United States: Parties, Government Seek Rehearing In Arthrex

As we have previously discussed on this blog and elsewhere, the Federal Circuit's decision in Arthrex v. Smith & Nephew has generated significant discussion and controversy in the patent world. On December 16, both parties and the U.S. government asked the full Federal Circuit to reconsider the panel decision—each advancing distinct arguments in support of their petitions for rehearing and rehearing en banc.

To recap, the Arthrex panel held that, in light of the rights and responsibilities afforded to administrative patent judges (APJs) under the Patent Act, APJs are "principal officers" within the meaning of the Appointments Clause of the U.S. Constitution, thus requiring appointment by the President with the advice and consent of the Senate. U.S. Const. art. II, § 2, cl. 2; Arthrex, 941 F.3d 1320, 1335 (Fed. Cir. 2019). Because APJs are appointed by the Secretary of Commerce in consultation with the Director of the USPTO and not by the President, the panel held that their appointment violated the Appointments Clause. U.S. Const. art. II, § 2, cl. 2; Arthrex, 941 F.3d at 1335. The panel sought to remedy this constitutional violation by severing the statutory removal provisions as applied to APJs, thus enabling at-will termination by the USPTO Director. Through severance, the panel concluded that the APJs were rendered "inferior officers" and thus were constitutionally appointed. Arthrex, 941 F.3d at 1338.

The Government's petition argues that APJs are not principal officers as the panel found, but are instead inferior officers—and thus their appointment does not violate the Constitution. First, the Government argues that the USPTO Director already has effective removal power over APJs because he can remove APJs from panels and refuse to assign them to any panels. Second, even ignoring the Director's effective removal power, APJs only have a minor type of removal protection (i.e., efficiency-of-the-service protection) that does not provide effective insulation from the Director's oversight and control. Third, the Director has substantial supervisory authority over APJs that the Federal Circuit panel did not give sufficient weight. The Government also argues that Arthrex forfeited its constitutional challenge by not raising it before the Board and that the panel further erred by remanding for a new hearing with a new panel of APJs. The Government has requested that Polaris Innovations v. Kingston Technology, No. 18-1831 (Fed. Cir.), be heard at the same time as the en banc rehearing in Arthrex because it presents similar issues with some procedurally favorable clarifications. Appellees' petition similarly argues that APJs are inferior officers.

In contrast, appellant Arthrex's petition argues that the statute cannot be salvaged by severance. Arthrex agrees with the panel that APJs are principal officers, but argues that the panel's constitutional fix—i.e., rendering APJs "inferior officers" by severing the statutory restriction on their removal—is inappropriate as contrary to Congressional intent. Arthrex argues that protecting APJs from at-will removal was critical to ensuring that they were independent adjudicators as Congress intended. Therefore, the removal protection for APJs is not severable from the statute and the statute must be ruled unconstitutional. Arthrex argues that the Federal Circuit should leave it to Congress to fix the unconstitutional statute, vacate the APJs' IPR ruling, and dismiss the appeal.

All three parties spend the bulk of their arguments on the core issue: whether APJs are inferior or principal officers. However, a secondary issue of immense practical importance is whether IPRs decided by APJs prior to Arthrex, or some subset of those, should be vacated for rehearing before a new panel of APJs, as the panel held in Arthrex.

The timeline for granting or denying en banc rehearing is variable based on the Court's internal conduct and polling. In the weeks ahead, the panel or full Court may request responses and amicus briefs also may be filed if the Court allows them.

We will continue to monitor the case for developments.

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