Class Action Suit Argues that IPR is an Unconstitutional Taking

by Kenneth Darby

In declaring that the inter partes review (IPR) process did not violate Article III and the Seventh Amendment, Justice Thomas' majority opinion in Oil States emphasized the narrowness of its holding, stating expressly that "[the] decision should not be misconstrued as suggesting that patents are not property for the purpose of the Due Process Clause or the Takings Clause." Oil States Energy Servs., LLC v. Greene's Energy Group, LLC, 138 S. Ct. 1365, 1379 (2018). Many observers viewed this express reservation of judgment as all but an invitation for future challenges of post-grant proceedings. Thus, it came as no surprise to most when, less than three weeks after Oil States was decided, the class action complaint in Christy, Inc. v. United States (1:18-cv-00657) was filed at the U.S. Court of Federal Claims alleging, among other counts, that the USPTO's cancellation of patent claims found unpatentable in IPR constitutes an impermissible taking of property for public use without just compensation under the Fifth Amendment.

As to the Takings Clause, the complaint relies heavily on authority cited by the Supreme Court in Oil States (Florida Prepaid Postsecondary Educ. Expense Bd. v. College Sav. Bank, 527 U.S. 627, 642 (1999); James v. Campbell, 104 U.S. 356, 358 (1882)) as support for the proposition that patent rights are legally recognized property interests under the Fifth Amendment. Thus, canceling claims through IPR deprives patent owners "of the value of the patented technologies, which includes expected royalties and other payments related to use of the patents, their investments in the patented technologies, the issuance and maintenance fees, and the attorney fees spent in defending the [IPR] that invalidated the claims."

The government's motion to dismiss criticizes the complaint for attempting to bypass the statutory scheme by alleging a taking in the Court of Claims, rather than appealing the board's IPR decision at the Federal Circuit. As to substance, the government rebuts this count by arguing that the cited Supreme Court authority merely identified the Takings Clause in dicta and never actually decided that patent rights were subject to it. The government argues further that the act of canceling a patent claim is not commensurate with taking it for use by the public because the prior art preempting patentability was already in the public domain.

The complaint further alleges that cancellation of claims through IPR amounts to the breach of a binding contract between a patent owner and the government. As the argument goes, the Notice of Allowance and Fees issued by the USPTO which identifies the metes and bounds of the claims to be issued, the consideration to be paid, the parties, and the duration of patent term represents an intent to contract on the part of the government. According to the complaint, the patent owner accepts the government's offer when the issue fee is paid, and the contract is memorialized by the patent certificate. By this logic, cancellation of an issued claim by the USPTO is a material breach of contract, particularly as it relates to the statutory patent term. In support of its motion to dismiss, the government cites ample authority critiquing the analogy between patents and contracts, and also contends that the complaint fails to adequately allege the elements of a contract and its breach.

Other counts advanced in the complaint include breach of implied duty of good faith and fair dealing, unjust enrichment, and exaction. The government's motion to dismiss addresses the merits on each count and further contends that the Court of Claims lacks subject-matter jurisdiction because sovereign immunity has not been waived.

Fish & Richardson will continue to monitor this case closelyand will provide a follow-up brief once a decision is released. Please contact Kenneth Darby for any questions.