Legal Alert | Arthrex, Inc. v. Smith & Nephew, Inc. — What Did the Federal Circuit Do?


Initial Thoughts on Panel Decision in Arthrex

This alert discusses the recent Federal Circuit decision in Arthrex, Inc. v. Smith & Nephew, Inc., No. 2018-2140 (Fed. Cir. Oct. 31, 2019) (MOORE Reyna Chen) and provides some basic commentary on the decision to help you better understand it. Nothing in this alert is intended to be legal advice, nor does it represent the view of any Fish & Richardson clients. The discussion of the decision is intended merely to summarize it, and not to opine on it. In addition, the observations made here are preliminary, and much will change as the bar absorbs the opinion and as the Federal Circuit, the PTO, and various parties react to it.

If you have questions, feel free to contact the authors.

What Did the Federal Circuit Do?

A three-judge panel held that the IPR statute made PTAB administrative patent judges (APJs) "principal officers" who must, under the Constitution's Appointments Clause, be nominated by the President with the Senate's advice and consent. None of those APJs were so appointed. The panel noted that the main factors in determining whether APJs are "principal officers" or instead "inferior officers" who aren't subject to the Appointments Clause are "(1) whether an appointed official has the power to review and reverse the officers' decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official's power to remove the officers." Slip Op. at 9. The panel then determined that neither the PTO Director nor the Secretary of Commerce "exercise[s] sufficient direction and supervision over APJs to render them inferior officers," id., and that decision is supported by "[t]he lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power," id. at 20.

Recognizing that striking the entire IPR regime on this basis would be highly disruptive, the court applied a narrowing remedy it deemed sufficient to establish APJs as legitimate inferior officers. It severed the federal employee protections in 35 U.S.C. 3(c), so that they don't apply to APJs i.e., APJs will now serve at the pleasure of the Director, with termination at will. In the panel's view, this severing would remove the Appointments Clause issue and thus preserve the IPR statute's constitutionality. The panel noted, "It is our view that Congress intended for the [IPR] system to function to review issued patents and that it would have preferred a Board whose members are removable at will rather than no Board at all."

The Federal Circuit also quickly issued several orders that relied on Arthrex. On the same day as Arthrex, the court sua sponte remanded Uniloc 2017 LLC, v. Facebook, Inc., __ F.3d __, Docket 2018-2251 (Fed. Cir. Oct. 31, 2019) (Non-Precedential Order), because the appellant there had made an Appointments Clause challenge in its opening (blue) brief. And the next day, in two precedential orders, the court found Appointments Clause challenges waived where they were not raised in the appellant's opening briefs and were raised for the first time after Arthrex. See Customedia Technologies, LLC v. Dish Network Corp., __ F.3d __, Docket 2018-2239 (Fed. Cir. Nov. 1, 2019) (Precedential Order) (treating a Rule 28(j) citation of supplemental authority as a motion, and denying that implied motion) and Customedia Technologies, LLC v. Dish Network Corp., __ F.3d __, Docket 2019-1001 (Fed. Cir. Nov. 1, 2019) (Precedential Order) (denying an express motion). All three orders were per curiam and signed by the clerk, so the public does not know what judges acted on them. But the speed with which the orders issued (i.e., precedential orders are typically required to undergo 10 days of pre-issuance internal court review, under Internal Operating Procedure 10) indicates some level of planning and likely agreement within the court.

What Happens Now?

Technically, nothing happens until the Federal Circuit's mandate issues, which will not occur for more than a month. A party to this case or to a later case may seek en banc Federal Circuit and/or Supreme Court review, so that, absent an acceleration, ultimate resolution could be a year or more into the future.

Nonetheless, we should expect the PTO and the Federal Circuit to work to prevent cases from stacking up in one place, such that a large number would have to be handled at one time in the future. We've already seen some such effort in the quick orders in the Customedia appeals. Another area of docketing concern will be appeals that do raise the issue going forward and then stack up in the Supreme Court's queue waiting for some decision on this issue. When the Supreme Court acts, those cases could head back down in a big chunk for reworking at the PTAB or consideration on the merits at the Federal Circuit.

Specific to the PTAB's docket, the Arthrex panel noted that the case had to go to a new group of APJs, but that the PTAB could decide how much work needs to be repeated. The panel also noted that "the decision to institute is not suspect." But don't necessarily extrapolate that statement to your particular case, because the reviewability of institution decisions is a very complex issue. In any event, Arthrex's remand instructions leave open the possibility that IPRs will involve study by a new panel and a new Final Written Decision (FWD) but will not involve extra submissions from the parties.

Because any review of this decision will take time (at least a couple of months) and IPRs need to keep rolling along, the Director will want to minimize the number of cases that could be affected by this ruling. There are certainly complexities of switching APJs to "at will" employees, so it is hard to predict exactly how fast the PTO can act and how it will act. It might be possible to make them proper "inferior officers" without depriving them of the civil service protections other federal employees receive. One option would be new regulations giving the Director more authority over the content of IPR decisions but it is unclear how much flexibility he has in this regard, since he already suggested a number of such options to the Federal Circuit in connection with this appeal, and the Arthrex panel rejected them. It is also not clear to us whether the Director could by regulation restore APJs' judicially severed employment protections, even if he does come up with an alternative, viable fix to the problem. He certainly also must be considering a more long-term legislative fix. You should expect that the Director's entire team is working hard on a number of issues right now.

The Director may also take action like he did after the Supreme Court found partial institution to be a problem in SAS Institute v. Iancu, 584 U.S. __ (2018). There, the PTO began quickly asking parties in ongoing IPRs to state whether they were willing to move forward without objecting to pending problems in their IPRs. Here, the Director might "fix" the APJ problem and then ask all parties in ongoing IPRs whether they object to any prior actions by their panels (e.g., institution, discovery, or evidentiary rulings). Because institution decisions are unreviewable at least to some extent, because PTAB panels often make no permanent rulings until the FWD, and because parties who don't complain in response to a communication from the Director might be deemed to have waived their complaints, the Director could greatly reduce the amount of "cleanup" needed for pending IPRs, as he did after SAS.

What Should I Do Generally?

We think there are four main concerns for any party affected by this ruling: (1) Do you think the odds of getting a different result are worth the cost of a new hearing? (2) What side are you on? (3) What are your timing concerns? (4) Where are you in the IPR process?

Do you think the odds of getting a different result are worth the cost of trying?

Today's ruling means that the PTO may have to rehear a number of IPRs that have been decided. If you lost, a rehearing helps you only if the result changes. Be realistic and practical in assessing the odds that a change in the result will occur. And balance that against how much a rehearing might cost. It is possible that many IPRs can be redone simply by a new panel issuing a new FWD with no additional filings from the parties, particularly where the PTAB made no interim evidentiary or discovery rulings that cannot be easily undone. Other cases might involve more reworking.

What side are you on?

If you won at the PTO, you probably don't want to complain. If you lost, then you may want to complain. But if you lost and your PTAB panel made a clear error, perhaps you would prefer to forfeit the constitutional issue and go up on appeal with the clear error, rather than give a new panel a chance to fix it. In some ways, the calculus here is similar to the one you typically apply in considering whether to ask for normal rehearing (though with slightly higher odds that the rehearing will change the result, because the judges will be new).

If you won at the PTO and now lose at the Federal Circuit because of Arthrex, you will want to consider whether to take action at the Federal Circuit and/or the Supreme Court to maintain your original FWD, whether to seek a stay, and whether to follow Arthrex in that process or to lead.

What are your timing concerns?

Timing may be important to you if the petitioner in your case is waiting to launch a product or there is parallel litigation, whether that litigation is moving or stayed. If you are on appeal, a remand will likely delay your IPR process at least six months, and potentially much more than a year. Consider how that affects your larger business and litigation interests.

Where are you in the IPR process?

The bullet points below attempt briefly to address what might happen for cases along each step in a timeline. Most are directed to the party that might want to rely on Arthrex, rather than the party that would like to stand pat. The points are not meant to define all available options or to constitute legal advice for any particular situation.

  • If your IPR and appeal are long over (you are past the time to petition for Supreme Court review), your options may be limited. We have not yet looked closely at whether creative ways to reopen a completed proceeding exist.
  • If you lost at the Federal Circuit fewer than 90 days ago, you could petition for certiorari at the Supreme Court. You will need to do the cost/benefit analysis referenced above because such petitions can be expensive. You should also consider waiver issues.
  • If you lost at the Federal Circuit fewer than 30 days ago, you could request panel rehearing or en banc rehearing, arguing that a "change in law" has occurred. You should consider possible waiver issues and act soon. See BioDelivery, 898 F.3d 1205 (Fed Cir 2018).
  • If you have finished briefing at the Federal Circuit, you could file a letter under Rule 28(j), or a motion for supplemental briefing, but remember that in either case your opponent gets a response. And note that the Customedia precedential orders are binding on everyone except the en banc Federal Circuit and the Supreme Court.
  • If you are in briefing or before briefing at the Federal Circuit, you could include this as an argument in your briefing. If you are at your reply brief, consider waiver issues.
  • If you are waiting for an FWD, you may want to consider a submission that objects to your panel.
  • If you haven't yet had an oral hearing, you might expect to receive a communication from the PTO asking you whether you object to anything your panel has done to date, and/or whether you will waive objection to continuing with the current panel. You will have to consider everything that has happened in your case so far and the cost/benefit analysis discussed above. In certain cases, you might want to file an objection before the PTO sends such a communication.
  • If you haven't petitioned yet, the Director will probably fix things before they affect you.
  • If you petitioned for IPR and the Board denied institution, the answer is complicated and could depend on whether the denial was more than 63 days ago.

What Should I Consider Doing Today?

If you are waiting on a decision, you may want to perform the cost/benefit analysis discussed above and send a relevant communication (e.g., a Rule 28(f) letter to the Federal Circuit). If you are not waiting on a decision by the PTAB or the Federal Circuit and you don't have an approaching deadline, you should be able to breathe a bit. You will then want to consider whether to raise this issue before, or in, your next filing. Also, as always, put yourself in your opponent's shoes and think about how you would counter whatever they might do.

What If I Won My IPR or Otherwise Like My PTAB Panel?

There may be rare instances where a winner might want to raise an issue, but generally, you will probably want to wait to hear from your opponent, the PTO, or the Federal Circuit. In most or all instances, the rules should give you a chance to respond to any such communication (e.g., a response to a Rule 28(j) letter at the Federal Circuit).

Does This Also Apply to CBMs and PGRs, and Even Normal Prosecution Appeals?

We have not looked closely, but it likely applies to CBMs and PGRs. We have not analyzed whether it applies to normal prosecution or to the TTAB.

What Happens to Estoppels From Prior, Closed IPRs?

That is well beyond the scope of this alert.

How Many Cases Does This Affect?

The cases of most concern are those that are between an FWD and a Federal Circuit decision. If we look at all such cases, assume no waiver issues, assume an average pendency of 15 months for argued cases, and use an average of 20 argued post-grant cases per month (because argued appeals are a better measure than filed appeals), we get 300 affected appeals as a very rough estimate. If the Customedia decisions on waiver stick, that number will probably be closer to 100.

Cases that are not between an FWD and a Federal Circuit decision are larger in number but will likely be affected much less.


The Arthrex ruling will affect a large number of cases in the short term. If you are waiting on a decision or have an upcoming deadline, you should consider whether the possible benefit of complaining about your PTAB panel outweighs the probable costs, and then consider the best way of communicating such complaint. Otherwise, if you are still in the PTO, there is a good chance the PTO will be reaching out to you to ask your views and make a record of them.

Authors: John Dragseth, Rob Courtney, DJ Healey