The U.S. Supreme Court (SCOTUS) heard oral arguments in U.S. v. Arthrex, Inc. on March 1, 2021. SCOTUS granted certiorari on two questions raised by the Government, Smith & Nephew, and Arthrex:
- Whether, under the Appointments Clause, U.S. Const. Art. II, § 2, Cl. 2, Administrative Patent Judges of the U.S. Patent and Trademark Office are “principal officers” who must be appointed by the President with the Senate’s advice and consent, or “inferior officers” whose appointment Congress has permissibly vested in a department head, the USPTO Director.
- Whether, if Administrative Patent Judges are principal officers, the Court of Appeals for the Federal Circuit properly cured any Appointments Clause defect in the current statutory scheme prospectively by severing the application of 5 U.S.C. 7513(a) to those judges.
In 2019, the Federal Circuit ruled 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.
At oral argument, SCOTUS focused on: 1) developing a new inferior officer test, 2) the Director’s oversight of the APJs, and 3) potential remedies.
Developing a New Inferior Officer Test:
The justices repeatedly asked about the test for determining if an APJ is an inferior officer, seemingly searching for a bright line rule to replace the existing totality of circumstances test from Edmond v. U.S. Smith & Nephew provided a two-part response—first, any attempt to form a bright-line test would lead to anomalous results because the government is so multifaceted and second, “the ultimate test is whether the President and his direct reports remain accountable for the operations of the agency.” Justice Sotomayor noted that Arthrex’s position was “straightforward”: “you're not an inferior officer if you can make final decisions that are unreviewable by the Director.” Justice Breyer suggested that there are other officials in different areas of the Executive Branch with unreviewable authority.
The Director’s Oversight of the APJs:
Arthrex argued that the two options to address oversight were to either “make the APJs appointed by the president . . . so they’re true principal officers” or to make the APJs “truly subordinate to the director by making their decisions not final and at least subject to the possibility of review by the director.”
Chief Justice Roberts noted that Arthrex’s proposal to make hundreds of APJs principal officers would be a challenge, “the notion of meaningful review of each one seems to me to be fanciful.”
Following questioning by Justice Kagan regarding the Director’s oversight of inferior APJs, the Government argued that while the Director’s authority is not plenary, it is “substantial” and includes: promulgating binding guidance concerning substantive patent law, designating particular board opinions as precedential and binding on future panels, deciding whether any particular review will be instituted and which judges will sit on the panel, and de-instituting a review even after it has been commenced.
Chief Justice Roberts commented that this long list “seems to be more or less ways of twisting the arms of the APJs . . . [and] directly opposite to what the Appointments Clause was designed to do, which is transparency and make it clear who's responsible.” The Government then analogized SCOTUS’s oversight of the lower courts to the Director’s oversight of the PTAB. “The principal means of supervision is [SCOTUS] issues precedential opinions that bind lower courts in future cases,” and “typically tries to exercise its certiorari jurisdiction in such a way that the legal rulings and issues will address questions of law that are both important and recurring.” “[S]imilarly, in this case, it's important not to ignore the front-end mechanisms that are available to the director to influence the outcome of Board decisions,” “because they are the most practically efficacious means of using the director's resources, and because these are the means that are most often characteristic of the exercise of supervisory power.”
Justice Kavanaugh noted “the lack of historical precedent” for the absence of review of patent judges’ rulings “by someone who’s appointed by the president with advice and consent of the Senate,” and “the lack of accountability…by someone who’s accountable in the usual way that the appointments clause demands.” Justice Gorsuch questioned whether the patent judges’ decision-making authority “is an unusual animal in the sense that there isn’t final review in the agency head.” Justice Kagan inquired whether the PTAB’s lack of an “automatic opportunity for review in the agency head” is “just an unaccountably strange bird.”
In response, Smith & Nephew explained “the long and proud history of the Patent Office . . . going back to 1836” in which inferior officers have decided “interferences, conflicts between two private parties over patentability, including priority date, the issue in this case . . . without director review.”
Smith & Nephew also emphasized that APJs determine whether patent claims are unpatentable, but they do not have the authority to cancel claims. Under 35 U.S.C. § 318(b), the Director cancels patent claims by issuing a certificate after a panel of APJs issue a final decision and the parties have exhausted all opportunities for appeal, “I cannot emphasize enough that the Director maintains the final authority under 318(b) to confirm or cancel any patent. The APJs do not cancel patents.” The authors note that a post-grant certificate issues as an appendix to a patent, much like a certificate of correction. However, unlike a certificate of correction, the Director does not sign a post-grant certificate under current PTAB practice.
SCOTUS also explored potential remedies to Arthrex’s alleged constitutional problem but were not receptive to dismantling the entire IPR system. For example, the Government proposed severing the provision in 35 U.S.C. §6(c) that says only the Board can grant a rehearing; Justices Gorsuch, Barrett and Kavanaugh were receptive to this approach, analyzing various ways to effect severing. Justice Kagan explored whether it may be acceptable to impose a “clear error” or “egregious error” standard on determining Director review. Justice Alito favored a similar approach, stating all the Court would have to do is say “this is what the constitution requires.” In response to Arthrex’s suggestion that the matter should be put back in Congress’ hands because the IPR system is unconstitutional, Justice Kavanaugh said, “you want to then take down the whole system, and we’ve frowned upon that repeatedly.”
Based on the line of questioning, the justices appeared inclined to uphold the Federal Circuit’s decision finding an Appointments Clause violation. Though they seemed to disagree with the specific remedy offered by the Federal Circuit, they appeared unwilling to upend the IPR system. Rather, the Supreme Court seemed more interested in developing a new inferior judge test and/or minor revisions to the statute, e.g. to sever 35 USC §6(c) and provide the Director review of Board decisions. If such a remedy is recommended, the PTAB may inter alia, ensure that every post-grant certificate is signed off by the Director.
The Supreme Court's decision is expected in June.