedia and Sanofi cases, or such petitions in the later Arthrex' case.
