Administrative Patent Judges Are Safe for Now, but Will Scores of PTAB Decisions Get a Do-Over?

The US Court of Appeals for the Federal Circuit recently held that the statutory scheme governing the administrative patent judges of the Patent Trial and Appeal Board is in violation of the Appointments Clause of the US Constitution. The Federal Circuit weighed several factors in determining whether administrative patent judges were principal or inferior officers, ultimately severing the portion of the America Invents Act that provided removal protection and holding that as inferior officers, administrative patent judges can continue presiding over inter partes reviews going forward. But the Federal Circuit vacated and remanded the case to the Patent Trial and Appeal Board for a new written decision before a new panel of administrative patent judges. The government appears likely to seek a rehearing en banc to avoid the Patent Trial and Appeal Board having to redo prior final written inter partes review decisions that could be considered invalid, i.e., issued by “unconstitutionally” appointed administrative patent judges.

Since the introduction of inter partes reviews (IPRs) in 2012, challengers have called into question the constitutionality of various parts of the America Invents Act (AIA). Oil States Energy Services sought to invalidate the IPR process, but the US Supreme Court ruled that it does not violate Article III or the Seventh Amendment of the US Constitution.[1] Still others have challenged the process as violating the due process clause. Until recently, all challenges were unsuccessful. But on October 31, 2019, the US Court of Appeals for the Federal Circuit held that the statutory scheme for appointing administrative patent judges (APJs) to the Patent Trial and Appeal Board (PTAB) violates the Appointments Clause of the US Constitution.

The IPR process is a hybrid proceeding at the US Patent and Trademark Office (USPTO)—part administrative review and part trial that assesses patents challenged by third-party petitioners (often defendants in related patent infringement lawsuits). After a petitioner files a petition challenging one or more claims of a patent, the PTAB decides whether to institute a trial. Then, if the IPR trial is instituted, a panel of three APJs conducts the trial and issues a written decision regarding the patentability of the challenged patent claims.

In Arthrex, Inc. v. Smith & Nephew, Inc., after the PTAB instituted IPR of a patent owned by Arthrex, a panel of APJs ruled that the challenged claims were unpatentable as anticipated. In its appeal to the Federal Circuit, Arthrex asserted that the APJs who decided its IPR were not constitutionally appointed pursuant to the Appointments Clause of Article II of the US Constitution. The Federal Circuit agreed.[2]

Under the Appointments Clause, “principal officers” must be confirmed by the US Senate, but “inferior officers” need not be. Quoting the Supreme Court, the Federal Circuit noted that “‘inferior officers’ are officers whose work is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.”[3] To determine whether PTAB APJs are “principal” or “inferior” officers, the Federal Circuit examined three factors pertaining to the power of APJs versus that of the appointed officials who direct them:[4]

1. How APJs’ work is reviewed
2. How APJs are otherwise supervised
3. How APJs can be removed from office[5]

With respect to review power, the Federal Circuit determined that the USPTO director—a presidentially appointed officer—does not have the power to “single-handedly review, nullify or reverse a final written decision issued by a panel of APJs.”[6] Although the government argued that a number of the director’s lesser review powers were sufficient, the Federal Circuit noted that these powers either could not actually affect a given decision or could not be wielded unless a party to the decision appealed.[7] The Federal Circuit contrasted this with the power of military judges on the US Coast Guard Court of Criminal Appeals, who are considered inferior officers as they have “no power to render a final decision on behalf of the United States unless permitted to do so by other Executive Officers.”[8] Because PTAB panels of APJs issue final decisions on behalf of the USPTO, the Federal Circuit concluded this factor weighed in favor of finding that APJs are principal officers.

Conversely, the Federal Circuit concluded that the USPTO director has sufficient supervisory power such that APJs are inferior officers. This is because, in addition to having authority over an APJ’s pay, the director has the power to take actions such as promulgating regulations governing IPR conduct, issuing policy directives, and approving the designation (or de-designation) of a written decision of the PTAB as precedential.[9]

The Federal Circuit next considered the removability of APJs, determining that no appointed officer had sufficient power to remove APJs from their jobs. By statute, APJs are protected from removal without cause, further weighing in favor of finding that APJs are principal officers.[10] The Federal Circuit noted that removal power is not required for officers to be “inferior officers,” but the lack of such power must be coupled with strong review and supervisory powers.[11]

The Federal Circuit determined that on balance, the factors indicated that APJs are principal officers, in violation of the Appointments Clause.[12] The Federal Circuit then considered whether this required the entire AIA to be invalidated. Believing such a drastic remedy was not required, the Federal Circuit instead severed the portion of the statute that provided removal protections to APJs.[13] With that change, the Federal Circuit held that APJs are “inferior officers” and can perform their work without running afoul of the Appointments Clause.[14]

Finally, to address the issue of the IPR written decision issued by “unconstitutionally” appointed APJs in Arthrex, the Federal Circuit vacated the decision and remanded the case for a new hearing and reconsideration by a new panel of APJs.[15]

While further decisions will be necessary to determine the fate of IPRs in general, and existing IPR written decisions that are on appeal in particular, a few contours seem fairly clear.

First, the Federal Circuit and other bodies have moved relatively quickly to reject Arthrex-type arguments where appellants did not raise the issue in their opening appeal briefs to the Federal Circuit. For example, in Customedia Techs., LLC v. Dish Network Corp.,[16] the Federal Circuit rejected the appellant’s late challenge, nothing that “Customedia did not raise any semblance of an Appointments Clause challenge in its opening brief or raise this challenge in a motion filed prior to its opening brief. Consequently, we must treat that argument as forfeited in this appeal.”[17] The Arthrex court noted, however, that such a challenge is not required before the PTAB in the first instance because there is nothing the PTAB can do by itself to correct the problem.[18]

Second, the government appears to be taking steps to avoid having to redo the PTAB’s prior final written decisions. It has sought to stay or extend time to intervene in a number of cases, noting its intention to seek rehearing en banc in Arthrex, presumably to press for the position that the statute is not unconstitutional and that even if it were, remand would not be required.[19] The deadline for the government to seek en banc review of Arthrex is December 16, 2019.[20]

Third, the Federal Circuit may grant rehearing en banc. A week after Arthrex, a different panel of Federal Circuit judges suggested that it may not be necessary for the PTAB to redo all of its prior decisions. Although the Federal Circuit in Bedgear, LLC v. Fredman Bros Furniture Co. vacated and remanded the PTAB decision at issue in view of Arthrex, a concurrence by Judges Dyk and Newman suggested that the statutory construction in Arthrex could have been made retroactive. The concurrence stated that “a judicial construction of a statute or a holding that a part of the statute is unconstitutional and construing the statute to permit severance are necessarily retrospective as well as prospective,” and “the statute here must be read as though the PTAB judges had always been constitutionally appointed, ‘disregarding’ the unconstitutional removal provisions.”[21] Although Judge Stoll did not join the Bedgear concurrence, other Federal Circuit judges have signaled their willingness to consider the issue further. In Polaris Innovations Limited v. Kingston Technology Co. Inc.,[22] Judges Reyna, Wallach, and Hughes ordered supplemental briefing on the issues addressed in Arthrex. Thus, the Federal Circuit appears poised to weigh in further.

Finally, Congress is already looking at ways to address the issue. On November 19, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, and the Internet heard testimony from law professors regarding the Arthrex decision and what legislative changes it might make to the statute.

We will report back in the coming months on the effects of Arthrex.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, Dion M. Bregman (Silicon Valley), Lindsey M. Shinn (San Francisco), and Julie S. Goldemberg (Philadelphia) or any of the following lawyers:

Boston
Joshua M. Dalton

Century City
Andrew V. Devkar 

Chicago
Jason C. White

Houston
C. Erik Hawes
Rick L. Rambo

Philadelphia
Louis W. Beardell, Jr.

San Francisco
Brent A. Hawkins

Silicon Valley
Andrew J. Gray IV
Michael J. Lyons

Washington, DC
Jeffrey G. Killian, Ph.D.
Robert Smyth, Ph.D.