Supreme Court Petition Challenges PTAB’s Constitutionality Under the Takings Clause

In recent weeks, Lake Forest, IL-based audio tech developer Advanced Audio Devices filed a petition for writ of certiorari seeking the U.S. Supreme Court to take up its appeal of decisions to invalidate its patents handed down by the Patent Trial and Appeal Board (PTAB). If granted, the case would ask the Supreme Court to decide the constitutionality of the PTAB under the Fifth Amendment’s Takings Clause, which was a grounds for arguing the PTAB’s constitutionality reserved by Justice Clarence Thomas’ opinion in Oil States v. Greene’s Energy Services.

Advanced Audio Devices owns five U.S. patents which were invalidated in inter partes review (IPR) proceedings at the PTAB. Advanced Audio had appealed those decisions to the Federal Circuit but the appellate court issued a Rule 36 affirmance this May which upheld the PTAB decisions without issuing an opinion.

As Advanced Audio’s petition for writ of certiorari notes, all five patents were filed with the U.S. Patent and Trademark Office prior to the enactment of the America Invents Act (AIA), which established the PTAB. Prior to Congressional passage of the AIA, Advanced Audioe didn’t need much litigation of its patent rights to license its patents and achieve most of its revenue. After the AIA passed, Advanced Audio began having to again file suits against those who were practicing its patented technology without a license. The patents invalidated by the PTAB were asserted by Advanced Audio in cases against Amazon, HTC and Pantech Wireless all filed in the Northern District of Illinois. Those cases are stayed in district court pending the resolution of this case, which has created significant costs through attorney fees and significant loss of royalty revenue.

“By enacting and implementing the AIA, the Government deprived patent owners of their personal property,” Advanced Audio’s petition reads. “Was that a Fifth Amendment taking? And, if so, what should be done about it?” Such questions were left open by the Supreme Court’s ruling in Oil States, which Advanced Audio said was meticulously limited in an appropriate manner to reflect the fact that patents could still be considered private property for purposes of either the Due Process Clause or the Takings Clause. The implementation of IPRs through enactment of the AIA and the invalidation of patent claims in five different IPR proceedings constitutes a regulatory taking by a governmental agency, Advanced Audio argues.

The Supreme Court’s 2015 decision in Horne v. Department of Agriculture further affirms not only the unconstitutional nature of a regulatory taking of personal property but also the status of patents as personal property. In that case, the Supreme Court held that a marketing order enforced by the Department of Agriculture violated the Takings Clause by requiring raisin growers to set aside a portion of their crop for the federal government free of charge. The majority opinion penned by Chief Justice John Roberts cited to 1882’s James v. Campbell, specifically using language which states that a patent “confers upon the patentee an exclusive property in the patented invention which cannot be appropriated or used by the government itself, without just compensation, any more than it can appropriate or use without compensation land which has been patented to a private purchaser.”

By enacting the AIA, Advanced Audio argues that the federal government appropriated patents, the personal property of individuals, in a way that conflicts with the standards laid out by Horne and James. “Invalidation put [Advanced Audio]’s inventions into the public domain, where they previously were not,” the petition reads. “That the AIA lacks any ‘just compensation’ provision confirms that this Court should hold the USPTO’s actions void ab initio.”

Advanced Audio also cites to the Supreme Court’s 1978 decision in Penn Central Transportation Company v. New York City where the Court set out certain factors to determine whether a regulatory action constitutes an unconstitutional taking. These factors include the regulation’s economic impact, particularly any interference with investment-backed expectations, and the character of the governmental action. On the first Penn Central factor regarding economic impact, Advanced Audio notes that its pre-AIA licensing revenues have been exhausted in attempts to protect the validity of its patents. As to investment-backed expectations, Advanced Audio provides original empirical evidence to show that Article III courts have invalidated patents 24.3 percent of the time since 2008 while the PTAB, in its five years of existence, has invalidated patents 80 percent of the time. “When AAD sought its patent rights, no administrative or judicial proceeding existed (or was contemplated) that would easily destroy patent rights,” Advanced Audio writes. On the third factor, the intended outcome of the AIA was to permit patent claims to be used by the wider public, “permitting complete invasion by strangers of what were otherwise boundary lines reserved solely for the benefit of the patentee.”

Peter Keller, Manager and President of Advanced Audio Devices, offered the following statement on the petition for writ with the Supreme Court:

“This is a significant issue that affects not only our company but numerous other individual patent owners whose patents have been revoked under the AIA. Our patents represent significant financial investment, and we believe it’s a violation of the constitution under the Takings Clause to deprive us of our livelihood without compensation. We are hopeful the Supreme Court will provide the clarity on this important issue that we and others need.”