The Appointment Clause and the Power of Administrative Patent Judges
1.30.2023
In 2011, Congress enacted the Leah-Smith American Invents Act, which created proceedings called inter partes review permitting reexamination of already issued patents based on novelty and obviousness.[1] The proceedings are conducted by the Patent Trial and Appeal Board, an executive adjudicatory body that is part of the Patent and Trademark Office. In Arthrex v. Smith & Nephew, Inc.,[2] the U.S. Supreme Court held that the authority of administrative patent judges to issue decisions on behalf of the executive branch was not consistent with the appointment clause of the U.S. Constitution (appointment clause). As to the remedy, the court held that the Patent and Trademark Office director can review final Patent Trial and Appeal Board decisions and, upon review, may issue decisions on behalf of the board.[3] This article explores the Arthrex decision and its impact on conducting proceedings like inter partes review.
The Federal Circuit Panel’s Decision
In Arthrex, Arthrex, the patentee, sued Smith & Nephew, Inc. and its subsidiary ArthroCare Corp. for infringement of Arthrex’s patent, and Smith & Nephew responded to the infringement suit by seeking an inter partes review of some of the patent’s claims. The board’s panel, consisting of three administrative patent judges, conducted the review and issued a final written decision, holding that the claims were unpatentable as anticipated.[4] Arthrex appealed the board’s decision to the Federal Circuit, arguing that the appointment of the administrative patent judges by the secretary of commerce violated the appointment clause.[5]
The appointment clause authorizes only the president, with the advice and consent of the Senate, to appoint principal officers and permits Congress to vest power to appoint inferior officers in “the President alone, in the Courts of Law, or in the Heads of Departments.”[6]
In holding that the appointment of administrative patent judges violated the appointment clause, the panel concluded that the judges were principal officers who must be appointed by the president and confirmed by the Senate. The panel emphasized the three factors that distinguish principal officers from inferior officers: “(1) whether an appointed official has the power to review and reverse the officers’ decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official’s power to remove the officers.”[7]
The first factor favored principal officer status. The Federal Circuit explained that no principal officer had authority to review decisions made by administrative patent judges, and parties could only appeal to the Federal Circuit or could seek rehearing by the board.[8] Since the Patent Office’s director is one member of the board and board panels include at least three members, the director cannot single-handedly review, nullify or reverse a final written decision issued by a panel of administrative patent judges.[9]
As to the second factor, the panel held that the director could promulgate regulations under 35 U.S.C. § 316(a), issue policy directives, and hold the power of management supervision of the office under 35 U.S.C. § 3(a).[10] Also, the director can decide whether to institute inter partes review and can designate the panel of administrative patent judges who decide each review.[11] Accordingly, that power favored the patent judges’ status as inferior officers.
With regard to the third factor, the Federal Circuit held that the director’s power to appoint administrative patent judges to panels to conduct inter partes review was not the same as the power to remove administrative patent judges from judicial service without cause, and the director’s authority to remove judges from a review was not “nearly as powerful as the power to remove from the office without cause.”[12] Further, the panel held that the director or secretary’s power to remove judges was subject to the limitations under Title 5 that permitted removal for misconduct which “is likely to have an adverse impact on the agency’s performance of its functions.”[13]
After considering the factors together, the Federal Circuit held that administrative patent judges were principal officers and, therefore, the current structure of the board violated the appointment clause.[14]
As to the remedy, the Federal Circuit observed that severing the statute was proper when the rest of the statute was “(1) constitutionally valid, (2) capable of functioning independently, and (3) consistent with Congress’ basic objectives in enacting the statute.”[15] In severing the for-cause removal protections for judges, the court explained that Congress “intended for the inter partes review system to function” and “would have preferred a Board whose members are removable at will rather than no Board at all.”[16] In the court’s view, this approach is sufficient to remedy the violation because eliminating the restriction on removal of judges makes them inferior, rather than principal, officers and Congress intended such result.[17]
Since the appointment of the administrative patent judges when they issued a final decision was not constitutionally proper, the court vacated the board’s decision and ordered a new hearing before a different panel of judges.[18]
The Federal Circuit’s Rehearing En Banc
After the panel’s decision, Arthrex, Smith & Newman and the government requested rehearing en banc, which the Court of Appeals denied over three dissenting judges joined by four judges.[19]
Judge Moore said that rehearing en banc would implicate an efficient cure and would lead to an additional disruption because rehearing the case en banc would increase the potential number of cases that would require reconsideration on remand.[20] Also, he disagreed with Judge Dyk’s proposal that a reconsideration panel comprising the Patent and Trademark Office director, deputy director and commissioner of patents would comply with the appointment clause. He explained that 35 U.S.C. § 3(b)(2)(c) authorized the secretary of commerce to remove the commissioner of patents only for misconduct or non-satisfactory performance, and 35 U.S.C. § 3(c) could provide the deputy director removal protections under Title 5.[21]
Judge O’Malley did not agree with Judge Dyk’s opinion that actions taken by judges after severance, even if unconstitutional at the time, become constitutional nunc pro tunc.[22] He explained that judicial severance was not a remedy but “a forward-looking judicial fix.”[23] Also, in his view, the declaration of the fact that appointment of administrative patent judges was not constitutionally proper would not authorize reopening closed cases decided under that unconstitutional structure.[24] In other words, the Federal Circuit cannot give prospective-only effect to the court’s ruling “both as to the merits and as to the precise remedy.”[25]
In the dissenting opinion, Judge Dyk analyzed a history of removal protections provided to administrative patent judges under Title 5, concluding that elimination of removal protections under Title 5 conflicted with the intent of Congress.[26] Further, in his view, a rehearing panel consisting of the Patent and Trademark Office director, the deputy director and the commissioner of patents would comply with the appointment clause. First, the director was a principal officer appointed by the president and confirmed by the Senate.[27] Second, the deputy director and the commissioner of patents are inferior officers because the director supervises them.[28] Third, the presidentially appointed secretary of commerce can remove the deputy director because, when there is no constitutional or statutory provision with regard to removal of inferior officers, “the power of removal [is] incident to the power of appointment.”[29] Finally, under 35 U.S.C. § 3(b)(2)(C), the secretary of commerce has the authority to remove commissioners, including the commissioner of patents, for misconduct or unsatisfactory performance regardless of the provisions of Title 5 – an inherently at-will removal.[30]
Then, Judge Dyk said that the panel’s Title 5 protection remedy was correct, and a remand for a new hearing before a new panel was not required.[31] In his view, the general rule of retroactive effect for constitutional decisions applies to remedies as well, such as the remedy in Arthrex, and, therefore, the interpretation of the statute should be as if the judges are properly appointed, notwithstanding the unconstitutional removal provisions.[32] Judge Dyk suggested that the judges acted properly when they decided cases in the past, because no action of Congress was necessary to render the appointment of the judges constitutional.[33] Accordingly, the review of the past opinions of the board should be on the merits and a remand for a new hearing before a different panel is not required.[34]
Finally, Judge Dyk questioned whether administrative patent judges were principal officers. He criticized a panel’s characterization of the judges as principal officers because the distinction between “principal officers” and “inferior officers” based solely on agency supervision was erroneous.[35] In addition, Patent Trial and Appeal Board judges are not charged with formulation of agency policy, and their only role is to determine the facts in individual patent challenges under the America Invents Act, and they must follow the law as established by the Supreme Court and the Federal Circuit.[36]
In the opinion of Judge Hughes, the Supreme Court did not require that to qualify as an inferior officer, a principal officer should be able to unilaterally review and reverse the decisions of inferior officers, or remove them at will.[37] In addition, the Patent and Trademark Office director’s powers to supervise the Patent Trial and Appeal Board and remove administrative patent judges under the efficiency of the service standard provide political accountability related to important government assignments.[38] Also, Judge Hughes said that the long-standing employment protections provided to judges reinforces the conclusion that Congress intended for administrative patent judges to have removal protections, notwithstanding changes made to the board under the America Invents Act.[39]
Judge Wallach noted that Edmond v. United States taught that the appointment clause was “designed to preserve political accountability relative to important Government assignments,” and the current structure for appointing and removing administrative patent judges achieved that.[40] Further, in his view, the Patent and Trademark Office director’s authority to select judges for a panel and the authority to remove them for any reason strongly supports the proposition that administrative patent judges are inferior officers.[41]
Supreme Court Decision
Arthrex, Smith & Newman and the government successfully petitioned the Supreme Court to grant a writ for certiorari. The question presented was whether the authority of the board to issue decisions on behalf of the executive branch was consistent with the appointment clause and what the appropriate remedy was if it was not.
The Supreme Court distinguished administrative patent judges from inferior officers, noting that only the Patent Trial and Review Board could grant rehearing under 35 U.S.C. § 6(c), and, therefore, no superior executive officers could review the judges’ decisions.[42] The court rejected the argument by the government and Smith & Nephew that the Patent and Trademark Office director had the different means to indirectly influence the course of inter partes review, such as designation of administrative patent judges who could decide a specific case in the director’s preferred manner.[43] In the court’s view, such machinations were not consistent with accountability required under the appointment clause and did not leave the parties with the decisions for which “a politically accountable officer must take responsibility.”[44] Further, the director cannot nullify the already issued final decisions, nor can the secretary of commerce significantly control administrative patent judges by means of the threat of termination from federal service entirely, because he or she can remove them only for reasons that will promote the efficiency of the service.[45]
Then the court observed that founding-era congressional statutes and early decisions of the Supreme Court have shown that appropriate supervision included review of decisions issued by inferior officers and supported the conclusion that the unreviewable executive power of the judges was not consistent with their status as inferior officers.[46] Therefore, the court held that “the unreviewable authority wielded by administrative patent judges during inter partes review is incompatible with their appointment by the Secretary to an inferior office.”[47] The court noted that it did not try to set up an exclusive criteria to distinguish between principal and inferior officers for appointment clause purposes.[48] However, the court observed that Congress vested substantial authority in administrative patent judges to determine public rights of private parties while shielding their decisions from review and their officers from termination.[49]
With regard to the remedy, the court noted that the “power and duties” provision under the 35 U.S.C. § 3(a)(1) authorized the Patent and Trademark Office director to provide the different means of reviewing Patent Trial and Appeal Board decisions.[50] Therefore, the director may review final appeal board decisions and, upon the review, can issue decisions on behalf of the board.[51] Further, the court held that 35 U.S.C. § 6(c) was unenforceable to prevent the director from reviewing the decisions of the board on his own and the director could unilaterally engage in such review reaching his own decision.[52]
Finally, the court held that the proper remedy was a remand to the director to determine whether to rehear the petition filed by Smith & Nephew. It explained that under the Constitution, administrative patent judges appointed by the secretary of commerce lacked the power to resolve the matter, and the remand to the director would provide “an adequate opportunity for review by a principal officer.”[53] A hearing before a new panel of judges is not required since the constitutional violation came from the limitation on the review authority of the director not from the appointment of judges by the secretary.[54]
In his opinion, Justice Gorsuch agreed with the court’s finding of constitutional violation, but he disagreed with the remedy provided by the court. He found that some statutory provisions had authorized executive officers to cancel patents,[55] and some statutory provisions had made the exercise of that power unreviewable within the executive branch.[56] Accordingly, the combination of these provisions violates the constitutional separation of powers.[57] As to the remedy, Justice Gorsuch said that one way to solve the constitutional problem was to identify the constitutional violation, provided reasoning and set aside the board decision.[58] He observed that the court ignored the provision limiting the Patent and Trademark Office director’s power to review inter partes review decisions and granted the director a new power that Congress expressly withheld from the director and assigned to someone else.[59]
Justice Breyer disagreed with the court’s finding of the constitutional violation, and he agreed with the court’s remedy. First, in his view, the Constitution does not describe the level of control exercised by a principal officer over decisions of an inferior officer and the language of the appointment clause suggests that Congress has leverage in determining the nature of inferior officer’s duties, and courts must respect that.[60] He noted that the statutory provisions at issue fell within the patent power granted to Congress under Article I of the Constitution and these provisions did not violate the Constitution’s separation of powers.[61] Also, Congress’ scheme was consistent with the court’s appointment clause precedents and there was strong evidence that Congress designed the current structure to specifically address constitutional problems.[62]
Second, Justice Breyer believed that the functional approach, which considered purposes and consequences, would undermine the court’s decision. In his view, most agencies have the authority to reconsider prior decisions.[63] In addition, given the technical nature of patents, the need for expertise and the importance to avoid political interference led Congress to provide administrative patent judges some level of independence.[64] With regard to the remedy, Justice Breyer believed that any remedy could correct the constitutional violation and, since the court’s remedy addressed the specific defect in the statutory scheme, the court’s remedy was correct.[65]
In the dissenting opinion, Justice Thomas said that since the judges were lower in rank to the Patent and Trademark Office director and the secretary of commerce, the administrative patent judges were inferior officers.[66] He explained that the judges served in the Patent and Trademark Office run by the director, and the office was a part of the Department of Commerce directed by the secretary of commerce, who appointed the judges in consultation with the director.[67] He criticized the court’s emphasis on whether the director had the authority to individually reverse the board’s decisions to hold that administrative patent judges were principal officers.[68] In his view, there was no support in precedent or history for “boiling down ‘inferior-officer’ status to the way Congress structured a particular agency’s process for reviewing decisions.”[69]
Further, Justice Thomas noted that the court provided an incorrect remedy by rewriting the statute to vest in the director the power to review the board’s decisions.[70] In his view, if the judges are principal officers, then the court must vacate the board’s decision, because if appointment of an officer is not proper, then the appropriate remedy is a new hearing before a properly appointed officer, and, therefore, Arthrex is entitled to a new hearing before the properly appointed judge.[71] On other hand, if the judges are inferior officers, no remedy is required, because a panel of the judges is authorized to adjudicate the case and, since there is no constitutional violation, it is doubtful that the court has the authority to provide a remedy.[72]
Finally, in analyzing the founding-era history surrounding the inferior officer clause, Justice Thomas explored the three definitions of an inferior officer and concluded that the judges were inferior officers. Under the view called “tripartite system,” since the judges are neither heads of departments nor superior officers, they had to be inferior officers.[73] Under another view, inferior officers do not include ambassadors, other public ministers and consuls specifically identified in the Constitution, and since the judges are not officers specified in the Constitution, they are inferior officers.[74] The third view defined principal officers as heads of departments and defined inferior officers as lower in rank or subordinates to heads of departments, and since the judges are not the heads of any department, they are inferior officers.[75]
Impact of the Arthrex Decision
As result of the Arthrex decision, the Patent and Trademark Office initiated an interim procedure for the director’s review that can be initiated sua sponte by the director. Also, parties to Patent and Trial Appeal Board proceedings can request review. If the director initiates proceedings, the parties would be given notice and may be given an opportunity for briefing. The review by the director can address any issue “including issues of fact and issues of law and will be de novo.”[76] Further, consistent with the Arthrex decision, the Federal Circuit issued limited remands orders only for the purpose to give parties requesting the remand an opportunity to file the director’s review request.
Furthermore, after the Federal Circuit’s decision in Arthrex, Congress introduced the bill called the Trademark Modernization Act of 2020, which was enacted on Dec. 27, 2020. The bill has provisions authorizing the director to reconsider, modify or set aside decisions of the Trademark Trial and Appeal Board to avoid issues regarding authority of its judges to render decisions in trademark registration cases similar to issues raised in Arthrex.[77]
Eric Saparli is a patent attorney in Brooklyn, New York.
This article originally appeared in One on One, a publication of the General Practice Section (2022, vol. 43, no. 2). For more information about the General Practice Section, please go to NYSBA.ORG/GEN.
[1] 35 U.S.C. § 311.
[2] United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021).
[3] Id. at 1987.
[4] Arthrex v. Smith & Nephew, Inc., 941 F.3d 1320, 1326 (Fed. Cir. 2019), denied en banc, 953 F.3d 760 (Fed. Cir. 2020), vacated, United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021).
[5] Arthrex, 941 F.3d at 1325.
[6] U.S. Const. art. II, § 2, cl. 2.
[7] Arthrex, 941 F.3d at 1329 (quoting Edmond v. United States, 520 U.S. 651, 664–65 (1997); see also Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board, 684 F.3d 1332, 1388 (D. C. Cir. 2012)).
[8] Arthrex, 941 F.3d at 1329 (citing 35 U.S.C. §§ 6(c), 141(c), 319).
[9] Arthrex, 941 F.3d at 1330.
[10] Id. at 1331.
[11] Id. (citing 35 U.S.C. §§ 314(a), 6(c)).
[12] Arthrex, 941 F.3d at 1332–33.
[13] Id. at 1333 & n.5 (quoting Brown v. Department of the Navy, 229 F.3d 1356, 1358 (Fed. Cir. 2000)).
[14] Arthrex, 941 F.3d at 1335.
[15] Id. (quoting United States v. Brooker, 543 U.S. 220, 258–59 (2005)).
[16] Arthrex, 941 F.3d at 1337–38.
[17] Id. at 1338.
[18] Id. at 1338–39, 1340 (quoting Lucia v. SEC., 138 S. Ct. 2044, 2055 (2018) (“[h]e cannot be expected to consider the matter as though he had not adjudicated it before. To cure the constitutional error, another ALJ . . . must hold the new hearing.”).
[19] Arthrex, Inc. v. Smith & Nephew, Inc., 953 F.3d 760, 761 (Fed. Cir. 2020).
[20] Id. at 764–65.
[21] Id. at 765 and n.7.
[22] Id. at 766 (citing Reynoldsville Casket Co. v. Hyde, 514 U.S. 749, 759 (1995)).
[23] Arthrex, 953 F.3d at 767.
[24] Id. (quoting Reyonldsville, 514 U.S. at 759 (“New legal principles, even when applied retroactively, do not apply to cases already closed.”).
[25] Arthrex, 953 F.3d at 767.
[26] Id. at 771.
[27] Id. at 774 and n.8.
[28] Id. at 775.
[29] Id. at 774 and n.9 (quoting In re Hennen, 38 U.S. 230, 259 (1839)).
[30] Id. at 774–75 (citing 35 U.S.C. § 3(b)(2)(c)).
[31] Id. at 775.
[32] Id. at 777 (citing Marbury v. Madison, 5 U.S. 137, 178 (1803)).
[33] Arthrex, 953 F.3d at 777.
[34] Id.
[35] Id. at 780–81 (citing Morrison v. Olson, 487 U.S. 654, 671, 691 (1988); see also Aurelius Investment, LLC v. Puerto Rico, 915 F.3d 838, 860 (1st Cir. 2019)).
[36] Arthrex, 953 F.3d at 781.
[37] Id. at 782.
[38] Id. (citing Edmond v. United States, 520 U.S. 651, 663 (1997)).
[39] Arthrex, 953 F.3d at 788.
[40] Id. at 789 (citing Edmond, 520 U.S. at 663).
[41] Arthrex, 953 F.3d at 789 (citing 35 U.S.C. §§ 3(c), 6(c)).
[42] United States v. Arthrex, 141 S. Ct. 1970, 1981 (2021).
[43] Id.
[44] Id. at 1982.
[45] Id. (citing Seila Law LLC v. Consumer Financial Protection Bureau, 140 S. Ct. 2183, 2203 (2020)); see also 5 U.S.C. § 7513(a)).
[46] Arthrex, 141 S. Ct. at 1983.
[47] Id. at 1985.
[48] Id. (citing Edmond v. United States, 520 U.S. 651, 661 (1997)).
[49] Arthrex, 141 S. Ct. at 1986 (citing Buckley v. Valeo, 424 U.S. 1, 126 (1976)).
[50] Arthrex, 141 S. Ct. at 1987 (citing 35 U.S.C. §§ 3(a)(2)(A), 316(a)(4)).
[51] Arthrex, 141 S. Ct. at 1987.
[52] Id.
[53] Id. at 1987–88.
[54] Id. at 1988.
[55] 35 U.S.C. §§ 6(b)(4), 318(a).
[56] Arthrex, 141 S. Ct. at 1990 (citing 35 U.S.C. §§ 6(c), 318(b)).
[57] Arthrex, 141 S. Ct. at 1990.
[58] Id. at 1990–91 (citing Novartis AG v. Torrent Pharmaceuticals Ltd., 853 F.3d 1316, 1323–24 (Fed. Cir. 2017) (holding that the standard in 5 U.S.C. § 706 governs judicial review of PTAB decisions)).
[59] Arthrex, 141 S. Ct. at 1991.
[60] Id. at 1994.
[61] Id. (citing Buckley v. Valeo, 424 U.S. 1, 129 (1976) (per curiam); see also Metropolitan Washington Airports Authority v. Noise 60. Abatement Citizens, 501 U.S. 252, 277 (1991)).
[62] Id. at 1995 (citing In re DBC, 545 F. 3d 1373, 1377–80 (Fed. Cir. 2008) (explaining amendment to address defects in prior appointment process)).
[63] Arthrex, 141 S. Ct. at 1996.
[64] Id.
[65] Id. at 1997.
[66] Id. at 2000.
[67] Id. (citing 35 U.S.C. §§ 3(a)(2)(A), 1(a), 6(a)).
[68] Arthrex, 141 S. Ct. at 2002.
[69] Id. at 2002–03.
[70] Id. at 2006.
[71] Id. (citing Lucia v. SEC., 138 S. Ct. 2044, 2055 (2018)).
[72] Arthrex 141 S. Ct. 2006 (quoting Carney v. Adams, 141 S. Ct. 493, 498 (2020) (Article III prevents “the federal courts from issuing advisory opinions”)).
[73] Id. at 2007, 2009.
[74] Id. at 2007, 2009 (citing U.S. Const., art. II, § 2).
[75] Id. at 2008, 2009 (quoting United States v. Germaine, 99 U.S 508, 511 (1879) (“principal officer . . . is the equivalent of the head of department”)).
[76] Arthrex Q&As, USTPO, https://www.uspto.gov/patents/patent- trial-and-appeal-board/procedures/arthrex-qas (last visited June 2, 2022).
[77] Trademark Modernization Act of 2020, H.R. 6196, 116 Cong. § 8(a) (2020).
