Federal Circuit: Appointment of PTAB Judges Violates the Constitution’s Appointments Clause

Akin Gump Strauss Hauer & Feld LLP

Akin Gump Strauss Hauer & Feld LLP

In Arthrex, Inc. v. Smith & Nephew, Inc., the Federal Circuit held that appointment of Administrative Patent Judges (APJs) by the Secretary of Commerce violates the Appointments Clause of the U.S. Constitution. The court then remedied the constitutional problem by severing the portion of the Patent Act that restricts removal of APJs. However, because the final written decision in this case issued while an Appointments Clause violation existed, the court held that a new panel of APJs must be designated and a new hearing granted in this inter partes review (IPR). Although the court found no error in a new panel moving forward on the “existing written record,” the court left it to “the Board’s sound discretion whether it should allow additional briefing or reopen the record in any individual case.”

In reaching its decision, the court first analyzed whether APJs qualify as Officers of the United States. The court observed that APJs exercise significant discretion presiding over IPRs, and issue fact findings and legal conclusions regarding the patentability of the claims at issue. And, “the government itself has recognized that there is a “functional resemblance between [IPRs] and litigation,” and that the Board uses ‘trial-type procedures in [IPRs].’” In short, “the APJs exercise significant authority rendering them Officers of the United States.”

The court next turned to the question of whether the APJs are principal officers that require a Presidential appointment or inferior officers that do not. Although there is no specific criterion that determines whether an Officer of the United States qualifies as a principal officer, the Supreme Court has identified three factors relevant to the analysis: “(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.”

Regarding the first factor, review power, the court held that although the Director of the USPTO is a member of the PTAB, he does not participate or exercise review over every final written decision. And there is no other appointed Officer who does. Therefore, the court held this factor weighs in favor of finding the APJs principal officers because there is “insufficient review within the agency over APJ panel decisions.” The court reached the opposite conclusion with respect to the second factor, supervision power. In particular, the court held that “[t]he Director possesses similar authority to promulgate regulations governing [IPR] procedure and to issue policy interpretations which the APJs must follow.” Therefore, the Director’s supervisory powers favor finding the APJs inferior officers. On the third factor, removal power, the court found that the limited removal authority granted to the Director and the Secretary of Commerce by Title 5—to remove APJs for cause—fell short of the sort that would render the APJs inferior officers. The court thus concluded that APJs are principal officers within the terms of the Appointments Clause.

In view of its conclusion that APJs are principal officers requiring appointment by the President, the court considered whether it could take a narrow approach to remedy the violation of the Appointments Clause. The court concluded that the narrowest viable approach was to partially sever the portion of the Patent Act (35 U.S.C. § 3(c)) that applies the removal restrictions of Title 5 to APJs. The parties all agreed that Title 5 limited the Secretary’s and Director’s authority to remove APJs from their employment and that severing Title 5’s removal restrictions would be an appropriate remedy to cure the Appointments Clause infirmity. As a result, the court severed application of Title 5’s removal protections to APJs. However, because the Arthrex decision was made by a panel of APJs who had been unconstitutionally appointed, it vacated and remanded the final written decision, and instructed the PTAB to assign it to a new panel of APJs for a new oral argument.

In reaching its decision, the Court rejected arguments from the appellee and the government that Arthrex waived its Appointments Clause challenge by not raising it at the PTAB before filing this appeal. According to the court, although generally a party waives an argument not raised below, it declined to find waiver here because “[t]his is an issue of exceptional importance” that implicates “structural interests and separation of powers concerns protected by the Appointments Clause.” In doing so, the court noted that no “remedial action has been taken in this case and the Board could not have corrected the problem.” Therefore, “[b]ecause the Secretary continues to have the power to appoint APJs and those APJs continue to decide patentability in [IPRs],” it was appropriate for the court to exercise its discretion to decide the issue over a waiver challenge.

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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