Alert December 17, 2019

All Sides Dispute Federal Circuit Decision on PTAB’s Constitutionality

Late in the day on December 16, 2019, three different petitions asked the full Federal Circuit to overturn a panel’s decision that members of the Patent Trial and Appeal Board (PTAB) were appointed in violation of the Constitution. The federal government and the patent challenger want to overturn the Federal Circuit’s decision and uphold the PTAB’s constitutionality against challenge; the patent owner wants the Federal Circuit to announce even broader relief. The issue is being closely followed by litigants before the PTAB, particularly those in inter partes review (IPR) and post-grant review (PGR) proceedings.

In Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-2140, a panel of the Federal Circuit held that Administrative Patent Judges (APJs) have been acting as principal officers under the Constitution’s Appointments Clause, and principal officers must be appointed by the President with the advice and consent of the Senate. To cure this constitutional defect, the panel severed the statute that protected APJs from removal from their jobs except for cause. The panel then held that because the IPR had been decided while the APJs were still protected from removal, the losing litigant was entitled to a remand for a new hearing before a different panel of APJs.

The United States’ En Banc Petition

In its petition for rehearing by the full court, the United States argues that the Arthrex panel was wrong on the constitutional issue, wrong to address the issue in Arthrex at all, and wrong on the remedy.

On the merits, the United States contends that the PTO Director and the Secretary of Commerce exercise sufficient control over APJ decisions to satisfy the Constitution. In particular, the United States argues, the Director has “unlimited authority” to designate APJs to a panel and “unilateral power” to make institution decisions, including to vacate an institution decision made by a panel. And, the United States argues, the Secretary can remove APJs for “any reason that ‘promote[s] the efficiency of the service,’” which the government says is a low bar that “poses no barrier to political accountability.”

On preservation, the United States also urges that the Arthrex panel erred in addressing the Appointments Clause issue in the first place, because Arthrex did not raise it during the agency proceedings. The United States emphasizes “the significant administrative disruption” the panel’s ruling could have for the “[h]undreds” of pending PTAB decisions and appeals.

On remedy, the United States contends that even if the panel properly reached the constitutional question, it should not have remanded the case for a new administrative hearing, in part because that relief is reserved for cases where “the petition has raised a ‘timely challenge’ before the agency.” The United States also hinted (alluding to a recent concurrence by Judge Dyk of the Federal Circuit) that severing the for-cause removal restriction should be the only appropriate remedy a litigant can obtain — i.e., no new hearing.

The United States thus urges en banc review to prevent the Arthrex panel’s “sweeping remedy” from resulting in “hundreds of PTAB decisions” being remanded. This, the United States urges, would be a “massive undertaking that would impose significant costs on the public fisc” and “imped[e] the agency’s ability to complete IPR proceedings promptly.”

Smith & Nephew, the patent challenger, submitted its own en banc petition making essentially the same arguments as the government on the merits and the remedy. It did not argue forfeiture.

Arthrex’s En Banc Petition

Although Arthrex won a remand from the panel, it was not satisfied with that decision. In its rehearing petition, it urges that the IPR decision against it should be set aside without any remand. Arthrex takes the position that IPR, PGR, and similar proceedings are all invalid without a statutory fix by Congress.

Arthrex contends that the panel’s remedy, making APJs more accountable, will make the proceedings less fair and less faithful to Congress’s intent in enacting the statute. In its view, only Congress can fix the constitutional problem, and until it does, IPRs and similar proceedings cannot go forward.

Next Steps

Because all the parties have sought rehearing, the process may unfold fairly quickly. Ordinarily the Federal Circuit would ask the prevailing party to respond to the losing parties’ en banc petitions. But here the prevailing party, Arthrex, has sought rehearing en banc as well.

The Federal Circuit’s rules allow amici to submit a brief within 14 days of the petition’s filing — which in this case would be December 30.

If the Federal Circuit decides to skip the step of calling for responses to the en banc petitions, the judges may vote privately on the en banc petitions in the very near future. A call for a vote would ordinarily be made within 10 business days. It takes seven votes to grant rehearing, out of 12 judges on the court (three of whom joined the panel’s opinion). The court’s decision may not immediately become public, however.

If the court decides to rehear the case en banc, that would likely be announced fairly quickly, and the court would invite new briefing and allow amici to participate. If, however, the court denies the rehearing petitions, there could be a substantial delay if one or more judges decide to write a dissent.

As the government notes, since the panel decision in Arthrex a large number of litigants have raised the same issue, in IPRs and in appeals from IPRs. Some other panels have issued remand orders, citing Arthrex. The government has urged that none of those decisions take effect until after the Federal Circuit rules on the rehearing petitions in Arthrex. That ruling thus has the potential to affect a large number of cases, both in the PTAB and on appeal.