The US Supreme Court Fixes Constitutional Defect in the AIA by Making PTAB Decisions Reviewable by the USPTO Director

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On June 21, 2021, the US Supreme Court issued its decision in

On June 21, 2021, the US Supreme Court issued its decision in Arthrex, Inc. v. Smith & Nephew, Inc., No. 19-1434. The Court found that the provisions of the America Invents Act establishing inter partes review proceedings violated the Appointments Clause because the provisions did not permit a presidentially nominated officers to directly review decisions rendered by Administrative Patent Judges of the Patent Trial and Appeal Board. The Court remedied the constitutional violation by limiting the application of 35 USC. § 6(c), which provides that only the PTAB can grant a rehearing of APJ decisions. The Court held that section 6(c) is unenforceable to the extent it prevents the USPTO Director from single-handedly reviewing and reversing APJ decisions.

Background

On October 31, 2019, the Federal Circuit held that the Administrative Patent Judges (“APJs”) are principal officers who are improperly appointed in violation of the Appointments Clause. See Federal Circuit Rules the Appointment of PTAB Judges Unconstitutional – IPR Appellants May Get Another Shot with Remand to PTAB.

The Federal Circuit also vacated and remanded more than 100 appeals back to the PTAB to be reheard by a different panel of APJs. Subsequently, the Patent Trial and Appeal Board (“PTAB”) issued a general order holding in abeyance all inter partes reviews (“IPRs”) remanded under Arthrex. See May 1, 2020 PTAB General Order. The remanded cases were limited to those with PTAB decisions that predated Arthrex and where the Appointments Clause challenge was raised in appellant’s opening brief or in a motion filed prior to the opening brief.

Following the Federal Circuit’s decision, Arthrex, Smith & Nephew (“S&N”), and the government filed petitions for panel rehearing and en banc, which the Federal Circuit all denied. See Federal Circuit Denies Rehearing of Decision Finding the Appointment of PTAB Judges Unconstitutional. In July 2020, the government filed a consolidated petition asking the Court to vacate the Federal Circuit’s remands under Arthrex in the event the Court reverses the Federal Circuit's decision.

In October 2020, the Supreme Court granted certiorari. The government, and S&N argued that APJs are inferior officers whose work is subject to substantial supervision and direction by the USPTO Director. Arthrex argued that the Court should affirm the Federal Circuit’s holding on the Appointments Clause violation but reject the the Federal Circuit’s remedy and instead strike down the entire IPR scheme.

During the oral argument on March 1, 2021, a majority of the justices appeared inclined to agree with the Federal Circuit and find an Appointments Clause violation. The justices considered several remedies, including granting the USPTO Director authority to rehear IPR decisions. See The Supreme Court Hears Oral Argument in Arthrex.

The Decision

Relying on Edmond v. United States, 520 US 651 (1997), the Court found dispositive that APJs have the power to render a final decision on behalf of the United States without any review by a principal officer of the Executive Branch. Op. at 9. The Court held that this unreviewable authority is incompatible with the APJs’ appointment by the Secretary of Commerce as inferior officers. Op. at 18-19.

The Court next considered the best way to resolve the constitutional defect. The Court refused to hold that the entire regime of inter partes review is unconstitutional. Op. at 20. Instead, the Court decided to make decisions by APJs subject to review by the USPTO Director. Op. at 20. The Court identified 35 USC. § 6(c) as the key provision that insulates APJs from the Director’s supervision because it provides that only the PTAB may grant rehearings of APJ decisions. Op. at 21. The Court held section 6(c) is unenforceable to the extent it prevents the Director from reviewing PTAB decisions. Op. at 22. The Court emphasized that the Director’s review of APJ decisions is discretionary, as the Director does not have to review every PTAB decision. Op. at 23. The Court observed that giving review authority to the Director was more appropriate than the fix adopted by the Federal Circuit, i.e., severance of the APJs’ tenure protections. Op. at 22. The Court remanded the case to the Director to decide whether or not to review the final written decision in the IPR proceeding. Op. at 22. The Court noted that hearing before a new panel of APJs was not appropriate because the constitutional defect arose from the restraint on the review authority of the Director, rather than the appointment of APJs by the Secretary of Commerce. Op. at 23.

Implications

After Arthrex, the Director will be able to review all future IPR decisions in which a party requests rehearing under 35 USC. § 6(c). For the IPRs currently in abeyance under the PTAB’s May 1, 2020 General Order, the PTAB will likely set forth a timeframe to allow the Director to review the underlying decisions. Because the Director’s review is discretionary, it remains to be seen how often the Director will exercise its new authority to set aside panel decisions.

There are open questions on how the USPTO will implement the Court’s ruling. The USPTO will have to set up a procedure for the Director to review PTAB decisions. It is not clear what that procedure will be and when the USPTO will provide the appropriate guidance. Also, the Director position remains unfilled because President Biden has not yet nominated a new Director following Director Iancu’s resignation. The public eagerly awaits the guidance from the USPTO on next steps.

Sebastian Zonte (White & Case, Law Clerk, Los Angeles) contributed to the development of this publication.

Inc. v. Smith & Nephew, Inc., No. 19-1434. The Court found that the provisions of the America Invents Act establishing inter partes review proceedings violated the Appointments Clause because the provisions did not permit a presidentially nominated officers to directly review decisions rendered by Administrative Patent Judges of the Patent Trial and Appeal Board. The Court remedied the constitutional violation by limiting the application of 35 USC. § 6(c), which provides that only the PTAB can grant a rehearing of APJ decisions. The Court held that section 6(c) is unenforceable to the extent it prevents the USPTO Director from single-handedly reviewing and reversing APJ decisions.

Background

On October 31, 2019, the Federal Circuit held that the Administrative Patent Judges (“APJs”) are principal officers who are improperly appointed in violation of the Appointments Clause. See Federal Circuit Rules the Appointment of PTAB Judges Unconstitutional – IPR Appellants May Get Another Shot with Remand to PTAB.

The Federal Circuit also vacated and remanded more than 100 appeals back to the PTAB to be reheard by a different panel of APJs. Subsequently, the Patent Trial and Appeal Board (“PTAB”) issued a general order holding in abeyance all inter partes reviews (“IPRs”) remanded under Arthrex. See May 1, 2020 PTAB General Order. The remanded cases were limited to those with PTAB decisions that predated Arthrex and where the Appointments Clause challenge was raised in appellant’s opening brief or in a motion filed prior to the opening brief.

Following the Federal Circuit’s decision, Arthrex, Smith & Nephew (“S&N”), and the government filed petitions for panel rehearing and en banc, which the Federal Circuit all denied. See Federal Circuit Denies Rehearing of Decision Finding the Appointment of PTAB Judges Unconstitutional. In July 2020, the government filed a consolidated petition asking the Court to vacate the Federal Circuit’s remands under Arthrex in the event the Court reverses the Federal Circuit's decision.

In October 2020, the Supreme Court granted certiorari. The government, and S&N argued that APJs are inferior officers whose work is subject to substantial supervision and direction by the USPTO Director. Arthrex argued that the Court should affirm the Federal Circuit’s holding on the Appointments Clause violation but reject the the Federal Circuit’s remedy and instead strike down the entire IPR scheme.

During the oral argument on March 1, 2021, a majority of the justices appeared inclined to agree with the Federal Circuit and find an Appointments Clause violation. The justices considered several remedies, including granting the USPTO Director authority to rehear IPR decisions. See The Supreme Court Hears Oral Argument in Arthrex.x

The Decision

Relying on Edmond v. United States, 520 US 651 (1997), the Court found dispositive that APJs have the power to render a final decision on behalf of the United States without any review by a principal officer of the Executive Branch. Op. at 9. The Court held that this unreviewable authority is incompatible with the APJs’ appointment by the Secretary of Commerce as inferior officers. Op. at 18-19.

The Court next considered the best way to resolve the constitutional defect. The Court refused to hold that the entire regime of inter partes review is unconstitutional. Op. at 20. Instead, the Court decided to make decisions by APJs subject to review by the USPTO Director. Op. at 20. The Court identified 35 USC. § 6(c) as the key provision that insulates APJs from the Director’s supervision because it provides that only the PTAB may grant rehearings of APJ decisions. Op. at 21. The Court held section 6(c) is unenforceable to the extent it prevents the Director from reviewing PTAB decisions. Op. at 22. The Court emphasized that the Director’s review of APJ decisions is discretionary, as the Director does not have to review every PTAB decision. Op. at 23. The Court observed that giving review authority to the Director was more appropriate than the fix adopted by the Federal Circuit, i.e., severance of the APJs’ tenure protections. Op. at 22. The Court remanded the case to the Director to decide whether or not to review the final written decision in the IPR proceeding. Op. at 22. The Court noted that hearing before a new panel of APJs was not appropriate because the constitutional defect arose from the restraint on the review authority of the Director, rather than the appointment of APJs by the Secretary of Commerce. Op. at 23.

Implications

After Arthrex, the Director will be able to review all future IPR decisions in which a party requests rehearing under 35 USC. § 6(c). For the IPRs currently in abeyance under the PTAB’s May 1, 2020 General Order, the PTAB will likely set forth a timeframe to allow the Director to review the underlying decisions. Because the Director’s review is discretionary, it remains to be seen how often the Director will exercise its new authority to set aside panel decisions.

There are open questions on how the USPTO will implement the Court’s ruling. The USPTO will have to set up a procedure for the Director to review PTAB decisions. It is not clear what that procedure will be and when the USPTO will provide the appropriate guidance. Also, the Director position remains unfilled because President Biden has not yet nominated a new Director following Director Iancu’s resignation. The public eagerly awaits the guidance from the USPTO on next steps.

Sebastian Zonte (White & Case, Law Clerk, Los Angeles) contributed to the development of this publication.

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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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