As discussed here, the Justices asked many questions in the oral argument in Arthrex this week on both questions: (1) whether there was an Appointments Clause defect and (2) if so, whether the Federal Circuit properly cured it. With respect to the first question, several of the Justices appeared skeptical that administrative patent judges are "inferior officers" as argued by the government and Smith & Nephew. Instead, the Court may well affirm the Federal Circuit's holding that the appointment of administrative patent judges to the Patent Trial and Appeal Board violated the Appointments Clause.
What was much less clear from the argument, however, was the Justice's views on the second question. While the Federal Circuit's cure (prospectively severing a portion of the AIA restricting the way APJs can be removed) did not get much attention during the argument, no other approach appeared to have a consensus either.
Interestingly, the issue of historical practice of the USPTO came up during oral argument. Justice Kagan asked Smith & Nephew's attorney, Mr. Perry, the story behind the scope of administrative patent judge's authority. Mr. Perry noted interference examiners going back to 1836, which decided interference proceedings and were appointed by the Secretary of Commerce, as part of "the long and proud history of the Patent Office." Mr. Perry continued: "[w]e have a patent-specific tradition [that] comes out of the examination process" and "modern APJs are very much in line with a long, long history that, in fact, stretches all the way back to the founding."
Justice Gorsuch followed up and asked Mr. Perry to admit that administrative patent judges are "a rare bird" and "this is an unusual animal in the sense that there isn't final review in the agency head." Mr. Perry acknowledged "[i]t is unusual, but it is also well and historically founded and . . . until now, unchallenged."
Smith & Nephew's reliance on historical practice appears misplaced. Over twenty years ago, the Supreme Court rejected history and tradition in Dickinson v. Zurko, 527 U.S. 150 (1999). There, the Supreme Court held that the Administrative Procedure Act's (APA) substantial evidence review for agency fact finding applied to appellate review of the USPTO's fact finding. In doing so, the Court disagreed with the Federal Circuit's position that clear error review of USPTO fact finding applied because that was the standard of review used by the Court of Customs and Patent Appeals before the APA was enacted in 1946. Chief Justice Rehnquist, joined by Justices Kennedy and Ginsburg, dissented and would have deferred to "the unanimous en banc Federal Circuit and the patent bar."
Just as Smith & Nephew noted that the appointment of administrative patent judges was "until now unchallenged," so too was the clear error standard of review for USPTO fact finding for over 50 years before Zurko. The USPTO argued in Zurko that the APA trumped historical practice.
For similar reasons, Smith & Nephew's reliance on a "patent-specific tradition" appears misplaced. Since at least eBay Inc. v. Mercexchange LLC, 547 U.S. 388 (2006), the Supreme Court has sought to avoid patent law diverging from other areas of the law.
If the Supreme Court rules administrative patent judges are inferior officers, it will be surprising to see the Court rely on the history of interference examiners and patent-specific tradition.