“If APJs were not properly appointed yesterday, they cannot not magically be appointed properly today just because a court read their employment rights out of a statute without their representation. I believe this issue is far from resolved.” – Russell Slifer
The Federal Circuit’s decision in Arthrex, Inc. v. Smith & Nephew, Inc. generated excitement late last week, when many initially speculated that the Patent Trial and Appeal Board (PTAB) would not be able to continue operations as usual in light of the ruling. However, now that the dust has settled, it seems more likely that the effects of Arthrex will be limited to a small subset of cases. While USPTO Director Andrei Iancu could not comment directly during a panel at the John Marshall Law School’s 63rd IP Conference in Chicago on Friday as it is a pending matter, other panelists suggested that the Office would not be significantly burdened by the decision. USPTO guidance is likely to be issued soon.
Of course, the decision has not done much to bolster the already shaky reputation of the PTAB or its Administrative Patent Judges with some, and there are several scenarios in which the Federal Circuit’s quick fix to avoid shutting down the Board entirely might be challenged. Below are some early reactions to the ruling and predictions about how it may play out.
Brent Babcock, Womble Bond Dickinson
The next steps in this developing legal story remain uncertain. Smith & Nephew could seek a rehearing by the same Federal Circuit panel, as well as a rehearing en banc by the entire Federal Circuit. In addition, Smith & Nephew could appeal the Federal Circuit’s decision to the U.S. Supreme Court via a writ of certiorari. So, yesterday’s panel decision is not set in stone. In any event, in the near term, we can expect that the USPTO will issue guidance very soon on how the PTAB plans to implement the Federal Circuit’s Arthrex decision. In the wake of SAS Institute Inc. v. Iancu in 2018, the Federal Circuit issued guidance two days later.
What we do know, however, is that the Federal Circuit’s decision—if it remains law of the land—will likely have a significant impact of dozens of current cases in the “Arthrex window”. These are cases (a) in which the PTAB has issued a Final Written Decision (FWD), and (b) which still can (or already have) timely introduce(d) an Appointments Clause challenge at the Federal Circuit. Notably, the Federal Circuit found that Arthrex’ s failure to make such a challenge with the Board did not constitute a waiver of that argument because “the Board could not have corrected the [Constitutional] problem.”
The USPTO will likely take whatever corrective measures are necessary to ensure that all current and future APJs’ appointments are Constitutional (viz., such that their removal can be at the will of the Director). For cases in which the PTAB panel has not yet issued a FWD, the PTAB’s corrective APJ appointment measures should cure this particular Constitutional problem going forward. For cases in the “Arthrex window,” however, the impact will probably be considerably greater. The PTAB will likely assign a new panel of different APJs and set a new date for a second final hearing, unless those changes are waived by both parties.
Like with the SAS Institute decision, these interim impacts will be significant on dozens of cases, but the practical impacts will be only temporary. Once the “Arthrex window” cases have moved through the system, the PTAB practice should remain essentially unchanged, both substantively and procedurally. It will nonetheless be interesting for future commentators to evaluate whether these interim impacts from the Arthrex decision result in any substantive changes in the outcomes of the affected cases.
Matthew Dowd, Dowd Scheffel PLLC
The Arthrex decision offers some for all sides and is a bit of a Rorschach test in terms of effects moving forward. For those who have been fighting against what they see as PTAB abuses, this decision confirms the fundamentally unconstitutional structure of the PTAB. For those who see the PTAB as an efficient venue for cancelling patents that, in their view, never should have issued, the decision is a minor obstacle to that process. The Federal Circuit panel tried to limit the impact of this decision to other pending PTAB cases when it wrote: “[W]e 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.” But it is not clear if the impact will be so limited. First, to what extent will parties moving forward be permitted to raise the same issue? In pending appeals before the Federal Circuit, parties will likely be able to raise the issue, but what if the opening brief was already filed? Will the court deem the issue waived? That would seem to be a harsh result for “an issue of exceptional importance,” as the panel put it. Also, the panel’s prescribed remedy seems open to attack. Is it sufficient for a new PTAB panel to re-decide the case on remand on the existing written record, as the court indicated? For instance, the court noted the “significant discretion” of the APJs when holding that the APJs are not inferior officers. That “significant discretion” includes evidentiary decisions during the [America Invents Act] proceeding—some of which may be critical to the proceeding’s outcome and the final written decision. If an “unconstitutional” PTAB panel made a case-dispositive evidentiary ruling, why should a later “constitutional” PTAB panel be bound by that decision? These are just some of the unanswered legal questions created by Arthrex.
Stephen Kunin, Maier & Maier
It appears that until such time as the statute can be revised by Congress and signed into law to correct the current constitutional infirmity, the USPTO must treat APJs as at will employees who are not subject to the Title 5 employment protections available to other federal employees in order for APJs to continue to decide AIA trials. It would not surprise me if the Department of Commerce and the OPM will have to intervene and provide guidance to the USPTO on what it must do and how to do it. The consequence, as I see it, if this is the outcome, is that those in the patent community who have an axe to grind may see this as an opportunity to publicly campaign for the removal of certain APJs who they are displeased with for whatever reason. I can see this as having an adverse impact on APJ morale. It also will put pressure on the USPTO to formulate new personnel policies for handling complaints while still treating APJs fairly. I wish that there was a better solution through a quick and easy fix to the Appointments Clause problem, but the decision thoroughly addressed the options and the arguments of the government and applied a patch that ultimately puts APJs at risk. I am not sure that seeking Department of Justice approval to seek certiorari will necessarily be successful in overturning this decision. Also, note that one possible solution under 35 USC 6 is to have three of the Director, the Deputy Director, the Commissioner for Patents, and the Commissioner for Trademarks review and ratify the APJ decisions in AIA trials.
Josh Malone, Bunch O’ Balloons
Now we will see if Director Iancu is serious about restoring integrity to the patent system. If less than 100 APJs are out of a job by the end of the year, cronyism is here to stay. We are prepared to convene panels of three inventors to hold a hearing for each APJ to show cause why they shouldn’t be fired.
Paul Morinville, US Inventor
This is good news and bad news. Iancu now has the opportunity to rid the PTAB of judges who are totally anti-patent. However, patents will now swing in value with every new president and USPTO Director. I have to ask the folks who support the PTAB, is this good public policy?
Russell Slifer, Schwegman Lundberg & Woessner
The panel appeared to limit the consequences of its decision by holding it to a narrow class of cases. Specifically, the decisions states that: “We have decided only that this case, where the final decision was rendered by a panel of APJs who were not constitutionally appointed and where the parties presented an Appointments Clause challenge on appeal, must be vacated and remanded. Appointments Clause challenges are ‘nonjurisdictional structural constitutional objections’ that can be waived when not presented. Thus, 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.”
It is how the court decided to correct the statute’s constitutional problem that should raise concern for the USPTO. The court held that 35 U.S.C. § 3(c)’s provision that USPTO officers and employees are subject to Title 5 cannot constitutionally be applied to Board members with respect to that Title’s removal restrictions, and thus must be severed. In other words, the court decided to sua sponte remove statutory employment protections from APJs, without their representation, to correct a different statutory problem.
35 USC 3(c) states that “Officers and employees of the Office shall be subject to the provisions of title 5, relating to Federal employees.” This is a clear unambiguous statute that does not need judicial interpretation. Title 5 shall apply to all employees of the USPTO. What could be clearer?
If the USPTO believes that the court’s remedy of limiting 35 USC 3(c) to only some USPTO employees is a proper solution to solving the unconstitutional appointment of APJs, the PTAB can simply wait for the court to remand all appealed final decisions that properly appealed the APJs appointment. But what happens if this panel was wrong? What if the narrowest viable approach to remedying the violation of the Appointments Clause is not to deny the APJs their rights? Perhaps the narrowest approach would be to address the statute, which was deemed unconstitutional. After all, the decision found a two-pronged problem in the lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs, combined with limited removal power, make APJ’s principal officers. The better solution would be for Congress to grant the Director the right to overrule a Final Decision.
Every post-grant case will now include an appointments challenge on appeal and the USPTO cannot rely on this decision to correct the statutory deficiency. If APJs were not properly appointed yesterday, they cannot not magically be appointed properly today just because a court read their employment rights out of a statute without their representation. I believe this issue is far from resolved.
Robert Stoll, Drinker Biddle
As a patent attorney, this is outside my wheelhouse, but NOW they make this ruling? Shouldn’t this have happened before thousands of PTAB cases were handed down?
Jonathan Stroud, Unified Patents
The Federal Circuit showed admirable restraint in making this narrow change to what statutory removal protections apply to APJs. While it is sure to be another administrative headache for Director Iancu and the Board—depending on how lenient other panels are with waiver—it is clear there was nothing the agency could have done to address these concerns. It was a statutory defect that only the Federal Circuit could solve, and in the end the tweak simply gives the Director the power to remove APJs directly, while recognizing the import of the fairness and expertise the three-judge process affords.
Gene Quinn, IPWatchdog
Clearly, the panel was attempting to prevent Pandora’s Box from opening with respect to past decisions of an unconstitutionally constituted PTAB by saying that this argument, unlike jurisdiction, can be waived. Those who did not raise the constitutional infirmity of the PTAB are out of luck even though those “judges” of the PTAB were never proper judges in the first place. That has to be a nightmare scenario for the Patent Office, and a very difficult pill to swallow for those who lost their patents on decisions made by those who had no business being PTAB judges in the first place.
Similarly, the panel prevented Pandora’s Box from opening by fixing the statute rather than finding the statute unconstitutional. By making APJs removeable at will by the Director of the USPTO, they are, in the view of the panel, inferior officers who do not need Presidential nomination and confirmation by the Senate.
Still, this is a significant decision for all patent owners with pending cases before the PTAB or on appeal to the Federal Circuit. It is imperative that every patent owner challenge the constitutionality of the panel rendering the decision under the Appointments Clause, otherwise the argument is waived. This opens up further argument about whether APJs really are exempt from the Appointments Clause.
In short, this decision will shine much-needed light on the practices and procedures of the PTAB and the tribunal’s cavalier attitude toward the work product of examiners and rights of patent owners. It also has the byproduct of making APJs employees at will who can be removed by the Director, which is a power that could become quite handy should Director Iancu find it necessary to remove judges who refuse to play by the rules of the Office.
John White, Berenato & White
This decision is the result of Congress wanting to save the Judiciary the burden of dealing with “bad patents”. It created a sham quasi-judicial proceeding within the USPTO. The APJs were and are and will remain accountable to no one. This proposed “severance” regarding removal does little; the prospect of removal for anything other than gross malfeasance is extremely remote. But, nevertheless, good for the CAFC to see through this; but too late for those who have had their patents butchered through this unconstitutional IPR process. Well, better late than never I suppose.
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