All Parties in Arthrex Want the Full Federal Circuit to Render a Better Decision

By Eileen McDermott
December 18, 2019

“If the surviving part of the statute results in ‘an effect altogether different from that sought by the measure viewed as a whole,’ severance is not appropriate.” – From Arthrex petition

https://depositphotos.com/38780871/stock-photo-gavel-with-constitution-and-flag.htmlOn December 16, the U.S. Government, Arthrex, Inc., and Smith & Nephew, Inc. each submitted petitions for rehearing and/or rehearing en banc asking the full Federal Circuit to reconsider its October 31 ruling in Arthrex v. Smith & Nephew, Inc, which made Patent Trial and Appeal Board  (PTAB) judges “inferior officers” under the U.S. Appointments Clause, in order to skirt the problem that they had been unconstitutionally appointed under the America Invents Act. Many have criticized the quick-fix approach.

The case stems from Arthrex, Inc.’s appeal from the final written decision of the PTAB holding certain claims of its U.S. Patent No. 9,179,907 unpatentable as anticipated. On appeal, Arthrex argued that the appointment of the PTAB’s Administrative Patent Judges (APJs) by the Secretary of Commerce violated the Appointments Clause of the U.S. Constitution. The Court somewhat surprisingly agreed and remedied the problem by simply “severing any ‘problematic portions while leaving the remainder intact,’” as outlined in Free Enterprise Fund v. Public Company Accounting Oversight Board and Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board.

An Insufficient Solution

Arthrex in its petition told the Court that it overlooked two key constitutional arguments it had made in its opening brief:

  1. that Congress would not have enacted the IPR statute without tenure protections for APJs.
  2. that APJs are principal officers because they have the power to issue Final Written Decisions absent meaningful review by an officer nominated by the President and confirmed by the Senate.

In a nutshell, Arthrex argues in its petition that because independence, impartiality, the power to issue Final Written Decisions, and tenure protections are all inextricable elements of the statute governing inter partes review proceedings, “striking the removal provisions would thus lead to a statute that Congress would have refused to adopt.” The petition continues: “Though the Arthrex panel severed one provision in an effort to address the constitutional concerns, the statute cannot be saved and must be ruled unconstitutional. Accordingly, the Final Written Decision here must be vacated and the case dismissed.”

Arthrex notes that the standard for severability laid out in Alaska Airlines, Inc. v. Brock is that a statute may be severed unless “it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not.” If the surviving part of the statute results in “an effect altogether different from that sought by the measure viewed as a whole,” severance is not appropriate. Given the similarity of IPRs to district court litigation, Congress could not have intended to allow for APJs who lack impartiality and independence, says the petition. Arthrex further argues that the severance remedy does not solve the constitutional defect because Final Written Decisions still are not reviewable by other executive officers. “Nothing in the IPR statute empowers the Director to review and reverse the Final Written Decisions of APJs,” says the petition.

Everything Was Already Fine 

Smith & Nephew’s request for rehearing en banc rests on the argument that APJs already were inferior officers and should not have been held principal officers, necessitating the severance approach, to begin with. The Federal Circuit’s ruling was contrary to Supreme Court precedent articulated in Lucia v. SEC; Free Enterprise Fund v. Public Co. Accounting Oversight Bd.; and Edmond v. United States, argues Smith & Nephew. “The panel subordinated the Supreme Court’s central concern with supervision to considerations of whether Senate-confirmed officers could remove APJs at will or reverse individual decisions,” says the petition.

Smith & Nephew goes on to argue that the USPTO Director’s supervisory role over APJs actually “ensures robust political accountability” by controlling APJ assignments and whether to institute IPRs at all, controlling whether institutions proceed to Final Written Decisions, etc. The Court rewrote the Edmond holding as a “rigid three-part test” and overlooked the parallel between the Director’s ability to remove APJs from panels and the facts of the Edmond case, in which the Court said that because military judges could be removed from their judicial assignment without cause, this weighed in favor of finding them inferior officers.

Ultimately, argues Smith & Nephew, the Court should grant rehearing either to confirm that APJs are inferior officers, making any remedy moot, or to decide on the appropriate solution if APJs are found by the full court to still be principal officers. Such a finding would necessitate consideration of two questions, as articulated in the pending Polaris Innovations Ltd. v. Kingston Tech. Co case at the Federal Circuit:

 – First, does a judicial order striking APJs statutory removal protections suffice to “convert” them into inferior officers?
– Second, must final decisions from panels of APJs who were subject to those removal protections be vacated and remanded for additional proceedings?

The Court Must Correct the Panel’s Legal Errors

The U.S. government’s petition for rehearing en banc acknowledges that the panel decision at issue “addresses a novel constitutional question of far-reaching significance for the Nation’s patent system.” The petition says that the panel made “several important legal errors” in its analysis and the full court must review the decision in order to correct them.

First, the panel incorrectly held that APJs were principal officers by “asserting without explanation” that the Director’s authority to select and remove APJs to serve on PTAB panels, thus enabling the Director to effectively remove an APJ from judicial duties, was “immaterial.” “The panel thus effectively read a constitutional problem into, rather than out of, the statute,” writes the government.

Secondly, the panel ruled on this important constitutional issue in an altogether inappropriate case, argues the government, because the patent owner waived its Appointments Clause challenge by failing to present it to the Board. And lastly, these errors were compounded by the panel’s decision to remand the case for a new hearing by a new panel of APJs, which the government says is “sweeping relief” that is reserved only for timely Appointments Clause challenges. “Even were there some constitutional defect, Arthrex’s failure to raise the issue earlier should have constrained the decision whether and how to vacate and remand,” says the petition.

Furthermore, there are other remedies available if the USPTO does think there is a constitutional problem. For instance, the USPTO could have “adopted a saving construction of the statute,” had Arthrex initially presented the issue, and decided not to institute the IPR in the first place.

Rehearing should be granted, and the panel opinion should be reversed to avoid chaos, argues the government:

If the panel’s holding and remand rule hold sway, hundreds of PTAB decisions could be remanded for adjudication before new PTAB panels, a massive undertaking imposing significant costs on the public fisc and impeding the agency’s ability to complete IPR proceedings promptly.

Arthrex is sure to make for an interesting 2020, since constitutional law scholars seem to agree that the Supreme Court will be interested in the facts of the case, even if the Federal Circuit refuses to grant the petitions.

See more on this case at the links below:

The USPTO Wants a Rehearing in Arthrex: Now is the Time to Put the PTAB on Trial

Witnesses Tell House IP Subcommittee, “It’s Up to You” to Fix Arthrex

One Way or Another, Arthrex Promises to Put the PTAB on Trial

Constitutional Law Scholars Weigh in on Arthrex

It Matters: A Former Administrative Patent Judge’s Take on Arthrex

What’s Next After Arthrex? Reactions Suggest Limited Immediate Effect, But Some Question Whether CAFC Fix Will Hold

 

Image Source: Deposit Photos
Image ID: 38780871
Copyright: alancrosthwaite 

 

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 5 Comments comments. Join the discussion.

  1. TR December 18, 2019 2:18 pm

    Well Summarized: “Given the similarity of IPRs to district court litigation, Congress could not have intended to allow for APJs who lack impartiality and independence, says the petition.”

    The U.S. Gov’t’s argument about “avoid[ing] chaos” ignores the chaos that is going on at the PTAB. The left foot is dropping. It’s time for the PTAB to enter its “rebuilding phase” before this race to the bottom goes any further.

  2. Anon December 19, 2019 7:56 am

    When ALL parties want a decision changed “to be correct,” we are still guaranteed that at least one party will say that any changed decision is still NOT correct.

  3. Jam December 19, 2019 11:23 am

    I am surprised that there has not been a larger outcry to use this to repeal the AIA.

  4. Anon December 19, 2019 1:53 pm

    Jam,

    There have been in-depth discussions here (mainly) about whether or not one or more specific amendments to include a savings clause were reliable enough to invoke the will of Congress in regards to severability.

    A possible second instance (to me) was clearly NOT sufficient for that purpose — but I do advance that the quickness of that item’s offering and retraction may well have been merely intended as a smokescreen cover for a possible first removal.

    Someone (with power) may have realized the possible viability or problem with that first attempt and wanted to plant an obvious “fake” that would serve as a lightening rod.

    Do note that absent any indication, there is a default presumption OF severability.

  5. Carrie Hafeman December 19, 2019 2:15 pm

    Do any of the earlier signatures from the PTAB judges who determined outcomes not be valid? Just wondering.

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