Arthrex, Inc. v. Smith & Nephew, Inc., Appeal No. 2018-2140 (Fed. Cir., October 31, 2019)

Since the inception of inter partes review at the Patent Trial and Appeals Board (PTAB), there have been a number of constitutional challenges to these type of proceedings.  This latest challenge concerned the very formation of the PTAB itself.

Smith & Nephew petitioned for inter partes review (IPR) of Arthex’s patent to suture securing assemblies, and prevailed.  On appeal, Arthrex challenged the decision on the ground that Administrative Patent Judges (APJs) are unconstitutionally appointed.  Arthrex did not raise this defense before the PTAB.

The Appointments Clause of Article II of the U.S. Constitution requires that principal officers of the United States receive Senate confirmation.  However, under the patent statute, APJs are appointed by the Secretary of Commerce in consultation with the Director of the U.S. Patent and Trademark Office.

The Federal Circuit looked at three factors: (1) whether an appointed official (i.e., the Director) had power to review the decisions of the APJs, (2) whether there is supervision of the APJs by an appointed official, and (3) whether an appointed official can remove the APJs.  Slip Op. at 8-9.  The Federal Circuit determined that the Director’s authority over the APJs was quite limited, and concluded that APJs were acting as principal officers without the requisite Senate confirmation.

In order to remedy the constitutional defect, the Federal Circuit severed APJs from the removal protections granted to Federal employees, which in the view of the court would make the APJs inferior rather than principal officers.  Slip Op. at 25.  Thus, the Director would have greater authority over the APJs once the removal protections were eliminated.

The court vacated the decision and remanded the case back to the PTAB and ordered that a new panel of APJs be designated for further proceedings.  Notably, in August of this year the Federal Circuit remanded a partially-instituted IPR back to the PTAB, and the PTAB thereafter decided not to institute at all.  See Biodelivery Sciences Int’l v. Aquestive Therapeutics, Inc., 935 F.3d 1362 (Fed. Cir. 2019) (which is discussed in this blog).

Presumably, any IPR final decision currently under appeal will have the same fate.  How this decision impacts other PTAB proceedings remains to be seen, but the possibility exists that this decision could have a far-reaching impact for quite some time.