By Cheryl Beise, J.D.
Justices mull whether the USPTO Director exercises sufficient supervisory control over APJs to make them "inferior officers" properly appointed by the Secretary of Commerce.
The U.S. Supreme Court today heard oral arguments concerning whether the Patent Act’s scheme for appointing Administrative Patent Judges (APJs) to serve on Patent Trial and Appeal Board panels violates the Appointments Clause of the U.S. Constitution. The question turns on whether APJs are "principal officers," who must be appointed by the President with advice and consent of the Senate, or whether they are "inferior officers," who may be appointed by Commerce Secretary in consultation with the USPTO Director. The Justices pressed the parties on articulating the proper standard for distinguishing principal and inferior officers and whether the USPTO Director’s supervisory control over APJs suffices to meet that standard. The Justices also solicited potential remedies, assuming a constitutional violation.
Deputy Solicitor General Malcolm Stewart presented the views of the United States; Mark Perry of Gibson, Dunn & Crutcher argued on behalf of Smith & Nephew, Inc.; and Jeffrey Lamken of MoloLamken appeared on behalf of the patentee, Arthrex, Inc.
Under review is a Federal Circuit decision holding that the Patent Act 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). Section 6 of the Patent Act provides that administrative patent judges shall be appointed by the Secretary of Commerce, in consultation with the Director. 35 U.S.C. § 6(a). The Patent Act also makes all USPTO employees subject to the federal employee removal protection of Title 5. 35 U.S.C. § 3(c). To cure the constitutional defect and render APJs to "inferior officer" status, the Federal Circuit severed Section 3(c) of the Patent Act. The panel then vacated the underlying Patent Trial and Appeal Board inter partes review decision finding certain claims of an Arthrex patent (U.S. Patent No. 9,179,907, directed to a knotless suture securing assembly) invalid as anticipated. The case was remanded for reassignment to a new PTAB panel, now deemed "inferior officers." Over the objection of several circuit judges, the full Federal Circuit declined to review the panel decision en banc.
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); and Arthrex, Inc. v. Smith & Nephew, Inc. (Dkt. No. 19-1458). The Court granted certiorari, consolidated the cases, and agreed to consider two questions: (1) 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; and (2) 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.
United States’ argument. Malcolm Stewart urged the Court to reverse the Federal Circuit’s decision on the ground that APJs qualify as inferior officers under the current statutory scheme. According to Stewart, the USPTO Director exercises sufficient supervisory control over APJs under the totality of circumstances test set forth in Edmond v. United States, 520 U.S. 651, 664–65 (1997). In Edmond, the Supreme Court emphasized three factors in determining inferior officer status: (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.
Stewart emphasized that Edmond does not require plenary supervisory authority. He contended that the Director exercises sufficient authority over APJs by setting policy and interpreting law. He also contended that the Director has the ability to review PTAB decisions by assigning the case to a new panel for rehearing, or the Director may sua sponte convene a Precedential Opinions Panel (POP) presumptively composed of the Director, the Commissioner for Patents, and the Chief Administrative Patent Judge.
Several Justices did not appear to be persuaded by Stewart’s arguments. Justice Kagan was the first to point out that while the Director can convene a POP panel, his is only one of three voices.
Justice Kavanaugh called this structure "a real break from tradition." He also raised concerns about the lack of accountability within the executive branch. "[T]hese are multimillion, sometimes billion-dollar decisions being made not by someone who's [not] accountable in the usual way that the Appointments Clause demands. And the director, on rehearing, does not have the unilateral power to reverse," Justice Kavanaugh said. Other Justices echoed this sentiment.
Justice Barrett addressed Stewart’s assertion that an APJ who does not follow the Director’s policy could be fired. She pointed out that the Director would not have the final say because APJs have the protections of the Merit Systems Protection Board (MSPB). Stewart agreed, but noted that APJs could be assigned to other duties, such rulemaking, training, and adjudicating appeals of original patent refusals.
When pressed for a potential remedy, Stewart suggested severing the provision in the statute that says only the Board can grant rehearings.
Smith & Nephew’s argument. Mark Perry echoed several arguments made by Stewart. But he also asserted that APJs are inferior officers because they are three steps removed from the President. Perry additionally pointed out that it is the Director and not APJs who cancel patents. The Arthrex patent in this case is still in effect despite the PTAB’s invalidity ruling.
In response to questioning from Justice Kagan, Perry contended that final decisions by inferior officers have had a long history in the Patent Office. He noted that as early as 1793, non-principal officers were given the power to adjudicate patent disputes, and going back to 1836, administrative agents have decided interference contests between parties.
Justice Kavanaugh expressed concern that finding APJs are inferior officers under this statutory scheme could be the "wolf" that gives "a model for Congress to eliminate agency review of ALJ decisions and kind of fragment and take away from agency control going forward."
Justice Gorsuch asked whether the Director’s exercise of "soft power" by extracting promises from certain APJs about how they'll rule, raised due process concerns. Perry admitted that was possible, but asserted it was not an issue in this case.
Arthrex’s argument. Jeffrey Lamken argued that APJs decide cases and their decisions "are the executive’s final word resolving billion-dollar disputes affecting the innovation landscape." No superior in the executive has authority to review APJ decisions, and APJs "even can overturn earlier decisions by their own agency head to grant a patent." For parties, the PTAB decisions are the executive’s final word. Lamken said that Edmond emphasized review by presidentially appointed, Senate-confirmed officers. While Lamken agreed with the Federal Circuit’s assessment that the scheme for appointing APJs is unconstitutional, he disagreed with the Federal Circuit’s cure. Lamkin strongly urged that the fix should be left to Congress and this case should be vacated until the constitutional issue is resolved.
A few Justices questioned Lamken’s position that the Court should not "make the fundamental policy" choice of deciding how to revise the Patent Act, whether elevating APJs to principal officer status requiring presidential appointment and Senate approval or making all decisions reviewable by the USPTO Director, as Congress did for Trademark Trial and Appeal Board decisions.
Justice Sotomayor pointed out that PTAB decisions are not actually the final word because they are reviewable by the Federal Circuit. Lamken responded that the oversight must be within the executive agency.
Justices Kavanaugh and Barrett took issue with the notion that the Court could not remove Section 6(c) from the statute as a potential cure so that the PTAB doesn’t have the final word. Lamken responded that the resolution should be left to Congress because different policy choices are implicated.
Practitioner responses. Finnegan partner Cory Bell, who specializes in post grant review practice, observed that the Court seems to be grappling with the amount of supervision required and whether the Court can draw a distinction between supervision of policy setting activities and factual findings based on policy. Bell told IP Law Daily that if supervision of factual findings in each case is required, there seemed to be agreement among the Justices that it could be fixed by striking part of the statute. But it was not clear to Bell if the Court would be willing to do so.
On the other hand, if the Court finds a problem and declines to fix it, Bell predicts that the case could have widespread significance both at the PTO and for other executive agencies. "First, at the PTO, there are 700+ pending matters before the PTO that would be in an uncertain status," Bell said. "Second, beyond the PTO, the practical impact of any test promulgated by the Court will need to be evaluated."
Donald Falk, partner in Mayer Brown’s Supreme Court & Appellate practice, observed that Arthrex in this case wants a bright-line test: the PTO Director has to be able to reverse a decision. The United States and Smith & Nephew, on the other hand, seek a more nuanced test. However, when it comes to constitutional issues like this one, some Justices resist a "totality of the circumstances" test, Falk said.
Falk noted that a larger issue is what kinds of practically unreviewable authority can be placed in inferior officers. "A decision to reverse would have to make as clear as possible the limits of Congress’s flexibility to prevent future efforts to assign more and more power to politically unaccountable inferior officers," Falk said. "And a decision to affirm should—but might not—provide a roadmap for an amendment to the America Invents Act that could validly revive the IPR process if Congress sees fit to do so."
Falk told IP Law Daily that the petitioner’s suggestion that the statute could be saved by striking and severing particular provisions could be a compromise that pulls together a majority without necessarily invalidated all past IPRs. "Yet that approach may come too close to rewriting the statute to get to five votes," Falk said.
Falk predicts that this case is likely to result in several opinions from a divided Court. "One can only hope that there is a firm majority that can provide clear instructions on how to fix the statute (in the case of an affirmance) or how to keep future administrative adjudicatory systems within constitutional limits (in the case of a reversal)," Falk said.
The case is Dkt. No. 19-1434.
Attorneys: Malcolm L. Stewart, Acting Solicitor General, U.S. Department of Justice, for United States. Mark A. Perry (Gibson Dunn & Crutcher, LLP) for Smith & Nephew, Inc. Jeffrey A. Lamken (MoloLamken LLP) for Arthrex, Inc. Cory Bell (Finnegan, Henderson, Farabow, Garrett & Dunner, LLP). Donald Falk (Mayer Brown LLP).
Companies: Arthrex, Inc.; Smith & Nephew, Inc.
MainStory: TopStory Patent GCNNews
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