Dawn C. Kerner, with Volpe and Koenig.

On Sept. 16, 2012, four new types of post-grant proceedings under the America Invents Act (AIA) went into effect, making it easier, quicker and more cost effective for would-be defendants, interested parties, patent owners and other meddlers to initiate proceedings to challenge issued patents. At the end of such proceedings, an unsuccessful patent owner— meaning someone who lost a challenge to an already issued patent—could be left without any patent rights, despite having paid thousands in legal expenses and U.S. Patent and Trademark Office (USPTO) fees. Worse still, the patent owner may have already substantially invested (in both time and dollars) in bringing products to market, licensing and undertaking other acts in reliance on the patent. This may leave one wondering: is intellectual property really property? If a person can be stripped of his rights in intellectual property, then how is it property at all?

These questions have been at the heart of several legal disputes in which parties have questioned the constitutionality of post-grant proceedings under the AIA. Challenges have been raised under Article III of the U.S. Constitution, the takings clause of the Fifth Amendment, the right to trial by jury under the Seventh Amendment and the due process clause of the Fifth Amendment.

The four types of AIA post-grant proceedings—supplemental examination, inter-partes review (IPR), post-grant review (PGR), and covered business method (CBM) review—are summarized in Table 1. Supplemental examinations can be brought only by patent owners, and, therefore, they have not been the focus of the constitutional challenges discussed above. By contrast, IPRs, PGRs and CBM reviews allow individuals and entities other than patent owners to challenge a patent’s validity. In short, as set forth in Table 1, these programs are more expansive than pre-AIA post-grant programs, have proceedings that are closer to traditional federal litigation than traditional administrative proceedings, and some of these proceedings are applicable retroactively to patent applications filed before the proceedings were enacted into law. These features of IPRs, PGRs and CBM reviews are the backdrop for questions as to their constitutionality.

Table 1

Type of Review Who Can Bring Action When to File USPTO Branch Handling Subject Matter Eligible For Review Applicable to Patents With Pre-AIA priority dates?
Supplemental examination Patent Owner Any time before patent expires Examiner Any grounds relevant to patentability Yes
PGR Third Party Within 9 months of issuance PTAB Any invalidity ground except best mode No
IPR Third Party 9+ months after issuance or after termination of PGR (post-AIA filing dates) PTAB Invalidity based on 35 U.S.C. §§ 102 and 103 patents or patent application publications Yes
CBM Defendant in Infringement Action Any time between Sept 16, 2012 and Sept 16, 2020 PTAB Any invalidity ground except best mode and 35 U.S.C. § 102(e) prior art Yes

 

The seminal case in this arena is Oil States Energy v. Greene’s. In Oil States, the petitioner alleged that IPRs violate both Article III of, and the Seventh Amendment to, the U.S. Constitution because they permit such review to be undertaken by the USPTO’s Patent Trial and Appeals Board (PTAB), rather than an Article III judge or a jury of a patent owner’s peers. The U.S. Supreme Court disagreed. The court held that IPRs do not violate patent holders’ constitutional rights because Congress permissibly delegated authority to the USPTO for the purpose of “reconsideration of the Government’s decision to grant” a patent, which constitutes “a public franchise.” It was careful to note that, “[a]s a public franchise, a patent can only confer the rights that the ‘the statute prescribes.’”

Oil States was specifically limited to post-grant reviews of patents with effective filing dates after the AIA was enacted, leaving open the constitutionality of AIA post-grant proceedings for patents with pre-AIA effective filing dates. The court also declined to comment on the constitutionality of AIA post-grant proceedings under the takings and due process clauses of the Fifth Amendment.

Since Oil States was decided, neither the Supreme Court nor the U.S. Court of Appeals for the Federal Circuit have decided those open issues. However, in January 2019, the U.S. Court of Federal Claims presided over a challenge to IPRs under the takings clause. In Christy v. United States, No. 18-657C, 2019 U.S. Claims LEXIS 29 (Fed. Cl. Jan. 29, 2019), the plaintiff contended that the cancellation of 18 claims asserted in its patent was a “taking without just compensation,” in violation of its constitutional rights. The plaintiff argued that it had property rights in the claimed invention, the issue and maintenance fees paid on its patent, and investments made in the underlying technology, all of which the government “took” by canceling the 18 claims at issue. Building on Oil States, the court rejected the plaintiff’s arguments, reasoning that the only “property” subject to the takings clause was private property. In the court’s view, there had been no taking because patents are public franchises, not private property.

Moreover, on Feb. 13, the Federal Circuit Court issued its opinion in IBG v. Trading Technologies International, Nos. 2017-1732, et al. 2019 U.S. App. LEXIS 4299, — F. App’x —- (Fed. Cir. Feb. 13, 2019). Unfortunately, though the IBG appeal presented the opportunity to rule on constitutional issues relating to CBM reviews (including, inter alia, potential takings in violation of the Fifth Amendment), the court declined to do so—perhaps because the parties dedicated mere paragraphs each to those issues. Nevertheless, lessons may be gleaned from the brief filed in that appeal by the U.S. government, which had intervened. The government dedicated over 40 pages to the constitutionality of AIA post-grant review and, more particularly, to the constitutionality of CBM reviews brought against patents with effective filing dates prior to enactment of the AIA. Specifically, the government addressed the issues left open in Oil States, while focusing on the constitutionality of enacting laws that are to be applied “retroactively”— that is, to patent applications filed before the AIA was enacted.

In particular, the government argued (with respect to CBM reviews) that the AIA does not violate patent holders’ rights because it merely changed the venue and procedures by which such proceedings may be commenced; the applicable substantive law remains the same. The government also argued that those procedures comport with due process, stating that “retroactive civil legislation is permissible if it advances legitimate purposes by rational means, and Congress plainly satisfied that requirement here.” Chief among the “legitimate purposes” cited by the government was the volume of business method patents issued between 1998 and 2008 (before the validity of business method patents was called into question in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008)).

In the wake of these rulings—in light of the constitutional rulings that both have and have not yet been made—patent owners should be aware that their patents may not convey all of the rights that they may have expected. Unlike private property, where a person or business may rely on the property’s permanence and make investments based thereon, patents are considered to be “public franchises.” As such, they are subject to different metes and bounds, which themselves may be subject to change.

Thus, savvy entrepreneurs and institutions should keep this in mind: patents are only worth the paper on which they are written. In other words, when filing a patent application, applicants should take measures to ensure that the words in their patent applications will withstand validity challenges, whether raised in court or AIA post-grant proceedings, and to properly account for risk based on potential post-AIA proceedings in patent valuations. As a large portion of post-grant reviews are based on prior art that was not uncovered during prosecution before the USPTO, it would be prudent to conduct an independent search before filing a patent application. Basic searches can be relatively affordable and may uncover art that can help strengthen a patent. Further, individuals and entities filing patent applications should take advantage of USPTO rules permitting three independent and seventeen dependent claims for no additional fees. Including a picture claim as well as claims that cover your invention in different ways can strengthen your patent in the face of changing laws.  Regarding patent valuation, as it seems that AIA post-grant proceedings are not likely to be stricken down on constitutional grounds, patentees should evaluate the potential future value of their patent portfolios, and adjust the average up or down taking into account additional validity risks due to potential post-grant proceedings.

Distilled down to the most basic level, investing time and resources early on in the process of seeking a patent can produce a more robustly protected piece of intellectual property that will be more likely to withstand threats of expensive post-grand review proceedings and, in the long run, provide greater value to your business as an asset.

Dawn C. Kerner, a shareholder with Volpe and Koenig, assists clients seeking to protect and enforce their key intellectual property domestically and globally, particularly in the technology areas. Contact her at dkerner@vklaw.com.