PATENTS, PUBLIC FRANCHISES, AND CONSTITUTIONAL PROPERTY INTERESTS.

• Author: Wynn, Jesse

CONTENTS INTRODUCTION II. BACKGROUND: PATENTS AS PUBLIC FRANCHISES A. Scholarship on Patents as Constitutional Property B. Patents as a Public Franchise: Oil States 1. Public Franchises in Other Contexts 2. Florida Prepaid 3. James V. Campbell III. COMPARISON TO TRADE SECRETS: RUCKELSHAUS V. MONSANTO IV. PATENTS AS CONSTITUTIONAL PROPERTY INTERESTS IN LOWER COURTS A. Celgene Corporation v. Peter B. Zoltek Corporation v. United States C. Christy v. United States V. ADEQUACY OF THE GOVERNMENT INFRINGEMENT REMEDY: 28 U.S.C. [SECTION] 1498 VI. PATENTS AS PUBLIC FRANCHISES IN CONSTITUTIONAL PROPERTY CLAIMS CONCLUSION INTRODUCTION

Courts have described patents as property rights in terms evoking the Fifth Amendment Takings Clause for nearly 200 years. (1) To date, though, the Supreme Court has not definitively held that eminent domain protections apply to patents. (2) Several recent developments suggest that the issue is newly relevant. Despite holding that patents are a "public franchise" that can be revoked in a non-Article III proceeding, the Supreme Court's decision in Oil States Energy Services V. Greene's Energy Group (3) ("Oil States") left open the possibility that patents may be constitutional property interests under the Takings and Due Process Clauses. (4) Further, the Court's holding in Impression Products V. Lexmark International (5)--that patented products sold abroad have their patent rights exhausted (6)--has raised new legal arguments in the pharmaceutical industry that federal import of patented drugs sold abroad could amount to a taking without just compensation. (7)

In the scholarly literature, much of the Takings Clause and patents analysis centers around whether patents should be classified as private property rights on par with real property or whether they are more like regulatory entitlements, in the form of a "public franchise." (8) I review that scholarship in Part 11(A). Lacking in the commentary, though, is an in-depth analysis regarding the difference between protecting patents with the Due Process Clause and protecting patents with the Takings Clause. Indeed, much of the existing scholarship must be re-evaluated in light of the Supreme Court's treatment of patents in Oil States. (9)

In this Note, I argue that patents are not entitled to Takings Clause protection because of their post-(M States status as "public franchises." (10) Nevertheless, patents are likely protected interests for purposes of the Due Process Clauses of the Fifth and Fourteenth Amendments. (11) Part 11(B) analyzes the Oil States opinion, examines public franchises in another context, and reviews several of the relevant cases that the Court cited in Oil States. In Part III, I analyze Ruckelshaus v. Monsanto Co.,12 the Supreme Court's only Takings Clause case that deals with intellectual property, to see how it may influence the Court in a future patent case. Part IV reviews how the Takings Clause has been applied to patents in lower courts.

I also argue here that patents are entitled to Due Process Clause protection after the Court's decision in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank (13) ("Florida Prepaid"). Thus, the adequacy of the remedy available for deprivation of patent interests will be relevant to patent-related due process claims against the federal government. I provide background on the currently available remedy, 28 U.S.C. [section] 1498, in Part V. Finally, I argue in Part VI that the Takings Clause should not apply to patents because of the Oil States categorization of patents as public franchises, and I introduce some of the arguments that parties may make in future litigation over these issues.

2. BACKGROUND: PATENTS AS PUBLIC FRANCHISES

   This Part first reviews the status of the legal and scholarly commentary regarding patents and their protection under the Fifth Amendment. (14) Then, I analyze the Oil States decision and its "public franchise" approach to understanding the patent right. (15) With the public-franchise approach established, this Part will review some of the scant case law on the subject of public franchises in other contexts to understand how the public-franchise approach may affect a future Takings Clause claim for patents. (16) Then, I analyze the cases the Oil States opinion cites to narrow its holding--Florida Prepaid and James V. Campbel (l7)--by stipulating that it does not address whether patents are property rights protected by the Due Process and Takings Clauses. (18)

   1. Scholarship on Patents as Constitutional Property

      The jurisprudence (19) and legal commentary (20) that consider whether patents are property entitled to Takings Clause protection leave the answer mired in uncertainty. (21) As an initial matter, patents must be considered private property before Takings Clause protection can adhere. (22) Further complicating the picture is the frequent invocation of Takings Clause language when describing cases of federal government infringement under 28 U.S.C. [section] 1498 (23) or in nineteenth-century case law, (24) both of which would appear to resolve the issue in favor of private property protection. On the other hand, the Supreme Court has also repeatedly referred to patent rights as dependent on statutory grants--meaning the statutes create rights which did not exist at common law, evoking a public franchise or non-private-property solution. (25) Justice Thomas adopted this view in his Teva Pharmaceuticals USA v. Sandoz (26) dissent, pushing back on the movement to create stronger private property protections in patents. (27)

      But despite these cases, the nature of patents--as private property rights versus public franchises--has been the subject of much academic debate, a debate which Oil States appears to have resolved in large part. (28) Unfortunately, the distinction is not only unclear in the case law, but it also involves competing meanings of "rights," "privileges," and "franchises." (29) Generally, though, a public franchise is a grant of rights involving "means to carry out public ends," existing only to promote those ends. (30) A true private property right, on the other hand, would exist--according to Lockean theory--without political involvement. (31)

      Many of the competing arguments were raised in briefing before the Court for the Oil States case. Perhaps the staunchest proponent of patents-as-constitutional-property is Professor Adam Mossoff. Professor Mossoff, in an amici brief for the Oil States case, sets out arguments for protecting patents as typical private property under the Takings Clause and the Due Process Clauses. (32) He argued that the Court had frequently invoked common law property concepts when discussing patents and cited real property cases as precedent for defining patent rights. (33) Additionally, he pointed to the Horne v. Department of Agriculture Court's partial reliance on James v. Campbell for the idea that patents, and indeed all personal property, were subject to the Takings Clause, (34) despite the fact that Professor Mossoff has elsewhere argued that the Takings Clause portion of James v. Campbell was dicta. (35)

      Elsewhere, Professor Mossoff has argued that the historical treatment of patents in both the Supreme Court and the Court of Claims shows that patents were "enthusiastically" protected under the Takings Clause. (36) "Substantively and rhetorically, nineteenth-century courts believed that patents were a species of property." (37) Though the historical cases did not all point towards the conclusion that patents are constitutionally protected private property, Mossoff argues that the arc of the jurisprudence was apparent; "patents were private property rights secured under the Constitution." (38)

      Proponents of the public franchise approach to patents, on the other hand, point out that patents are entirely bound by statutory grant and were non-existent at common law. (39) Neither did patent rights depend on state law. (40) Additionally, several amici in Oil States pointed out that the role the Executive branch played in granting patents at the founding indicates that patents are closer to public rights than private ones. (41) Further, because patents derive all their boundaries from positive statutory law rather than common law, some amici argued that adjudicating them in an Article I proceeding would be appropriate. (42) Patents are also subject to maintenance fees, which amici argued were for the "privilege of keeping patent rights"--yet another analogy to a public monopoly granted as a privilege, not as of right. (43) Finally, amici argued that land analogies were inapt, because the closest examples were leases on federal public land; such leases are subject to administrative cancelling, much like patents may be revoked in inter partes review. (44)

      Patents-as-constitutional-property skeptics also take issue with proconstitutional-property historical claims as to patent treatment. Contrary to Professor Mossoff's understanding that early court treatment of patents under the Takings Clause is persuasive, Professor Thomas Cotter argues that most, if not all, of these early statements about patents can be classified as dicta. (45)

      Until the Supreme Court's decision in Oil States the debate has remained largely academic and absent from the courts; (46) now, the debate over the role of patents as property in takings doctrine is once again relevant. (47)

   2. Patents as a Public Franchise: Oil States

      The pivotal Oil States case involved Oil States' patent for a method of protecting equipment during hydraulic fracturing. (48) Oil States brought suit against Greene's Energy Group for patent infringement; as part of its defense, Greene's Energy petitioned the Patent Trial and Appeal Board ("PTAB") to initiate inter partes review of the patent on the grounds that the patent was invalid. (49) The PTAB found that the subject matter of the patents lacked novelty and were thus...