In Arthrex, Inc. v. Smith & Nephew, Inc., the Federal Circuit ruled that the manner by which Administrative Patent Judges (APJs) are appointed is unconstitutional.
Background
Arthrex appealed from a final written decision issued in an inter partes review (IPR) proceeding holding several of its patent claims to be invalid. On appeal, Arthrex contended that the final written decision was improper because the scheme for appointing the APJs rendering such decision violated the Appointments Clause of the Constitution. The issue was whether APJs are “principal officers” which must be appointed by the President, or “inferior officers” who need not be appointed by the President and whose appointment properly could be made by the Secretary of Commerce.
APJs are principal officers under the current statutory scheme.
The court considered three factors in addressing the issue: (1) the Director’s ability to review an APJ panel decision, (2) the Director’s supervision power over APJs, and (3) the Director’s ability to remove APJs. The court determined that “[t]he lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power lead us to conclude … that these are principal officers.”
The court then considered whether the Patent Act statute could be saved by severing the problematic portion while leaving the remainder intact. The court found that the statute could be remedied by severing the portion restricting removal of APJs. The court explained that this change to the statute provides the Director with the authority to remove APJs without cause, and thus renders APJs as inferior officers. The court vacated and remanded the case to a new panel of APJs for a new oral argument.
What could be the immediate impact from the Federal Circuit’s ruling?
The court indicated that “the impact of this case [is] limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal.” Thus, Arthrex could lead to remands in cases where the PTAB has already issued a final written decision and which are on appeal at the Federal Circuit.
The court in Arthrex required “new oral argument” before a new APJ panel. The court left the issue of whether the Board “should allow additional briefing or reopen the record in any individual case … to the Board’s sound discretion.” The Board’s Standard Operating Procedure 9 addresses procedure for decisions remanded from the Federal Circuit and provides factors for the provision of additional briefing and evidence on remand.
In the past, the USPTO has issued guidance after important court decisions affecting PTAB practice (such as with SAS Institute which also involved remanded cases), and it is quite possible that the USPTO will do the same here.
Is the Federal Circuit’s ruling the last word?
Not necessarily. The Federal Circuit’s decision can be further reviewed en banc by the Federal Circuit or appealed to the Supreme Court. In view of the potential broad implications of the decision, it is quite possible that the issue may be revisited en banc or on appeal.