IPR undermines pharma patents---hurts economic interests, interferes with the market, and protects Big Pharma.

One of Penn Central's first analytical prongs is the character of the governmental action. 78Regulatory taking proves harder to identify than a physical taking of land. 79A key factor in determining if the governmental action fits the character of a taking is whether the public program interferes with economic benefits or burdens by adjusting them to promote common good. 80PTAB IPR proceedings can significantly interfere with the economic interests of the patent holder in the name of the public good, suggesting the character of the governmental action leans toward excess regulation that equals a taking. 81

Such economic interferences can occur in the pharmaceutical industry due to the high volume of patent applications filed, and the high cancellation rate of such patents' claims by the PTAB. 82In July 2018, the PTAB issued fifty-one IPR and Covered Business Method ("CBM") Final Written Decisions, cancelling 79% of the challenged instituted claims. 83The adverse [*215] parties in these IPRs usually argue that the challenged patent is too vague, a stolen idea, or an obvious claim. 84

Since 2012, there have been 550 biopharma patent petitions filed with the PTAB, which make up a large portion of the average 75% cancellation rate of instituted claims from IPR proceedings. 85In 2018, only 47.65% of these biotech and organic chemistry patent claims survived PTAB IPR and CBM. 86Because pharmaceutical patents make up a large portion of patents held invalid by the PTAB, it may be concluded that such government action significantly interferes with the market, categorizing the PTAB's action as a regulatory taking. Thus, the next analytical step is weighing the economic impact felt by the pharmaceutical companies who hold the patent.

b. Economic Impact

Critics of the process argue that most patent invalidations deprive the original patent owner of some type of economic interest, but not all economic impacts rise to the level of a regulatory taking. 87To claim a regulatory taking, the property owner must show a severe economic impact directly resulting from the taking. 88The severity of the economic impact is judged on the whole property as opposed to the specific piece of property that may be directly affected by the taking. 89Thus, the economic value of a patent is not necessarily weighed by the actual product's monetary return. A patent's property value can be found solely in the right to exclude and create a competitive advantage within the market, regardless of the product's actual creation and sales. 90

As discussed previously in Part I, patents allow exclusivity for the inventor to stop others from using his patented invention. 91The right to exclude others from making and selling the patent-holder's invention makes [*216] his invention unique, thus increasing the economic value of the patent via simple supply and demand. 92The leading United States biopharmaceutical company Gilead Science, for example, holds roughly 560 patents and has applications for roughly 329 patents pending in 2018. 93On January 1, 2018, Gilead Science's market capitalization was estimated at $ 95 billion (including international markets), and the course of treatment for its highest selling hepatitis C drug, Sovaldi, is valued at $ 84,000, which suggests the patent's worth is much more. 94A successful IPR petition to challenge Gilead's hepatitis C treatment drugs could be considered a severe economic impact should the PTAB invalidate the patent, allowing more generic drugs to enter the marketplace. 95Thus, invalidation also meets this "taking" criteria.

c. Interference with Reasonable Investment Backed Expectations

The last of the three Penn Central factors is the reasonable expectations of the patent holder with regard to their investment in the property. 96Such investments are made with the expectations that the patent will be held valid and after production will yield high returns. 97Invalidating a patent after successfully completing the application process and receiving higher rates of investment for the production stage can fully interrupt expectations investors had in the product's rate of return. 98However, the Court in Ruckelshaus held that a property owner that has notice of the governmental action cannot have a reasonable investment-backed expectation that his property will not be taken. 99

[*217] Estimated at $ 50 billion invested annually in research and development, pharmaceutical companies have high investment-backed expectations in their patents. 100Such investments in patents for drugs like Sovaldi, are reasonable, considering Gilead's success in becoming the leading pharmaceutical manufacturer in the United States. However, IPR proceedings and post-grant invalidations are not new to the pharmaceutical industry. The AIA's IPR proceedings have been in full effect since 2012. Ruckelshaus's reasoning would suggest that a company like Gilead may have enough notice of these invalidation proceedings to negate any type of "reasonable" investment backing that IPR invalidation may upset. 101

2. Is Invalidation for Public Use?

If the Penn Central factors are satisfactorily met, courts may conclude that the government has taken private property by regulation, triggering the Fifth Amendment's public use requirement. To prove public use in a regulatory taking, the legislative history of the regulation's statutory authority provides guidance as to the law's public purpose. 102Dependent on the legislative intent, a taking does not require the property to be given directly from one person to the public as a whole, as long as the taking inadvertently benefits the public. 103

The AIA intended that only facially defective patents be subject to IPR review. 104The driving factor behind the AIA's creation of IPR proceedings--allowing the public to more directly alert the USPTO of possibly invalid patents--promotes public interest. 105Such public interest rests at the core of the procedural aspects of IPRs. 106The Court may consider public interest as a reason to allow the taking of pharmaceutical patents that are challenged in IPR proceedings if such patents are not "kept within their legitimate scope." 107

[*218] Many parties in IPR proceedings against pharmaceutical patents argue that the patent does not meet the non-obviousness standard established under 35 U.S.C. § 103. 108Such an obvious patent can create too strong of an exclusive and undue patent right for one company. 109Through a successful challenge, the invalidity of such a patent would create a more diverse and competitive market, decreasing the cost of the drug for the consumer and allowing more options for treatment. 110For example, Gilead Science initially priced Sovaldi at $ 1,000.00 per pill. 111A successful obviousness challenge of Sovaldi's patents could break through the monopoly, which would offer cheaper drugs for consumers. There are others, however, who argue the new patent process actually protects Big Pharma companies 112by allowing them to infringe and obtain medication patents already in existence, creating a difficult task for the courts reviewing the issue of whether a PTAB taking benefits public use. 113