While the Federal Circuit's decision last fall in Arthrex, Inc. v. Smith & Nephew, Inc. raised issues about the appointment of Administrative Patent Judges (APJs) serving on the Patent Trial and Appeal Board (PTAB), it should be remembered that it also wiped out a PTAB decision in favor of Smith & Nephew in the underlying inter partes review of Arthrex's U.S. Patent No. 9,179,907 on anticipation grounds (which, given the deferential nature of Federal Circuit review on factual issues, the challenger had every expectation the PTAB decision would be affirmed). At the end of June, Smith & Nephew (S&N) had its opportunity to explain to the Supreme Court why the Federal Circuit was wrong and why the Court should grant certiorari and reverse (petition).
The Question Presented is simple, direct, and dispositive:
Whether administrative patent judges are "principal" or "inferior" Officers of the United States within the meaning of the Appointments Clause.
Predictably, S&N argues that the Federal Circuit erred in deciding that Administrative Patent Judges (APJs) are "principal officers" needing Presidential appointment and confirmation by the Senate under the Appointments Clause, contending that the Court's precedents establish these requirements not to lie with regard to "first-line administrative adjudicators" (and relying on the Government's separate petition for support of this principle). The basis: such administrative adjudicators are 'directed and supervised at some level' by other Executive Officers" and hence are inferior officers, citing Edmond v. United States (the same case that the Federal Circuit held supported its conclusions to the contrary). The petition recounts the policy (and constitutional structure) basis for the Appointments Clause, to "preserve public accountability relative to important Government assignments" (again, citing Edmond). Inferior officers, on the other hand, do not require this level of scrutiny, because "administrative convenience . . . was deemed [by the Founders] to outweigh the benefits of the more cumbersome procedure" (Edmond). The petition then orients the U.S. Patent and Trademark Office into the Executive Branch with regard to these considerations, noting that it is an administrative agency established by statute, 35 U.S.C. § 1(a), in the Department of Commerce and overseen by the Director who is also the Undersecretary of Commerce for Intellectual Property (and a principle officer). The PTAB, for its part, is "an adjudicatory body within the PTO," citing Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC and established by statute as well; 35 U.S.C. § 6(b). APJs are appointed by the Secretary of Commerce, 35 U.S.C. § 3(b), and their compensation and tenure are determined by these officials as civil servants. With regard to their procedural roles in the IPR process, the brief is careful to note the Director's "sole and unreviewable discretion whether to institute," citing Thryv, Inc. v. Click-To-Call Techs., LP. The petition also characterizes the Director's role in designating APJ panels to hear the IPR and that the statute and regulations do not "limit the Director's authority to alter the panel's composition and size on his own initiative at any time" under 35 U.S.C. § 6(c), providing an extensive litany of how the Director has "direction and supervision" over the corps of APJs before, during, and after an IPR proceeding and including being able to render these decisions precedential (or not) or ordering rehearing (under circumstances that can result, for appropriate reasons, in overturning the original decision).
With regard to the issue S&N hopes to bring before the Court, the petition sets forth the nature of the disputes between the parties, including District Court litigation where Arthrex prevailed and the IPR where S&N prevailed, and that Arthrex raised its constitutional challenge under the Appointments Clause for the first time on appeal. The remainder of the introductory portion of the petition concerned the Federal Circuit's rationale in rendering the decision below and its suggested remedy. S&N also includes (in the discussion of the case as well as provided in Appendices) opinions of several Federal Circuit judges (including Judges Hughes, Wallach, Dyk, and Newman) disagreeing with the panel majority's conclusions.
The petition highlights the consequences by bringing to the Court's attention the Federal Circuit's vacating "more than 100" PTAB decisions and extension of these consequences to inter partes reexamination (VirnetX Inc. v. Cisco Sys., Inc.) and ex parte reexamination (In re JHO Intellectual Prop. Holdings, LLC, No. 19-2330, Dkt. 25 (Fed. Cir. June 18, 2020)).
The Reasons for Granting the Petition section of the petition is where S&N makes its concise arguments for the Court to grant review. The petition asserts that the Federal Circuit had "departed from this Court's long and unbroken line of Appointments Clause jurisprudence" in making its decision, citing Lucia v. SEC and Freytag v. Comm'r, and ruled contrary to the "[l]ong settled and established practice" of the co-equal branches is entitled to "great weight" in the Appointments Clause context," citing NLRB v. Noel Canning. S&N's argument is a simple one (like the Government's argument in its petition): S&N disagrees with the Federal Circuit's interpretation of the Edmond case. Specifically, S&N argue that the "multipart test" applied to interpreting Edmond was error, as was the determination that being "not removable without cause" particularly relevant to the issue. Citing Seila Law LLC v. Consumer Fin. Prot. Bureau, S&N argues that what determines whether an appointed official is a principal or inferior officer is simply whether that officer's work is "directed and supervised" by a superior officer (here, the Director and ultimately the Secretary of Commerce). The Court's directives on what the term "directed and supervised" means, or what it means to have a superior has been straightforward ("he has a superior" under Edmonds) but this oversight "need not take any particular form, check any 'exclusive criterion' . . . , or even be 'plenary,'" citing Free Enter. Fund v. Pub. Co. Accounting Oversight Bd. In view of the Court's penchant for considering cases before it in terms of what the Founder's understood or intended, the petition sets forth "Founding-era dictionary" definitions for "superior" and "inferior" with regard to the relationship between officers. The petition argues against there being a "nebulous line" between superior and inferior officers so as to "preserve the balance between 'public accountability' and 'administrative convenience' struck by the Appointments Clause. And that the Court's three decisions (Edmond, Freytag, and Lucia) were consistent with this regime.
Returning to the statutory scheme, the petition then sets forth how APJ's are inferior officers "soup to nuts," citing that the Director:
• provides "policy direction and management supervision" for APJs, 35 U.S.C. § 3(a)(2)(A);
• controls whether to institute IPRs in the first place, id. § 314(a);
• controls how many and which APJs serve on which panels, id. § 6(c);
• provides "exemplary applications of patent laws to fact patterns" that are binding on APJs, Pet. App. 14a;
• controls whether a panel's decision will be precedential, SOP 2 at 11–12;
• controls whether a decision will be reheard by a Precedential Opinion Panel, SOP 2 at 4–5;
• controls how many and which APJs rehear a case, 35 U.S.C. § 6(c); and
• decides whether to dismiss an entire IPR proceeding rather than allow a panel's decision to become final, Pet. App. 131a–132a (Hughes, J., dissenting from the denial of rehearing en banc).
The petition also applies these supervisory roles to the IPR context, including several that are not reviewable (initiation, reconsideration, termination). The consequence of these controls, S&N argues, is that "'[t]he Director'—a principal Officer who is removable at will—'bears the political responsibility'" for the work APJs do," citing Saint Regis Mohawk Tribe v. Mylan Pharm. Inc. (Somewhat amusingly, S&N cites one of the more vociferous commentators for "regularly tak[ing] the Director to task" for his decisions as an example of the "political accountability" intended under the Appointments Clause.)
If the Director's control isn't enough, S&N contends that the Secretary of Commerce is another principal officer who exerts control over the APJs sufficient to render them inferior officers, providing in likewise all the tools at the Secretary's command to exert such control, for example "failure to follow instructions," citing Cobert v. Miller.
The Federal Circuit failed to properly consider these indicia of supervision and direction, according to S&N, and instead applied the multipart test. This was error, according to S&N, because the panel misapplied Supreme Court's Edmond precedent. The petition analogizes the Director's level of control over APJs with that asserted by the Judge Advocate General over military judges in Edmond, contending that both superiors had the power to remove the respective judges under their control from their assignments and that the Federal Circuit erred in interpreting the removal power to apply to being able to discharge them from employment.
And the petition characterizes the Federal Circuit as having "elevated form over substance in asking whether 'the Director [has] the power to single-handedly review, nullify or reverse' a Board decision," again analogizing the lack of finality by the adjudicators here and in Edmond ("APJs cannot, in any meaningful sense, speak the last word for the Executive Branch 'unless permitted to do so by other Executive officers,'" citing Edmond). Of course, even the Director (and the Secretary) are subject to supervision by the Federal Circuit, where the Director has the right to be a party in any appeal. 35 U.S.C. § 143.
S&N asserts another reason the Court should grant certiorari to review and correct the Federal Circuit's purported error: the political branches have had a "uniform and longstanding view" that APJs are inferior officers. The evidence for this proposition asserted by S&N includes that the statutory procedure for naming APJs contains no provisions for Presidential appointment or Senate confirmation, citing In re DBC for a judicial interpretation of 35 U.S.C. §§ 6(a),(d)). Indeed, Congress was prompted to act by "an influential article" that contended APJs were not being appointed properly. S&N asserts that the Federal Circuit panel improperly disregarded the "great weight" that should be given to "longstanding and settled practices" of co-equal governmental branches, citing NLRB v. Noel Canning and Fin. Oversight & Mgmt. Bd. for P.R. v. Aurelius Inv., LLC. Again, the petition (wisely) goes back in history to cite several cases where the Appointment Clause was interpreted so that "the political branches' chosen method of appointment in determining whether an official was an inferior Officer."
The petition concludes with a section arguing that the Court should grant certiorari not merely because the Federal Circuit erred but because this case is "the ideal vehicle for deciding whether APJs are principal or inferior officers." The reasons asserted by S&N include that even the Federal Circuit recognized that the the status of APJs is an "issue of exceptional importance" that has "wide-ranging effect on property rights and the nation's economy," about which the Government also agrees in their petition. This also implicates the separation of powers, because the Federal Circuit's decision "usurped Congress's prerogative to vest the appointment of APJs . . . 'as they think proper.'" The decision below has also interfered with the PTAB's implementation of the post-grant regime enacted by Congress in the Leahy-Smith America Invents Act, evidenced by the "more than 100 [IPR] decisions" vacated by the Federal Circuit since the Arthrex decision last fall, as well as the extension of the disqualification of APJs in other proceedings including inter partes reexamination and ex parte reexamination. This will result in "a tidal wave of new Appointment Clause challenges" to the PTAB's competency, with the attendant disruption in the Board's business (not to mention, but they do, that similar challenges could arise in other administrative agencies where rights are adjudicated by ALJs). In addition, the issues are focused in this case to the principal/inferior officer distinction and have been extensively briefed and argued below by the parties and the government, with several Federal Circuit judges providing their sharply divided opinions on the issue.
Finally, the petition acknowledges the forfeiture issue contained in the government's petition and provides its reasoning why this issue is another reason for the Court to grant certiorari (and notes that it will write more fulsomely in response to the other petitions submitted to the Court in this case.
Such other petitions, including one by Arthrex, will be discussed in future posts.
