On Monday, the Supreme Court decided United States v. Arthrex, Inc., and ruled on the long-anticipated question of whether the authority of Administrative Patent Judges (APJs) to issue decisions on behalf of the Executive branch is consistent with the Appointment clause of the Constitution. The Court held that “the unreviewable authority wielded by APJs during inter partes review is incompatible with their appointment by the Secretary to an inferior office.” To remedy this Constitutional Violation, the Court severed a provision of 35 U.S.C. § 6(c) that excluded the Director from granting a rehearing, thereby confirming the Director’s authority to take control of a Patent Trial and Appeal Board (PTAB) proceeding.
The APJs, who are appointed by the Secretary of Commerce, are entrusted with conducting adversarial proceedings before the PTAB, such as Inter Partes Reviews (IPRs), to determine the patentability of already-issued patents. In this case, a panel of three APJs found Arthrex’s challenged patent claims unpatentable. On appeal, the Federal Circuit held that the APJs appointments were unconstitutional because neither the Secretary nor Director can review their decisions or remove them at will. To remedy their unconstitutional appointment, the Federal Circuit then invalidated the APJs’ tenure protection, making APJs removable at will by the Secretary. In essence, this decision rendered APJs “inferior” rather than principal officers.
The Supreme Court granted certiorari and heard oral arguments on March 1, 2021. In its Monday opinion, the Court vacated the judgment of the Federal Circuit and remanded the case to the PTAB.
As an initial matter, the Court found it undisputed that APJs are officers, but struggled to classify them as “principal officers” or “inferior officers.” The Court found that “[i]n every respect save the insulation of their decisions from review within the Executive Branch, APJs appear to be inferior officers.” This insulation is provided by 35 U.S.C. § 6(c), which excludes the Director from granting rehearings, because “[o]nly the Patent Trial and Appeal Board may grant rehearings.” The Court acknowledged that the Director could assemble a Precedential Opinion Panel “consisting of himself and two other officers appointed by the Secretary,” to review a final written decision in a case and determine whether to order rehearing sua sponte. See PTAB’s Standard Operating Procedure 2 at 5. However, the Court rejected this procedure, because it provides “a roadmap for the Director to evade a statutory prohibition on review without having him take responsibility for the ultimate decision.” Accordingly, the Court held that “the unreviewable authority wielded by APJs during inter partes review is incompatible with their appointment by the Secretary to an inferior office.”
As to the appropriate remedy to this constitutional violation, the Court declined Arthrex’s invitation to hold the entire IPR regime unconstitutional. Rather, it found the solution to be clear: “Decisions by APJs must be subject to review by the Director.” The Court stated that “[i]f the Director were to have the ‘authority to take control’ of a PTAB proceeding, APJs would properly function as inferior officers.” Therefore, the Court resolved the unconstitutionality problem by severing the “[o]nly the Patent Trial and Appeal Board may grant rehearings” provision from 35 U.S.C. § 6(c), and giving the Director the exclusive authority to reverse the panel, “[t]he Director accordingly may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the Board.”
The Court remanded the case to the Acting Director of the PTAB for him to decide whether to rehear the petition filed by Smith & Nephew. The Court clarified that “the Director need not review every decision of the PTAB. What matters is that the Director have the discretion to review decisions rendered by APJs.”
How does Arthrex Impact Pending and Prior IPRs?
This decision by the Court will likely prompt the PTAB to issue guidance on how Arthrex impacts pending IPRs, specifically to modify the existing procedures so they more clearly provide parties with the ability to petition the Director for review of a PTAB decision, before they become final. Notably, the USPTO is currently operating with an Acting Director, who was not appointed by the president, which will likely delay the issuance of such guidance.
At least one open question remains—how the Arthrex decision will impact parties with final decisions that are currently on appeal. While the Arthrex decision will have little impact on new and pending IPRs, for IPR decisions currently on appeal, a new set of arguments are in play. Stay tuned for further guidance from the Federal Circuit.