Federal Circuit Finds PTAB Judges to be Unconstitutionally-Appointed “Principal” Officers

Wednesday, November 06, 2019

On October 31, 2019, the U.S. Court of Appeals for the Federal Circuit ruled in Arthrex, Inc. v. Smith & Nephew, Inc., No. 2018-2140, that the U.S. Secretary of Commerce’s practice of appointing Administrative Patent Judges (“APJs”), as set forth in Title 35, is unconstitutional for failure to comply with the Appointments Clause of the Constitution.

To remedy the constitutional defect, the Federal Circuit severed the portion of the Patent Act that prevents the Secretary of Commerce from removing APJs without cause. The case was then remanded to the Patent Trial and Appeal Board (“PTAB”) for a hearing before a new panel of APJs.

Are APJs “Officers of the United States?”

On appeal, Arthrex, whose claims were rejected in a lower court ruling, argued that the process of appointing PTAB APJs violates the Appointments Clause and, therefore, the lower court ruling should be vacated.

Generally speaking, the Appointments Clause provides that the president appoints “principal” officers of the United States with the advice and consent of the Senate. “Inferior” officers, on the other hand, may be appointed by the president, by the courts, or by heads of departments. Title 35 § 6(a) empowers the Secretary of Commerce to appoint APJs, in consultation with the USPTO director.

The Federal Circuit’s Decision

In its analysis, the Federal Circuit considered whether APJs are “Officers of the United States,” and if so, whether they are inferior or principal officers. The Federal Circuit determined that the APJs were principal officers and, therefore, that their appointment by the Secretary of Commerce is unconstitutional. In reaching its decision, the Federal Circuit considered three primary factors, including: “(1) whether an appointed official has the power to review and reverse the officers’ decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official’s power to remove the officers.”

  • Review. First, the Federal Circuit explained that there is no procedure in place for any presidentially-appointed officer, including the USPTO director, to “single-handedly review, nullify or reverse a final written decision issued by a panel of APJs.” Only the Federal Circuit has the ability to review APJ decisions. The fact that the USPTO can oversee a process to designate certain PTAB decisions as precedential does not equate to the power to “review and reverse” decisions.
  • Supervision. Second, the Federal Circuit noted that “[t]he Director exercises a broad policy-direction and supervisory authority over the APJs.” Examples of supervision include the ability to issue regulations and policy directives concerning inter partes review, designate the judges who decide each IPR, and exercise control over APJs’ pay.
  • Removal. Third, the Federal Circuit outlined the removal process for APJs, who are subject to the removal restrictions set forth in 5 U.S.C. § 7513(a). The restrictions provide for removal of federal employees “only for such cause as will promote the efficiency of the service” and upon written notice of the specific reasons for removal. An employee who is subject to removal, including an APJ, has a right to appeal.

After balancing these factors, the Federal Circuit determined that APJs are principal officers. As such, “they must be appointed by the President and confirmed by the Senate; because they are not, the current structure of the Board violates the Appointments Clause.”

To remedy the constitutional defect, the Federal Circuit took the “narrowest viable approach” and severed the portion of 35 U.S.C. § 3(c) that restricts removal of APJs, thereby rendering APJs “inferior” officers. The court vacated and remanded the matter to the PTAB and directed it to be heard by a different panel of APJs. 

Case Impact

The Federal Circuit “see[s] the impact of this case as limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal.” The Arthrex decision does not make clear at what stage during an appeal a party must raise a challenge for it to be timely. However, since Arthrex, the Federal Circuit has already ruled that such Appointments Clause arguments are forfeited if they were not raised in the opening brief. Customedia Tech., LLC, V. Dish Network Corp. No. 2018-2239 (Nov. 1, 2019).

It is also not clear what impact the decision will have on post-grant proceedings that are currently pending. However, in Arthrex, the Federal Circuit did clarify that “the decision to institute is not suspect; we see no constitutional infirmity in the institution decision as the statute clearly bestows such authority on the Director pursuant to 35 U.S.C. § 314.”

We encourage clients to reach out to a Brooks Kushman attorney for further guidance on these issues.