Supreme Court Rules APJs Are Inferior Officers, Grants Director Additional Oversight Review
by Christopher H. Blaszkowski & Shayne D. Rasay
In United States v. Arthrex, Inc., 594 U.S. ___ (2021), the Supreme Court determined that the authority exercised by Administrative Patent Judges (APJs) in rendering inter partes review (IPR) decisions as members of the Patent Trial and Appeal Board (PTAB) violates the Appointments Clause of the Constitution. In Parts I and II of the opinion, a bare majority (5-4) established that the unchecked authority exercised by APJs in issuing PTAB decisions is incompatible with their method of appointment. However, in Part III of the opinion, there was no consensus regarding the appropriate remedy for this constitutional violation. Only four Justices agreed that rewriting 35 U.S.C. §6(c) so that PTAB decisions rendered by APJs are made subject to review by the Director of the United States Patent and Trademark Office is an appropriate remedy. Two Justices disagreed with the remedy altogether and the other three Justices agreed that such a remedy would be proper based on the conclusion reached in Parts I and II of the opinion, giving the remedy a majority endorsement, but disagreed that there was a constitutional violation in the first place.
By way of background, Arthrex, Inc. appealed to the Federal Circuit Court of Appeals (CAFC) an unfavorable IPR decision issued by the PTAB formed of three APJs. In the IPR, the PTAB reconsidered the validity of Arthrex’s existing patent, as enforced against the alleged infringer, Smith & Nephew. On appeal to the CAFC, Arthrex argued that the APJs were improperly acting as principal officers in rendering final IPR decisions, when they are appointed as inferior officers. The Government subsequently intervened to defend the subject appointment procedures. Ultimately, the CAFC vacated the PTAB decision and agreed with Arthrex that the APJs were improperly acting as principal officers because there was no “authority [in place] to review their decisions or to remove [the APJs] at will.” To cure this deemed constitutional violation, the CAFC invalidated protections against removal of APJs. Subsequently, Arthrex, Smith & New, and the Government each appealed to the Supreme Court, which granted certiorari, and ultimately vacated the CAFC judgment.
The unreviewable authority wielded by APJs during IPR is incompatible with their method of appointment to an inferior office.
According to the Appointments Clause, principal officers are appointed with the advice and consent of the Senate and inferior officers are appointed by either the President, the head of an executive department, or a court. Art II. § 2, cl. 2. Congress established that APJs are inferior officers to be appointed by the Secretary of Commerce. Therefore, the issue is whether the status of APJs as inferior officers, as established by their method of appointment, is incompatible with their unreviewable exercise of authority during PTAB proceedings, such as IPRs.
The Court started its analysis with significant consideration of the on-point precedent established in Edmond v. United States. The Edmond test of an inferior officer is whether one is “directed and supervised at some level” by Presidentially nominated and Senate confirmed officers, i.e. principal officers, in the Executive Branch. In Edmond, the Court held that the Coast Guard Court of Criminal Appeals judges were inferior officers appointed in compliance with the Appointments Clause, because they were “directed and supervised” by the Judge Advocate General with their “powers of ‘administrative oversight’” and the Court of Appeals for the Armed Forces with their powers to “review the judges’ decisions.” Accordingly, the Court of Criminal Appeals judges were properly exercising their authority, subject to review by principal officers, in accordance with their appointment to an inferior office.
However, unlike the “scheme approved by Edmond,” Congress provided to the PTAB formed by APJs only “half of the ‘divided’ supervision to which [the judges]” in Edmond were subject. Specifically, the APJs are not “directed and supervised” with respect to issuing patentability decisions because these patentability decisions are not subject to review from a principal officer at any level within the Executive Branch, e.g. the Director. In this respect, as criticized by the dissenting opinion of Justice Thomas, the majority appears to elevate the consideration of whether the PTAB decisions issued by APJs are subject to review by the Director, above other “powerful tool[s] of control” that the Director has at their disposal to exercise oversight.
Indeed, the majority rejected these examples of “powerful tool[s] of control,” such as “manipulat[ing] the composition of the PTAB panel” for hearing a specific challenge or vacating an institution of review decision in anticipation of an “unfavorable ruling.” The Court not only found these examples unpersuasive, but they determined that these examples inappropriately contravene the principle of “accountability demanded by the Appointments Clause.” Use of these tools in effect would result in “neither an impartial decision by a panel of experts nor a transparent decision.”
According to the majority, the inferior officer appointment process of APJs is incompatible with the unreviewable nature of their final decisions, thereby violating the Appointments Clause.
The Remedy – Director oversight to review and overrule (as necessary) final written decisions issued by the PTAB.
Chief Justice Roberts, joined by Justices Alito, Kavanaugh, and Barrett, sought to cure the constitutional violation by establishing a superior authority to review decisions issued by APJs. Namely, APJs “would properly function as inferior officers” in adjudicating PTAB proceedings if the Director can “rehear and reverse a final decision issued by APJs.” In reaching this decision, the Justices rejected the CAFC approach to reconcile the inferior office status of APJs with their exercise of authority by invalidating tenure protections. Rather, awarding the Director with the discretion to review decisions issued by APJs “better reflects the structure of supervision within the PTO and the nature of APJs’ duties.” Nonetheless, this limited remand applies only to the “Director’s ability to supervise APJs in adjudicating petitions for [IPR],” so that the application of §6(c) to other members of the PTAB and other types of adjudications conducted by the PTAB are left intact.
Justice Gorsuch agreed with the majority in Parts I and II of the opinion, but disagreed with the remedy set forth in Part III, arguing instead for the more limited approach of “setting aside” the PTAB decision in this case. The decision to “gift the Director a new power that he never before enjoyed,” i.e. the power to invalidate patents through the IPR process, is a step too far and is contrary to legislative intent, which was to “ensure APJs enjoy ‘independence’ from superior executive officers.” According to Justice Gorsuch, rewriting the current statutory scheme is yet another example of the improper “legislative nature of the Court’s judgment.”
In line with this consideration of legislative intent regarding the “independence” and ”impartiality” of APJs, Justice Breyer opined, as joined by Justices Sotomayor and Kagan, that these principles “justif[ied] the restriction upon the Director’s authority” to review IPR decisions. Indeed, the “nature of the PTAB…calls for greater…independence from those potentially influenced by political factors.” Contrary to these considerations, Justice Breyer contended that awarding to a politically appointed principal officer, i.e. the Director, the power to unilaterally review IPR decisions can give rise to a host of due process concerns, as outlined in Justice Gorsuch’s opinion.
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