Federal Circuit Will Not Reconsider Arthrex Appointment Clause Ruling

The U.S. Court of Appeals for the Federal Circuit has denied rehearing en banc in Arthrex v. Smith & Nephew, a decision that made the Patent Trial and Appeal Board’s (PTAB’s) administrative patent judges (APJs) “inferior officers” under the U.S. Appointments Clause, in order to skirt the problem that they had been unconstitutionally appointed under the America Invents Act. Five of the 12 Federal Circuit judges wrote separately to explain their reasons for denying, or dissenting from denial on, rehearing.

Concurrence with Decision to Deny: Moore, O’Malley, Reyna, Chen

Judge Moore wrote to concur with the denial, and Judges O’Malley, Reyna and Chen joined, saying that granting rehearing “would only create unnecessary uncertainty and disruption.” Moore added that the Arthrex panel followed Supreme Court precedent in concluding that APJs were improperly appointed principal officers, and also followed precedent in its solution which severed a portion of the statute “to solve that constitutional problem while preserving the remainder of the statute and minimizing disruption to the inter partes review system Congress created.”

Moore explained that the Presidentially appointed Director of the USPTO lacks the authority to independently alter or control a PTAB final written decision; thus, prior to Arthrex, APJs had the authority to render a final decision on behalf of the United States without being constitutionally appointed. Further, the “panel…recognized that the Director lacked the powerful tool for control that is the authority to remove APJs at will and without cause.” With respect to the curative severance adopted by Arthrex, which was proposed by the USPTO, Moore stated that the severance “properly retained the portions of the statute necessary to effectuate Congress’ basic objective of providing an agency mechanism where the validity of issued patents may be challenged.” Moore also noted that since APJs are now constitutionally appointed, inter partes review decisions are no longer rendered by unconstitutional panels.

A second concurring opinion was authored by Judge O’Malley, joined by Judge Moore and Judge Reyna. O’Malley agreed with Judge Moore that the Arthrex panel properly concluded that APJs are principal officers who were improperly appointed to their adjudicative positions. O’Malley separately addressed Judge Dyk’s dissent, which set forth that the Arthrex panel’s decision to sever the application of removal protections from the AIA “retroactively renders all APJs decisions constitutional, thereby obviating the need for panel rehearings in any cases decided by the AIA.” O’Malley noted that the dissent confuses the remedy with the constitutional fix necessary to allow APJs to render decisions in future proceedings under the AIA and the “decision that the statute can be rendered constitutional by severance does not remedy any past harm- it only avoids continuing harm in the future.” Thus, O’Malley concluded that the dissent’s attempt to read retroactive application of the severance orders, which were designed to obviate future or ongoing violations, into the cited Supreme Court case law, was misplaced.

The Dissent: Dyk, Newman, Wallach, Hughes

Judge Dyk wrote to dissent from the denial of rehearing, with Judges Newman and Wallach joining. Judges Hughes and Wallach each also wrote separately.

Judge Dyk said that the Arthrex panel’s approach to remedying the Appointments Clause problem was not consistent with Supreme Court precedent, citing United States v. Booker, 543 U.S. 220, 246 (2005). Severability is only appropriate where the remaining statute would function according to congressional intent, wrote Judge Dyk, but “by eliminating Title 5 removal protections for APJs, the panel is performing major surgery to the statute that Congress could not possibly have foreseen or intended.”

Dyk added that Congress and the USPTO should be given a chance to fix the problem of removal protections for APJs. He traced the history of administrative law judges, who originally did not have removal protections andwere treated like any other agency employee. Many users complained about this arrangement, saying that it made the judges seem like “mere tools of the agency concerned and subservient to the agency heads in making their proposed findings of fact and recommendations,” as articulated in Ramspeck v. Fed. Trial Examiners Conference (1953). To remedy this, Congress included a provision in the Administrative Proccedures Act (APA) that indicated ALJs would be “removable…only for good cause.” While this provision did not protect the ALJs of the PTO, similar concerns led to the same protections being extended to them, and those protections survived the overhaul of patent law with the 2012 America Invents Act (AIA):

In sum, ALJs in general and APJs in particular have been afforded longstanding and continuous protection from removal. The panel gives little weight to the existing statutory protections in its severance analysis. Moreover, here, the provision being partially invalidated is not even part of the Patent Act but is instead in Title 5. Elimination of those protections cannot be squared with Congressional design.

Ultimately, said Judge Dyk, Congress or the USPTO itself could more efficiently and effectively fix the problem.

Dyk also disagreed with the Arthrex panel’s decision to set aside and remand all hearings where the appointments clause issue was properly raised on appeal for a new hearing before a new panel. “Since no Congressional or agency action is required in order to render the appointment of the PTAB judges constitutional, when the PTAB judges decided cases in the past, they did not act improperly. Thus, the past opinions rendered by the PTAB should be reviewed on the merits, not vacated for a new hearing before a different panel.”

Lastly, Dyk said that the question of whether PTAB judges are principal officers remains open to question. PTAB judges do not articulate agency policy and are subject to review by the CAFC. “It is hard for me to see how…review by an Article III court (which severely cabins the authority of PTAB judges) does now prevent PTAB judges from being principal officers,” wrote Judge Dyk. Ultimately, Dyk concluded:

Even if the panel were correct that the present structure of IPR proceedings violates the Appointments Clause, the draconian remedy chosen by the panel—invalidation of the Title 5 removal protections for APJs—rewrites the statute contrary to Congressional intent. That remedy should not be invoked without giving Congress and the United States Patent and Trademark Office (“PTO”) itself the opportunity to devise a less disruptive remedy.

In Judge Hughes’ separate dissent, with whom Judge Wallach also joined, he said that APJs are inferior officers because the USPTO Director has significant control over their activities, but that he also would defer to Congress to fix the problem in any event. In Wallach’s separate dissent, he explained that he disagreed with the original Arthrex decision on the merits. “Given the significant direction to and supervision of an [APJ] by the USPTO Director, an APJ constitutes an inferior officer properly appointed by the Secretary of Commerce,” wrote Judge Wallach.

Unsurprising, But Still Disturbing

IPWatchdog Founder and CEO Gene Quinn said the denial was expected, but unsettling in that it lays bare the discord that has lately characterized the Court:

The Federal Circuit’s decision not to rehear Arthrex en banc is as disturbing as it is unsurprising. Everyone inside the beltway knows that either Congress will enact a so-called Arthrex fix and moot the issue, or that the Supreme Court will take the case because the opportunity to opine on a patent related constitutional issue will be like catnip for the Justices. So, anything the Federal Circuit did beyond what the panel already did would be a complete waste of time and energy. Still, there were five opinions that consumed some 58 pages, either concurring with the decision or dissenting from the denial to rehear the case en banc.

The sole reason the Federal Circuit was created some 40 years ago was to bring certainty and stability to patent law. This court has horribly failed the industry by refusing to agree on anything. For a court that claims to be so overworked that it must dispose of literally half of its docket with one-sentence Rule 36 summary affirmances, spending so much time and energy across 58 pages of completely meaningless analysis and disagreement goes beyond unconscionable.

Clearly, the Federal Circuit panel that decided the Arthrex case overstepped its bounds and did not have the authority to turn Administrative Patent Judges into employees at will. But at the end of the day that simply doesn’t matter. The Patent Trial and Appeal Board must be preserved at all costs and will be, either by Congress or a Supreme Court decision ratifying the original panel.

Retired Federal Circuit Chief Judge Randall Rader had this to say about it:

With four judges dissenting, the Federal Circuit declines to review en banc its controversial decision in ARTHREX.  While the court split on questions of the status of PTAB ALJs and also of the proper correction for a breach of the Constitution’s Appointments Clause,  the real issue is far more fundamental: Does review by the PTAB open a “second window” that potentially casts a cloud of legal uncertainty over every issued patent for its entire life?  Congress enacted the AIA only after agreeing that it had closed this “second window.” Instead of a limited review of weak patents that Director Kappos assured me would amount to no more than 500 cases a year, the AIA has created a tsunami of new cases.  Indeed, every patent important enough to give rise to District Court litigation now must survive delays and proceedings far beyond the rejected “second window.” The current judicial squabble over ARTHREX and its implications may at least have the virtue of prompting Congressional review on the impact of the PTAB on national innovation policy.

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

Rebecca Tapscott is an intellectual property attorney who has joined IPWatchdog as our Staff Writer. She received her Bachelor of Science degree in chemistry from the University of Central Florida and received her Juris Doctorate in 2002 from the George Mason School of Law in Arlington, VA.

Prior to joining IPWatchdog, Rebecca has worked as a senior associate attorney for the Bilicki Law Firm and Diederiks & Whitelaw, PLC. Her practice has involved intellectual property litigation, the preparation and prosecution of patent applications in the chemical, mechanical arts, and electrical arts, strategic alliance and development agreements, and trademark prosecution and opposition matters. In addition, she is admitted to the Virginia State Bar and is a registered patent attorney with the United States Patent and Trademark Office. She is also a member of the American Bar Association and the American Intellectual Property Law Association.