The Supreme Court issued its long-awaited decision today in United States v. Arthrex, Inc., Nos. 19-1434, -1452, -1458. Although a majority of the Court held that Congress's statutory scheme violated the Constitution, the Supreme Court once again preserved the availability of inter partes reviews for challenging issued patents. Still unknown is whether Arthrex will have any practical effect on practice at the Patent Trial and Appeal Board going forward.
By now, the details of the Federal Circuit's Arthrex decision are probably familiar territory. If you want more detailed descriptions, we've written about the decision and its aftermath several times on our Federal Circuitry blog (for example, Supreme Court to Review Arthrex: Big Deal or Ho Hum? and Do We Already Know the Federal Circuit's Final Answer in Arthrex?). In short, when Congress passed the America Invents Act, it created several new avenues for challenges to already-issued patents at the U.S. Patent and Trademark Office (PTO). The Act gave the Secretary of Commerce authority to appoint Administrative Patent Judges (APJs) to the Patent Trial and Appeal Board to oversee and decide those challenges. Specifically for inter partes review proceedings, the Act gave APJs significant authority, including to issue final written decisions on patentability. At the same time, the Act limited the PTO Director's control over APJs. The Director could not, for example, directly and unilaterally review a final written decision issued by the APJs, nor could the Director remove APJs from office without cause.
The Federal Circuit held that the APJs' substantial authority combined with limited oversight meant that APJs were wielding principal-officer authority under the Constitution. Yet Article II's Appointments Clause requires the President, not a cabinet Secretary, to appoint principal officers with the Senate's advice and consent. The Federal Circuit thus concluded that the America Invents Act violated the Constitution. But the Federal Circuit adopted a saving construction of the Act, severing the portion of the Act that restricted APJ removal. It ordered a remand for a new hearing before a new panel of APJs who, going forward, would be removable at will.
The Supreme Court agreed with the Federal Circuit that the America Invents Act violated the Appointments Clause but disagreed about the remedy. On the constitutional violation, the Court explained that "thousands of officers wield executive power on behalf of the President" in today's federal government. The power of those unelected officers derives its "legitimacy and accountability to the public" from "'a clear and effective chain of command' down from the President." The Appointments Clause helps preserve that legitimacy and accountability—it makes presidential appointment with Senate confirmation the default for appointing officers and permits an exception only for "inferior" officers.
Although Congress provided for the APJs who decide inter partes reviews to be appointed as inferior officers, the Supreme Court agreed with the Federal Circuit that APJs' responsibilities went beyond those permitted of inferior officers. The Court refused to draw any bright line between a "principal" officer who must be presidentially appointed and an "inferior" officer who need not be. Instead, it considered whether the APJs were "'directed and supervised at some level by others who were appointed by Presidential nomination.'" In past cases, that direction and supervision had involved: administrative oversight, such as authority to prescribe policy and remove inferior officers at will; and decisional oversight, that the inferior officers "have no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers."
In light of that precedent, the Supreme Court held that the statutory scheme for inter partes reviews provided insufficient supervision over APJs, especially because it failed to provide review within the executive branch of APJ final decisions on behalf of the United States. "The only possibility of review is a petition for rehearing, but Congress unambiguously specified that 'only the Patent Trial and Appeal Board may grant rehearings.' Such review simply repeats the arrangement challenged as unconstitutional in this suit." Although the United States responded that the PTO Director had numerous tools for influencing APJ decision-making, the Court was unpersuaded because the Act still left the Director "no means of countermanding [a] final decision already on the books."
Having focused on the lack of direct review over APJ decisions rather than restrictions on APJ removal, the Supreme Court departed from the Federal Circuit on the proper remedy for the constitutional violation. Three Justices joined Chief Justice Roberts's opinion concluding that the proper remedy was "a remand to the Acting Director for him to decide whether to rehear the petition [for inter partes review] filed by Smith & Nephew." Three additional Justices concurred in the judgment to that effect (in an opinion by Justice Breyer, joined by Justices Sotomayor and Kagan), providing a majority of the Court supporting that outcome. Chief Justice Roberts's opinion explained that the PTO Director "may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the Board." But under the Supreme Court's "limited remand," Arthrex, the patent owner, "is not entitled to a hearing before a new panel of APJs." The Chief Justice's opinion was also clear that it was "consider[ing] only the Director's ability to supervise APJs in adjudicating petitions for inter partes review." It did "not address the Director's supervision over other types of adjudications conducted by the PTAB, such as the examination process for which the Director has claimed unilateral authority to issue a patent."
In the end, inter partes reviews survived yet another challenge to their constitutional legitimacy. Only one Justice, Justice Gorsuch, voted to declare the entire statutory scheme unconstitutional. The Justices left for another day the questions of whether and to what extent their decision affects other proceedings at the PTAB, such as reexaminations. And they previously refused to consider a challenge to the Federal Circuit's decisions about which parties sufficiently preserved an Appointments Clause challenge. Thus, that issue too appears to have been left for the Federal Circuit or a later Supreme Court decision.
For now, we'll have to wait and see how the Federal Circuit and the Director respond in the many cases where parties preserved Appointments Clause challenges.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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