March 2, 2021
On March 1, the U.S. Supreme Court heard oral arguments (transcript here) in the highly anticipated Arthrex, Inc. v. Smith & Nephew, Inc. case, in which the Court will decide whether the Patent Trial and Appeal Board’s (PTAB’s) administrative patent judges (APJs) are constitutionally appointed. This case could have any number of effects on post-issuance review of patents at the PTAB, as implemented by the America Invents Act (AIA). It may also have substantial implications for the appointment of administrative law judges and review of their decisions throughout the executive branch.
In the Federal Circuit decision, as previously reported here, the issue concerned whether APJs are principal officers, whose appointment without Senate approval violates the Appointments Clause of the Constitution, or inferior officers whose decisions must be subject to some level of review by a principal officer. The Federal Circuit reasoned that “[t]he lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power lead[s] us to conclude . . . that [APJs] are principal officers.” Having identified a constitutional issue, the Federal Circuit fashioned a remedy to the Appointments Clause violation by severing and invalidating the statutory limitation on the removal of the APJs. This effectively removed the APJs’ tenure protections, making them removable at will, and therefore subject to oversight and control by the director of the USPTO. Although each of the parties petitioned for rehearing en banc, a divided Federal Circuit denied the rehearing request, as previously reported here.
The Supreme Court granted certiorari on October 13, 2020, to reconsider the following issues: (1) whether the APJs, as established by the statute, are principal officers who must be appointed by the president and confirmed by the Senate, or inferior officers whose appointment has been properly vested in a department head; and (2) whether, if APJs are principal officers, the Federal Circuit properly cured the constitutional violation by severing the removal protections provided to APJs.
During the arguments, the justices sought an acceptable test for determining whether an officer should be classified as “principal” or “inferior.” Smith & Nephew argued that the Court should decide the case based on factors that would require a context-specific inquiry into whether sufficient political accountability is provided for an inferior officer. Justice Sotomayor contrasted Smith & Nephew’s “amorphous” test with Arthrex’s “straightforward line” of classifying an officer as inferior where their decision is directly reviewable by a principal officer.
Addressing the potential ramifications at play, Justice Kavanaugh explained that a finding of APJs as inferior officers could, in theory, provide Congress with an “acceptable” model that would eliminate review of APJ decisions by someone appointed by the president with advice and consent of the Senate. He further expressed concern that “[t]hese are multimillion, sometimes billion-dollar decisions being made not by someone who’s accountable in the usual way that the Appointments Clause demands.” In the same vein, Justice Gorsuch described the PTAB as “an unusual animal in the sense that there isn’t final review in the agency head.”
The case also presents tension between the desire for courts to “fix” unconstitutional administrative law schemes and sending them back to Congress. For example, recently appointed Justice Barrett noted several potential remedies for the Court to apply that would address the potential constitutional violation, such as requiring that all APJs be subject to presidential appointment and senatorial confirmation, striking the provision that provides only the PTAB with authority to grant rehearings, or giving the USPTO director the power to review and reverse decisions. However, she further questioned whether the Court “should even assert the authority to do that, to sever.”
Justice Kavanaugh acknowledged that Arthrex wanted to “take down the whole [IPR] system” but stated that the Supreme Court had “frowned upon that repeatedly,” assumedly in reference to the prior constitutional attacks on the AIA, such as in the Oil States case. Arthrex’s counsel maintained that the entire IPR system is unconstitutional and argued that the Federal Circuit’s remedy of severing the APJ removal protections was insufficient to solve the problem.
The Court’s decision likely will not issue until June, and cannot be predicted with certainty. A few potential outcomes illustrate the varying degrees of impact the Court could have on the current post-issuance review regime.
First, the Court might reverse the Federal Circuit’s decision and find that the APJs are properly classified as inferior officers due to their supervision and control by the director of the USPTO, as exercised through the director’s ability to issue guidance to the PTAB and to participate as a member of the PTAB. As such, the Court might hold that the AIA does not violate the constitution’s Appointments Clause and would likely reverse the Federal Circuit’s remedy of severing the APJ removal limitations.
Second, the Court might uphold the Federal Circuit’s decision in its entirety. For instance, the Court may find both that the APJs are properly classified as principal officers and that the Federal Circuit’s remedy to the constitutional violation—the severing of APJ removal limitations—was sufficient.
Third, the Court might uphold the Federal Circuit’s decision that APJs are unconstitutionally appointed principal officers, but find the Federal Circuit’s fix insufficient. This could lead the Court to craft a new judicial remedy to make APJs inferior to a constitutionally appointed principal officer at the USPTO. The numerous amicus briefs propose various possible remedies, and several justices directly questioned the advocates about some specific proposed remedies.
Last and most drastically, the Court might uphold the Federal Circuit’s decision that APJs are principal officers but find that the constitutional violation cannot be remedied by the courts. This approach would leave Congress the task of reworking the APJ appointment process. Such an extreme decision might call into question the propriety of all prior IPR decisions before panels of unconstitutionally appointed APJs and leave the IPR system’s fate in flux. However, as Justice Kavanaugh noted during the arguments, the Court has previously “frowned upon” attempts to void the AIA’s post-issuance review system. At this point, the Court seems unlikely to upend the entire system.
Fitch Even attorneys are monitoring this case and will provide an update once a decision is issued.