Supreme Court Set To Decide the Fate of the U.S. Patent System as We Know It

By Elyse Pendergrass.

The U.S. Court of Appeals for the Federal Circuit created shockwaves when it ruled in October 2019 that administrative patent judges are unconstitutional as currently appointed. On March 1, 2021, the Supreme Court heard oral arguments in United States v. Arthrex, Inc., and will soon decide whether or not the Patent Trial and Appeal Board’s structure should be dismantled. 

America Invents Act (AIA) Restructures the Patent and Trademark Office

In 2011, Congress passed the Leahy-Smith America Invents Act (AIA) to modernize the U.S. patent system. Among other reforms, the AIA established the Patent Trial and Appeal Board (PTAB) as an adjudicatory body within the U.S. Patent and Trademark Office. PTAB is composed of over 200 administrative patent judges appointed by the Secretary of Commerce. The AIA grants PTAB the authority to hear challenges to the patentability of previously granted patents and issue decisions on their validity. The PTAB receives over 12,000 appeals and conducts around 1,500 trial proceedings each year.

Federal Circuit Decision Creates Significant Questions

InArthrex, Inc. v. Smith & Nephew, Inc., Arthrex appealed a PTAB decision rendering their claims for a knotless suture securing assembly unpatentable. Arthrex argued that administrative patent judges are principal officers who were unconstitutionally appointed and therefore their decisions should be rendered void. If administrative patent judges are inferior officers, their appointment by the Secretary of Commerce was constitutionally sound. On the other hand, if they serve as principal officers, they must be appointed by the President with the advice and consent of the Senate.

The Appointments Clause, Article II, § 2 of the U.S. Constitution, requires distinct methods for appointment of two types of officers: principal and inferior. Principal officers must be presidentially appointed by and with the advice and consent of the Senate. In contrast, for inferior officers, Congress may choose to vest appointment power in the President, courts, or heads of departments.

The test for whether an officer is principal or inferior set forth in Edmond v. United States asks three questions: first, whether an appointed official has the power to review and reverse the officers’ decision; second, what level of supervision and oversight an appointed official has over the officers; and third, if the appointed official has the power to remove the officers. Morrison v. Olson also calls for the court to examine whether the officers have limited duties, jurisdiction, and tenure.

The Federal Circuit found that because the Director of the Patent and Trademark Office was not explicitly given the ability to review or reverse administrative patent judges’ decisions, PTAB independently renders a final decision on the validity of patents and are more like principal officers. Additionally, because the AIA makes PTAB subject to statutes regulating federal employees, administrative patent judges may only be removed “for such cause as will promote the efficiency of the service.” Such restrictions on the Director’s power to remove administrative patent judges, the Federal Circuit concluded, are indicative that the judges are principal officers. The court also found administrative patent judges did not have limited duties, jurisdiction, or tenure; rather, they exercise authority similar to principal officers.

Rather than dismissing the challenge to the Arthrex patent, the Federal Circuit chose to sever the portion of the AIA that made administrative patent judges subject to for-cause removal restrictions. This eliminates the power of the third factor in the Edmond test—whether or not the appointed official has the power to remove the officers. According to the court, this revision sufficiently restricts PTAB’s authority such that they could be classified as inferior officers. The court proceeded to remand the Arthrex claim back to the PTAB for a new decision.

Supreme Court Grants Certiorari To Resolve the Confusion

The Supreme Court, granting Arthrex’s petition to hear the case, will address whether administrative patent judges are principal or inferior officers. If the judges are principal officers, the Court will also address whether the Federal Circuit appropriately remedied the constitutional problem by severing the removal restrictions.

In oral arguments, the government asserted that the Director of the U.S. Patent and Trademark Office exercises “substantial” authority over the PTAB such that they are inferior officers under the second factor of the Edmond test—the level of supervision and oversight an appointed officer has over the officers in question. Additionally, the Director can sit on a PTAB panel when rehearing a decision. The government argued that this essentially gives the Director the power to review and reverse administrative patent judges’ decisions.

Some members of the Court appeared reluctant to accept these arguments, emphasizing the unusual nature of power exercised by administrative patent judges in comparison to other agencies. Justice Kagan pointed out that when convening a panel, the Director does not have authority over the other two judges on the panel, diminishing his decisional authority.

The Impact of Arthrex Could Be Sweeping

Many patent practitioners who submitted amici briefs in the case attempted to interpret the Justices’ questions during oral argument, noting that the Court appears poised to affirm the Federal Circuit’s finding that administrative patent judges are principal officers. While a majority of the Justices seemed to agree with the Federal Circuit that the AIA violated the Appointments Clause, it may prove tougher to gather consensus on the question of how to remedy the violation.

Arthrex argues that it is inappropriate for the Court to attempt to cure the unconstitutional statute, and the fate of the U.S. patent system should instead be left in the hands of Congress. As Justice Gorsuch noted, if the Supreme Court agrees, it is likely the U.S. Patent and Trademark Office appeals process would be in limbo for what could be years as Congress attempts to amend the AIA.

Nephew & Smith, arguing the same position as the government, suggested Arthrex’s preferred remedy would dismantle the entire patent system and “blow the whole thing up” due to a nonexistent problem. They suggested instead that the remedy should address whatever issue the Court finds with the statute. For example, Nephew & Smith proposed that the simplest solution to a lack of agency reviewability would be to sever the portion of the AIA that requires PTAB to rehear challenges. This would allow for the Director of the U.S. Patent and Trademark Office to review claims unilaterally. However, this would also effectively eliminate the need for PTAB altogether and overwhelm the Director with appeals. At the end of the day, administrative patent judges would be out of jobs and the U.S. Patent and Trademark Office would become much less efficient.

The government insisted that no remedy was needed because administrative patent judges are constitutionally appointed as inferior officers. However, if a remedy must be provided, the government agreed with the Federal Circuit that severing the provision of the AIA that provides “modest tenure protections” would solve the problem by ensuring they are inferior officers. While it appears to be a simple and straightforward solution, removal restrictions play a role in insulating the patent appeals process from political influence. Without guaranteed independent review, judges may be subject to political pressure from lobbying groups, other administrative heads, or even the Director.

The Supreme Court’s decision in Arthrex could carry significant consequences for the entire U.S. patent system. If the Court decides that administrative patent judges are unconstitutionally appointed, it could call into question thousands of previously issued PTAB rulings and generate a storm of litigation regarding past, pending, and future patent claims.

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