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Federal Circuit Averts Huge Disruption to the Patent System by Fashioning a Cure to the Status of Administrative Judges

Arne Hans, Ph.D.

Arne Hans, Ph.D. | Attorney View more articles

Arne is a member of our Patent Practice Group

In October 2019, a Federal Circuit panel concluded that the status of Administrative Patent Judges (APJs) on the Patent Trial and Appeal Board (PTAB) at the U.S. Patent and Trademark Office (PTO) violated the Appointments Clause of the U.S. Constitution.

The Appointments Clause requires that “principal officers” be appointed by the President of the United States, with advice and consent of the Senate. There is no such requirement for “inferior officers.” According to the court’s decision in Arthrex, Inc. v. Smith & Nephew, Inc , the statute establishing inter partes review (IPR) proceedings before the PTAB made APJs “principal officers” under the Appointments Clause.

The Federal Circuit’s opinion followed the framework set forth by the Supreme Court in Edmond v. United States (1997): Inferior officers are officers whose work is directed and supervised at some level by others who were appointed by presidential nomination with the advice and consent of the Senate. Neither the Director of the USPTO nor the Secretary of Commerce exercise “sufficient direction and supervision over APJs to render them inferior officers.”

For example, while the Director has some authority over conducting an IPR, s/he lacks the authority to alter a PTAB panel’s final written decision or to control the panel’s decision before it issues on behalf of the United States. In addition, APJs enjoy certain protections under Title 5 against removal from employment. Therefore, no presidentially appointed officer can review, vacate, or correct decisions by the APJs, and no such officer has unrestricted power to remove APJs. Both elements are required to make an officer an inferior officer.

For these reasons, the Federal Circuit found that the APJs were principal officers who had not been appointed by the President with the advice and consent of the Senate. Therefore, their appointments were improper and unconstitutional.

In line with Supreme Court precedent, the Federal Circuit panel decided not to invalidate the entire IPR scheme, which would have been highly disruptive. Instead, the court cured the defect by severing the portion of the IPR statute that provided for the APJs’ removal protections. Without these protections, APJs now serve at the pleasure of the Director of the PTO, rendering them inferior officers. As such, the APJs are not subject to the appointment procedure set forth in the Constitution’s Appointments Clause.

All parties to Arthrex, including the federal government as intervenor, were unhappy with the panel’s approach and petitioned for a rehearing by the full court:

  • Arthrex argued that Congress would not have enacted the IPR statute without the removal protections for APJs.
  • Smith & Nephew argued that APJs already were inferior officers before the court’s remedy, making that remedy unnecessary.
  • The federal government argued that the panel made several legal errors in its review and that the case must therefore be reheard before the full court.

The Federal Circuit denied the rehearing petition on March 23, 2020.

Judge Moore, in her concurrence in the court’s decision to deny rehearing, defended the Federal Circuit’s approach to curing the unconstitutionality of the PTAB judges’ appointments. Following the Supreme Court’s precedent in United States v. Booker (2005), a court must retain the portions of a challenged statute that are (1) constitutionally valid; (2) capable of functioning independently; and (3) consistent with Congress’s basic objectives in enacting the statute.

While Congress obviously intended that APJs have removal protections, that was not its central objective when it created the IPR system. Therefore, Judge Moore notes, the severance of the APJ’s removal protections was the narrowest possible modification to the scheme that Congress created and it minimized the disruption to the continuing operation of the IPR system. Invalidating the entirety of the IPR scheme, or even the America Invents Act (AIA), would have resulted in a major rupture of the US patent system.

Had the court gone in the opposite direction and determined that the APJs had been unconstitutionally appointed, what kind of chaos would that have sown? Not so terrible, some believe: In another concurring opinion, four judges said that a total of 81 decisions might have been subject to remand, and that the remands would be narrow in scope, not requiring the creation of a new record. These judges compared the number of cases that could potentially require reconsideration with the monthly caseload of the APJs: 820 cases per month, including 39 IPRs.

Three judges dissented from the Federal Circuit’s denial of rehearing en banc. Judge Dyk opined that providing removal protections for APJs was indeed one of Congress’s basic objectives and therefore the PTO and Congress should have been given an opportunity to devise a remedy that is less disruptive. Specifically, said Judge Dyk, Congress could amend the statute to provide for agency review of APJ decisions, for example, by creating a review board of principal officers or by providing for review of APJ decisions by the Director of the PTO.

Judge Hughes remarked in his dissent that APJs already had been inferior officers before the Arthrex “remedy” was implemented—a view that Judge Wallach shares. By their lights, the Director of the PTO has significant powers of direction and supervision over the APJs, making them inferior officers.

Both the PTO and Arthrex have asked the Federal Circuit to stay the litigation, saying at least one appeal to the U.S. Supreme Court is in the works. Thus, the Federal Circuit’s opinion may not be the last word.

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