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IP Alert: PTAB Patent Judge Appointments Remain Unconstitutional After Federal Circuit Denies En Banc Rehearing

March 25, 2020

On March 23, the Federal Circuit denied en banc rehearing of the Arthrex, Inc. v. Smith & Nephew, Inc. case. This denial sets up a likely petition for Supreme Court review of whether the process for appointing Administrative Patent Judges (APJs), defined in the patent statute, was unconstitutional as enacted. After the Federal Circuit’s October 2019 panel decision in Arthrex, all parties in the case filed petitions for rehearing en banc, along with the United States as intervenor.

Because the full Federal Circuit will not review the panel decision, the holdings from that decision stand: APJs are “principal officers” under the statute as written. They therefore were unconstitutionally appointed because they were not nominated by the president and approved by the Senate. The panel’s remedy also stands, severing provisions of the patent statute that prevented the USPTO director from removing APJs, and requiring rehearing of final decisions decided before the court’s October 2019 panel decision.

The order denying rehearing was accompanied by three dissenting and two concurring opinions. Of the 12 judges who heard the petition for en banc rehearing, four judges contributed to the dissenting opinions. A separate four judges contributed to the concurring opinions.

The fractures between the concurring and dissenting judges exist on each of the issues up for en banc review, giving ample ammunition to the parties for potential certiorari petitions. First, each of the dissenting opinions contends that APJs are not necessarily principal officers and therefore need not be political appointees. For example, Judge Dyk’s dissent reasons that APJs are not principal officers because they have no role in the articulation of agency policy: “Their sole function is to determine the facts in individual patent challenges under the AIA” and “they are obligated to follow the law as articulated by the Supreme Court and [the Federal Circuit].” Judges Hughes and Wallach argue further that the USPTO director’s power to direct and supervise the Patent Trial and Appeal Board (PTAB) and individual APJs, along with the fact that APJs are already removable under the efficiency of the service standard of the Administrative Procedure Act (APA), provides political accountability such that APJs should be categorized as inferior officers. As examples of the director’s supervisory role, Judge Hughes notes that the director may issue binding policy guidance, institute and reconsider institution of an inter partes review, select APJs to preside over an instituted inter partes review, single-handedly designate or de-designate any final written decision as precedential, and convene a panel of three or more members of his choosing to consider rehearing any PTAB decision.

On this first issue of how to categorize APJs, Judge Moore notes in her concurring opinion that the director lacks the authority to independently alter a panel’s final written decision and lacks sufficient control over the panel’s decision before it issues on behalf of the executive branch. This lack of subsequent review for any particular decision, to her and her concurring colleagues, outweighs the director’sauthority and direction. The dissenters and the concurring judges came to opposite conclusions on how Supreme Court precedent should apply on this issue.

The second fractured issue is whether the panel decision improperly severed removal protections for APJs from the patent statute. Judge Dyk, writing on behalf of all four dissenting judges, argues that the panel decision improperly rewrote the statute in a way that is inconsistent with congressional intent. He notes that APJs and their predecessor “examiners-in-chief” have enjoyed semi-independent status under the patent statute since 1975, and that administrative law judges similarly have removal protections under the APA. Thus, according to the dissenters, longstanding congressional intent existed to protect the independence of APJs, which therefore should not be eliminated.

According to Judge Dyk, the better solution to any unconstitutionality would be to amend the patent statute to provide agency review of APJ decisions. Alternatively, he argues that the agency itself might establish APJs as inferior officers if the director allowed rehearing of APJ decisions by “an executive rehearing panel with panel members appointed by the President or essentially removable at will by the Secretary of Commerce—the Director, the Deputy Director, and the Commissioner of Patents.”

The concurring judges argued that the proposals offered by the dissenters would not necessarily pass constitutional review—APJs would not necessarily be categorized as inferior officers under any of Judge Dyk’s proposed solutions. Further, Judge Moore and the concurring judges argue that the panel decision properly corrected the statute under Supreme Court precedent.

The third and final fractured issue is whether remand and rehearing is required for final decisions entered before the October 31, 2019, Arthrex panel decision. Judge Dyk and two of the other dissenters argued that a new hearing is not required under Supreme Court precedent and that such rehearings impose a large and unnecessary burden on the USPTO. They reason that the panel decision merely interpreted the statute to find the meaning it always should have had. Thus the statute never included protections that would prevent the director from removing APJs, and consequently the APJs were never unconstitutionally appointed.

Judge O’Malley addresses this third issue in her concurrence, arguing that Supreme Court precedent requires a new hearing before a properly appointed official when a prior adjudication is tainted with an appointments clause violation. Further, all of the concurring judges contend that remand and rehearing is a remedy that minimizes the burden and inconvenience on the patent office.

For parties on appeal to the Federal Circuit from a final written decision entered before October 31, 2019, the current remedy is rehearing by a new panel at the PTAB. To get this remedy, parties must raise their appointments clause arguments in their opening Federal Circuit brief or an earlier motion. The Federal Circuit has held that otherwise the Appointments Clause argument is waived.

This latest decision, however, is likely not the last word on whether APJs were unconstitutionally appointed. Congress has already held hearings on the issue. Further, as noted above, one or more of the parties or the U.S. government is likely to petition for review by the Supreme Court. The dissenting and concurring judges arrived at conflicting interpretations of the relevant Supreme Court precedent. Given the fractured opinions on the Federal Circuit and the Supreme Court’s likely interest in this wide-reaching administrative law issue, the Supreme Court may be inclined to take the case. Until the matter is resolved by Congress or the Supreme Court, some uncertainty will remain. Fitch Even attorneys will continue to monitor developments related to this case.

For more information on this decision, please contact Fitch Even partner David A. Gosse, author of this alert.

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