En Banc Federal Circuit Denies Rehearing of Holding That Severance of an Unconstitutional Restriction in the America Invents Act Is Consistent With Congressional Intent and Is the Least Disruptive Solution

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ARTHREX, INC. v. SMITH & NEPHEW, INC.

Before Prost, Newman, Lourie, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Chen, Hughes, and Stoll. Petition for rehearing en banc of a panel decision of an appeal from the Patent and Trial Appeal Board.

Summary: A judicial fix to a constitutional infirmity of a statute was proper when the solution solved the constitutional problem while preserving the remainder of the statute and minimizing disruption to the system set up by the statute. A prospective judicial fix does not remedy past harm, and granting a new hearing was an appropriate remedy for cases that remain open.

In ARTHREX, INC. v. SMITH & NEPHEW, INC. (Arthrex I), a panel of Federal Circuit judges found administrative patent judges (APJs) are principal officers of the United States who must be appointed by the President of the United States pursuant to the Appointments Clause of the United States Constitution. The panel then determined that severing a portion of the America Invents Act (AIA) restricting removal of APJs would be sufficient to reclassify APJs as inferior officers, rendering the remainder of the statute constitutionally valid, capable of functioning independently, and consistent with Congress’ basic objectives in enacting the statute. The panel vacated and remanded the PTAB decision and ordered that a new panel of APJs be designated and a new hearing granted.

The appellant and appellees, as well as intervenor United States, filed petitions for rehearing en banc. The petitions for rehearing were denied. Circuit judges Moore and O’Malley each wrote an opinion concurring in the denial, and circuit judges Dyk, Hughes and Wallach wrote independently dissenting from the denial.

The dissenting opinions raised three main issues: (1) The remedy of severing the removal provision of the AIA was contrary to Congressional intent because “[r]emoval protections for administrative judges [are] an important feature of the AIA”; (2) the severance remedy does not require a remand for a new hearing before a new panel because the Arthrex I “judicial fix” should be applied retroactively, rendering the appointment of the PTAB judges constitutional; (3) Arthrex I relied on a narrow test for the distinction between superior and inferior officers based on agency supervision, and APJs should be classified as inferior officers upon consideration of other factors, such as the officer’s authority to formulate agency policy.

The concurring judges agreed that the Arthrex I fix was consistent with Congressional intent and precedent and was the least disruptive solution. The judges noted that the Arthrex I decision will result in at most 81 remands. In their view, Congressional intent would be best served by preserving an agency mechanism for challenging the validity of issued patents and such considerations outweighed the protection of government employees. Further, the decision did not prevent Congress from legislating to provide an alternative fix if it chooses to do so. The concurring judges viewed the severance as a prospective constitutional fix that only prevents future harm, and contrasted it with the retroactive remedy of a new hearing, which was required to cure the past harm. On the merits, the concurring judges agreed with the panel’s finding that the Director lacked “sufficient control over the [PTAB’s] decision before it issues on behalf of the executive,” and lacked the authority to remove APJs at will and without cause.

Editor: Paul Stewart

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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