IP Law Daily High Court agrees to review Federal Circuit’s controversial Arthex decision
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Tuesday, October 13, 2020

High Court agrees to review Federal Circuit’s controversial Arthex decision

By Cheryl Beise, J.D.

The Supreme Court has granted certiorari and consolidated three petitions asking whether Administrative Patent Judges have been properly appointed under the U.S. Constitution.

The Supreme Court has agreed to review a decision of the U.S. Court of Appeals for the Federal Circuit holding that the Patent Act’s scheme for appointing Administrative Patent Judges (APJs) to serve on Patent Trial and Appeal Board panels violates the U.S. Constitution. The Court granted certiorari and consolidated three petitions seeking review of the Federal Circuit’s decision. On July 22, the U.S. Government filed a memorandum summarizing the issues presented in the petitions filed by the parties. The Court indicated that it will consider two of three questions posed by the Government’s memorandum: (1) whether, for purposes of the Appointments Clause, U.S. Const. Art. II, § 2, Cl. 2, APJs are principal officers who must be appointed by the President with the Senate’s advice and consent, or "inferior Officers" whose appointment Congress has permissibly vested in a department head; and (2) if APJs are principal officers, whether the Federal Circuit properly cured any Appointments Clause defect.

Section 6 of the Patent Act establishes within the USPTO a Patent Trial and Appeal Board, consisting of the Director, the Deputy Director, the Commissioner for Patents, the Commissioner for Trademarks, and administrative patent judges. The provision states, "The administrative patent judges shall be persons of competent legal knowledge and scientific ability who are appointed by the Secretary [of Commerce], in consultation with the Director." 35 U.S.C. § 6(a). In addition, 35 U.S.C. § 3(c) provides that "Officers and employees of the Office shall be subject to the provisions of title 5, relating to Federal employees." Title 5 U.S.C. § 7513(a) permits agency action against those officers and employees "only for such cause as will promote the efficiency of the service." The Appointments Clause of Article II of the Constitution provides that [principal] officers must be appointed by the President with the Senate’s advice and consent, but that "Congress may by Law vest the Appointment of … inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments."

On October 31, 2019, a three-judge panel of the U.S. Court of Appeals for the Federal Circuit held that the Patent Act’s scheme for appointing APJs to serve on Patent Trial and Appeal Board panels violates the Appointments Clause of Article II of the U.S. Constitution because the Act makes the APJs "principal officers" of the United States, requiring appointment by the President rather than the Secretary of Commerce. Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019). To cure the violation, the Federal Circuit held that severing the portion of the Patent Act restricting removal of the APJs is sufficient to render the APJs "inferior officers" and remedy the constitutional appointment problem. The full Federal Circuit declined to review the panel decision en banc. Since its Arthrex decision, the Federal Circuit has vacated over 100 PTAB decisions in several cases and remanded them for rehearing before a new PTAB panel. The Chief Administrative Patent Judge has stayed all cases remanded by the Federal Circuit under Arthrex in administrative abeyance until the Supreme Court reaches its decision.

None of the parties to the Arthrex case were satisfied with the Federal Circuit’s decision. Each filed petitions for review—United States v. Arthrex, Inc. (Dkt. No. 19-1434); Smith & Nephew, Inc. v. Arthrex, Inc. (Dkt. No. 19-1452); Arthrex, Inc. v. Smith & Nephew, Inc. (Dkt. No. 19-1458). Petitions have also been filed by several parties involved in inter partes review proceedings that were subsequently remanded by the Federal Circuit in accordance with Arthrex. On July 22, the U.S. Government filed a memorandum summarizing the issues and posing three questions raised in the parties’ petitions:

  • Whether, for purposes of the Appointments Clause, U.S. Const. Art. II, § 2, Cl. 2, administrative patent judges of the U.S. Patent and Trademark Office are principal officers who must be appointed by the President with the Senate’s advice and consent, or "inferior Officers" whose appointment Congress has permissibly vested in a department head.
  • Whether, if administrative patent judges are principal officers, the court of appeals properly cured any Appointments Clause defect in the current statutory scheme prospectively by severing the application of 5 U.S.C. 7513(a) to those judges.
  • Whether the court of appeals in Arthrex erred by adjudicating an Appointments Clause challenge that had not been presented to the agency.

The Supreme Court granted certiorari to the three petitions, consolidated the cases under Dkt. No. 19-1434, and agreed to consider the first two questions only.

The Court could take this occasion to refine the distinction between "principal officers" and "inferior officers." While there is no "exclusive criterion for distinguishing between principal and inferior officers for Appointments Clause purposes," the Supreme Court in Edmond v. United States emphasized three factors: (1) whether an appointed official has the power to review and reverse the officers’ decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official’s power to remove the officers. 520 U.S. 651, 664–65 (1997).

In Arthrex, the Federal Circuit found that the level of supervision factor favored a finding that APJs are principal officers. The appeals court observed that APJs exercise significant discretion when carrying out their function of deciding inter partes reviews. They oversee discovery, hear oral arguments, and issue final written decisions containing fact findings and legal conclusions, ultimately deciding the patentability of the claims at issue. The Director (an appointed "principal officer") cannot nullify or reverse a final written decision issued by a panel of APJs. Only the PTAB itself has the authority to grant rehearings and to issue final written decisions.

If the Court agrees with the Federal Circuit that APJs are principal officers, then the Court must decide whether the Federal Circuit applied the correct remedy. Lawmakers have expressed interest in finding a legislative fix to Arthrex, but the issue has languished in recent months given the reshuffling of priorities due to the Covid-19 pandemic. Witness appearing at a November 19, 2019, hearing held by the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, and the Internet all agreed with the Federal Circuit’s assessment of the constitutional problem with appointment of APJs, but none of them wholly concurred with the remedy adopted in Arthrex to make APJs "inferior officers."

The case is Dkt. Nos. 19-143419-1458, and 19-1459.

Attorneys: Jeffrey B. Wall, Acting Solicitor General, US Dept of Justice, for United States. Mark Andrew Perry (Gibson Dunn & Crutcher, LLP) for Smith & Nephew, Inc., et al. Jeffrey Alan Lamken (MoloLamken LLP) for Arthrex, Inc.

Companies: Arthrex, Inc.; Smith & Nephew, Inc.

MainStory: TopStory Patent GCNNews USPTO

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