Arthrex: Administrative Patent Judges Found Unconstitutional

Arthrex: Administrative Patent Judges Found Unconstitutional

Nov 06, 2019

Client Alert

Brownstein Client Alert, November 6, 2019

In a surprising precedential ruling, with the potential to vacate past decisions by administrative patent judges (“APJs”) of the U.S. Patent and Trademark Office (“USPTO”), the Court of Appeals for the Federal Circuit ruled on Oct. 31, 2019, that APJs are “principal officers” under the Appointments Clause of the U.S. Constitution and, therefore, must be appointed by the president and confirmed by the Senate. Since no APJ has ever been appointed according to this procedure, the court found that all sitting APJs have been unconstitutionally appointed.

On Nov. 10, 2015, Florida-based medical device manufacturer Arthrex Inc. was issued U.S. Pat. No. 9,179,907 (the “Patent”). The Patent describes and claims knotless “suture securing assembl[ies].” (see, e.g., Patent, claim 1). On the issue date of the Patent, Arthrex filed suit in the Eastern District of Texas against rival medical device manufacturer Smith & Nephew.

As to be expected, Smith & Nephew promptly filed a request for Inter Partes Review (the “IPR”), which was granted by the USPTO on May 10, 2017. The Patent Trial and Appeal Board (“PTAB”) entered a final written decision in the IPR on May 2, 2018, invalidating all asserted claims as anticipated, in large part in view of another Arthrex patent. The primary issue in dispute was whether the Patent was entitled to a claimed priority date of June 22, 2000. The PTAB found that the Patent was not entitled to this priority and the Patent was found invalid.

Arthrex appealed from the PTAB’s decision to the Federal Circuit and argued, in part, that administrative patent judges (“APJs”) that preside over inter partes review proceedings are unconstitutionally appointed by the Secretary of Commerce and, instead, qualify as “principal officers” under the meaning of the Appointments Clause (U.S. Const. art. II § 2, cl. 2).

On Oct. 31, 2019, the Federal Circuit issued an opinion (the “Opinion”) that unanimously agreed and found, in relevant part, that Title 35 “as currently constructed makes the APJs principal officers” because, in part, APJs “‘exercise significant authority pursuant to laws of the United States.’” Arthrex Inc. v. Smith & Nephew, Inc., Arthocare Corp., _____(Fed. Cir. 2019) (quoting Buckley v. Valeo, 424 U.S. 1, 125-26 (1976)). “As such, [APJs] must be appointed by the President and confirmed by the Senate; because they are not, the current structure of the [PTAB] violates the Appointments Clause.” (Id. at 20).

In other words, the Federal Circuit acknowledged a substantial “constitutional flaw” in Title 35 based on the manner by which APJs are appointed—a decision that on its face appears to cloud thousands of pending and decided post-grant patent proceedings before the PTAB, fundamentally changing the landscape of patent enforcement in the United States.

Recognizing the potential immediate and widespread impact of this decision, the Federal Circuit sought a remedy to prevent a collapse of AIA post-grant proceedings. In particular, the court determined that “severing the portion of the Patent Act [referring to Title 5] restricting removal of the APJs [by the director of the USPTO] is sufficient to render the APJs inferior officers” whose appointment does not invoke the Appointments Clause. (Id., at 2). According to the court, this solution is the “narrowest remedy” available to cure the constitutional appointment problem. (Id.). To add further clarity, the court specified that “the impact of [the Opinion should be] limited to those cases where final written decisions were issued and where litigants [timely] presented an Appointments Clause challenge on appeal.” (Id. at 29).

Importantly, the court also stated that “[b]ecause the PTAB’s decision in this case was made by a panel of APJs that were not constitutionally appointed at the time the decision was rendered,” the decision should be vacated and remanded to a new and different panel of APJs. (Id., at 27). The court was clear that “a new panel of APJs must be designated and a new hearing granted” because the prior designated panel “‘cannot be expected to consider the matter as though [they] had not adjudicated it before.’” (Id, at 29–30, quoting Lucia v. S.E.C., 138 S. Ct. 2044 at 2055 (2018); emphasis added).

Accordingly, a litigant involved in recently decided inter partes review proceedings may be entitled to rehearing before a new and different panel of APJs, presuming that a timely filed appeal to the Federal Circuit presents an Appointments Clause challenge. That said, it is unlikely that outcomes for previously decided matters would substantively change en masse on rehearing, given that the Opinion does not, on its face, affect any substantive or procedural matter of any post-grant proceeding heard by APJs at the PTAB.

 

This document is intended to provide you with general information regarding the Federal Circuit's ruling finding administrative patent judges have been unconstitutionally appointed. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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