United States: Judges Disagree On Arthrex, But Rehearing Vote Fails

On March 23, 2020, the Federal Circuit denied rehearing and rehearing en banc in Arthrex. Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-2140, Order Denying Rehearing and Rehearing En Banc, Dkt. 115. The court held in Arthrex that PTAB judges—called administrative patent judges or APJs—were principal officers appointed in violation of the Constitution. The denial for rehearing is accompanied by five separate opinions that include two concurrences and three dissents. The dissenting and concurring judges disagree fundamentally on whether APJs were principal officers—as the original Arthrex panel held—and whether severing removal protections for APJs was a proper fix to the Appointments Clause issue.

The Five Opinions

Judge Moore wrote the first concurrence, joined by Judges O'Malley, Reyna, and Chen, where she defended her opinion in Arthrex in three parts. Concurrence at 1–2 (Moore, J., concurring). First, Judge Moore wrote, the opinion in Arthrex was consistent with precedent in determining APJs were principal officers because APJs render final decisions and were not freely terminable by the Director of the USPTO. Id. at 3. Second, the remedy of severing removal protections was the right remedy. That is so because severance is a minimal solution to the constitutional problem, vacatur was only available in a limited number of cases, and legislative intervention is still available if Congress prefers a different solution. Id. at 4–7. Third, the solution provided in Arthrex is superior to granting a stay and waiting for Congress to act as suggested in Judge Dyk's dissent. Id. at 8–9.

Judge O'Malley wrote the second concurrence, joined by Judges Moore and Reyna. In her concurrence, Judge O'Malley discussed whether the solution of severing removal protections for APJs applied only to PTAB decisions after Arthrex (prospectively) or also to decisions before Arthrex (retroactively). Concurrence at 2–6 (O'Malley, J., concurring). Judge O'Malley argued against retroactive application of the Arthrex holding and reviewed the law governing the retroactivity principle. Id.

Judge Dyk wrote a substantial dissent with three parts, joined by Judges Newman, Wallach, and Hughes (in part). Dissent at 2–6 (Dyk, J., dissenting). First, Judge Dyk wrote, removal protections for APJs should not be severed. Id. at 2–14. The constitutional problem should instead be solved with a rehearing panel implemented by the USPTO or a legislative fix from Congress—and the case should be stayed in the interim. Id. Second, the solution of severing removal protections presented in Arthrex applies retroactively if, for the sake of argument, it is the proper solution. Id. at 14–24. Third, APJs are likely not principal officers. Id. at 24–25. Judge Dyk's dissent is detailed and thorough in its arguments, particularly as to the first and second parts, and provides substantial ammunition for a possible petition for the Supreme Court's review. Judge Dyk previously dissented from application of Arthrex in Bedgear, LLC v. Fredman Bros. Furniture Company, Inc., No. 18-2082 (Fed. Cir. 2019), and Judge Newman previously dissented in Sanofi-Aventis Deutschland GmbH v. Mylan Pharmaceuticals Inc., No. 19-1368, -1369 (Fed. Cir. 2019).

Judge Hughes wrote the second dissent, joined by Judge Wallach. In the first and main part of his dissent, Judge Hughes argued APJs are inferior officers because the Director of the USPTO has significant power to direct and supervise, because precedent does not require a principal officer who can review and reverse inferior officers, and because APJs were already subject to removal by the Director "in a constitutionally significant manner." Dissent at 2–13 (Hughes, J., dissenting). In the second part, Judge Hughes argues that the intent of Congress was not adequately considered in preparing the solution in Arthrex and that it should be left to Congress to craft the solution. Id. at 13–14. Judge Hughes, joined by Judge Wallach, previously criticized Arthrex in a concurrence in Polaris Innovations Ltd. v. Kingston Technology Co., Inc., No. 18-1831 (Fed. Cir. 2020).

Judge Wallach wrote the third dissent. Judge Wallach briefly argued that APJs were inferior officers all along. Dissent at 1–4 (Wallach, J., dissenting). He focused on the Director's powers of supervision and control. Id.

Chief Judge Prost and Judges Lourie, Taranto, and Stoll did not join any of the opinions.

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