Supreme Court to Decide If Patent Office Trials Pass Constitutional Muster

by Karen Riesenburger Poppel

In 2012, Congress established certain processes in the Patent Office under which a third party could challenge the validity of issued patents.  One of these processes, known as inter partes review (“IPR”), has been widely used.  IPRs are typically filed by the Defendant/accused infringer in a concurrently pending federal patent infringement case.  Because the IPR can result in the targeted patent claims being cancelled, there is the possibility that the concurrently pending federal litigation will be resolved (either through judgment or settlement).  According to the USPTO’s statistics, over 11,000 petitions for IPR have been filed since enactment in 2012.

With few exceptions, the Supreme Court has shown little interest in constitutional challenges to the process.  Now, the Supreme Court will decide if the specialized tribunals which conduct IPRs themselves are constitutional.  The case turns on whether Administrative Patent Judges (“APJs”) of the Patent Trial and Appeal Board (“PTAB”) were properly appointed in the first place.  This depends on whether they are “inferior officers” or are “principal officers” within the meaning of the Constitution.  The decision could have a broad impact on the patent system.

On October 31, 2019, a three-judge panel of the Federal Circuit reviewed a final written decision of the PTAB and held that the APJs who issued the decision were unconstitutionally appointed.  Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. Oct. 31, 2019).  In addition to vacating and remanding the Board’s decision to a new panel of APJs, the Federal Circuit severed the statutory provision restricting removal without cause as it applied to APJs, concluding that doing so would “render the APJs inferior officers and remedy the constitutional appointment problem.”  A year later, the Supreme Court has granted certiorari.

In Arthrex, Inc. v. Smith & Nephew, Inc., Smith & Nephew, Inc. and Athrocare Corp. requested IPR of certain claims of Arthrex, Inc.’s patent directed to a knotless suture securing assembly.   The Board instituted review and after briefing and trial, the Board issued a final written decision finding the reviewed claims unpatentable as anticipated.

In its appeal to the Federal Circuit, in which the U.S. government intervened, Arthrex argued that the Board’s decision violated the Appointments Clause, U.S. Const., art II, § 2, cl. 2, because the APJs who presided over the IPR were appointed by the Secretary of Commerce in consultation with the Director of the USPTO.  Arthrex contended that the APJs exercise significant authority making them principal officers, not inferior officers, which require appointment by the President with the advice and consent of the Senate pursuant to the Appointments Clause.

The Federal Circuit followed the Supreme Court’s decision in Edmond v. United States, 520 U.S. 651, 662–63 (1997) for its analysis as to whether APJs are principal or inferior officers.  According to the Federal Circuit, Edmond 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.

The Federal Circuit found the first factor favored Arthrex.  The Federal Circuit found that the Director is the only member of the Board who is an appointed official and while he can convene a Precedential Opinion Panel to rehear and reverse any Board decision and issue binding decisions, he does not have sole review power.  Rather, he may only sit on that Panel as one of three members.  In addition, while the Director has the power to institute an IPR and designate any panel decision as precedential, the Federal Circuit found these powers do not provide the type of review necessary to support a conclusion that APJs are inferior officers.  The Federal Circuit explained that “[a]t most, the Director can intervene in a party’s appeal and ask this court to vacate the decision, but he has no authority to vacate the decision himself” or bring an appeal himself.  Since “[t]here is no provision or procedure providing the Director the power to single-handedly review, nullify or reverse a final written decision issued by a panel of APJs,” the Federal Circuit found this factor supported finding that APJs are principal officers.

Regarding the second factor, the Federal Circuit found it weighed in favor of concluding that APJs are inferior officers because “[t]he Director exercises a broad policy-direction and supervisory authority over the APJs” and is “‘responsible for providing policy direction and management supervision’ for the USPTO.”  The Federal Circuit cited the Director’s powers to promulgate regulations governing IPR, provide instructions to APJs, approve any designation or de-designation of a decision as precedential, institute an IPR and designate the panel of judges presiding over each review, and exercise authority over APJ pay.

The Federal Circuit found that the third factor weighed in favor of a conclusion that APJs are principal officers because “[u]nder the current Title 35 framework, both the Secretary of Commerce and the Director lack unfettered removal authority.”  The Federal Circuit stated that while Patent Act granted the Director the power to designate the panel hearing each IPR, it did not expressly authorize de-designation of an APJ from a panel and that is not clear whether the Director has such authority.  Moreover, the Federal Circuit found that the authority to remove an APJ from an IPR does not rise to the level of the power required to remove from office without cause.  Instead, under Title 5, APJs may be removed “only for such cause as will promote the efficiency of the service,” which requires “a nexus between the misconduct and the work of the agency, i.e., that the employee’s misconduct is likely to have an adverse impact on the agency’s performance of its functions.”  The Federal Circuit also noted Title 5 imposes certain procedural limitations on the authority for the Director to remove APJs.

The Federal Circuit concluded “in light of the rights and responsibilities” set forth in the Patent Act, APJs are principal officers.

The Federal Circuit then analyzed whether a remedial approach could address the constitutionality issue.  The Federal Circuit declined to construe the words “only for such cause as will promote the efficiency of the service” in Title 5 as permitting removal without cause and declined to sever the three-member clause from the Patent Act.  Instead, the Federal Circuit followed the Supreme Court’s approach in Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), where the Supreme Court previously held that a “for-cause” restriction on the removal power of the SEC’s Commissioners violated the Constitution, and agreed with the government’s proposal to sever Title 5’s removal restrictions from application to APJs.

Following the Federal Circuit’s denial for rehearing en banc, all parties filed with the Supreme Court writ of certiorari.  On October 13, 2020, the Supreme Court granted certiorari and will consider the following 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.
  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.

The case has the potential for substantial implications regarding the very popular IPR process.  Arthrex changed the tenure status of all APJs, even as to those who do not proceed over IPR proceedings such as APJs in the Appeal division.  Since the Arthrex decision, the Federal Circuit has vacated and remanded a number of appeals seeking review of an IPR decision issued prior to October 31, 2019, based on an Appointments clause challenge, to be reheard by a new panel and, thereby, imposing additional costs (and frustration) on the litigants and the PTO.

The Supreme Court could reach a number of decisions.  One would be to affirm the holding that APJs were principal officers and determine that the Federal Circuit had properly addressed the issue.  Alternatively, the Supreme Court could find the Federal Circuit had not remedied the constitutional violation and either provide its own remediation, remand to the Federal Circuit to fashion a different cure, or reverse the Federal Circuit’s remedy as improper. Such a decision will continue to impact proceedings before the PTAB and create additional obstacles to patent challengers.  Therefore, a potential issue for consideration by the Supreme Court could also be whether any remediation to the statute applies retroactively to avoid causing further inefficiencies.

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