The United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) issued an important ruling regarding the Patent Trial and Appeal Board (the “PTAB”) in Arthrex, Inc. v. Smith & Nephew, Inc., __ F.3d __ (Fed. Cir. October 30, 2019). Specifically, the Federal Circuit held that the appointment process for administrative law judges violates the Appointments Clause of the U.S. Constitution.
The Federal Circuit is the court that hears most appeals in patent cases in the U.S. The PTAB is an administrative tribunal that conducts certain types of administrative proceedings relating to patents and to patent applications.
The PTAB administers four types of administrative proceedings (i.e., post-grant review proceedings, inter partes review proceedings, covered business-method proceedings and derivation proceedings) that were created by the America Invents Act in 2012. These proceedings were discussed in my Sept. 17, 2015 blog.
The constitutionality of certain types of administrative proceedings that are administered by the PTAB was upheld by the Supreme Court in Oil States Energy Services, LLC v. Greene's Energy Group, LLC, 584 U.S. ___ (2018). The Oil States decision was the subject of my May 10, 2018 blog.
The Appointments Clause requires that principal officers of the United States must be appointed by the President and confirmed by the Senate. See Constitution, Article II, § 2, cl. 2. PTAB judges are appointed by the Secretary of Commerce, in consultation with the Director of the United States Patent and Trademark Office (the “USPTO”).
The Arthrex court examined the duties of PTAB judges and determined that the PTAB judges were officers of the U.S., not mere employees of the USPTO. Next, the Federal Circuit determined that the PTAB judges were not inferior officers, which are distinguishable from principal officers.
The Federal Circuit ultimately found that the fact that the PTAB judges were principal officers meant that the appointment process set forth in the statute that created the PTAB violated the Appointments Clause. In reaching that decision, the Federal Circuit considered the review powers over PTAB judges, supervision powers over the PTAB judges, the removal powers of the USPTO Director and other related factors.
The Arthrex decision had the potential to render many existing PTAB decisions void, so the Federal Circuit crafted a remedy to save those decisions. The Federal Circuit effectively demoted all of the PTAB judges by making it possible for the USPTO Director to remove them from office without cause. This meant that their past decisions were not void.
The Federal Circuit also remanded the PTAB decision that rendered certain claims of the Arthrex patent invalid for reconsideration by the PTAB. Accordingly, the PTAB will need to issue a new decision relating to that patent.
The Arthrex decision was made by a three-judge panel. It is possible that the entire Federal Circuit may rehear the decision or that either party will appeal the decision to the Supreme Court.
Indeed, two Federal Circuit judges issued a concurring opinion suggesting that “Arthrex was wrongly decided on the issue of remedy,” which indicates that those two judges may favor a review by the entire Federal Circuit. Bedgear v. Fredman Bros. Furniture Co., ____ F.3d ___ (Fed. Cir. November 7, 2019)(nonprecedential)(slip op. at 10).