Federal Circuit Report

• Publication year: 2020
• Author: Rex Hwang

Federal Circuit Report

Rex Hwang

Jeffer Mangels Butler & Mitchell LLP

Shenel Ozisik

Jeffer Mangels Butler & Mitchell LLP

This quarter we will review the Federal Circuit's decision in Arthrex, Inc. v. Smith & Nephew, Inc.¹ In this case, a three-judge panel held that the PTAB's process for appointing its Administrative Patent Judges ("APJs") violates the Appointments Clause of the United States Constitution. In particular, as currently set forth in Title 35, APJs are appointed by the Secretary of Commerce. However, the Federal Circuit panel determined that the APJs are "principal officers" who must, under the Constitution's Appointments Clause, be nominated by the President with the Senate's advice and consent. As explained in greater detail below, this decision impacts certain PTAB proceedings that are currently pending, and may potentially impact proceedings decided by the PTAB's APJs moving forward.

SUMMARY OF THE ARTHREX DECISION

Arthrex owns a patent directed to a knotless suture securing assembly. Smith & Nephew, Inc. and Arthrocare Corp. ("Smith") filed a petition requesting inter partes review of that patent. The requested IPR was instituted, and, after briefing and trial, the Board issued a final written decision finding the claims-at-issue unpatentable as anticipated under 35 U.S.C. § 102.

Arthrex appealed the final decision to the Federal Circuit and argued that the APJs who presided over the IPR were not constitutionally appointed under the Appointments Clause. Thus, according to Arthrex, the APJs lacked power to invalidate Arthrex's patent. Notably, Arthrex did not raise its constitutional challenge until it filed its appeal to the Federal Circuit.

On appeal, Smith argued that Arthrex waived its Appointments Clause challenge by not raising the issue before the Board. The Federal Circuit, however, concluded that this was "one of those exceptional cases that warrants consideration despite Arthrex's failure to raise its Appointments Clause challenge before the Board."² The court noted that this issue "has a wide-ranging effect on property rights and the nation's economy," and "[t]imely resolution is critical to providing certainty to rights holders and competitors alike who rely on the inter partes review scheme to resolve concerns over patent rights."³

Turning to Arthrex's substantive argument, under the Constitution's Appointments Clause, "principal officers" must be appointed by the President with the advice and consent of the Senate. In contrast, "inferior officers" do not need to be appointed by the President. Thus, determining whether the appointment of APJs by the Secretary of Commerce was constitutional hinged on whether APJs are "principal" or "inferior" officers under the Constitution.

In the past, the Supreme Court has emphasized three nonexclusive factors to be considered in determining whether a person is a "principal" or "inferior" officer: (1) whether an appointed official has the power to review and reverse the officer's decision; (2) the level of supervision and oversight an appointed official has over the officer; and (3) the appointed official's power to remove the officer.⁴

As to the first factor, the court found that APJ panels issue final decisions on behalf of the USPTO, at times revoking patent rights, without any principal officers having the right to review those decisions. Thus, they have substantial power to issue final decisions on behalf of the United States without any review by a presidentially-appointed officer. This supports the conclusion that APJs are principal officers.

[Page 16]

As to the second factor, the court found that the Director of the USPTO exercises a broad policy-direction and supervisory authority over the APJs. Thus, the court concluded that the Director's supervisory powers weigh in favor of a conclusion that APJs are inferior officers.

As to the third factor, the court found that under the current Title 35 framework, both the Secretary of Commerce and the Director lack unfettered removal authority. Specifically, APJs may...