APJ Appointments Made by Secretary of Commerce & USPTO Director Held Unconstitutional in Arthrex

March 29, 2020

Update March 30, 2020

The Federal Circuit on March 23, 2020, denied rehearing and rehearing en banc in Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019), leaving in place the holding that appointments of administrative patent judges (“APJs”) by the Secretary of Commerce and the USPTO Director made prior to the date of the Court’s October 31 opinion were unconstitutional.  The 62-page order includes two concurring and three dissenting opinions that clearly illustrate disagreement among a majority of the circuit judges over the Arthrex decision.  

The parties sought a stay of the Court’s mandate in view of planned petitions to the Supreme Court, which was denied on March 30, 2020.  The Court declined to deviate from the normal practice and stay the mandate “when such a stay has the potential to leave in force patents which were determined invalid by earlier panels of the Board” and concluded that, under the circumstances, the public interest favored denying the stay. March 30 Order at 3.

Next up:  What Arthrex-related questions will the Supreme Court be asked to decide and will the Court agree to hear any?  Tune-in here.


Update January 9, 2020


December 2019: 

Trick…or Treat?  The Federal Circuit in this controversial opinion delivered on Halloween held that the appointment of Administrative Patent Judges by the Secretary of Commerce, in consultation with the Director of the U.S. Patent & Trademark Office (“PTO”), violates the Appointments Clause of the U.S. Constitution.  The Appointments Clause vests power in the President to nominate and, by and with the advice and consent of the Senate, appoint…” all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law.”  Slip op. at 6 (quoting U.S. Const. art. II, § 2, cl. 2).  The Appointments Clause further provides that “Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.” Id.  

The Court examined the Appointments Clause and its purpose, relevant sections of Title 35, and associated Patent Office rules to first determine whether APJs qualify as “Officers of the United States,” rather than mere employees, and found that they are Officers of the United States. Slip op. at 7-8.  The Court then evaluated various factors to determine whether the APJs are “principal” officers or “inferior” officers. Id. at 8-19 (analyzing three factors for distinguishing between principal and inferior officers that the Supreme Court emphasized in Edmond v. United States, 520 U.S. 651 (1997), and observing that, while the determination is not confined to these factors, other factors that may be relevant are not present in the case before it).  The Court concluded from its analysis that APJs are principal officers. Id.  Consequently, their appointment by the Secretary of Commerce/PTO Director was held unconstitutional because principal officers of the United States must be appointed by the President. Id.  The Court, however, considered whether some remedial measure could be imposed to address the constitutionality issue and determined that the narrowest remedy that, in its view, would cure the violation is a partial invalidation of the statutory limitations in the Patent Statute on removal of APJs (see, 35 U.S.C. § 3(c)’s statement that Title 5—which includes removal restrictions—applies to Officers and employees of the PTO). Id. at 20-26.  The Court reasoned that “severing the restriction on removal of APJs renders them inferior rather than principal officers,” and thus appointment by the Secretary of Commerce/PTO Director is permissible. Id. at 25.  In this regard, the Court explained that the impact of its decision “is limited to those cases where final written decisions were issued and the litigants present an Appointments Clause challenge on appeal.” Id. at 29.  The Court further explained that the decision to institute an IPR does not raise any Appointments Clause problem. Id. at 30.

The Court vacated the PTAB decision at issue in this case because it was made by a panel of APJs who were not constitutionally appointed at the time the decision was rendered and remanded without reaching the merits on unpatentability. Slip op. at 27.

This opinion has sparked a number of parties to PTAB trials in which a final written decision issued to test its applicability to their case and has also been strongly criticized.  The Arthrex parties, including the government, have now filed petitions for rehearing and rehearing en banc.  Views expressed by some Federal Circuit judges already show that the full Court is not in accord with the Arthrex panel.  

Congress has also stepped into the mix - the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, and the Internet conducted a hearing on November 19, 2019, to discuss the decision, particularly the Court’s remedy and alternative ways to cure the Appointments Clause issue, as well as the general functioning of the PTAB.  One concern raised by some subcommittee members and witnesses was with the Court’s decision to strike statutory removal restrictions from the Patent Act, as they apply to APJs, and whether this remedy is constitutionally sufficient in view of the limited review of PTAB decisions.  Others felt that the remedy cured the constitutional issue but that the Court’s solution is not the optimal solution, as a matter of policy.  Questions of potential due process issues that may arise from striking the removal restrictions were also raised—especially when an APJ is removed mid-proceeding.

What happens next is anyone’s guess…but stay tuned.