On June 21, 2021, the Supreme Court issued a decision vacating the Federal Circuit’s judgment in Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019). As we previously explained, the Federal Circuit in Arthrex held that the AIA was unconstitutional in that administrative patent judges (APJs) have the authority of principal officers, but the statute provides for their appointment by the Secretary of Commerce, rather than by the President with the advice and consent of the Senate. To remediate that constitutional violation, the court severed the relevant statutory provision that restricts the Patent Office Director’s authority to remove an APJ for cause. This, the court determined, would render the APJs inferior officers and avoid a violation of the Constitution’s Appointments Clause. The APJs’ past actions in Arthrex were not valid, according to the court. So, the court remanded for a new hearing before a new panel of APJs whose appointments were now valid in view of the court’s decision severing the statutory removal restriction. Neither the parties nor the government (Patent Office) found this decision satisfying. They all unsuccessfully petitioned for rehearing and, thereafter, successfully petitioned the Supreme Court to review the judgment. The Court has now agreed with the Federal Circuit that the APJs were unconstitutionally appointed, but remedied that violation in a different way.
At the Supreme Court, no one disputed that APJs are officers insofar as they exercise significant authority in deciding whether patent claims challenged in inter partes review should have issued in the first place. United States v. Arthrex, Inc., 594 U.S. ___, Slip Op. at 8 (2021) (No. 19-1434). Even though the Patent Office Director has the powers of administrative oversight, according to the Court, neither the Director nor any other principal officer within the Executive Branch directs or supervises the APJs’ power to issue patentability decisions in these review proceedings. Id. at 10. “Billions of dollars can turn on [such a] decision,” id. at 1, yet these decisions are not meaningfully reviewable within the Patent Office itself, and the Director carries out only the ministerial function of publishing certificates consistent with the decisions. Id. at 10–11. Said the Court, “[i]n all the ways that matter to the parties who appear before the PTAB,” within the Patent Office, “the buck stops with the APJs, not with the Secretary [of Commerce] or Director.” Id. at 12. “Only an officer properly appointed to a principal office may issue a final decision binding the Executive branch,” said the Court. Id. at 19. The nature of APJs’ responsibilities, according to five Justices, is not consistent with their method of appointment. See U.S. Const. Art. II, § 2, Cl. 2 (Appointments Clause).
But whereas the Federal Circuit remedied the constitutional violation by severing the statutory restraint on the Director’s ability to remove APJs for cause, the Supreme Court determined as unenforceable the statutory restraint on the Director’s authority to review the APJs’ decisions. See 35 U.S.C. § 6(c) (“Only the Patent Trial and Appeal Board may grant rehearings.”). Specifically, the Court “hold[s] that [section] 6(c) is unenforceable as applied to the Director insofar as it prevents the Director from reviewing the decisions of the PTAB on his own.” Slip Op. at 22. So, instead of sending the Arthrex inter partes review decision back for a new hearing before a new panel of APJs, the Supreme Court said the APJs’ decision “must be subject to review by the Director,” Slip Op. at 20, and, “upon review, [the Director] may issue [a] decision himself on behalf of the [Office].” Id. at 21. Nobody advocated for this remedy, but seven Justices deemed it appropriate. That would have been an extraordinarily broad remedy had the Court not also explained that (i) its decision is limited to the Director’s supervision of APJs in deciding inter partes reviews, and (ii) the “Director need not review every [inter partes review] decision of the PTAB.” Id. at 23. “What matters,” said the Court, “is that the Director have the discretion to review decisions rendered by the APJs.” Id.
To the Court, “[t]his does not result in an incomplete or unworkable statutory scheme,” but rather follows the adjudicative model elsewhere in the Executive Branch and aligns the Patent Trial and Appeal Board with the agency’s other adjudicative body, the Trademark Trial and Appeal Board. Id. at 21. Time will tell how workable the Court’s remedy is and how often the Director reviews the PTAB’s inter partes review decisions. For now, the case is remanded to the Federal Circuit for further proceedings.