En Banc Denial in Arthrex

by Dennis Crouch

Arthrex, Inc. v. Smith & Nephew, Inc. and U.S. as intervenor (Fed. Cir. 2020) (en banc denial)

None of the parties in this case were happy with the Federal Circuit’s original decision in Arthrex and all filed petitions for en banc rehearing.  Those petitions have now been denied in what appears to be a 8-4 split with Judges Newman, Wallach, Dyk, and Hughes expressly dissenting from the denial.  Judge Moore authored the original opinion in the case and also authored an opinion here defending that original opinion. She was joined on the opinion by her original panel members of Judges Reyna and Chen as well as Judge O’Malley explaining that (1) the original decision was correct and (2) conducting a rehearing would “only create unnecessary uncertainty and disruption.”

The Arthrex panel followed Supreme Court precedent to conclude that the administrative patent judges (APJs) of the USPTO’s Patent Trial and Appeal Board were improperly appointed principal officers. It further followed the Supreme Court’s direction by severing a portion of the statute to solve that constitutional problem while preserving the remainder of the statute and minimizing disruption to the inter partes review system Congress created.

Judge Moore Op. Concurring in the en banc denial.  This quote mentions the the “severing” element of the original panel decision. In particular, the court invalidated the removal restrictions of 5 U.S.C. § 7513 as it applies to APJs — thus making it easier for the USPTO director to remove APJs at will. This move – according to the court – was sufficient to shift APJs from principal Officers to inferior Officers and thus “save” the system.

Judge O’Malley wrote her own concurring opinion that included the following statement:

While I agree with Judge Dyk and Judge Hughes that Title 5’s protections for government employees are both important and long-standing, I do not believe Congress would conclude that those protections outweigh the importance of keeping the remainder of the AIA intact—a statute it debated and refined over a period of more than six years.

The leading dissent by Judge Dyk argues that the severance choice here is an improper, “draconian remedy” that “rewrites the statute contrary to Congressional intent.  Judges Hughes and Wallach each wrote their own dissenting opinions – arguing that APJs were already inferior officers based upon the extensive control and authority exerted by the USPTO director.

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The basic issue in the case is the Constitutionality of the appointments process for Administrative Patent Judges (APJs) sitting on the Patent Trial & Appeal Board (PTAB).  The Appointments Clause of the U.S. Constitution indicates that all “Officers of the United States” shall be nominated and appointed by the US President with the Advice and Consent of the Senate.  The provision then goes on to say that Congress has the power to alter this process for “inferior Officers, as they think proper.” In particular, Congress may allow inferior Officers to be appointed by “Heads of Departments.”  U.S. Const. Art. II, Sec. 2, Cl. 2.  An improperly appointed officer isn’t really an officer at all and so should have no power to render judgment to cancel privately held property rights.

APJs used to be hired by the USPTO Director.  However, Prof John Duffy shook that cage in his 2007 article: Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. In the article, Duffy argued that APJs are likely best classified as inferior Officers and thus could be appointed by a Head of Department — namely the Secretary of Commerce.  Congress quickly acted on Duffy’s submission and altered the law to fix the problem.

The America Invents Act (AIA) greatly increased the power of APJ with the advent of inter partes review (IPR) proceedings and the other AIA trials.  The PTAB has become the most frequented patent court in the country and thousands of patents have been cancelled based upon APJ rulings.

After losing before the PTAB in an inter partes review, Arthrex appealed to the Federal Circuit with the argument that the increased power granted by the AIA ratches APJs up to the status of principal Officers rather than inferior Officers.  The result of that conclusion would be that APJs would need Presidential Appointment with Senate consent.  In Arthrex, the Federal Circuit agreed with the contention, but rather than requiring Presidential Appointment, the court decided instead to invalidate a statute that provides job security to APJs.  Since job security (ability to be easily fired by someone other than the President) is an element of the inferior/principal Officer distinction, the Federal Circuit found that severing that portion of the statute was enough to change the nature of the role.

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The case offers an interesting constitutional query – but is also being used as a tool for those who are hoping for the IPR system to fail.