Arthrex: Supreme Court Punts to the PTO on First Down

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[co-author: Rebecca Hale]

The Supreme Court rules that Administrative Patent Judges exercise power that conflicts with the design of the Appointments Clause.

TAKEAWAYS

  • Administrative Patent Judges are inferior officers because they are appointed by the Secretary of Commerce, not the President, and consequently, their decisions must be reviewable by a principal officer that is appointed by the President—in this case, the Patent & Trademark Office Director.
  • Because Administrative Patent Judges have the power to issue decisions on patentability that are not reviewable by a principal officer (only by the Federal Circuit), that power conflicts with their appointment as inferior officers.
  • The Court remanded to the PTO for the Commissioner to rehear the petition for rehearing because the source of the constitutional violation is the restraint on the review authority of the Director, and not on the appointment of Administrative Patent Judges.

On Monday, the U.S. Supreme Court issued its long-awaited ruling in U.S. v. Arthrex Inc., 594 U.S. __ (2021), which concerned in part the constitutionality of the appointment of the Administrative Patent Judges (APJs) for the Patent & Trial Appeal Board.

The lead opinion (authored by Chief Justice Roberts, joined by Justices Alito, Kavanaugh and Barrett) declined to specify whether the APJs were acting as principal or inferior officers, the primary point of contention in the appeal. Instead, the Court held that appointment by the Secretary of Commerce made them inferior officers, but their power to issue rulings on the validity of patents that were not reviewable by a principal officer (the Director, in this instance), conflicted with that appointment.

Specifically, the Court held that the Director’s statutory supervision of the APJs was “incompatible with their status as inferior officers” and crafted a narrow remedy, granting the Director the authority to “review final PTAB decisions and, upon review, [] issue decisions himself on behalf of the Board.” The Court vacated the remedy instituted by the Federal Circuit, which authorized the Director to fire APJs at-will, reasoning that “review by the Director better reflects the structure of supervision within the PTO and the nature of APJs’ duties.”

In assessing the current structure of the PTAB, the Court identified a power imbalance that has long plagued the PTAB.

The chain of command runs not from the Director to his subordinates, but from the APJs to the Director. . . . The parties are left with neither an impartial decision by a panel of experts nor a transparent decision for which a politically accountable officer must take responsibility. . . . In all the ways that matter to the parties who appear before the PTAB, the buck stops with the APJs, not with the Secretary or Director. Slip Op. at 11-12.

Instead of providing a judicial remedy, the Supreme Court vacated the Federal Circuit’s remedy and remanded to the Director, thus leaving it to the Director’s discretion to establish procedures enabling the Director to review final decisions by the PTAB.

We conclude that a tailored approach is the appropriate one: Section 6(c) cannot constitutionally be enforced to the extent that its requirements prevent the Director from reviewing final decisions rendered by APJs. Because Congress has vested the Director with the “power and duties” of the PTO, §3(a)(1), the Director has the authority to pro­vide for a means of reviewing PTAB decisions. See also §§3(a)(2)(A), 316(a)(4). The Director accordingly may review final PTAB decisions and, upon review, may issue de­cisions himself on behalf of the Board. Slip Op. at 21.

Although the decision stripped the APJs of final decision-making authority and now places supervisory authority for all final decisions with the Director, the Supreme Court did not opine on the current due process challenges that have been raised against the Director’s implementation of PTAB policy. These due process challenges include the Director’s institution discretion, i.e., through Standard Operating Procedure 2, precedential designations, and the precedential opinion panel.

Patrick Doody is a partner and Rebecca Hale is a law clerk in Pillsbury’s Intellectual Property practice.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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