United States: Arthrex's Aftermath

This article analyzes United States v. Arthrex, in which the Supreme Court found PTAB judges (sometimes dubbed as the "patent death squad") unconstitutionally appointed in violation of the Appointments Clause, along with its broader political and congressional impact ex ante. In particular, the article focuses on Arthrex's actual and practical aftermath ex post in the three months since its issuance, including an analysis of the 120 pending appeals at the Federal Circuit with a similar Appointments Clause challenge and the Acting USPTO Director's 15 director review denials.

I. United States v. Arthrex

On June 21, 2021, the Supreme Court ruled in Arthrex that PTAB judges, who are appointed under the Appointments Clause as inferior Officers and have traditionally wielded "unreviewable authority" during IPR to cancel patents, have unconstitutionally acted as principal Officers. Pursuant to the AIA, PTAB judges are appointed by the Secretary of Commerce and not confirmed by the Senate, which has a constitutional defect in that appointment because they issue opinions on behalf of the government in cases involving patents potentially worth "[b]illions of dollars." The power to speak for the government, however, is reserved for principal Officers (such as Article III judges), who are nominated by the President and confirmed by the Senate. The Court fixed this constitutional defect by making PTAB judges' unreviewable authority reviewable by the USPTO Director.

Arthrex's facts are straightforward. In 2015, Arthrex, Inc., a medical device company, sued Smith & Nephew, Inc. for patent infringement in the Eastern District of Texas. A year later, Smith & Nephew filed an IPR to challenge the validity of Arthrex's patent, and in May 2018, the PTAB invalidated Arthrex's patent. Arthrex appealed, arguing that PTAB judges were unconstitutionally appointed. The Federal Circuit agreed, ruling that the proper remedy was to remove PTAB judges' tenure protections and remand for a new hearing at the PTAB—an outcome which "satisfied no one." Arthrex, Smith & Nephew, and the government asked the Supreme Court to weigh in. Arthrex argued for the overturn of the PTAB's invalidity decision. Both Smith & Nephew and the government argued that PTAB judges were constitutionally appointed but disagreed on the remedy if the court were to find an Appointments Clause defect.

Writing for the conservative majority, Chief Justice Roberts examined Supreme Court precedent explaining the distinctions among inferior-officer, principalofficer, and no-officer-at-all. In Edmond v. United States, the Court found that Coast Guard Court of Criminal Appeals judges, appointed by the Secretary of Transportation, were inferior officers because they had "no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers." Principal officers, in contrast, have the power to issue decisions in the name of the government and are insulated from executive review.

Applying Edmond to the PTAB, five justices concluded that PTAB judges' unreviewable power to cancel patents conflicted with the Appointments Clause's aim of "preserv[ing] political accountability" to the public through a clear "chain of command" from the President down. To guarantee "accountability" for the appointees' actions, the Appointments Clause places the nomination power with the President so the "blame of a bad nomination would fall upon the president singly and absolutely." But neither the President himself nor those he directly controls can oversee the PTAB, rendering the "chain of command" constitutionally defective. Although the USPTO Director outranks the PTAB and "has various ways to indirectly influence the course" of IPR, the Director lacks the critical ability to override the PTAB's significant power to cancel issued patents. Moreover, because PTAB judges are only removable with good cause, the Court found that the Secretary of Commerce could not "meaningfully control [PTAB judges] through the threat of removal." In short, PTAB judges were insulated from the executive oversight constitutionally required for principal Officers.

To impose such an oversight, seven justices voted to rewrite the statute, 35 U.S.C. § 6(c), and judicially convert these principal Officers to inferior Officers by giving the Director discretionary power to unilaterally and directly review the PTAB's IPR decisions, while effectively leaving the existing PTAB system in place and not vacating existing IPR decisions. The Director's review would follow the "almost-universal model of adjudication in the Executive Branch" and align the PTAB with the TTAB. "Because the source of the constitutional violation is the restraint on the review authority of the Director, rather than the appointment" of PTAB judges by the Secretary of Commerce, Arthrex and others similarly situated are not entitled to a hearing before a new PTAB panel. The majority expressly limited its narrow holding to only IPR and declined to address the Director's supervision over other types of PTAB adjudications, including the examination process for issuing patents.

II. Arthrex's Impact Ex Ante

Arthrex has expanded the Director's power to review the PTAB's IPR cases and reach her own decisions. As Justice Gorsuch's dissent suggested, the new power creates risk that the Director, as a political appointee, may be politically motivated—or perceived as politically motivated—to cancel patents that carry with them significant financial or social consequences. This puts more pressure on the currently unfilled Director post in the Biden Administration. It is not difficult to imagine lobbying campaigns aimed to influence the future or Acting Director's decisions. Recent examples of patents at potential risk include those related to COVID vaccines. Not to put too fine a point on it, but patents have become less free of political influence than they might have been in the past.

Situating Arthrex in the context of the Supreme Court's patent jurisprudence in the last 20 years, this case sends a strong message that patent adjudication is not special in the administrative state and reaffirms the long-observed pattern of no patent exceptionalism in the justices' eyes. More broadly, Arthrex has provided a clear roadmap for Congress to rethink current regulatory regimes and design adjudicative regimes in the future: outside of patent law, Arthrex's ruling may upend a handful of adjudicative agencies with internal administrative-law bodies that have final decision-making authority like the PTAB, such as the Department of Health and Human Services, the Department of Labor, and the Social Security Administration. Under Arthrex, those administrative law judges are, like PTAB judges, appointed as inferior Officers, but arguably may be unconstitutionally acting as principal Officers. These potential appointment defects may lead to future constitutional challenges based on the Appointments Clause (as well as the Vesting Clause), including those unresolved by Arthrex (e.g., the broader constitutional question of whether PTAB judges must be removable at will by the agency head—the Secretary of Commerce).

III. Arthrex's Aftermath Ex Post

While Arthrex has resolved Arthrex's IPR appeal, confusion remains as to how Arthrex would affect other pending appeals at the Federal Circuit, each of which has a similar constitutional challenge but a different procedural posture. Two days after Arthrex's issuance (June 23), the Federal Circuit stayed all deadlines in 120 pending appeals with an Appointments Clause challenge and ordered the appellants to explain, within 14 days, "how they believe their cases should proceed" and other parties, including the USPTO, to respond.

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The article was originally published in Mealey's Litigation Report: Intellectual Property and Mealey's Litigation Report: Patents.

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