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Arthrex, Inc. v. Smith & Nephew, Inc.

PTAB’s Past Composition Unconstitutional; Limits on APJ Removal Judicially Severed

Arthrex, Inc. v. Smith & Nephew, Inc., __ F.3d __, 2019 WL 5616010 (Fed. Cir. Oct. 31, 2019) (MOORE, Reyna, Chen) (PTAB) (5 of 5 stars)

Fed Cir vacates IPR decision holding Arthrex’s claims anticipated. The Administrative Patent Judges (“APJs”) who presided over the IPR were not constitutionally appointed. The case is remanded for rehearing by newly designated APJs subject to constitutional removal standards.

No waiver: Though Arthrex did not raise the constitutionality of APJ appointment before the Board, the Fed Cir exercises its discretion to hear Arthrex’s arguments, citing Freytag, 501 U.S. 868 (1991); and Glidden, 370 U.S. 530 (1962). The opinion notes the importance of the structural interests at stake, and the need for certainty to those relying on IPR to address patent disputes.

Constitutionality of appointment: The parties do not dispute, and the opinion holds, that in view of the authority they exercise, APJs are Officers of the United States for purposes of the Appointments Clause, U.S. Const. art. II, § 2, cl. 2. The analysis of Edmond, 520 U.S. 651 (1997), thus requires determining whether the position of APJ is a “principal officer” (subject to the Appointments Clause’s requirement of appointment by the President “by and with the Advice and Consent of the Senate”) or an “inferior officer” (not subject to that requirement). The opinion addresses factors from Edmond:

(1) Review power over APJs: The opinion determines that “[n]o presidentially-appointed officer has independent statutory authority to review a final written decision by the APJs before the decision issues on behalf of the United States.” Op. at 9. It notes that the PTO Director may not “single-handedly review, nullify or reverse” final decisions from an APJ panel. Id. at 10. That the Director may intervene in appeals is insufficient. The Director’s recent convening o f a Precedential Opinion Panel is also insufficient; even if the Director were himself on that panel, he cannot alone determine its behavior. And the Director’s authority to not institute IPR is insufficient to be a meaningful review authority.

(2) Supervision Power: The opinion determines that the Director does have supervisory authority over APJs, noting his authority to promulgate regulations, issue policy directives, and generally set policy.

(3) Removal Power: “Under the current Title 35 framework, both the Secretary of Commerce and the Director lack unfettered removal authority [over APJs].” Op. at 14. The opinion notes that the statute (35 U.S.C. § 6(c)) giving the Director authority to appoint APJs does not provide statutory authority for removing them; APJs are subject to removal “only for such cause as will promote the efficiency of the service,” 5 U.S.C. § 7513(a). The opinion compares this to the Court of Federal Claims’ removal authority over Vaccine Act special masters (deemed inferior officers in Masias, 634 F.3d 1283 (Fed. Cir. 2011)), but notes that special masters’ determinations (unlike APJs determinations) are subject to review by a superior entity (there, the Court of Federal Claims). Instead it analogizes APJs to Copyright Royalty Judges, noting that the limitations on removal of CRJs weighed in favor of principal officer status in Intercollegiate Broadcasting System, 684 F.3d 1332 (D.C. Cir. 2012).

(4) Other Limitations: The opinion considers other factors that might weigh in favor of inferior officer status (e.g., limitations on tenure, duties, jurisdiction), and finds them not present.

The opinion concludes that APJs are principal officers of the United States. The Board’s current structure thus violates the Appointments Clause.

Severability: The opinion considers various proposals to limit the effect of the determination of unconstitutionality. It reasons that the narrowest viable approach is to sever application of Title 5’s limitations on removal as to APJs, and does so: “Title 5’s removal protections cannot be constitutionally applied to APJs, so we sever that application of the statute.” Op. at 25. With that severance, APJs are rendered inferior officers. “We believe that this, the narrowest revision to the scheme intended by Congress for the reconsideration of patent rights, is the proper course of action and the action Congress would have undertaken.” Id. at 26–27.

Vacatur/remand: Because the decision in this appeal was by a panel of APJs not constitutionally appointed at the time, it is vacated and remanded. The opinion declines to exercise discretion not to remand based on Arthrex’s not raising this issue to the Board, as raising it would have been generally futile. DBC, 545 F.3d 1373 (Fed. Cir. 2008), is not contrary. Unlike this case, in DBC the agency could, on initial consideration of the issue, have corrected the constitutional problem by reassigning to a different arbiter. The opinion also reasons that Lucia, 138 S. Ct. 2044 (2018), supports the decision to vacate and remand, as the decision will incentivize “challenges under these circumstances . . . at the appellate level[.]” Op. at 29. “[W]e see the impact of this case as limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal.” Id. On remand, new APJs must be designated and a new hearing granted, though the panel may proceed, if it wishes, on the existing written record.

KEYWORDS: U.S. CONSTITUTION; APPOINTMENTS CLAUSE; INTER PARTES REVIEW; ADMINISTRATIVE LAW