The Federal Circuit affirmed a determination by the Patent Trial and Appeal Board (PTAB) that two patents owned by Celgene Corp. were invalid in Celgene Corp. v. Peter decided last week. In rendering its decision, the Court also addressed on the merits Celgene's argument that retroactive invalidation of its patents under the inter partes review (IPR) procedures introduced into U.S. patent law by the Leahy-Smith America Invents Act is unconstitutional because its patents were granted before enactment of these IPR procedures and thus amounted to a taking under the Fifth Amendment. The Court had avoided such constitutional challenges in earlier cases, most recently in Trading Technologies International, Inc. v. IBG LLC, 921 F.3d 1378 (Fed. Cir. 2019), on the grounds that in that case, TT's counsel had insufficiently raised and supported the argument. Here, the Court found that Celgene's efforts had been "sufficiently thorough" as "a single constitutional issue [that] received thorough briefing from the parties and [was] addressed extensively at oral argument" for the panel to render a decision. Predictably, that decision was to find that IPRs pass constitutional muster.
The case arose from a challenge by the Coalition for Affordable Drugs VI LLC ("CFAD") of Celgene's U.S. Patent Nos. 6,045,501 and 6,315,720. The PTAB determined that all claims of the '501 patent and claims 1-9 and 11-32 of the '720 patent were invalid for obviousness. The patents are directed to methods for safely providing teratogenic agents, particularly thalidomide, to patients without risking distributing the drug to patients who are pregnant or at risk of becoming pregnant. Claim 1 of the '501 patent and claim 1 of the '720 patent are representative; the technology embodied in the '501 patent was termed the "System for Thalidomide Education and Prescription Safety" and that embodied in the '720 patent was known as "Enhanced S.T.E.P.S.":
'501 patent:
1. A method for delivering a teratogenic drug to patients in need of the drug while avoiding the delivery of said drug to a foetus comprising:
a. registering in a computer readable storage medium prescribers who are qualified to prescribe said drug;
b. registering in said medium pharmacies to fill prescriptions for said drug;
c. registering said patients in said medium, including information concerning the ability of female patients to become pregnant and the ability of male patients to impregnate females;
d. retrieving from said medium information identifying a subpopulation of said female patients who are capable of becoming pregnant and male patients who are capable of impregnating females;
e. providing to the subpopulation, counseling information concerning the risks attendant to fetal exposure to said drug;
f. determining whether patients comprising said subpopulation are pregnant; and
g. in response to a determination of non-pregnancy for said patients, authorizing said registered pharmacies to fill prescriptions from said registered prescribers for said non-pregnant registered patients.
'720 patent:
1. In a method for delivering a drug to a patient in need of the drug, while avoiding the occurrence of an adverse side effect known or suspected of being caused by said drug, wherein said method is of the type in which prescriptions for said drug are filled only after a computer readable storage medium has been consulted to assure that the prescriber is registered in said medium and qualified to prescribe said drug, that the pharmacy is registered in said medium and qualified to fill the prescription for said drug, and the patient is registered in said medium and approved to receive said drug, the improvement comprising:
a. defining a plurality of patient risk groups based upon a predefined set of risk parameters for said drug;
b. defining a set of information to be obtained from said patient, which information is probative of the risk that said adverse side effect is likely to occur if said drug is taken by said patient;
c. in response to said information set, assigning said patient to at least one of said risk groups and entering said risk group assignment in said medium;
d. based upon said information and said risk group assignment, determining whether the risk that said adverse side effect is likely to occur is acceptable; and
e. upon a determination that said risk is acceptable, generating a prescription approval code to be retrieved by said pharmacy before said prescription is filled.
CFAD's obviousness contentions regarding the '501 patent asserted in support three scientific references on how to safely administer three teratogenic drugs: thalidomide, isotretinoin (Accutane®), and clozapine. For the "enhanced" system claimed in the '720 patent, CFAD asserted the thalidomide package insert; U.S. Patent No. 5,832,449; a scientific reference on "controlling and monitoring access to thalidomide"; and another scientific reference regarding mechanisms and significance of transfer of chemicals to animal and human semen. Using rationales applying this art in varying combinations, the Board found that CFAD had established obviousness of all claims in the IPR except claim 10 of the '720 patent. When CFAD declined to join Celgene's appeal, the Director of the U.S. Patent and Trademark Office intervened under 35 U.S.C. § 143.
The Federal Circuit opinion was written by Chief Judge Prost, joined by Judges Bryson and Reyna. On the merits regarding the '501 patent, the panel rejected Celgene's arguments on three points: "(1) its finding that the prior art satisfies the 'computer readable storage medium,' limitation, which rises and falls with a claim construction argument; (2) its finding that it would have been obvious to counsel male patients about the risks of teratogenic drugs; and (3) its findings on secondary considerations." On the first point, Celgene argued that the term should be limited to a centralized computer readable storage medium, which the Federal Circuit rejected because that was not what was recited in the claims of the '501 patent nor was that how the computer readable storage medium was described in the specification. The panel also agreed with the PTAB that neither the prosecution history nor extrinsic evidence argued by Celgene supported this construction of the term. In assessing the correctness of the Board's claim interpretation, the panel relied on the canon of claim construction that use of the indefinite article (a or an) in conjunction with the open claim term "comprising" indicates "one or more" of a particular term (here, the computer readable storage medium). Nothing in the claim language, specification, nor prosecution history supported any exception to this general rule for construing claim terms, nor was there an unambiguous disclaimer of a non-centralized computer in the record, in the panel's opinion. And the panel also affirmed the Board's refusal to allow Celgene's extrinsic evidence to "trump the persuasive intrinsic evidence in this case."
Turning to the second point, the Federal Circuit agreed with the PTAB that providing information to male patients "capable of impregnating females" with information regarding the risks was obvious, based on CFAD's expert's testimony regarding how a person of ordinary skill would have understood one of the asserted prior art references (despite express teachings in another of the asserted references that "[n]o effects [of teratogenic drugs] on male sperm are recognized"). This teaching, in the context of the reference, referred to the contraceptive effects of thalidomide and not its teratogenic effects, according to the Board, and the Federal Circuit agreed.
As to Celgene's objective indicia argument, Celgene challenged the Board's failure to credit its evidence of unexpected results and long-felt but unmet need. The Federal Circuit rejected those challenges, substantially because the Court refused to reweigh the evidence on appeal. The Court also did not find dispositive the "tension" between the Board's refusal to weigh the evidence in Celgene's favor as to the '501 patent, but finding the evidence persuasive regarding claim 10 of the '720 patent, because "[t]he fact that there is no long-felt, unmet need does not necessarily mean that there is no motivation to improve a system [as claimed in the '720 patent]," citing Spectrum Pharm., Inc. v. Sandoz Inc., 802 F.3d 1326, 1336 (Fed. Cir. 2015).
The opinion then turned to the '720 patent. Evidence of motivation used to support the Board's obviousness rejection of the claimed improved methods was the general motivation to "improve the existing distribution methods of potentially hazardous drugs because 'where significant safety risks exist with a drug, one would continuously search for safer ways to control the distribution of the drug.'" The Federal Circuit agreed that the Board properly rejected Celgene's argument that there was no motivation to improve the S.T.E.P. system disclosed and claimed in the '501 patent because "there had been no reports of birth defects or even potential fetal exposure to thalidomide using that system." The Court found that this motivation was not "generic" (as Celgene argued), based on the policy argument that "[i]n a case like this, where safety is a concern and where the potential adverse side effects are so severe, the Board did not err in finding that the desire to improve a system that is working well qualifies as a valid motivation."
On more specific grounds, Celgene argued that even if there was generic motivation to improve its S.T.E.P. system, the Board erred by finding that the "particular, prospective, doctor-interfering system claimed by the '720 patent" was obvious (emphasis in opinion). The Federal Circuit disagreed, finding that "the Board incorporated the notion of affirmative risk assessment [one of the particular limitations Celgene argued distinguished its claims from the cited art] into its claim construction and considered it in its obviousness findings." The panel did not fault the Board's omission of the term "prospective" from its Final Written Decisions, because that term is not found in the contested claims, and rejected on similar grounds Celgene's arguments with regard to the limitation that the claimed enhanced system can "override" a physician's prescription. Accordingly, the Federal Circuit affirmed the Board's determination that claims 1-9 and 11-32 of the '720 patent were obvious.
On the constitutional issue, the panel first addressed whether reaching this issue was proper in this case, deciding that it was. The basis for this portion of the Federal Circuit's opinion was that, despite the fact that Celgene made it argument for the first time on appeal, that was not improper and the Court had discretion to reach the issue in this limited circumstance. Citing the "interest of justice" and the "growing number of retroactivity challenges following the Supreme Court's decision in Oil States" (where the Supreme Court raised without deciding the issue of whether an IPR could constitute a taking under the Due Process Clause or the Takings Clause), the timing of the Supreme Court's Oil States decision ("well after the Board's . . . final written decisions in the IPRs involved in this appeal") supported the Federal Circuit's decision to consider the question. Other factors in favor of review include the question's status as a pure matter of law, and that even had Celgene raised the issue before the Board "it is unclear how the Board could have corrected the alleged constitutional defect . . . ." (In a footnote, the opinion cites Supreme Court precedent that "adjudication of the constitutionality of congressional enactments has generally been thought beyond the jurisdiction of administrative agencies," Elgin v. Dep't of Treasury, 567 U.S. 1, 16 (2012) (quoting Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 215 (1994)). Interestingly, the PTO at oral argument answered the question of whether the Board had the authority to address the constitutional argument by stating that "the Board could exercise its discretion to decline to institute the IPR," which as the Court notes, would be a decision unreviewable except possibly for mandamus.) The Court thus found this "one of those exceptional circumstances in which our discretion is appropriately exercised to hear Celgene's constitutional challenge even though it was not raised below."
On the merits, the panel based its decision that IPRs are not unconstitutional on the history, beginning in 1980, of Patent Office review of previously granted patents, which at least put patentees on notice that the Office could reconsider the validity of the patent grant. This history made that grant contingent on there not being a successful post-grant challenge, and thus an IPR is nothing more than the latest iteration of such proceedings. Characterizing IPRs in this way removed much of the force of the retroactivity argument, without which the constitutional challenge falls. It is also consistent with the Court's decisions in Patlex Corp. v. Mossinghoff, 758 F.2d 594 (Fed. Cir. 1985), and Joy Technologies, Inc. v. Manbeck, 959 F.2d 226 (Fed. Cir. 1992), where the Court rejected similar challenges to ex parte reexamination. (Happily, "[t]he PTO [did] not dispute that a valid patent is private property for the purposes of the Takings Clause.") According to the opinion, "Celgene's pre-AIA patents were therefore granted subject to existing judicial and administrative avenues for reconsidering their validity" and "[f]or several decades [prior to Celgene applying for its patents], the Patent Office also possessed the authority to reexamine—and perhaps cancel—a patent claim that it had previously allowed."
The Office also persuasively argued that invalidation of a patent is not an unconstitutional taking because "the patent owner 'never had a valid property right because the patent was erroneously issued in the first instance.'" And of course the panel notes that "[t]he validity of patents has always been subject to challenge in district court," although there is (or should be) a distinction between the agency reversing itself within its own sphere of expertise and a court deciding that the agency had erred.
In view of the similarities between IPRs and these earlier types of post-grant review proceedings, the panel states that:
[I]t suffices for us to decide that IPRs do not differ sufficiently from the PTO reconsideration avenues available when the patents here were issued to constitute a Fifth Amendment taking. Celgene identifies a number of differences between reexaminations and IPRs, including that IPRs are adjudicative and have discovery, briefing, and an oral hearing, . . . but as explained below [where the panel recites the many similarities between IPRs and earlier post-grant review proceedings], these differences are not sufficiently substantive or significant to constitute a taking."
And the panel finds solace in several recent Supreme Court decisions, including SAS Inst., Inc. v. Iancu, 138 S. Ct. 1348, 1353 (2018), and Return Mail, Inc. v. United States Postal Serv., 139 S. Ct. 1853, 1860 (2019), for its decision that IPRs are not unconstitutional.
One aspect of Celgene's argument that the panel did not expressly address is that an IPR "unfairly interferes with its reasonable investment-backed expectations without just compensation." While this argument may not have gained any traction on patentee's behalf in this case, it does suggest that there is a class of individuals, namely investors, who may have a cognizable reliance interest that should be recognized and recompensed when a patent is invalidated in an IPR. Investors, like patentees are on notice that patents can be invalidated in district court or before the Patent Office in post grant review proceedings in all their many flavors. But the decision to invest rests at least in part on the investor relying on the presumption of validity, ensconced in statute and resting on the presumption that the Patent Office has properly granted a valid patent. While infallibility is not one of the features of (or representations by) the Patent Office, as a part of the Federal government there should be a consequence in favor of relatively innocent by-standers when the government fails the public trust by improvidently granting invalid patents. After all, inventions protected by patents do not satisfy their raison d'etre of "promoting progress" if these inventions are not commercialized, and commercialization requires investment. Perhaps it would be fair to recognize that reliance interest and the injury to that interest by the Federal government declaring "do-over" (with frightening frequency, as Celgene argued), by creating a cause of action against the government to recoup at least some of an investor's losses occasioned by invalidation of presumptively valid patents. In addition to the quality of justice that this would create, it might lessen the inhibitions (if not a distinct chill) to investment that the AIA's post-grant review proceedings have created.
Celgene Corp. v. Peter (Fed. Cir. 2019)
Panel: Chief Judge Prost and Circuit Judges Bryson and Reyna
Opinion by Chief Judge Prost
