By: Jessica Fleetham, with help from Joshua Patrick

[UPDATE] On November 13, 2019, a U.S. House of Representatives subcommittee said it would hold a hearing on the recent PTAB judge ruling by the Federal Circuit. The hearing took place on November 19, 2019, and can be viewed here.

On October 31st, the Federal Circuit found PTAB judges were unconstitutionally appointed, and invalidated part of the Patent Act in an effort to remedy the problem. Carlson, Gaskey & Olds brought the constitutional challenge on behalf of Arthrex, Inc., a medical device manufacturer. After securing a $17.4 million judgment for Arthrex against Smith & Nephew, Inc. and ArthroCare, Inc. (“S&N”), a panel of the PTAB wrongly determined one of the patents-in-suit to have been anticipated by the inventor’s own patent application to which the patent claimed priority. The Federal Circuit has vacated and remanded that decision.

Though Arthrex challenged the merits of the Board’s determination, it also challenged whether PTAB judges, who exercise tremendous power over patents, were properly vetted under the Appointments Clause of the Constitution. Specifically, the Constitution requires “principal officers” to be nominated by the President and confirmed by the Senate like other important government officials. Here, the judges were not so appointed. Instead, they were appointed as if they were “inferior officers” under the Constitution. The issue then before the Court was whether PTAB judges are “principal officers” or “inferior officers.” Whether PTAB judges are “principal officers” or “inferior officers” rested on whether such judges were subordinate or “inferior” to the Director of the Patent Office, himself a principal officer.

The Court agreed with Arthrex and determined PTAB judges to be “principal officers” under the Constitution. Here, the Court relied heavily upon the Supreme Court’s decision in Edmonds to determine the answer to this issue.

The Court analyzed factors that make officers “inferior” as described in Edmonds [1] to determine whether the PTAB judges were principal or inferior officers: (1) review power, (2) supervision power, and (3) removal power. The Supreme Court in Edmonds considered this analysis a balancing test. Accordingly, the question came down to whether or not the Director has sufficient review, supervision, and removal power to render the PTAB judges inferior officers.

First, regarding review power, the Court found the Director does not have such authority over PTAB judges because of the statutory requirement that each decision of the Board must be rendered by at least three judges. If the Director chose to be on the panel, he would be at most only one voice in the decision and could not single-handedly control the outcome of any IPR.

Second, supervision power was assessed. The Court concluded the Director has the requisite supervision power due to his ability to regulate PTAB judges’ pay and promulgate regulations governing IPR procedure and policy.

Third, the Court found the Director lacked the requisite removal power. PTAB judges are subject to the removal provision in 5 U.S.C. § 7513 (“only for such cause as will promote the efficiency of the service”), which is “for cause” removal.

On balance, given the lack of review power and removal restrictions, the Court found the PTAB judges to be “principal officers” under the Constitution.

Finally, the Court decided to cure the constitutional problem by partially invalidating the restriction on the Director’s removal power provided by Title 5, and effectively eliminated an ongoing Appointments Clause violation. The Court did not explicitly remove all Title 5 protections from PTAB judges, just the removal protections that limited the director.

But what about the standing final written decision in Arthrex’s case? Relying on a recent Supreme Court case (Lucia [2]) deciding an Appointments Clause issue in the SEC, the Court vacated and remanded the decision. Importantly, as in Lucia, the Court found that a new panel of PTAB judges must be designated to hear the inter partes review on remand to prevent a “rubber stamp” of the prior Board’s decision.

Lastly, the Court considered the impact on other pending IPR cases and appeals, noting “we see the impact of this case as limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal.”

Any questions? Our attorneys on the case can be reached by phone at (248) 988-8360 or at  the emails below:

David Atallah – datallah@cgolaw.com

Anthony Cho – acho@cgolaw.com

Jessica Fleetham – jfleetham@cgolaw.com

David Gaskey – dgaskey@cgolaw.com

 

[1] Edmond v. United States, 117 S. Ct. 1573 (1997)

[2] Lucia v. SEC, 138 S. Ct. 2044 (2018)