Since the America Invents Act (AIA) in 2011 established the inter partes review (IPR) process, parties have made a number of constitutional arguments that the IPR process is flawed. None of those arguments met with much success until Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019), when a patent owner who lost at the Patent Trial and Appeal Board (PTAB) successfully argued that the appointment of each Administrative Patent Judge (APJ) at the PTAB violates the Appointments Clause of Article II of the U.S. Constitution.
The decision in Arthrex, Inc. v. Smith & Nephew, Inc.
The Appointments Clause provides that principal officers in the US government must be appointed by the President with the advice and consent of the Senate, while inferior officers may be appointed by a head of a department. Currently, APJs are appointed by the Secretary of Commerce (the head of the Department of Commerce) in consultation with the Director of the USPTO. The principle question in Arthrex was “whether APJs . . . are inferior officers or principal officers; the latter requiring appointment by the President as opposed to the Secretary of Commerce.”
In examining these questions, the Federal Circuit looked to Edmond v. United States, 520 U.S. 651 (1997), in which the United States Supreme Court set forth the factors to determine whether an officer is a principal officer or inferior officer. Using these factors, the Federal Circuit found that the APJs are principal officers of the United States due to the lack of any presidentially appointed officer who can review, vacate, or correct decisions by the APJs combined with significant limits on the Secretary of Commerce’s power to remove APJs under the relevant statute. Because the APJs were found to be principal officers, their appointments by the Secretary of Commerce violated the Appointments Clause.
Having found a violation of the Appointments Clause, the Federal Circuit had to determine the appropriate remedy. In this particular case – in which an adverse final written decision had been issued against a patent owned by Arthrex – the Federal Circuit held that the final written decision rendered by the unconstitutionally appointed APJs must be remanded to the PTAB for a new oral argument before a new, constitutionally appointed APJ panel of the PTAB. The Federal Circuit then fashioned a remedy to address the violation of the Appointments Clause by severing and invalidating the statutory limitation on the removal of the APJs. The Federal Circuit reasoned that the invalidation of the removal limitation made the APJs inferior officers, because they became subject to more effective oversight and could be constitutionally appointed by the Secretary of Commerce in consultation with the Director of the USPTO. Accordingly, the Federal Circuit held that each case which had timely raised an Appointments Clause challenge was entitled to a remand.
A bitterly divided Federal Circuit denied rehearing en banc for Arthrex in March 2020. 953 F.3d 760, 761 (Fed. Cir. 2020). Judges Kimberly A. Moore and Kathleen M. O’Malley concurred in the denial of rehearing en banc, variously joined by each other and Judges Jimmie V. Reyna and Raymond T. Chen. Judges Timothy B. Dyk, Todd M. Hughes, and Evan J. Wallach each wrote dissenting opinions, and variously were joined by each other and Judge Pauline Newman. Notably, Chief Judge Sharon Prost and Judges Kara Farnandez Stoll, Richard G. Taranto, and Alan D. Lourie did not join any of the concurrences or dissents, or otherwise publicly indicate their vote on rehearing.
All parties seek Supreme Court review
Each party has filed a petition for a writ of certiorari to the United States Supreme Court since all parties failed to prevail in certain respects. Arthrex, the patent owner, agreed that the appointment of the APJs was unconstitutional, but advocated in its certiorari petition that the entire statutory IPR scheme should be stricken – rather than just the limitation on APJ removal – such that the only remedy was for Congress to rewrite the statute with a constitutional appointment scheme (if at all). Conversely, Smith & Nephew, the USPTO, and the US government all argued that the Federal Circuit erred in finding a violation of the Appointments Clause. All three parties assert that the APJ appointments were constitutional, since the APJs are inferior officers, and that Arthrex had forfeited its Appointments Clause challenge in any case.
In addition to the petitions of the parties, several amici filed briefs, including two supporting Smith & Nephew and two supporting Arthrex. Interestingly, the Supreme Court combined this appeal with another case between Polaris Innovations and Kingston Technology, which also involved an Appointments Clause challenge and appeal. All of the petitions and amicus briefs have now been distributed for the September 29, 2020 Supreme Court conference.
USPTO motion to stay and PTAB general order
While the petitions for a writ of certiorari were pending, the USPTO and the government filed an unopposed motion to stay mandate with the Federal Circuit to stay all Arthrex remands pending a resolution of the Supreme Court review. The Federal Circuit, on March 30, 2020, denied the motion because the decision limited the number of possible remands to 81 cases and noted that the PTAB had 250 members, such that handling the remands should not be especially burdensome. On May 1, 2020, the PTAB’s Chief APJ issued a general order holding all Arthrex remands in “administrative abeyance” until the Supreme Court acts on petitions for review. In the PTAB general order, the PTAB listed 103 remand cases, including IPRs, CBMs, and ex parte appeals.
Other Appointment Clause Federal Circuit cases
After Arthrex was decided and while it is being appealed, subsequent Federal Circuit cases have clarified the scope of the Appointments Clause remands. For example, Ciena Corporation v. Oyster Optics, LLC, 958 F.3d 1157 (Fed. Cir. 2020) held that only a patent owner can take advantage of the Arthrex remand remedy since petitioners in an IPR voluntarily invoked the IPR process and should not be able to complain about it after an adverse result. In VirnetX Inc. v. Cisco Systems, Inc., the Federal Circuit extended Arthrex to inter partes reexaminations in addition to inter partes review. 958 F.3d 1333 (Fed. Cir. 2020). Similarly, in In re Boloro Global Ltd., the Federal Circuit extended the Arthrex remand remedy to ex parte proceedings (and likely, by the same logic, to all USPTO administrative appeals). 963 F.3d 1380 (Fed. Cir. 2020).
At present, this Appointments Clause challenge to the IPR process appears to have staying power. We look forward to seeing whether the Supreme Court will take up and decide the Appointments Clause challenge.