In Ethicon Endo-Surgery, Inc. v. Covidien LP, a 2-1 panel split of the Federal Circuit held that neither the American Invents Act ("AIA") nor the Constitution precludes the same panel of the Patent Trial & Appeal Board ("PTAB" or "Board") from both deciding whether to institute an inter partes review ("IPR") of a challenged U.S. Patent and making the final patentability determination in that IPR.

Under the AIA, an IPR validity challenge can hinge on two major determinations: whether to institute a requested IPR trial, and, if the IPR is instituted, whether the challenged claims were proven unpatentable during that IPR trial. Under the United States Patent and Trademark Office's ("PTO") current implementation of the AIA, both of these determinations are typically made by the same Board panel of three Administrative Law Judges.

Consistent with that implementation, when Covidien petitioned the PTO for inter partes review of Ethicon patent claims, the same Board panel decided to institute the IPR and then issued a final written decision finding the challenged Ethicon patent claims unpatentable.

On appeal, Ethicon contended that (1) the Board was not authorized to make the institution decision; and (2) the AIA and due process require that the decision to institute not be made by the same panel of the Board that makes the final decision on patentability. Ethicon argued that the AIA gives the power of determining whether to institute an IPR to the Director of the PTO, who may not delegate that power to the Board. And, according to Ethicon, the statutory text and structure of the AIA, guided by constitutional principles of due process, require that the decision to institute an IPR not be made by the same panel of the Board that makes the ultimate decision. Ethicon argued that because the panel of the Board is first exposed to a limited record consisting of the petition and patent holder's preliminary response, there is a risk that the panel may prejudge the case before seeing a full record, thereby depriving a patent holder of a due process right to an impartial decision maker. Ethicon asserted the statute must be construed to preclude the Director from delegating the decision to institute to the same panel of the Board that makes the final decision to avoid these constitutional concerns.

The Federal Circuit panel majority disagreed with Ethicon. Judge Dyk concluded, joined by Judge Taranto, that "as a matter of inherent authority and general rulemaking authority, the Director had authority to delegate the institution decision to the Board." The majority also found that "[t]here is nothing in the Constitution or the statute that precludes the same Board panel from making the decision to institute and then rendering the final decision."

According to the majority, where there are no other separate procedural-fairness infirmities alleged, the PTO's assignment of the institution and final decisions to one panel of the Board does not violate due process under governing Supreme Court precedent. In Withrow v. Larkin, the Supreme Court held that there was no due process violation and found that combining the investigative and adjudicatory functions in a single body does not raise constitutional concerns. The majority then reasoned that the PTO combining the decision to institute with the final decision in a single Board panel is less problematic. Because the single Board panel is performing only adjudicatory functions—and not investigative and/or prosecutorial functions—according to the majority, "the inter partes review procedure is directly analogous to a district court determining whether there is 'a likelihood of success on the merits' and then later deciding the merits of a case."

Judge Newman dissented, stating that "[t]he statute requires that these proceedings be separated, the first decision required to be made by the Director, and the second decision made by the Board." She explained:

The "institution step" is a carefully designed threshold, whereby only meritorious challenges will be considered. And as a safeguard of administrative objectivity, the legislation divided the functions of institution and trial in separate bodies within the PTO.

Judge Newman likewise faulted the majority's analogy to a district court's preliminary determination of whether there is "a likelihood of success on the merits" for purposes of responding to a request for preliminary injunction. According to Judge Newman, such district court decisions are inapposite because they are immediately subject to appeal.

Based on the panel split, be on the lookout for an en banc rehearing.

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